Econ T1 (Ch. 1-4)

According to the law of demand there is an inverse relationship between price and quantity demanded. That​ is, the demand curve for goods and services slopes downward.​ Why? A. When the price of a good​ increases, consumers' purchasing power​ falls, and they cannot buy as much of the good as they did prior to the price change. B. When price​ increases, quantity demanded increases. C. When the price of a good​ increases, consumers purchase complementary goods that are now relatively less expensive. D. A and C only.

A

According to the law of​ demand: A. there is an inverse relationship between price and quantity demanded. B. when the price of a product​ increases, quantity demanded will increase. C. when the price of a product​ falls, quantity demanded will decrease. D. All of the above.

A

Market price is determined by A. both supply and demand. B. supply only. C. demand only. D. neither supply nor demand.

A

Opportunity cost is A. the highest valued alternative that must be give up to engage in an activity. B. when consumers and firms use all available information as they act to achieve their goals. C. when unlimited wants exceed the limited resources available to fulfill those wants. D. the idea that because of​ scarcity, producing more of one good or service means producing less of another good or service.

A

The Scottish philosopher Adam Smith argued in 1776 that A. prices would do a better job of coordinating the activities of buyers and sellers than guilds could. B. prices would do a better job of coordinating the activities of buyers and sellers than markets could. C. unions would do a better job of coordinating the activities of buyers and sellers than prices could. D. guilds would do a better job of coordinating the activities of buyers and sellers than prices could.

A

C

A movement from Upper A to Upper represents: A. movement up the demand curve B decrease in demand C. change in quantity demanded D. change in demand

C

A movement from Upper B to Upper C represents: A. change in quantity supplied B. movement down the supply curve C. change in supply D. decrease in supply

A free market exists A. only in fiction. There are no markets or economies which even come close to approaching the status of a free market. B. when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. C. when the government places absolutely no restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. D. when the government places significant restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.

B

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when: A. marginal cost is zero. B. marginal benefit equals marginal cost. C. marginal benefit is greater than marginal cost. D. marginal benefit is maximized.

B

Microsoft charges a price of​ $599 for a copy of Windows. Is this pricing decision​ rational? A. We cannot assume that this pricing decision was rational because we do not have enough information to make an assumption. B. When we assume the managers at Microsoft have used all available information and have weighed all known benefits and​ costs, we are assuming rationality. C. ​Microsoft's choice cannot be​ rational: the price is clearly more than most people are willing and able to pay. D. Microsoft's choice was​ rational: the price will maximize profit.

B

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls: A. the market. B. scarcity. C. economics. D. rationality.

B

The primary difference between absolute and comparative advantage is A. absolute advantage can never change while comparative advantage depends on the relative cost of a​ good's resources. B. absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost. C. absolute advantage refers to the ability to produce a good or service at a lower opportunity cost and comparative advantage refers to the ability to produce more of a good or service using the same amount of resources. D. absolute advantage is a concept that was utilized in communist countries and comparative advantage is a capitalist idea.

B

A perfectly competitive market is a market that meets the conditions of A. ​(1) many buyers and​ sellers, (2) all firms selling identical​ products, and​ (3) significant barriers to new firms entering the market. B. (1) many buyers and​ sellers, (2) all firms selling differentiated​ products, and​ (3) no barriers to new firms entering the market. C. (1) many buyers and​ sellers, (2) all firms selling identical​ products, and​ (3) no barriers to new firms entering the market. D. (1) few buyers and​ sellers, (2) all firms selling identical​ products, and​ (3) no barriers to new firms entering the market.

C

A production possibilities frontier​ (PPF) is A. a curve that illustrates the demand of two goods for the average consumer. B. a curve showing the generally attainable combinations of two products that may be produced with all planned or​ potential, yet undeveloped technology. C. a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. D. a curve that shows the potential productive capabilities of the frontier​ (defined as the area outside of​ cities) of a developing economy.

C

Consider the following​ statement: ​"An increase in supply decreases the equilibrium price. The decrease in price increases​ demand." The statement is A. ​false: increases in supply decrease price. B. true: increases in supply decrease price. Decreases in price increase demand. C. ​false: decreases in price affect the quantity​ demanded, not demand. D. false: increases in supply increase price. Decreases in price increase demand.

C

Consumer and producer surplus measure the​ _____ benefit rather than the​ _____ benefit. A. ​marginal; additional B. ​subjective; objective C. ​net; total D. total; net

C

Economic efficiency is A. a market outcome in which the marginal benefit to consumers of the last unit produced is greater than its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. B. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is not at a maximum. C. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. D. a government outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

C

Firms choose how to produce the goods and services they sell. In many​ cases, firms face a​ trade-off between using more workers or using more machines. For​ example, A. movie studios have to choose whether to produce animated films using more highly skilled animators to draw them by hand or fewer highly skilled animators and more​ low-skill animators. B. many times in the past several​ decades, firms may have chosen between a production method in the United States that uses fewer machines and more workers and a production method in China that uses more machines and fewer workers. C. many times in the past several​ decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines. D. a local service station has to choose whether to provide car repair services using more diagnostic computers to support their auto mechanics and fewer tools to support their auto mechanics or more tools to support their auto mechanics and fewer diagnostic computers to support their auto mechanics.

