Econ Test 1

A rich person does not experience scarcity.

false

Scarcity is best defined as when the quantity demanded exceeds quantity supplied.

false

a technological advance in the production of automobiles will:

increase the supply of automobiles

Figure: Gains from Trade) As demand increases from D 1 to D 2, total surplus:

increases by 27.50

When a price ceiling is imposed, the result is:

inefficiency

If the price of a product falls by 25%, and the quantity supplied falls by 25%, we can say that the elasticity of supply is:

inelastic

Figure: Gains from Trade) What is the total surplus in this market when the demand curve is D 1?

$62.50

Figure: Gains from Trade) What is the total surplus in this market when the demand curve is D 2?

$90

If the price of chocolate-covered peanuts decreases from $1.10 to $0.90, the quantity demanded increases from 180 bags to 220 bags, and other things are unchanged, the price elasticity of demand using the midpoint method is:

1

Figure: Demand for Shirts) Using the midpoint method, the absolute value of the price elasticity of demand as the price falls from $30 to $20 is:

.71

(Figure: Biscuits and Cookies PPFs) Greg and Melissa face the production possibilities frontiers shown for biscuits and cookies. When Greg completely specializes in producing the good he has a comparative advantage in, he produces:

0 biscuits and 200 cookies

The total consumer surplus for Good X can be calculated in all except one of the following ways. Which is the exception?

1. the area bounded by the demand curve for x and the 2 axes

Figure: Wheat and Autos in the United States and Korea) According to the graph: the united states should

1. the united states should import cars and export wheat

Suppose that in Japan one worker can produce either four cars or five tons of grain per year. What is the opportunity cost of producing one car in Japan?

1.25 tons of grain

Figure: Demand for Shirts) Using the midpoint method, the absolute value of the price elasticity of demand as the price increases from $30 to $40 is:

1.4

(Figure: Corn and Oil in the United States and the United Kingdom) Refer to the graphs for the United States and the United Kingdom. If the starting point is point a, what is the opportunity cost of the United States producing 15 more barrels of oil?

15 bushels of corn

(Figure: Biscuits and Cookies PPFs) Greg and Melissa face the production possibilities frontiers shown for biscuits and cookies. When Melissa completely specializes in producing the good she has a comparative advantage in, she produces:

160 biscuits and 0 cookies

The publisher of an economics textbook finds that when the book's price is lowered from $70 to $60, sales rise from 10,000 to 15,000. Using the midpoint method, the price elasticity of demand is:

2.6

Figure: Demand for Shirts) The price elasticity of demand for the price falls from $50 to $40, using the midpoint method, is:

3

Jeanette is willing to pay $100 for the first pair of shoes, $80 for the second pair, $50 for the third, and $30 for the fourth. If shoes cost $50, Jeanette will buy ________ pairs of shoes and her total consumer surplus equals _____.

3; $80

(Figure: Corn and Oil in the United States and the United Kingdom) Refer to the graphs for the United States and the United Kingdom. If the starting point is point a, what is the opportunity cost of the United Kingdom producing one more barrel of oil?

5 bushels of corn

Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:

50%

(Figure: Gain in Consumer Surplus) Which area(s) represent the gain in consumer surplus to consumers already participating in the market when the price falls from P 1 to P 2?

B

(Figure: Ships and Autos in Countries A and B) Two countries manufacture automobiles and ships. Based on the graphs, which statement is correct?

Country A has an absolute advantage in producing ships

(Figure: Gain in Consumer Surplus) Which areas represent the change in consumer surplus when the price falls from P 1 to P 2?

B, and C

Figure: Change in Total Surplus) Which of the following areas represent the change in total surplus when the price falls from P 1 to P 2?

C and E

Figure: Change in Total Surplus) Which of the following areas represent the change in total surplus when the price falls from P 2 to P 3?

C and E

(Figure: Pork and Corn PPF) It is possible to produce 15 units of corn and 4 units of pork at the same time

False

26. In calculations of producer surplus, it is important to distinguish between the minimum price at which a seller is willing to sell a good and the seller's cost.

False

A consumer's willingness to pay for a surfboard is the minimum price at which he or she would buy the surfboard.

False

Consumer surplus is the amount buyers actually pay for a good minus the maximum amount they are willing to pay for it.

False

Figure: Tanks and Health Care) At point f, to produce more tanks, society must give up some amount of health care services.

False

Gehrig is willing to pay $90 for a cap made of pure Irish wool. Suppose he finds such a cap for $71 on eBay. If Gehrig buys the cap, he will have an individual consumer surplus of $71.

False

If the price of oil increased because supply fell, both the consumer surplus and the producer surplus would increase.

False

Positive questions are questions about how things ought to be.

False

Price floors on agricultural products like milk exist to maximize the consumer surplus.

False

Suppose the United States must give up the production of one gallon of paint to produce 1 pair of shoes. Mexico must give up 2 gallons of paint to produce one pair of shoes. According to the principle of comparative advantage:

Mexico should specialize in paint and us in shoes

Figure: Tanks and Health Care) Which of the following points in the figure is obtainable but NOT efficient?

Point f

Figure: Ships and Autos in Countries A and B) Two countries manufacture automobiles and ships. Based on the graphs, which statement is correct?

