Econ Pre Test 1
All of the following are ways the government can correct positive externalities except
imposing positive taxes
Demand curves are drawn with determinants other than the price of the good held constant. the other determinants, called ceteris paribus conditions, are (1)_________, (2)__________, (3)__________, (4)__________, and (5)___________ at any given price. If any one of these determinants changes, the demand curve will shift to the right or to the left. A change in demand comes about only because of a change in the ____________ conditions of demand. This change in demand is a shift in the demand curve to the left or to the right. A change in the quantity demanded comes about when there is a change in the price of the good (other things held constant ). such a change in quantity demanded involves a ____________ a given demand curve.
1. Income 2. Taste and preferences 3. prices of related goods 4. expectations about future prices and incomes 5. the number of potential buyers in the market Ceteris Paribus Movement Along
Suppose that the price of a pair of shoes is $5 and the price of a box of tea is $3. What is the relative price of a pair of shoes? What is the relative price of a box of tea?
1.667 ; 0.600
The equilibrium price for pizza is $_____ and the equilibrium quantity is _____ pizzas. Chart; price : 4 - 14 , QD : 180-130, QS : 90-190
10, 150
Now suppose that the supply increases such that the quantity supplied increases by 60 more pizzas at every price . The new equilibrium price is $____ and the new equilibrium quantity _____ pizzas Chart; price : 4 - 14 , QD : 180-130, QS : 90-190
6, 170
What happens in the market with an upward sloping supply curve when there is a shift in the demand curve due to an external shock?
A new equilibrium price will be achieved over some period of time
Which of the following will cause an outward (rightward) shift in supply?
A technological improvement
If the number of firms in an industry decreases, the supply curve will shift to the right A change in which of the following will result in a shift of the supply curve
False All of the above
Shortages and scarcity are the same thing A shortage occurs when quantity demanded is ___________________ than quantity supplied at a price _____________ the market clearing price
False Greater, below
Markets which are temporarily out of equilibrium will always return to equilibrium immediately.
False
When both supply and demand curves change, the outcome is definite for both equilibrium price and equilibrium quantity
False
When the _________ curve shifts outward or inward with an unchanged __________ curve, equilibrium price and quantity increase or decrease, respectively. When the __________ curve shifts outward or inward given and unchanged __________ curve, equilibrium price moves in the direction opposite to equilibrium quantity. When there is a shift in demand or supply, the new equilibrium price is not obtained ____________ Adjustment _________________
Demand Supply Supply Demand Immediately takes time
There are simultaneous changes in the demand for and supply of tablet devices, with the consequences being an unambiguous decrease in the equilibrium quantity of these devices but no change in the market clearing price. What changes in the demand for and supply of tablet devices could have generated these outcomes
Demand decreases and supply decreases
There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous increase in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these outcomes?
Demand increases and Supply decreases
What if the increase in demand were smaller than the increase in supply
Equilibrium price falls and quantity rises
A rise in demand is represented by a leftward shift in the demand curve, and a fall in demand is represented by a rightward shift in the demand curve
False
Market failure refers to a situation where a market economy collapses
False
A change in a good's own price leads to a change in supply, which shifts the supply curve. Whenever there is a change in a ceteris paribus condition there will be a change in ___________, which is represented by a __________.
False Supply; Shift in the entire supply curve
Identify which of the following would generate a decrease in the market demand for e-book readers, which are a normal good. I. An increase in the price of downloadable apps utilized to enhance the e-book reading experience, which are complements II. An increase in the number of consumers in the market for e-book readers III. A decrease in the price of tablet devices, which are substitutes IV. A reduction in the income of consumers of e-book readers
I, III, and IV
Consider a nation with a government that does not provide people with property rights for a number of items and that falls to enforce the property right it does assign for remaining items. Externalities would be ________ common in this nation than in a country such as the United States.
More
Suppose that you are investigating the market for wheat. The price of corn, a substitute good, has decreased. Which of the following would best be describe the market reaction to this event?
