Econ review practice midterm 1

The price elasticity of demand for new cars is 1.2. Hence, a 10 percent price increase will

decrease the quantity of new cars demanded by 12 percent.

Along a straight-line demand curve, as the price falls the

demand becomes less elastic.

If the marginal cost of producing EV cars decreases, then the efficient quantity of EV cars to produce ________.

increases

When the opportunity cost of producing more of a good is increasing, the marginal cost of producing more of the good is

increasing

Using the average price and average quantity, what is the elasticity of demand for oranges when the price of oranges changes from $200 to $160 per bushel and so the quantity demanded changes from 1000 to 1400 bushels?

1.5

Betty and Ann live on a desert island. With a day's labor, Ann can produce 6 fish or 4 coconuts; Betty can produce 3 fish or 1 coconut. Betty's opportunity cost of producing 1 fish is ________, and she should specialize in the production of ________.

1/3 coconut per fish; fish

If it is impossible to prevent someone from benefiting from a good regardless of whether or not the person paid for it, then the good is

Non-excludable.

What are the two features of a public good?

Non-rival and non-excludable

Which of the following statements regarding the production possibilities frontier is TRUE?

Points inside the frontier are attainable.

Food is an example of a ________ good.

Rival and excludable

If a market is NOT in equilibrium, then which of the following is likely to occur?

The price will adjust to bring the market to equilibrium.

Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to over $5.00 per gallon. Unlike in the 1970s when oil prices spiked, there were no long lines outside gas stations. Why?

There was no price control on gasoline at the time.

The United States uses tax funds to build and repair the interstate highway system and to provide health care services via Medicare. Suppose Medicare services are on the horizontal axis and highway miles are on the vertical axis of a PPF. If the government decides to reduce funding to Medicare, this change would be shown as

a movement up along the PPF.

Which of the following would not shift the demand curve for beef?

a reduction in the price of cattle feed

If the quantity demanded exceeds the quantity supplied, then there is

a shortage and the price is below the equilibrium price.

When a sales tax is imposed on sellers, the supply curve shifts so that the vertical distance between the old and the new supply curve equals the

amount of the sales tax.

A movie shown on a pay-per-view cable station is an example of

an excludable and non-rival good.

If the government restricts the selling of corn so that the quantity is less than the equilibrium quantity, then the policy I. creates a deadweight loss. II. decreases total surplus.

both are correct

Deadweight loss can be the result of

both overproduction and underproduction.

Which of the following does not prevent markets from reaching efficiency?

competitive markets

If resources are used efficiently, then ________.

consumer surplus plus producer surplus is maximized

Suppose we observe that both the equilibrium price of Apple IPhones and the equilibrium quantity of Apple IPhones have increased. Which of the following events could be responsible for this?

consumers' preferences changed in favor of Apple IPhones

The circular flow model shows that households use income for:

consumption, taxes, and saving.

The demand for computer chips is a downward sloping straight line. If there is an increase in the supply of computer chips, this change will

decrease the price elasticity of demand for computer chips.

"Last October, due to an early frost, the price of a pumpkin increased by 10 percent compared to the price in the previous Halloween seasons. As a result, the quantity demanded county-wide decreased from 2 million to 1.5 million." Based on this statement, the

demand for pumpkins is elastic.

The equilibrium price is the price at which the quantity

demanded equals the quantity supplied.

Variables that a model tries to explain are called:

endogenous

A free-rider is someone who creates an external benefit.

enjoys the benefits of a good without paying for it.

A public good can be consumed by

everyone simultaneously, even if they do not pay for it.

Variables that a model takes as given are called:

exogenous

In the circular flow model, households receive income from the ______ market and save through the ______ market.

factor, financial

If a technological advance takes place in the computer industry, then the equilibrium price of a computer will ________ and the equilibrium quantity will ________.

fall; increase

As income rises, the share of income spent on food in the United States

falls

If the demand for hamburgers decreases, the equilibrium price

falls and the equilibrium quantity decreases.

The price elasticity of demand ________ in value when moving downward along a ________ line demand curve.

falls; straight

If policy makers believe that the equilibrium wage rate is too low, policy makers can raise wages by legislating a minimum wage, that is, a wage

floor above the equilibrium wage.

technological change

generates economic wealth

A surplus occurs when the price is

greater than the equilibrium price.

Price controls encourage black markets because:

individuals can profit by illegal exchanges.