The opportunity cost in country A of producing 1 ship is 2 cars

Comparative advantage stems from differences in the relative costs of producing goods and services.

True

Normative questions involve societal beliefs on what should or should not be done.

True

Figure: Turtletopia and Frogland PPFs) _____ has the absolute advantage for producing corn, and _____ has the absolute advantage for producing pork.

Turtletopia, turtletopia

(Figure: Wheat and Autos in the United States and Korea) According to the graph, for every extra:

a car south korea wants to produce, it must give up half a bushel of wheat

in the market for wheat, what would happen if the price of ethanol increased dramatically?

a decrease in the supply of wheat

Demand

a negative relationship between the quantity demanded and price is called the law of:

(Figure: Bread and Honey) In the graph, point b represents:

a point where all society's resources are fully employed

a decrease in supply means:

a shift to the left of the entire supply curve

If the supply and demand curves intersect at a price of $14, then any price below that would result in:

a shortage

Which of the following is most likely to shift the production possibility frontier outward?

a sudden expansion in labor force

If the supply and demand curves intersect at a price of $47, then any price above that would result in:

a surplus

a shift to the left in supply curve is caused by:

an increase in the cost of an input.

Consumer surplus is represented by the area ________ the demand curve and ________ the price.

below; above

Figure: Pork and Corn PPF) Using the graph, if we are operating at the economy's potential output, then production can be at points

c or f

(Figure: Production Possibilities) Which of the following is NOT correct regarding combination X? because it is on the line

combination x has no opportunity cost

Good X and good Y are related goods. If the price of good X increases and the demand for good Y shifts left, these goods are:

complements

Figure: Market I) If the government decides to restrict the quantity sold to 100, which of the following is not true?

consumer surplus is maximized

Along a given demand curve, an increase in the price of a good will:

decrease consumer surplus

if goods A and Z are complements, an increase in the price of good Z will:

decrease the demand for good A

A decrease in supply with no change in demand will lead to ________ in equilibrium quantity and ________ in equilibrium price.

decrease; increase

Figure: Gain from Trade) As demand decreases from D 2 to D 1, total surplus:

decreases

a good in inferior when:

demand decreases when income increases

a good is normal if:

demand increases when income increases

Price ceilings may be imposed if:

demanders can make strong moral or political arguments for lower prices.

A good is likely to have an inelastic demand curve if:

if its a luxary good

(Figure: Bread and Honey) In the graph, a move from point f to point g:

its impossible to present

(Figure: Pork and Corn PPF) When we move from point b to point c, the opportunity cost of producing more corn is _____ the opportunity cost of moving from point d to point e.

less than

The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, reap a bumper crop, they will have:

lower prices, greater quantities sold, and lower incomes.

If total revenue goes down when price falls, the price elasticity of demand is said to be:

price elastic

The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is ________ in New Hampshire.

price elastic

If total revenue goes up when price increases, the price elasticity of demand is said to be:

price inelastic

When a public transit system (such as a subway or bus line) raises its fares, it may undergo an increase in total revenue. This suggests that demand is:

price inelastic

The price elasticity of demand is computed as the percentage change in:

quantity demanded divided by the percentage change in price

Rice and potatoes are substitutes. If the price of rice rises and there is a bumper crop of potatoes, in the market for potatoes one would expect the:

rise fall or stay the same and equilibrium quantity to rise

If steak and potatoes are complements, when the price of steak goes up, the demand curve for potatoes:

shifts to the left

Table) Greece has a comparative advantage in:

skirts only

(Figure: Bread and Honey) In the graph, a movement from point f to point g could occur if:

technological improvements occur

The basic idea of opportunity cost is that:

the decision to use resources in one activity means that the resources cannot be used elsewhere

If you want to make sure that your calculation of elasticity is consistent regardless of your initial point, you use:

the midpoint formula calculation of elasticity

a shift on the demand curve for thin-crust pizza would NOT be caused by a change in:

the price of thin crust pizza

The total surplus generated in a market is:

the sum of consumer surplus and producer surplus

market equilibrium occurs when:

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears

(Figure: Biscuit and Cookies PPFs) Greg and Melissa face the production possibilities frontiers shown for biscuits and cookies. Assume that Greg and Melissa trade 60 biscuits for 60 cookies after they have completely specialized in producing the good in which they have a comparative advantage. We know that Greg and Melissa are each made better off with specialization and trade than acting alone because:

they are both consuming outside their production possibilities frontier

Figure: Tanks and Health Care) The tradeoff in moving from point a to point c is represented by a gain of $50 million in health care services and a loss of 2,000 tanks.

true

Figure: Turtletopia and Frogland PPFs) _____ has the comparative advantage for producing corn, and _____ has the comparative advantage for producing pork.

turtletopia, frogland

Consumer surplus can be found by computing the area:

under the demand curve and above the price

A perfectly inelastic demand curve is:

vertical

Because of scarcity:

we face tradeoffs in nearly every choice we make.

Figure: Turtletopia and Frogland PPFs) We see that the two countries _____ benefit from trade, and that Frogland should specialize in producing _____ while Turtletopia should specialize in producing _____.

would; pork; corn

Table) If Germany decided to produce skirts, what is Germany's opportunity cost?

½ of a sweater