Economics Chapter 1, 2, and 3!!!!
Define Voluntary Exchange
A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction.
Voluntary exchange
A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction.
define marginal analysis
Analysis that involves comparing marginal benefits and marginal costs.
define production possibilities frontier (PPF)
a curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology
Which of the following is the correct definition of demand curve?
a curve that shows the relationship between the price of a product and the quantity of the product demanded
If demand is perfectly elastic, then what is the effect of an increase in price?
a decrease in quantity demanded to zeroa
Which of the following events would shift the supply of smartphones to the right?
a decrease in the price of inputs used to produce smartphones
If the income elasticity of SUVs is greater than 1, what is the good considered?
a luxury
Define the circular flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms shows that in factor markets, households supply labor and other factors of production in exchange for wages and other payments from firms
define entrepreneur
is someone who operates a business. Entrepreneurial ability is the ability to bring together the other factors of production to successfully produce and sell goods and services.
if the demand curve is inelastic then an increase in price increases revenue because
the decrease in quantity demanded is proportionally smaller than the increase in price.
if the demand curve is unit elastic then an increase in price does not affect revenue because
the decrease in quantity demanded is proportionally the same as the increase in price.
The basis for trade is comparative advantage, not absolute advantage.
true
Which participants are of greatest importance in determining what goods and services are produced?
. Households.
To take advantage of high prices for snow shovels during a very snowy winter, Alexander Shovels, Inc., decides to increase output. .
A change in quantity supplied
define positive analysis
Analysis concerned with what is.
The more time that passes, the more __________ the demand for a product becomes.
elastic
_________ which is the demand by all the consumers of a given good or service.
market demand
define Product markets
markets for goods—such as smartphones—and services—such as medical treatment.
How can a country gain from specialization and trade?
A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.A
what is a supply curve?
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
Evaluate the following argument: "Adam Smith's analysis is based on a fundamental flaw: He assumes that people are motivated by self-interest. But this isn't true. I'm not selfish, and most people I know aren't selfish."
this statement is based on the misconception that following your self-interest and being selfish are the same thing.
t or f: if a product has more substitutes available, it will have a more elastic demand. If a product has fewer substitutes available, it will have a less elastic demand.
true
Copyrights are a 'tax' on readers in the sense that
copyrights limit of the supply of related creative work which results in higher prices.
Is the columnist arguing that Spain has an absolute advantage over China in producing textiles, a comparative advantage, or both?
A comparative advantage in producing textiles.
_________ shows the relationship between the price of a product and the quantity of the product demanded.
demand curve
Is the demand for agricultural products elastic or inelastic? Why? The demand for agricultural products is
inelastic because such products represent a small share in the consumer's budget.
What do property rights have to do with developing such markets?
Property rights make it more likely that investments will be made.
What is a free market?
A free market is one where the government does not control the production of goods and services.A
what is an Inferior good?
A good for which the demand increases as income falls and decreases as income rises.
what is Normal good
A good for which the demand increases as income rises and decreases as income falls.
define market
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
how do economists develop a model?
Decide on the assumptions to use. Formulate a testable hypothesis. Use economic data to test the hypothesis. Revise the model if it fails to explain the economic data well. Retain the revised model to help answer similar economic questions in the future.
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement?
Economics assumes that consumers and firms are rational, not that they always make the right decisions.
Which of the following statements about economics as a social science is correct?
Economics studies the actions of individuals.
what are behavioral assumptions?
Economists assume that consumers will buy the goods and services that will maximize their well-being or their satisfaction.
What type of economic analysis is concerned with the way things ought to be?
Normative Analysis
Suppose economists develop an economic model and find that "it works great in theory, but it fails in practice." Which of the following should the economists do next?
They should revise the model in light of its failure to explain or predict real world events.
Relative to a market economy, a centrally-planned economy would be expected to be
better at neither productive efficiency nor allocative efficiency because the absence of market-imposed competition negates the need of firms to satisfy consumer wants or produce using the lowest-cost methods.
How are economic resources allocated in a market economy?
by the decisions of households and firms interacting in markets
Leonard Fleck, a philosophy professor at Michigan State University, has written, "When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will improve the length or quality of our lives as we age. But as presently healthy taxpayers, we want costs controlled." Is it necessary for all economic systems to limit services such as health care?
yes
define Normative analysis
Analysis concerned with what ought to be.
What are the two main categories of participants in markets?
Firms and households.
What is the basis for trade?
Comparative advantage.
Is soda a substitute or a complement for candy? Briefly explain.
Complement, because the cross-price elasticity of demand is negative.
Increase in equilibrium price When Demand for Soda Is Price Inelastic _________When Demand for Soda Is Price Elastic _________
Larger Smaller
Decline in equilibrium quantity When Demand for Soda Is Price Inelastic _________ When Demand for Soda Is Price Elastic ___________
Smaller Larger
Define comparative advantage
ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
Explain whether the demand for cigarettes is elastic, inelastic, or unit elastic. The price elasticities in this range
are inelastic because they are less than one (in absolute value).
Complete the following statement: "When there is a shortage of a good
consumers compete against one another by bidding the price upward.
The price of fries increases due to a potato shortage. This will
decrease the demand for McDonald's Big Mac hamburgers.
what is a free market
exists when the government places few restrictions on how goods and services can be produced or sold or on how factors of production can be employed
Scarcity implies that every society and every individual face trade-offs because scarcity means that
human wants are greater than what available resources can produce.
A market system prevents people from getting as many goods and services as they want due to which of the following?
income
The author's statement would be correct if the price elasticity of demand for the publisher's books is
more than one in absolute value.
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity?
prices
From 1950 to 2012, wheat production in the United States increased dramatically, resulting in a substantial decline in wheat prices. Two key factors explaining this decline in prices are that the demand for wheat is ________, and the income elasticity of demand for wheat is ________.
price inelastic; low
Economic data is used
to test models
define revenue
A firm's revenue is the total amount received for selling a good or service. We calculate it by multiplying the price per unit by the number of units sold.
In product markets who are demanders and who are suppliers.
In product markets, households are demanders and firms are suppliers.
Effect on city tax revenue When Demand for Soda Is Price Inelastic ____________ When Demand for Soda Is Price Elastic ___________
More tax revenue collected Less tax revenue collected
define services
Services are activities performed for others, such as providing haircuts or investment advice.
The columnist notes that, in fact, Spain exports significant quantities of textiles. If his description of the situation in China and Spain is accurate, briefly explain how Spanish firms are able to export textiles in competition with Chinese firms.
Spain must be able to produce textiles at a lower opportunity cost than China can.
if the products are substitues then the cross-price elasticity of demand will be positive like
Two brands of smartphones
The three economic questions that every society must answer are
What goods will beWh produced, how will they be produced, and who will receive the goods?
define Natural resources
include land, water, oil, iron ore, and other raw materials (or "gifts of nature") that are used in producing goods.
What is the outcome of enforcing contracts and property rights in a market system?
increased economic activity
Which of the following is not scarce according to the economic definition? A. Capital. B. Food. C. Gas. D. Time. E. None of the above.
none
what is a demand curve?
shows the relationship between the price of a product and the quantity of the product demanded.
__________ is a table that shows the relationship between the price of a product and the quantity of the product supplied.
supply table
what is trade?
the act of buying and selling
If demand is elastic then an increase in price reduces revenue because . . .
the decrease in quantity demanded is proportionally greater than the increase in price.
what is an oppurtunity cost?
the highest-valued alternative that must be given up to engage in that activity
Today, which of the following countries has a centrally planned economy?