The demand for wheat decreases, which creates a surplus of wheat, causing the price of wheat to decrease
What if the increase in demand were larger that the increase in supply
The equilibrium price and quantity increase
Suppose that at first price of bag of coffee is $10 and the price of a box of tea is $6. Then, the price of a bag of coffee changes to $20 and the price of a box of tea changes to $14. What has happened the money prices and relative prices of these two goods?
The money price of a bag of coffee and a box of tea have risen and the relative price of a bag of coffee has fallen while relative price of a box of tea has risen.
Based on the table above, which of the following is true? Table; Hospital Room $200 > $225 Hotel Suite $300 >325
The money prices of both goods increased, the relative price of hospital rooms increased, and the relative price of hotel suites decreased.
The market for corn is initially in equilibrium. Suppose the production of biofuels, which use corn as an input , decreases, and at the same time, decreases in the price of oil cause farm production costs to fall. Which of the following explains the effect on equilibrium price and quantity in the corn market?
The price of corn will fall, but the effect on equilibrium quantity cannot be determined without more information
Last year, the price of chicken was $6 per pound and the price of fish was $7 per pound. This yea, the price of chicken is $10 per pound and the price of fish is $11 per pound. All other things equal, and assuming that Brian purchased both items before, what would you expect to happen to his purchases of chicken (relative to fish) this year?
The relative price of chicken has increase, so Brian would be expected to purchase less.
A market supply curve is derived by summing the individual producers' supply curves
True
At equilibrium, there is neither excess quantity supplied nor excess quantity demanded
True
Consumer sovereignty means that consumers have the individual freedom to decide what they wish to purchase
True
A change in a good's own price leads to a change in quantity demanded for any given demand curve Whenever there is a change in a ceteris paribus condition there will be a change in _________________, which is represented by a __________________
True Demand, shift in the entire demand curve
A market demand curve by summing (at each price) the individual quantities demanded by all buyers in the market. A demand schedule gives a schedule of __________ quantities demanded per time dimension at ___________
True Alternative, different possible prices
Which of the following good is an inferior good?
When consumer income increases, the demand for eggs decreases
Which of the following will cause the demand curve to shift?
a change in consumer income
Consider in the graph to the right the demand curve for bananas. The movement from point A to point B could have been caused by
a decrease in the price of bananas
There is normally ________ relationship between price and quantity of a good supplied, other things held constant The _________ curve normally shows a direct relationship between price and quantity supplied The _________________ curve is obtained by horizontally adding individual supply curves in the market
a direct supply market supply
The Law of Supply states that there is ___________ relations ship between the price and _________________________
a positive ; the quantity supplied
All of the following will decrease the supply of airline flights except
a technological change that makes airplanes safer and more fuel-efficient
Indicate whether the following events would cause an "increase or a decrease in demand" or an "increase or a decrease in the quantity demanded" for a cable-based internet access service, which is a normal good a. Firms providing wireless (an alternative to cable) internet access services reduce their prices. This will cause a(n) b. Firms providing cable-based internet access reduce their prices. This will cause a(n) c. There is a decrease in the incomes earned by consumers of cable-based internet access services. This will cause a(n) d. Consumers' tastes shift away from using wireless internet access in favor of cable-based internet access services
a. Decrease in demand b. Increase in quantity demanded c. Decrease in demand d. Increase in demand
Consider the market for economics textbooks. Explain whether the following events would causes an increase or a decrease in supply or an increase or a decrease in the quantity supplied a. The market price or paper increase. This will cause a(n) b. The market price of economics textbooks increases. This will cause a(n) c. The number of publishers of economics textbooks increases. This will cause a(n) d. Publishers expect that the market price of economics textbooks will increase next month this will cause a(n)
a. decrease in supply b. increase in quantity supplied c. increase in supply d. decrease in supply
Assume that the cost of aluminum used by soft-drink companies increases. Indicate which of the following statements describing the resulting effects in the market for soft drinks distributed in aluminum cans are true (T) or false (F) a. The demand for soft drinks decreases b. The quantity of soft drinks demanded decreases c. The supply of soft drinks decreases d. The quantity of soft drinks supplied decreases
a. f b. t c. t d. f
A supply schedule of _________ quantities supplied per time dimension at
alternative; different possible prices
Which of the following is consistent with the law of supply
an increase in the market price of MP3 players causes an increase in the production of MP3 players
Suppose that the U.S. government determines that cigarette smoking creates social costs not reflected in the current market price and equilibrium quantity of cigarettes. A study has recommended that the government can correct for the externality effect of cigarette consumption by paying farmers not to plant tobacco used to manufacture cigarettes. It also recommends raising the funds to make these payments by increasing taxes on cigarettes. These actions by the government lead to all the following outcomes, except
an increase in the negative externality caused by cigarette smoking.