C

Property rights are A. the rights individuals or firms have to the exclusive use of their property within individual culturally defined norms which are inconsistent in each area of the United States. B. the rights individuals or firms have to the exclusive use of their​ property, excluding the right to buy or sell it. C. the rights individuals or firms have to the exclusive use of their​ property, including the right to buy or sell it. D. the rights government has to the exclusive use of all​ property, including the right to buy or sell it.

C

The distinction between substitutes and complements is A. when income​ increases, demand for a substitute good increases while demand for a complementary good falls. B. substitute goods are used together while complementary goods are used for the same purposes. C. substitute goods are used for the same purposes while complementary goods are used together. D. when income​ increases, demand for a complementary good decreases while demand for a substitute good increases.

C

​Trade-offs force society to make​ choices, particularly when answering the following three fundamental​ questions: A. ​One, what goods and services will be produced​ domestically? Two, how will the goods and services be​ produced? Three, is the distribution of goods and services​ fair? B. One, what goods and services will be produced in foreign​ countries? Two, who will produce the goods and​ services? Three, who will receive the goods and services​ produced? C. One, what goods and services will be​ produced? Two, how will the goods and services be​ produced? Three, who will receive the goods and services​ produced? D. ​One, what goods and services will be​ produced? Two, how will the goods and services be​ produced? Three, is the distribution of goods and services​ fair?

C

D

Consider the figure to the right and assume that it is the market for​ health-care services. When the​ "baby boomer" generation​ retires, the number of people who require health care increases by​ 30%, and, as a​ result, the number of​ health-care providers also​ increases, but by only​ 25%. What is the effect on the price of​ health-care services over​ time? A. It increases because demand increased by less than supply. B. It decreases because demand increased by less than supply. C. It decreases because demand increased by more than supply. D. It increases because demand increased by more than supply.

According to the law of​ supply, A. there is a positive relationship between price and quantity supplied. B. as the price of a product​ increases, firms will supply less of it to the market. C. as the price of a product​ increases, firms will supply more of it to the market. D. A and C only

D

Economics is a social science because A. it applies the scientific method to the study of the interactions among individuals. B. it is based on studying the actions of individuals. C. it considers human behaviorlong dash particularly ​decision-making behavior. D. all of the above.

D

Equity is A. always achieved by the market. B. an exactly equal distribution of income. C. when poorer​ people's income is growing more rapidly than more wealthy​ people's income. D. the fair distribution of economic benefits.

D

One of the great benefits of trade is A. that it makes it possible for society to become better off by increasing its production but not its consumption. B. that it provides society what it desires most in life even if it does not enhance the means for achieving its goals. C. that it makes it possible for society to become better off by increasing its consumption. D. that it makes it possible for society to become better off by increasing both its production and its consumption.

D

The distinction between a normal and an inferior good is A. normal goods are used together while inferior goods are used for the same purposes. B. normal goods are used for the same purposes while inferior goods are used together. C. when income​ increases, demand for a normal good decreases while demand for an inferior good increases. D. when income​ increases, demand for a normal good increases while demand for an inferior good falls.

D

The primary difference between product markets and factor markets is that A. product markets produce goods for final sale while the output of factor markets is included in the purchase price of the good itself-factors are not sold. B. product markets are generally after factor markets in the distribution chain. C. product markets are markets for factors of production-​labor, ​capital, natural​ resources, and entrepreneurial​ ability, while factor markets are markets for goods and services. D. product markets are markets for​ goods, while factor markets are markets for factors of production-​labor, ​capital, natural​ resources, and entrepreneurial ability.

D

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives, A. the policies are likely to be more successful than policies that cost firms​ more, but they do not recognize economic incentives. B. the policies are futile because where the environment is​ concerned, it has been repeatedly shown that firms do not respond to economic incentives. C. pollution is likely to increase. D. the policies are consistent with economic incentives.

D

C

Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the diagram to the​ right, deadweight loss is equal to the​ area(s): A. ​A, B,​ & C. B. A. C. C​ & E. D. B​ & D.

C

In the diagram to the​ right, point A provides the​ _____, point B the​ _____, and point C the​ _____. A. equilibrium​ price; market​ equilibrium; surplus B. market clearing​ price; equilibrium​ point; shortage C. equilibrium​ price; market​ equilibrium; equilibrium quantity D. equilibrium​ price; surplus or​ shortage; equilibrium quantity

shortage, 56

In the diagram to the​ right, when the price is ​$29 per​ player, the amount of the _______________ is ______ million players per month.

A

In the diagram, movement along the curve from points A to B to C illustrates A. increasing marginal opportunity costs. B. constant marginal opportunity costs. C. decreasing marginal opportunity costs. D. reflexive marginal opportunity costs.