North Korea
Economists use models
to answer questions and analyze issues.
what is a casual relationship in economic terms?
1 variable directly affects another variable
why would one use a Circular-flow diagram
A model that illustrates how participants in markets are linked.
Define oppurtunity cost
The highest-valued alternative that must be given up to engage in an activity.
if the products are unrelated then the cross-price elasticity of demand will be 0 like
iphones and butter
what is a Technological change
A change in the quantity of output a firm can produce using a given quantity of inputs.
Which of the following events would create economic growth, that is, shift the production possibilities frontier outward?
A. An increase in the available labor. B. An increase in the available natural resources. C. An increase in technology that affects the production of both goods.
Define market economy
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
A columnist for Forbes argues that: "Even if China is always better than Spain at producing textiles, if the best thing that Spain could be doing is textiles then that's what Spain should be doing." What does the columnist mean by writing that China "is always better than Spain" in producing textiles (which include clothing, sheets, and similar products)?
China can produce textiles at a lower cost in terms of resources than Spain can.
define Factors of production, economic resources, or inputs
Firms use factors of production to produce goods and services. The main factors of production are labor, capital, natural resources—including land—and entrepreneurial ability. Households earn income by supplying the factors of production to firms. Economists use the terms factors of production, economic resources, and inputs interchangeably.
Would you pay $12 for a cup of coffee? Starbucks is betting enough people will say "yes," as it launches a chain of luxury coffee shops called Starbucks Reserve. Which generation(s) do you expect Starbucks Reserve to attract: baby boomers (ages 53 and over), Generation X (ages 35 and over), or millennials (ages 17 and over)? Briefly explain.
Generation X, because their average incomes are likely to be higher.
From 1979 to 2015, China had a policy that allowed couples to have only one child. (Since 2016, couples have been allowed to have two children.) The one-child policy caused a change in the demographics of China. Between 1980 and 2015, the share of the population aged 14 and under decreased from 36 percent to 17 percent. And, as parents attempted to ensure that the lone child was a son, the number of male children relative to female children increased. How has the one-child policy changed the relative demand for goods and services in China?
It has undoubtedly shifted away from goods and services appealing to youthful buyers, particularly youthful female buyers.
According to an article in the Wall Street Journal, in 2017, farmers in the United States were facing a fourth consecutive year of falling farm incomes. The article states that a "deepening downturn in the U.S. agricultural economy" was the result of years of bumper harvests. Source: Jesse Newman, "U.S. Farm Income Seen Falling for Fourth Straight Year," Wall Street Journal, February 7, 2017. Shouldn't increases in the amount of agricultural products farmers sell be good news for them and raise their incomes? Briefly explain.
No, an increase in supply is bad news for farmers because the price elasticity of demand for their products is inelastic.
When does productive efficiency occur?
Productive efficiency occurs when a good or service is produced at the lowest possible cost
Define comparative advantage
is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
Define absolute advantage
is the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.
If Amazon.com raises its prices by 10 percent and, as a result, the quantity of books demanded on Barnesandnoble.com increases by 35 percent, what do consumers consider the two Web sites to be?
close subtitutes
what is a perfectly competitive market?
a market where there are many buyers and sellers, all the products sold are identical, and there are no barriers to new firms entering the market
If a firm is productively and allocatively efficient, it earns ________ ; if it is not, it _______
a profit suffers a loss
Suppose that sales of bottled water decline during a recession when employment and household incomes fall. This indicates that bottled water is
a normal good
A good for which demand increases as income rises is ________, and a good for which demand increases as income falls is ________.
a normal good; an inferior good
Income elasticity of demand is
the percentage change in quantity demanded divided by the percentage change in income.
Goods and services that are used together—such as hot dogs and hot dog buns—are called
complements
what is Elastic demand?
The case where the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value.
what is Inelastic demand?
The case where the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value.
what is Perfectly inelastic demand?
The case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero.
what is Perfectly elastic demand?
The case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity.
what is Substitution effect?
The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
what is income effect?
The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant.
Why would such markets be important for a country that is hoping to raise the standard of living of its residents?
Strong, innovative markets result in more economic growth.
Which of the following statements about the idea that people are rational is correct?
The idea assumes that consumers and firms use all available information as they act to achieve their goals.
define trade-off
The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.
________ is used to describe how changes in price affect a consumer's purchasing power, and ________ is used to describe how a change in price affects the quantity demanded of a good by making it more or less expensive than substitute goods.
The income; the substitution effect
what is Price elasticity of demand?
The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.
what is Price elasticity of supply?
The responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product's price.
Why isn't elasticity just measured by the slope of the demand curve?
The slope can change dramatically comma depending on the units chosen for quantity and price.
define economics
The study of the choices people make to attain their goals, given their scarce resources.
Define Macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
The demand for grapefruits is highest during summer and lowest during winter. Yet grapefruit prices are normally lower in summer than in winter. What must be happening to the supply of grapefruits, from winter to summer, for the equilibrium price to fall?
The supply increases more than the demand increases.
Of the three ways to enter the parklong dashin a private, noncommercial vehicle; on a motorcycle; and by foot, bike, or skilong dashwhich way would you expect to have the largest price elasticity of demand, and which would you expect to have the smallest price elasticity of demand?
The private, noncommercial vehicle has the largest price elasticity of demand and visitors 16 and older entering by foot, bike, ski, etc. have the smallest price elasticity of demand.
define Productive efficiency
a situation in which a good or service is produced at the lowest possible cost
what is Market equilibrium?
a situation in which quantity demanded equals quantity supplied
Which of the following is the textbook's definition of a supply schedule?
a table that shows the relationship between the price of a product and the quantity of the product supplied
Imagine that the next time the New England Patriots play the Miami Dolphins at Gillette Stadium in Foxborough, Massachusetts, Patriots star quarterback Tom Brady has a temporary lack of judgment and plans to sell Patriots memorabilia during the game because he realizes that he can sell five times more Patriots products than anyone in the stadium sports gear store. Likewise, imagine that you are a creative and effective manager at work and that you tell your employees that during the next six months, you plan to clean the offices because you can clean five times better than the cleaning staff. Both you and Tom are making an error in judgment by assuming that specialization should be based upon
absolute advantage
what is positive analysis
analysis concerned with what is
what is normative analysis
analysis concerned with what ought to be
An increase in the price of a substitute for iPads will lead to __________ in the quantity of iPads demanded, so the cross-price elasticity of demand will be _________.
an increase; positive
define Households
are all the individuals in a home
what is a product market?
are markets for goods—such as smartphones—and services—such as medical treatment.
what are Factor markets
are markets for the factors of production.
If a shortage exists in a market, we know that the actual price is
below the equilibrium price, and the quantity demanded is greater than the quantity supplied.
Rank the following four goods from lowest income elasticity of demand LOADING... (1) to highest income elasticity of demand (4). a. Bread b. Pepsi c. Mercedes-Benz automobiles d. Laptop computers
bread pepsi laptop mercadi benz
According to a news story about the bus system in the Lehigh Valley in Pennsylvania, "Ridership fell 14 percent in 2012 after a 33 percent increase" in bus fares. Given this information, the demand for bus trips is
bus trips are a necessity for those without cars.
If the cross-price elasticity of demand is negative, then the products are:
complements, but if it is positive, then the products are substitutes.
The British historian Thomas Macaulay once remarked that copyrights are "a tax on readers." Copyrights are a 'tax' on readers in the sense that
copyrights limit of the supply of related creative work which results in higher prices.