The relative price of any commodity is its price in terms of
another commodity
The law of demand states that
as price increases, quantity demanded decreases, all other things equal
The law of supply states that
as price increases, quantity supplied increases, all other things equal
The quantity of oil storage supplied nationwide at current prices has been
below the space demanded by oil producers
Suppose that paper is necessary to produce books. If the price of paper rises, the supply curve of
books shifts to the left
According to the same example in the book, medical research has shown that grapefruit juice can reduce the effectiveness of certain medications. however there is also evidence that grapefruit consumption can lower cholesterol in young people. The net effect on demand from these two findings
cannot be determined because they have opposite effects on demand
When both supply and demand decrease, the equilibrium price ___________ and the equilibrium quantity ____________
change in uncertain ; decreases
According to the text, firms encounter rising cost s when they attempt to produce more in the same time period. As a consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is
direct (or positive) and is called the law of supply
According to the law of supply, the quantity supplied of any commodity is ___________ related to its price, other things being equal
directly
If the demand and supply curves increase (shift outward) by identical proportions then
equilibrium price stays the same and quantity rises
A cost or benefit of an economic activity that has an impact on an impact on an individual's well-being, even thought the individual was not directly involved in the activity, is knowing as a(n)
externality
A cost or benefit of an economic activity that has an impact on an individual's well-being, even though the individual was not directly involved in the activity, is known as a(n)
externality
A surplus occurs when quantity supplied is ___________ then quantity demanded at a price____________ the market clearing price.
greater, above
If demand increases while supply remains unchanged, the equilibrium price of the product will _________ and the equilibrium quantity will __________
increase ; increase
According to the law of demand, the quantity demanded of any commodity is ___________ related to its price, other things being equal
inversely
If producers have to pay external costs, the supply curve will shift to the _______, and if consumers take external benefits into account, the demand curve will shift to the __________
left, right
According to the law of supply, as the price of the good increases , it causes a (The Law of Supply)
movement upward along the supply curve
Increases in oil storage prices could be required to induce owners of aged storage tanks to increase the quantity of tank storage space supplied because
owners must incur expense to refurbish storage tanks
According to the example in the book, medical research has shown that grapefruit juice can adversely affect the effectiveness of certain medications. This is likely to affect the demand for grape fruit because
people will buy less grapefruit because their tastes and preferences have changed
When demand decreases and the (upward sloping) supply curve remains in the same position
price falls and equilibrium quantity falls
When supply increase and the (downward-sloping) demand curve remains in the same position
price falls and equilibrium quantity rises
At the market equilibrium price
quantity demanded equals quantity supplied
Thus, as the price increases, the (The Law of Supply)
quantity supplied by firms increases
People often complain about price gouging after a natural disaster. Suppose the government imposed limitations on price increase in the aftermath of a disaster. One would expect
reconstruction to take longer because the quantity supplied of new materials would increase more slowly
For substitutions, a change in the price of a product will cause a change in demand in the _______ direction for the other good. For complements, a change in the price of a product will cause a change in demand in the ______ direction for the other good.
same, opposite
Market failure occurs because
the market system does not make individuals responsible for the social cost/benefits of their actions
The more flexible prices are,
the more quickly a shock to the economy can be absorbed
After a government implements a voucher program, granting funds that families can spend at schools of their choice, numerous students in public schools switch to private schools. Parents' and students' valuations of the service provided at both private public schools adjust to equality with the true market price of educational services. As a result of this voucher program
the public schools will lose
As more new domestic oil production has occurred, demand for oil storage space has increased because
the traditional means of domestic transport have proved insufficient to handle the expanded flow of domestic oil production