If a consumer is relatively insensitive to changes in the price of a good, then the consumer's demand for the good is

inelastic

If a product has very few substitutes, demand elasticity is likely to be

inelastic

When the percentage change in quantity demanded is less than the percentage change in price, the demand for the good is ________.

inelastic

A deadweight loss

is a loss inflicted on the entire society.

A price ceiling will have no effect if:

it is set above the equilibrium price.

Demand is price inelastic if a relatively ________ price increase leads to a relatively ________ in the quantity demanded.

large, small decrease

A rise in the price of a good causes producers to supply more of the good. This statement illustrates

law of supply

The "law of demand" is illustrated by a

leftward shift of the demand curve.

An example of a price floor is a

minimum wage

A decrease in the quantity supplied is represented by a

movement down the supply curve.

Joe likes peanut butter and jelly sandwiches for lunch. We can conclude that for Joe the cross elasticity of demand for peanut butter with respect to jelly is

negative because jelly and peanut butter are complements.

Free-riders are not a problem in the market for a private good because

non-payers can be excluded from consuming the good.

For a good to be non-rival, then

one person's consumption of that good does not decrease another person's consumption of that good.

When we choose a particular option, we must give up alternative options. The highest-valued alternative forgone is the ________ of the option chosen.

opp. cost

Which of the following influences does NOT shift the supply curve?

people deciding that they want to buy more of the product

The price elasticity of supply is calculated as the

percentage change in quantity supplied divided by the percentage change in price.

The worst drought in over 50 years has decimated crops of soy beans and corn in the United States. (Source: New York Times, August 10, 2012). Because the production of corn has decreased, prices are expected to increase by 25 percent. These data are insufficient for calculating the elasticity of demand because we also need to know the

percentage decrease in quantity.

Marvin loves chocolate truffles. As the price of a chocolate truffle increases from $1 to $2 to $3, Marvin continues to buy a dozen chocolate truffles every week. Marvin's demand for chocolate truffles is ________.

perfectly inelastic

Blue pens and black pens are close substitutes. The cross elasticity of demand for black pens with respect to the price of blue pens is ________.

positive

The income elasticity of demand is

positive for a normal good and negative for an inferior good.

The producer surplus from a good is equal to the

price of the good minus its opportunity cost of production summed over the quantity sold.

A shortage causes the

price to rise

Production efficiency means that

producing more of one good is possible only if the production of some other good is decreased.

Santa Monica, is considering building a sand barrier to protect the houses on the beach from future hurricanes. For residents of Santa Monica, this barrier system would be a

public good

When consumption of a good is non-rival and non-excludable, the good is a

public good

The income elasticity of demand is a measure of the responsiveness of the

quantity of a good demanded to changes in income.

When a price floor is in place keeping the price above the market price, what's larger: quantity demanded or quantity supplied?

quantity supplied

Elasticity measures the

responsiveness of a variable to a change in another variable.

Private goods are those for which consumption is

rival and excludable

A normal good is defined as a good for which the demand curve

shifts rightward as income increases.

The law of demand implies that demand curves

slope down

Which of the following is the BEST example a public good?

stop sign

Producers of EV cars are able to lower the wage rate that they pay to their workers. You predict that the

supply curve will shift rightward.

If a 1 percent decrease in the price of a pound of squash results in a larger percentage decrease in the quantity supplied

supply is elastic.

If a 1 percent decrease in the price of a pound of oranges results in a smaller percentage decrease in the quantity supplied

supply is inelastic.

If the quantity of Apple IPhones supplied is 10 million per year and the quantity of Apple IPhones demanded is 8 million per year, there is a ________ in the market and the price will ________.

surplus, fall

A sales tax imposed on sellers shifts the supply curve leftward for the taxed good because the

tax is paid by the seller to the government and is, therefore, like a cost of production.

Comparative advantage is

the ability to perform an activity at a lower opportunity cost than anyone else.

A tradeoff is illustrated by

the negative slope of the PPF.

If the price of salt increases and the quantity demanded does not change, then

the price elasticity of demand is equal to zero and demand is perfectly inelastic.

Demand is inelastic if

the price elasticity of demand is less than 1.

Producers' total revenue will increase if

the price rises and demand is inelastic.

The price elasticity of demand measures

the responsiveness of the quantity demanded to a change in price

At the efficient level of production, ________.

there is no deadweight loss

Suppose an economy is currently producing at a point inside the production possibility frontier. We know that

there may be unemployment in the economy.

Which job exists in part because time-sensitive wealthy individuals want to pay someone else to wait in line for them?

ticket scalpers