If copyrights are a 'tax' on readers, governments provide a legal framework to enforce them because
copyrights provide needed protection for authors and creators of movies or other artistic works.
Which of the following is the textbook's definition of a supply curve?
curve that shows the relationship between the price of a product and the quantity of the product supplied
The publisher of a magazine gives his staff the information in the table below. He tells them, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue LOADING... being exactly equal to our cost." Current price $2.00 per issue Current sales 150,000 copies per month Current total costs $450,000 per month In order for the publisher's analysis to be correct,
demand is perfectly inelastic.
What role do they play in the working of a market system? Private property rights:
encourage a significant number of people to be willing to risk funds by investing them in business. encourage firms to spend money on research and development.
George sells land he owns to McDonald's so it can build a new restaurant. his takes place in the _____________ market. The household ____________the factor of production and the firm _____________the factor of production
factor supplies demand
George works 20 hours per week at McDonald's. This takes place in the ___________ market. The household _________ the labor and the firm __________the labor.
factor supplies demands
If a country has a comparative advantage in the production of a good, then that country
has a lower opportunity cost in the production of that good.ha
if the products are complements then the cross-price elasticity of demand will be negative like
iPhones and applications downloaded from online stores
_____________ of a price change refers to the change in the quantity demanded of a good that results because a change in the good's price increases or decreases consumers' purchasing power. Purchasing power is the quantity of goods a consumer can buy with a fixed amount of income. When the price of a good falls, the increased purchasing power of consumers' incomes will usually lead them to purchase a larger quantity of the good. When the price of a good rises, the decreased purchasing power of consumers' incomes will usually lead them to purchase a smaller quantity of the good.
income effect
Late in the semester, a friend tells you, "I was going to drop my psychology course so I could concentrate on my other courses, but I had already put so much time into the course I decided not to drop it." Is your friend's reasoning correct or incorrect?
incorrect (marginal)
If the demand for orange juice is elastic, will a decrease in the price of orange juice increase or decrease the revenue received by orange juice sellers? If the price of orange juice decreases, revenue will......
increase
The authors are assuming the price elasticity of demand for tickets to the Met is
inelastic
In a famous essay on the market system, the economist Leonard Read discussed how a pencil sold by the U.S. firm Eberhard Faber Pencil Company (now owned by Paper Mate) was made. He noted that logging companies in California and Oregon grew the cedar wood used in the pencil. The wood was milled into pencil-width slats at a factory in San Leandro, California. The graphite for the pencil was mined in Sri Lanka and mixed with clay purchased from a firm in Mississippi and wax from a firm in Mexico. The rubber was purchased from a firm in Indonesia. Which of the following statements is true?
it was not necessary for the managers of any of firms that participated in the making of the pencils to know how the components they produced were used to make pencils.
The inverse relationship between the price of a product and the quantity of the product demanded is called the
law of demand
________ which states that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied
law of supply
When lettuce prices doubled, from about $1.55 per head to about $3.10, the reaction of one consumer was quoted in a newspaper article: "I will not buy [lettuce] when it's $3.10 a head," she said, adding that other green vegetables can fill in for lettuce. "If bread were $5 a loaf we'd still have to buy it. But lettuce is not that important in our family." For this consumer's household, which product has the higher price elasticity of demand bread or lettuce?
lettace
the amount of shares needed by a food program to get certain types of food would be equivalent to what economic variable in the marketplace for goods and services?
market prices
The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a __________ issue
micro
Price elasticity estimates for a product might be less reliable if calculated using only one brand instead of a cross section of brands because
one brand may not be representative of the elasticity for the entire catgory.
For this consumer's household, is the cross-price elasticity of demand between lettuce and other green vegetables positive or negative:
positive
Absolute advantage is the ability of an individual, a firm, or a country to
produce more of a good or service than competitors using the same amount of resources.
Macroeconomics is the study of
the economy as a whole, including topics such as inflation, unemployment, and economic growth.
The law of demand is the assertion that
the quantity demanded of a product is inversely related to its price.th
What are private property rights? Private property rights are.....
the rights individuals and firms have to the exclusive use of the tangible, physical property and intellectual property.
When it comes to assessing how this system affects the financial interests of doctors and the well being of consumers, it may be that the former gain more simply because
there are far fewer of them, hence each stands to gain much from supply restrictions.
Jacob Goldstein, a correspondent for National Public Radio, discussed the effect that a tax on sugared soft drinks would have on consumers: "How much would a tax drive down consumption? Economists call this issue "price elasticity of demand"-much demand goes down as price increases..." Briefly explain whether you agree with Goldstein's definition of price elasticity of demand.
Disagree, because price elasticity of demand refers to percentage changes in price and quantity demanded.
Assuming that these statistics are available or could be gathered, are they likely to resolve the normative issues in this debate?
No, because normative issues involve value judgments that incorporate an individual's full range of experiences, beliefs, and emotions.
define economic variable
Something measurable that can have different values, such as the number of people employed in manufacturing.
Suppose you were building an economic model to forecast the number of people employed in U.S. manufacturing in 2024. Should your model take into account the possibility of changes in economic policy enacted by the president and Congress?
Yes, the model should account for economic policy because it could affect employment in manufacturing.
what is Elasticity?
A measure of how much one economic variable responds to changes in another economic variable.
Government policymakers use economic principles to make decisions, such as
A. whether to raise taxes on cigarettes to discourage teenage smoking. B. whether to raise interest rates to reduce the threat of inflation. C. whether to allocate additional funds to research on cancer or to research on heart disease
what is trade?
Exchange of goods and services
Economists assume that the only reason people take the actions they do is in response to economic incentives.
False
What is an entrepreneur?
They bring together factors of production.
What is the circular-flow diagram and what does it illustrate?
The circular-flow diagram shows how households and firms are linked through product and factor markets.
t or f: The more substitutes available for a product, the greater the price elasticity of demand.
true
according to an article in the Wall Street Journal, reporting on Coca-Cola's results for the fourth quarter of 2016: "Higher pricing ... drove revenue growth of 8%."Based on this information, is the demand for the beverages Coke sells price elastic or price inelastic? Briefly explain
Inelastic, because a price increase raises Coca-Cola's revenue.
Can this change in opportunity cost account for the decline in college football attendance? Briefly explain.
Yes, because these changes increase the opportunity cost of watching football games in person.
When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?
0
In the six months following Hurricane Katrina, production of oil in the Gulf of Mexico declined by 25 percent. .
A change in supply
The success of Apple's iPod leads more firms to begin producing digital music players.
A change in supply
define profit
A firm's profit is the difference between its revenue and its costs. Economists distinguish between accounting profit and economic profit. In calculating accounting profit, we exclude the costs of some economic resources that the firm does not pay for explicitly. In calculating economic profit, we include the opportunity costs of all resources used by the firm. When we refer to profit in this book, we mean economic profit. It is important not to confuse profit with revenue.
define Technology
A firm's technology is the processes it uses to produce goods and services. In the economic sense, a firm's technology depends on many factors, such as the skill of its managers, the training of its workers, and the speed and efficiency of its machinery and equipment.
What do economists mean by market equilibrium?
A market outcome where quantity supplied is equal to quantity demanded.
define Economic model
A simplified version of reality used to analyze real-world economic situations.
For which of the following products is the price elasticity of demand (in absolute value) the largest? A. Tide liquid detergent Your answer is correct.B. automobiles C. cigarettes D. milk
A. Tide liquid detergent
When economists speak of a surplus, they mean a situation in which
A. firms have unsold goods piling up. B. the quantity supplied exceeds quantity demanded. C. the market price is above the equilibrium price.