B

In the diagram, point G represents: A. inefficient result B. unattainable result C. efficient result

C

The production possibilities frontiers depicted in the diagram illustrate: A. technological advances in the automobile industry. B. technological advances in both the tank and automobile industries. C. technological advances in the tank industry. D. increases in both the labor force and capital stock.

C

The production possibilities frontiers depicted in the diagram illustrates: A. technological advances in the tank industry. B. the likely result of a ground war. C. both the labor force and capital stock increasing. D. both the labor force and capital stock decreasing.

shortage, rise, rise

When demand increases, a _______________ develops at the original price. Equilibrium price will ________ and equilibrium quantity will _________ as a new equilibrium is established.

surplus, fall, rise

When supply increases a ___________ develops at the original price. Equilibrium price will _______ and equilibrium quantity will _______ as a new equilibrium is established.

D

Which of the following events would cause the supply curve to decrease from Upper S 1 to Upper S 2​? A. An increase in the number of firms in the market. B. Lower expected future prices. C. Upper A decrease in the price of inputs. D. An increase in the price of inputs.

D

Which of the following would cause a shift in the demand curve from point A to point​ B? A. An increase in income​ (normal good). B. A decrease in income​ (inferior good). C. An increase in the price of a substitute good. D. All of the above.

D

Your neighbor's consumption point after trade is illustrated by point:

producer, B

_______________ surplus is the difference between the lowest price a firm would be willing to accept and the price it actually receives. This component of economic surplus is illustrated in the diagram to the right by area ________.

consumer, A

________________ surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram to the right by area ____.

comparative advantage

ability of an individual, firm, or a country to produce a good at lower opportunity cost than competitors

absolute advantage

ability of an individual, firm, or country to produce more of a good than competitors using the same amount of resources

economic growth

ability of the econ to increase the production of goods and services

marginal cost

additional cost to a firm of producing one more unit of a good

centeris paribus

all else equal

trade-off

bc of scarcity producing one goods means producing less of another

marginal benefit

benefit to a consumer for consuming one more unit of a good

voluntary exchange

buyer and seller are better off from transaction

Trade

buying and selling

substitution effect

change in price making a good more or less expensive relative to other goods that are substitutes.

Income effect

change in quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power

demographics

characteristics of a population with respect to age, race, and gender

The basis for trade is __________________ advantage.

comparative

marginal analysis

comparing marg benefits with marg costs

positive analysis

concerned with what is, unbiased

normative analysis

concerned with what should be, biased

Production Possibilities Frontier

curve showing the max attainable combo of 2 products produced with average resources and current tech

inferior good

demand increases as income falls

normal good

demand increases as income rises

producer surplus

difference between lowest price a firm would be willing to accept for a good and the actual price it receives

consumer surplus

difference between the highest price a consumer is willing to pay and the lowest price

equity

fair distribution of economic benefits

complements

goods and services that are used together

substitutes

goods and services that can be used for the same purpose

centrally planned economy

government controls resources

mixed economy

government, households, and firms share resources

opportunity cost

highest valued alternative must be given up

market economy

households and firms control resources

law of supply

increases in price cause increases in the quantity supplied

factors of production

inputs used to make goods and services

perfectly competitive market (3 conditions)

many buyers and sellers, all firms selling identical products, no barriers to new firms entering the market

competitive market equilibrium

market equilibrium with many buyers and sellers

factor market

market for factors of production

product market

market for goods and services

economic efficiency

market outcome in which marg benefit to consumers of the last unit produced is equal to marg cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

free market

market with few government restrictions

price ceiling

max price sellers can charge

A price ceiling is a legally determined ____________ price that sellers may charge. A price floor is a legally determined ______________ price that sellers may receive.

maximum, minimum

economic variable

measurable and can have different values

price floor

min price sellers can receive

circular flow diagram

model illustrates how households, factor markets, firms, and product markets are linked

technological change

positive or negative change in the ability of a firm to produce a given level of output with a given level of inputs.

productive efficiency

production at lowest possible cost

allocative efficiency

production is in accordance with consumer prefs

market equilibrium

quantity demanded equals quantity supplied

shortage

quantity demanded is greater than quantity supplied

surplus

quantity supplied is greater than quantity demanded

deadweight loss

reduction in economic surplus resulting from a market not being in competitive equilibrium

property rights

rights individual or firm has to exclusive use of their property including the right to buy or sell

economic model

simplified version of reality used to analyze econ situations

entrepreneur

someone who operates a business bringing together the factors of production

economics

study of choices people make to attain their goals given scarce resources

macroeconomics

study of economy as a whole

microeconomics

study of how households and firms make choices and how the government attempts to influence them

economic surplus

sum of consumer surplus and producer surplus

scarcity

unlimited wants exceed limited resources

law of demand

when price falls, quantity demanded will rise. when price rises, quantity demanded will fall.