When demand is elastic, price and total revenue move inversely so...
An increase in price reduces total revenue, and a decrease in price raises total revenue.
According to the FBI Bank Crime Statistics, there were more than 4,000 bank robberies in the United States in 2015, an increase of 3.9 percent over 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that separate bank tellers from the public. According to a special agent with the FBI, "Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?
Banks have no economic incentive to install the barriers. (costs more to install than the robbery)
Why are models based on assumptions?
Because models have to be simplified to be useful.
A news article about virtual reality headsets observes that: "For any hardware platform, it is critical to attract outside developers and build a virtuous cycle in which popular software titles drive hardware sales, which in turn brings in more software developers." The article refers to two types of software: games, such as Final Fantasy, that are already available for video game consoles, and software intended only for use with virtual reality headsets. As both these types of software become available, are they likely to make virtual reality headsets closer or less close substitutes for video game consoles?
Closer substitutes, because video game consoles and virtual reality headsets could be used for the same purpose.
In a market system, how does society decide what goods and services will be produced?
Consumers, firms, and the government determine what goods and services will be produced by the choices they make
Which of the following statements about microeconomics and macroeconomics is correct? A. Microeconomics does not involve the analysis of economic policy. B. Macroeconomics does not involve the analysis of economic policy. C. All economic situations can be categorized as being microeconomics or macroeconomics. D. Microeconomics involves the study of how households and firms make choices.
D. Microeconomics involves the study of how households and firms make choices.
Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?
Economics teaches us how to look at the tradeoffs involved in every decision.
What do economists mean by scarcity?
Economists mean that unlimited wants exceed limited resources.
According to Adam Smith, which of the following is necessary for the proper functioning of the market system?
For markets to work, people must be free to pursue their self-interest.
define human capital
Human capital refers to the accumulated training and skills that workers possess. For example, college-educated workers generally have more skills and are more productive than workers who have only high school degrees; therefore, college-educated workers have more human capital.
The head of the United Kumquat Growers Association makes the following statement. "The federal government is considering implementing a price floor in the market for kumquats. The government will not be able to buy any surplus kumquats produced at the price floor or to pay us any other subsidy. Because the demand for kumquats is elastic I believe this program will make us worse off, and I say we should oppose it." Do you agree or disagree with this reasoning?
I agree with this reasoning. Since the demand for kumquats isI elastic, the revenues will fall significantly with a price floor.
Which of the following is a correct statement about a mixed economy?
In a mixedIn economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.
In recent years, a number of cities have passed taxes on carbonated sodas to help reduce obesity and to raise tax revenues. An article in the New York Times observes that: "With that public momentum, a soda tax may be coming to a city near you." If this forecast is correct, is the demand for premium bottled water likely to increase or decrease? Briefly explain.
Increase, because premium bottled water and carbonated sodas are substitutes.
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.In
To be successful as a luxury coffee bar, how does Starbucks need to distinguish Starbucks Reserve coffee shops from its standard Starbucks coffee shops?
It could offer a greater variety of menu items to attract new customers to its Starbucks Reserve coffee shops.It B. Starbucks must convince consumers that its standard coffee is not an adequate substitute for its $12 luxury coffee. C. Starbucks Reserve could offer amenities that are not available at standard Starbucks coffee shops.
Using the same amount of resources, suppose that Nicaragua can produce twice as much sugar as Colombia. Nevertheless, Colombia could still have the comparative advantage in producing sugar if
It is even less efficient than Nicaragua in the production of goods other than sugar.
Suppose that Lichtenstein and Luxembourg currently have identical production possibilities frontiers but that Lichtenstein devotes only 5 percent of its resources to producing capital goods over each of the next 10 years, whereas Luxembourg devotes 30 percent. Which country is likely to experience more rapid economic growth in the future?
Luxembourg
Which of the following is not a step that economists use in developing a useful economic model? A. Formulate a testable hypothesis. B. Decide on the assumptions to be used in developing the model. C. Revise the model if it does not explain the data well. D. Use economic data to test the hypothesis. E. Make a value judgement about the merits of the hypothesis.
Make a value judgement about the merits of the hypothesis.Ma
a study of consumers in Mexico found that the cross-price elasticity of demand between soda and milk was 0.11, while the cross-price elasticity of demand between the soda and candy was -0.32. Is soda a substitute or a complement for milk? Briefly explain.
Substitute, because the cross-price elasticity of demand is positive.
Does it indicate that gasoline-powered cars and hybrids are substitutes or complements?
Substitutes, because the more consumers buy of one good, the less they will buy of the other good.
According to an article on reuters.com, Fiat Chrysler Automobiles, the firm that sells Dodge and Chrysler cars and trucks in the United States, decided to invest $1 billion to modernize two of its U.S. production plants. The article described the possible effect on Fiat Chrysler's decision of President Trump's trade policies. What trade policies was the article referring to, and how would those policies affect Fiat Chrysler's decision on whether to expand production in the United States?
Tariffs on imports to increase the cost of producing cars outside the United States.
what is Quantity demanded?
The amount of a good or service that a consumer is willing and able to purchase at a given price.
what is Quantity supplied
The amount of a good or service that a firm is willing and able to supply at a given price.
Which determinant is the most important?
The availability of close substitutes
What is the advantage of the midpoint method?
The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.
what is Cross-price elasticity of demand?
The percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.
what is Ceteris paribus ("all else equal") condition
The requirement that when analyzing the relationship between two variables—such as price and quantity demanded—other variables must be held constant.
define Innovation
There is a distinction between an invention and an innovation. An invention is a new good or a new process for making a good. An innovation is the practical application of an invention. (Innovation may also be used more broadly to refer to any significant improvement in a good or in the means of producing a good.) Much time often passes between the appearance of a new idea and its development for widespread use. For example, the Wright brothers first achieved self-propelled flight at Kitty Hawk, North Carolina, in 1903, but the Wright brothers' plane was very crude, and it wasn't until the introduction of the DC-3 by Douglas Aircraft in 1936 that regularly scheduled intercity airline flights became common in the United States. Similarly, the first digital electronic computer—the ENIAC—was developed in 1945, but the first IBM personal computer was not introduced until 1981, and widespread use of computers did not have a significant effect on the productivity of U.S. businesses until the 1990s.
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available.
In a market system, how does society decide who will receive the goods and services produced?
Who receives the goods and services produced depends largely on how income is distributed.
If you were a manager at McDonald's, how would you go about analyzing whether to switch to fresh, never-frozen beef patties? In your answer, consider whether your decision would have to be all or nothing long dashall fresh, never-frozen beef patties in all McDonald's hamburgers, and whether you would have to switch in all McDonald's locations around the world (they are in 119 countries), or just in certain countries.
You would want to compare the marginal benefits and marginal costs of serving hamburgers made with fresh beef.
In many cities, firms that own office buildings can renovate them for use as residential apartments. According to a news story, in many cities "residential rents are surpassing office rents."
a decrease in the supply of office space, shifting it to the left.
McDonald's distributes $1.00 off coupons. This will cause
a movement along the demand curve for McDonald's Big Mac hamburgers.
Which of the following is the correct definition of demand schedule?
a table that shows the relationship between the price of a product and the quantity of the product demanded
How else can you calculate the price elasticity of demand?
a. Price elasticity of demand can be calculated using initial values for price and quantity. B. Price elasticity of demand can be calculated using final values for price and quantity.
If a surplus exists in a market, we know that the actual price is
above the equilibrium price, and the quantity supplied is greater than the quantity demanded.
How is the price elasticity of demand measured?
by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price
With respect to consumption, individuals and countries
can, through trade, consume beyond their production possibilities frontiers.
In what ways does a free market economy differ from a centrally planned economy? Unlike a free market economy,
centrally planned economies have extensive government controls.
Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the
ceteris paribus ce condition.
You observe that when the price of houses decreases the demand for household appliances increases. Houses and household appliances are considered to be ____________ goods
complementary
The U.S. economy enters a period of rapid growth in incomes. This will cause
demand for McDonald's Big Mac hamburgers to shift to the left if they are inferior goods.
State whether each of the following events will result in a movement along the demand curve for McDonald's Big Mac hamburgers or whether it will cause the curve to shift. The price of Burger King's Whopper hamburger declines. This will cause
demand for McDonald's Big Mac hamburgers to decrease.
Outward shifts in the production possibilities frontier represent ___________
economic growth
he price of organic apples rises and apple growers find that their revenue decreases. Is the demand for organic apples elastic or inelastic? The demand for organic apples is
elastic
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, demand for Red Bull is _______ in this range.
elastic (>1)
If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other.
false
In a competitive market, firms can dictate what the equilibrium price of a good or a service will be.
false
When demand curves intersect, the curve with the larger slope in absolute value (the steeper demand curve) is more elastic.
false
t or f: The demand curve for a luxury is less elastic than the demand curve for a necessity.
false
In the United States, to receive a medical license, a doctor must complete a residency program at a hospital. Hospitals are not free to expand their residency programs in a particular medical specialty without approval from a Residency Review Committee (RRC), which is made up of physicians in that specialty. A hospital that does not abide by the rulings of the RRC runs the risk of losing its accreditation from the Accreditation Council for Graduate Medical Education (ACGME). The ACGME and the RRCs argue that this system makes it possible to ensure that residency programs do not expand to the point where they are not providing residents with high-quality training. This system may help protect consumers by ensuring that
future doctors receive high-quality training.
Which of the following are the two key groups of participants in the circular flow of income?
households and firms
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
define Labor
includes all types of work, from the part-time labor of teenagers working at McDonald's to the work of senior managers in large corporations.
If the income elasticity of demand is negative then the good is
inferior.
what is Production possibilities frontier (PPF)?
is a curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology
what is a market
is a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
The price elasticity of demand in the United States for crude oil has been estimated to be -0.061 in the short run and -0.453 in the long run. The demand for crude oil
is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found
What is an entrepreneur?
is someone who operates a business
If the income elasticity of demand is positive and greater than 1 then the good is
normal and a luxury.
If the income elasticity of demand is positive but less than 1 then the good is
normal and a necessity.
A good is a __________ when the demand for the good increases following a rise in income and decreases following a fall in income.
normal good
. The price of coffee at Starbucks is too high. This represents
normative analysis
George buys a Tesla Model S. This takes place in the ___________ market. The household ________ the good and the firm ________ the good.
product demands supplies
The amount of a good or service that a consumer is willing and able to purchase at a given price is called the
quantity demanded
Firms often rely on market experiments to calculate the price elasticity of demand for a new product.
true
You shouldn't necessarily do what you are better than anyone else at doing
unless your advantage in that activity is greater than advantages you possess in other activities.
Do you agree with how the second Wall Street Journal article uses the word "demand"? (ii. A different article in the Wall Street Journal noted: "Electric cars are poised to reduce U.S. gasoline demand by 5% over the next two decades...." )
yes
what is Total revenue?
The total amount of funds a seller receives from selling a good or service, calculated by multiplying price per unit by the number of units sold.
Consider firms selling three goodslong dashone firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than one, and one firm sells a good with an income elasticity of demand greater than one. In a recession, sales of a good with
an income elasticity of demand greater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most.
If cigarette manufacturers raise prices, will their revenue increase or decrease? Briefly explain. If manufacturers raise prices, then their revenue will
increase because the percentage increase in price will be larger than the percentage decrease in quantity.
According to a news story about the International Energy Agency, the agency forecast that "the current slide in [oil] prices won't [reduce] global supply." Would a decline in oil prices ever cause a reduction in the supply of oil?
no, a decline in oil prices would reduce the quantity of oil supplied, not the supply of oil.
___________refers to the change in the quantity demanded of a good that results because a change in price makes the good more or less expensive relative to other goods that are substitutes. When the price of premium bottled water falls, people will substitute buying premium bottled water for other goods, such as regular bottled water or carbonated soft drinks, like Coke and Pepsi.
substitution effect
An article in the New York Times about the New York Metropolitan Opera (the Met) suggests that the popularity of opera might be increased if the Met reduced its ticket prices. But the article observes that such ticket price cuts would only be possible if the Met received a gift from "a very deep-pocketed donor." The authors of the article are assuming a cut in ticket prices, and assuming there is no gift from a "very deep-pocketed donor," ______ increase the Met's revenue.
will not
This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage. Even if you are better at unloading the dishwasher than your spouse, you shouldn't always be the one to unload it because
you may be even better at some other household task and must consider the opportunity cost.
On the lower part of a linear demand curve below the midpoint, the demand is ________ and raising the price causes total revenue to _________.
inelastic; increase
In general, the demand for a good will be _________ elastic the ___________ the share of the good in the average consumer's budget.
less; smaller
What is the actual cost and also the opportunity cost of distributing the tickets this way?
A. The cost of people blocking traffic in and around the department's office building. B. The cost of travel to the department's office. C. The activities that cannot be done (such as earning money at work) when one is standing in line.
The Apply the Concept feature explains that there are both positive and normative aspects to the debate over whether the federal government should enact tariffs on imports of cars from Mexico. What economic statistics would be most useful in evaluating the positive elements in this debate? Assuming that these statistics are available or could be gathered, are they likely to resolve the normative issues in this debate? Which of the following economic statistics would be useful in evaluating the positive elements in this debate?
A. The size of the U.S. government's trade debt. B. Revenue the U.S. government could receive from the tariff. C. Car prices in the U.S. D. The number of U.S. jobs in automobile manufacturing.
Firms that provide workers with health insurance may pay a lower wage to obese workers than to workers who are not obese because the latter tend to be healthier and consequently
A. experience lower rates of absenteeism and early retirement. B. less costly to insure and therefore employ due to their lower claim submission rate. C. more productive at work.
Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid (a relatively small amount) for doing so. The programs vary, but typically consist of employees completing a health assessment, receiving a healthy living program, and monitoring their monthly health activities.
A. performs more efficiently, thereby improving overall productivity in the workplace. B. translates into lower costs, in part by reducing illness-related absenteeism and premature retirements.
Warren Buffet is the Chief Executive Officer of the investment firm Berkshire Hathaway and one of the wealthiest people in the world. In an editorial in the Wall Street Journal, Buffet argued that economic policies in the United States should be designed so that people who are willing to work receive enough income to live a "decent lifestyle." He argued that an expansion of the Earned Income Tax Credit (EITC) would be superior to an increase in the minimum wage as a means to reach this goal. The EITC is a program under which the federal government makes payments to low-income workers. Is Buffet correct that it is the role of the federal government to make sure people who work will have enough income to live a "decent lifestyle"?
This is a normative economic question, so the answer is a matter of the norms or values of the person answering.
Alberto Chong of Georgia State University and several colleagues conducted an experiment to test the efficiency of government postal services around the world. They mailed letters to nonexistent businesses in 159 countries and kept track of how many of the letters were returned. Was this test most relevant to evaluating the productive efficiency or the allocative efficiency of these postal services? This test that Albert Chong and his colleagues carried out was most relevant for evaluating the
allocative efficiency of these postal services because the test was designed to measure how often and how quickly the letters sent were returned.al
Define centrally planned economy
an economy in which the government decides how economic resources will be allocated
define social science
applies the scientific method to the study of the interactions among individuals.
Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 A.M. Monday morning at City Hall. Suppose that your college decides to give away 1,000 tickets to the football game against your school's biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1,000 students who show up at the department's office at 10 a.m. the following Monday. a. The groups of people that are most likely to get the tickets will be those for whom the expected marginal ▼ benefits costs of going to the department's office on Monday morning are greater than the expected marginal ▼ .
benefits costs
Which groups are likely to gain and which groups are likely to lose as a result of Fiat Chrysler's decision to produce more cars in U.S. plants rather than in overseas plants? Fiat Chrysler's decision to produce in the United States likely benefits ____________ and harms _______________
benefits workers harms consumers
f teachers put too much weight in the grading scale on a certain part of the course, like readings outside the textbook, students might respond by ________________ other parts of the course.
de-emphasizing
Scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost.
Centrally planned economies allocate resources based on decisions by ▼ , while market economies answer these questions through decisions made by ▼ households and firms government .
government households and firms
Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by ___________ the grade weight assigned to being prepared.
increasing
The article also implied that Fiat Chrysler's decision might have been affected by the possibility that the Trump administration might relax environmental regulations, such as a rule requiring companies to increase their cars' miles per gallon, and might attempt to reduce the taxes that corporations pay on their profits. These two factors would affect Fiat Chrysler's decision by...
making it more profitable to produce cars in the United States.
Efficiency means that goods are distributed in a way that _____________ , while equity means that goods are distributed in a way that is _______ .
maximizes benefits to society fair
The reasons for low rates of profit in the airline industry. This is a ___________ issue
micro
Which of the following areas of economics studies issues such as ways to reduce teenage smoking?
micro
Dr. Strangelove's theory is that the price of mushrooms is determined by the activity of subatomic particles that exist in another universe parallel to ours. When the subatomic particles are emitted in profusion, the price of mushrooms is high. When subatomic particle emissions are low, the price of mushrooms also is low. Is it possible to test this theory?
no (correlation does not equal causation)
Define equity
The fair distribution of economic benefits.
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
According to Forbes magazine, in 2017 Bill Gates was the world's richest person with wealth of $86 billion. Source: "The World's Billionaires," forbes.com, March 20, 2017. Does Bill Gates face scarcity?
Yes, because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite.
College football attendance, especially student attendance, has been on the decline. In 2016, home attendance at major college football games declined for the sixth consecutive year and was the lowest since 2000. The opportunity cost of engaging in an activity is the value of the best alternative that must be given up to engage in that activity. Source: Jon Solomon, "College Football Attendance in 2016: Crowds Decline for Sixth Straight Year," cbssports.com, December 16, 2016. Your opportunity cost of attending a game compared with the opportunity cost facing a college student 10 years ago is
higher, because more games are televised today.
What do economists mean by the word "marginal"?
extra or additional
tesla increases employment at its Fremont plant. This takes place in the _________ market The households ____________ the labor and the firm ____________ the labor.
factor supply demand
An increase in demand causes an increase in the equilibrium price. The increase in equilibrium price will then cause an increase in supply.
false
A free market is a market with ________ government restrictions on how a good or service can be produced or sold and with ________ government restrictions on how a factor of production can be employed.
few few
in a simple circular-flow model, there are flows of _________ and flows of _____
funds received from the sale of factors of production; spending on final goods and services factors of production; goods and services
Whether carried out by an individual or a country, production beyond the production possibilities frontier
is not physically possible.is
Economists' estimates of price elasticities can differ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. An article in the New York Times contained the following statement from the Centers for Disease Control and Prevention: "A 10 percent increase in the price of cigarettes reduces consumption by 3 to 5 percent." Given this information, compute the range of price elasticity of demand for cigarettes. According to the article, the price elasticity of demand for cigarettes ranges from _________ the lowest end of the range in absolute value) to _________
-0.30 -0.50
define firm company or business
A firm is an organization that produces a good or service. Most firms produce goods or services to earn a profit, but there are also nonprofit firms, such as universities and some hospitals. Economists use the terms firm, company, and business interchangeably.
when does a free market exist?
A free market exists when the government places few restrictions on how goods and services can be produced or sold or on how factors of production can be employed.
define households
A household consists of all persons occupying a home. Households are suppliers of factors of production—particularly labor—used by firms to make goods and services. Households also demand goods and services produced by firms and governments.
Which of the following statements about a hypothesis is correct?
A hypothesis is a statement that could in principle turn out to be incorrect.
Why might this fact make it more likely that a market mechanism would improve the well-being of people receiving food from local food banks?
A market mechanism is better suited to match donations to the locations where recipients receive the most benefit.A
what is Perfectly competitive market?
A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
what is Income elasticity of demand?
A measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in the quantity demanded divided by the percentage change in income.
what is the law of supply?
A rule that states that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.
what is the Law of demand
A rule that states that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.
Define productive efficiency
A situation in which a good or service is produced at the lowest possible cost.
what is market equilibruim
A situation in which quantity demanded equals quantity supplied.
what is Shortage?
A situation in which the quantity demanded is greater than the quantity supplied.
What is a surplus?
A situation in which the quantity supplied is greater than the quantity demanded.
Define scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
What is scarcity?
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
b. The federal government should spend more on AIDS research. This represents
normative analysis
Define allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
define Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
What is a demand schedule?
A table that shows the relationship between the price of a product and the quantity of the product demanded.
what is Supply schedule?
A table that shows the relationship between the price of a product and the quantity of the product supplied.
Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. What is the opportunity cost of spending more money to find a cure for heart disease?
A. The reduction in funding for research to cure other diseases.
Why are independent courts important for a well-functioning economy? Independence is necessary for courts:
A. to make their decisions free of influence from other parts of the government. B. to make their decisions free of influence from people with powerful political connections. C. to make their decisions free of intimidation by criminal gangs. D. to make their decisions based on the law.
What is the role of an entrepreneur?
A. to take risks B. to bring together the factors of productionlong dashlabor, capital, and natural resources C. to operate a business that produces a good or service
What do economists mean when they use the Latin expression ceteris paribus?
All else equal.
When does allocative efficiency occur?
Allocative efficiency occurs when production is in accordance with consumer preferences.
Which of the following statements about an economic variable is correct?
An economic variable is something measurable that can have different values.
Define mixed economy
An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
define market economy
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
Define centrally planned economy
An economy in which the government decides how economic resources will be allocated.
define Entrepreneur
An entrepreneur is someone who operates a business. In a market system, entrepreneurs decide what goods and services to produce and how to produce them. An entrepreneur starting a new business puts his or her own funds at risk. If an entrepreneur is wrong about what consumers want or about the best way to produce goods and services, his or her funds can be lost. Losing money in a failed business is not unusual: In the United States, about half of new businesses fail within four years. Without entrepreneurs willing to assume the risk of starting and operating businesses, economic progress would be impossible in a market system.
Which of the following illustrates the law of supply?
An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied.
When demand is inelastic, price and total revenue move in the same direction so....
An increase in price raises total revenue, and a decrease in price reduces total revenue.
Which of the following statements about microeconomics and macroeconomics is correct? A. Macroeconomics does not involve the analysis of economic policy. B. Macroeconomics is the study of the economy as a whole. Your answer is correct.C. Microeconomics does not involve the analysis of economic policy. D. All economic situations can be categorized as being microeconomics or macroeconomics.
B. Macroeconomics is the study of the economy as a whole.
What are the key determinants of the price elasticity of demand for a product? The key determinants of the price elasticity of demand for a product are:
B. availability of close substitutes, passage of time, necessities versus luxuries, definition of the market, and share of the good in the consumer's budget.
The Toyota Prius is a gasoline-electric hybrid car that gets 54 miles to the gallon. An article in the Wall Street Journal notes that sales of the Prius have been hurt by low gasoline prices and that: "Americans are now more likely to trade in a hybrid or an electric vehicle for an SUV...." Does the article indicate that gasoline-powered cars and gasoline are substitutes or complements? Briefly explain.
Complements, because they are used together.
From the list below, select the variable that will cause the demand curve to shift:
Consumer income
The Applying the Concept feature explains that the Feeding America charity asked three professors at the University of Chicago's Booth School of Business to design a more efficient way of allocating food to local food programs and that the professors proposed changing the food allocation system to one that resembled a market. Under the new system, the "shares" each food program receives to use in bidding for the types of food would be the equivalent to what economic variable that consumers use in the marketplace to bid for goods and services?
Consumer income.
Regarding the question of whether health insurance provides people with an incentive to become obese, the finding of Bhattacharya and Bundorf seems
D. relevant since the link between insurance and obesity was established while holding many other variables constant.
A primary difference between macroeconomics and microeconomics is
Microeconomics examines individual markets while macroeconomics examines the economy as a whole.Mi
In the 1950s, the economist Bela Balassa compared 28 manufacturing industries in the United States and Britain. In every one of the 28 industries, Balassa found that the United States had an absolute advantage LOADING.... In these circumstances, would there have been any gain to the United States from importing any of these products from Britain? Explain.
Even with an absolute advantage, the United States would have benefited from importing those products for which Britain had a comparative advantage.
Writing in the New York Times, Michael Lewis argued that "...a market economy is premised on a system of incentives designed to encourage an ignoble human trait: self-interest."
Financial reward.
In a market system, what determines how goods and services will be produced?
Firms determine how goods and services will be produced.
what are complements?
Goods and services that are used together.
what are Substitutes?
Goods and services that can be used for the same purpose.
define goods
Goods are tangible merchandise, such as books, computers, or Blu-ray players
define capital
In everyday speech, the word capital can refer to financial capital or to physical capital. Financial capital includes stocks and bonds issued by firms, bank accounts, and holdings of money. In economics, though, capital refers to physical capital, which includes manufactured goods that are used to produce other goods and services. Examples of physical capital are computers, factory buildings, machine tools, warehouses, and trucks. The total amount of physical capital available in a country is called its capital stock.
State government Medicaid programs provide medical insurance to poor and disabled people. A news article described a new prescription drug that costs as much as "$94,000 for one 12-week treatment regimen" to treat hepatitis C, a liver disease. Several states restricted access to the new drug under their Medicaid programs to patients who are most acutely ill (stage 3 or stage 4) with hepatitis C. State Medicaid programs are paid for, in part, out of state budgets. What trade-offs do state governments face when new prescription drugs are introduced with much higher prices than existing drugs?
Increases in spending on prescription drugs will require reductions in other government programs or services.
Shouldn't an increase in the price of soda resulting from a tax always increase that amount that families have to spend to buy soda? Briefly explain.
No, these higher soda prices will not increase the amount spent on soda if the price elasticity of demand is elastic.
In recent years, increases in the number of visitors to National Parks such as Yellowstone and Grand Canyon have resulted in over $12 billion in deferred maintenance costs. In response to the overcrowding that has contributed to the cost overruns, the Park Service has considered limiting the number of daily visits to the parks and soliciting corporate sponsorships. Margaret Walls, a vice president for research at Resources for the Future, has offered another suggestion: increasing entrance fees. But she warns: "Figuring out an efficient and fair fee structure will not be easy. It requires detailed data on visitation, for starters, as well as analysis to shed light on price elasticities of demand for different groups of visitors at different locations." Why is it important for the Park Service to have estimates of price elasticities of demand before raising entrance fees to the National Parks?
Price elasticities of demand will reveal whether raising entrance fees will increase or decrease park revenue.Pr
5 things that shift the market of supply
Prices of inputs Technological change Prices of related goods in production Number of firms in the market Expected future prices
What are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward
What is comparative advantage?
The ability to produce a good or service at a lower opportunity cost than other producers.
What is absolute advantage?
The ability to produce more of a good or service than competitors using the same amount of resources
The key determinants of the price elasticity of demand are:
The availability of close substitutes for the good The passage of time Whether the good is a luxury or a necessity The definition of the market The share of the good in the consumer's budget
what is Unit-elastic demand?
The case where the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value.
what are Demographics?
The characteristics of a population with respect to age, race, and gender.
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?
The country is operating on its production possibilities frontier.
what is the Market demand?
The demand by all the consumers of a given good or service.
If demand decreases and supply increases, which of the following will definitely occur?
The equilibrium price will decrease.
If demand and supply both increase, which of the following will definitely occur?
The equilibrium quantity will increase.
define scientific method
The process of developing models, testing hypotheses, and revising models
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods. Is it likely that the production possibilities frontier in this situation would be a straight line:or bowed out
The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.
Define Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
In The Wealth of Nations, Adam Smith discussed what has come to be known as the "diamond and water paradox": "Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it."
The supply of water is greater than the supply of diamonds.
During the 1928 presidential election campaign, Herbert Hoover, the Republican candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good policy? Explain.
This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.
What is the guild system?
Under this system, governments would give guilds, or organizations of producers, the authority to control the production of a good. For example, the shoemakers' guild controlled who was allowed to produce shoes, how many shoes they could produce, and what price they could charge. In France, the cloth makers' guild even dictated the number of threads in the weave of the cloth.
The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learning and Assessment in College, Barbara Walvoord and Virginia Anderson state that "grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class." The grading system used by a teacher can affect the incentives of students to learn the course material by
altering the payoffs to achieving success on the various components of the course.al
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?
an independent court system
what is a factor market
are markets for the factors of production. Factors of production are the inputs used to make goods and services
define Firms
are suppliers of goods and services. Firms use the funds they receive from selling goods and services to buy or hire the factors of production needed to make the goods and services.
what are factors of production
are the inputs used to make goods and services. Factors of production are divided into four broad categories
what are factors of production
are the inputs used to make goods and services. Factors of production are divided into four broad categories: labor, capital, natural resources, and an enterpurnur
what is Property rights?
are the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
The cost of ________________ a book is the price you pay to buy the book, but the cost of ____________________ a book would include the time spent reading the book.
buying consuming
Economists refer to the necessity of holding all variables other than price constant in constructing a demand curve as the
ceteris paribus condition. Ceteris paribus means "all else equal" in Latin.
An article on marketwatch.com states that: "While the fizzy soda drinks companies have experienced an annual volume sales decline since 2003, bottled water grew every year over the last two decades, except 2009 during the depths of the Great Recession." A factor that could have caused a decline in sales of carbonated ("fizzy") beverages is
changing preferences toward health.
Suppose the demand for premium bottled water increases rapidly during 2018. At the same time, six more firms begin producing premium bottled water. A student remarks that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall. The student's remarks (that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall) is
correct. When there is an increase in supply and an increase in demand, the new equilibrium quantity increases but whether the equilibrium price increases or decreases is unknown.
Any attempt to determine whether or not this is a good system must focus on its
costs and benefits
After Russia seized what had formerly been the Ukrainian territory of Crimea in February 2014, the United States and many other countries imposed economic sanctions that reduced the ability of Russia to engage in international trade. A columnist writing in the New York Times noted that, "If sanctions push Russia onto a path of greater self-reliance, its manufacturing and service industries will surely grow faster...." If the columnist is correct about the effect of the sanctions, then, in the long run, the sanctions will
decrease the economic well-being of the average Russian because Russia will have to produce some goods and services at a higher cost than its trading partners.
An article in the Wall Street Journal notes that although U.S. oil production has increased rapidly in recent years, the increase has still amounted to only 5 percent of world production. Still, that increase has been "enough to help trigger a price collapse." Source: Georgi Kantchev and Bill Spindle, "Shale-Oil Producers Ready to Raise Output," Wall Street Journal, May 13, 2015. A small increase in supply can lead to a large decline in equilibrium price when
demand is relatively inelastic.
Tables that show the relationship between the price of a product and the quantity of the product demanded are called
demand tables
The difference between a change in supply and a change in the quantity supplied is that the latter is
displayed graphically as a movement along a supply curve while the former is shown as a shift in the supply curve.
When San Francisco and other cities in California adopted soda taxes, an opinion column in the New York Times observed that: "Often, the taxes don't even pinch the budgets of low-income families, because they respond by drinking less soda." When the columnist writes that soda taxes don't "pinch the budgets" of low-income families, he means that low-income families more on sodas.
do not spend
Determine whether the demand for the following product is likely to be elastic or inelastic Demand for cola is likely to be
elastic
Amazon allows authors who self-publish their e-books to set the prices they charge. One author was quoted as saying: "I am able to drop prices and, by sheer volume of sales, increase my income." The demand for this author's books was price
elastic because a decrease in price resulted in higher revenue.
The entrance fee into Yellowstone National Park in northwestern Wyoming is "$30 for a private, noncommercial vehicle; $25 for a motorcycle or a snowmobile; or $15 for each visitor 16 and older entering by foot, bike, ski, etc." The fee provides the visitor with a seven-day entrance permit into Yellowstone and nearby Grand Teton National Park. The demand for entry into Yellowstone National Park for visitors in private, noncommercial vehicles is
elastic because when the price is high and the quantity demanded isel low, demand is elastic.
One study found that the price elasticity of demand for soda is -0.78, while the price elasticity of demand for Coca-Cola is -1.22. The price elasticity of Coca-Cola is (interpret the absolute value of these elasticitiies, i.e., ignore the minus sign):
greater than it is for soda as a product because there are more substitutes for Coca-Cola than soda.
What happens when the quantity demanded is very responsive to changes in price? The percentage change in quantity demanded will be.....
greater than the percentage change in price.
A good is an _________ when the demand for it decreases following a rise in income and increases following a fall in income.
inferior good
Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts that: "If only one poor person is helped with this method, then all our time and money would have been worth it." If you were a member of the organization, what reply best represents clear economic thinking? This attitude
ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.
5 things that shift market demand the most
income Prices of related goods Tastes Population and demographics Expected future prices
A news story from 2017 about the oil market stated, "crude oil prices fell ... in part [due to] renewed concerns about the global supply glut."
increase in supply of, relative to the demand for, crude oil.
As part of his 2016 federal budget proposals, President Obama recommended significant changes to the federal student loan programs. Given your answer to the previous question, do you think President Obama was likely to have recommended changes that would increase, or changes that would decrease, the payments that borrowers would have to make? President Obama was likely to have recommended changes that would
increase the payments that borrowers would have to make so that the government would be paid back sooner
The federal government subsidizes some loans to college students. Typically, the more students who participate in these programs and the more they borrow, the higher the cost to the federal government. In 2011, President Barack Obama convinced Congress to pass these changes to the federal student loan programs: (1) Payments were capped at 10 percent of a borrower's discretionary income; (2) any unpaid balances for people working for the government or in the non-profit sector were forgiven after 10 years; and (3) people working in the private sector had their loans forgiven after 20 years. As a result of these changes in the federal student loan program, you would predict that the total amount students' borrowed under these programs would have
increased because the terms of repayment have been made more generous.
As you move up a linear demand curve, the price elasticity of demand in absolute value
increases.
The price elasticity of demand for a particular brand of raisin bran is, in absolute value,
larger than the price elasticity of demand for all breakfast cereals.la
Suppose that Lichtenstein and Luxembourg currently have identical production possibilities frontiers but that Lichtenstein devotes only 5 percent of its resources to producing capital goods over each of the next 10 years, whereas Luxembourg devotes 30 percent. Which country is likely to experience more rapid economic growth in the future?
luxembourg
The effect of higher income taxes on the total amount of consumer spending. This is a ________ issue
macro
Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of recessions?
macro
the reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a ___________ issue.
macro
The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a ▼ macroeconomic microeconomic issue. However, to understand how much new machinery and equipment firms decide to purchase, one must analyze the incentives individual firms face, which is a ▼ macroeconomic microeconomic issue.
macro micro
The Food and Drug Administration (FDA) is part of federal government's Department of Health and Human Services. Among its other functions, the FDA evaluates the safety and effectiveness of drugs and medical devices. FDA approval had to be granted before OraSure was allowed to market its home HIV test. In a centrally planned economy, the government decides how resources will be allocated. In a market economy, the decisions of households and firms interacting in markets allocate resources. The regulation of the production and sale of drugs and medical devices in the United States is an example of how resources are allocated in a
market economy because the drug development, and the resources allocated to the development, occurs in the market.
A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to ▼ maximize total output minimize production costs while the latter ensures it of ▼
minimize production costs ample revenues
Therefore, the cross-price elasticity of demand between "substitutes" is most likely positive and the cross-price elasticities of demand between "complements" is most likely
negative
The late Nobel Prize-winning economist Kenneth Arrow of Stanford University once wrote that the argument that the outcomes in a market system, "may be very different from, and even opposed to, intentions is surely the most important intellectual contribution that economic thought has made." it is possible for the outcomes in a market system to be different from what firms and consumers intended them to be because
neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person. Your answer is correct.
If a market is in equilibrium is it necessarily true that all potential buyers and sellers are satisfied with the market price?
no
Productive efficiency occurs when a good or service (such as the distribution of tickets) is produced at the lowest possible cost. Is this an efficient way to distribute the tickets?
no
Some economists have been puzzled that although entrepreneurs take on the risk of losing time and money by starting new businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. William Baumol believes part of the explanation for this puzzle may be that entrepreneurs are like people who buy lottery tickets. On average, people who don't buy lottery tickets are left with more money than people who buy tickets because lotteries take in more money than they give out. Baumol argues that "the masses of purchasers who grab up the [lottery] tickets are not irrational if they receive an adequate payment in another currency: psychic rewards." The term "psychic rewards" refers to.........
nonmonetary forms of remuneration that are psychologically uplifting.
This is.......
not an equitable way to distribute the tickets because some students who really want them may be unable to go and get them.
If the price of Sprite falls while the demand for Coca - Cola falls, is the cross-price elasticity of demand between the pair of products likely to be positive or negative?
positive
a. A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents
positive analysis
c. Rising paper prices will increase textbook prices. This represents
positive analysis
The amount of a good or service that a firm is willing and able to supply at a given price is the
quantity supplied.
define Capital
refers to physical capital, such as computers, office buildings, and machine tools, used to produce other goods.
The production possibilities frontier will shift outward
results from if resources are used to create capital goods
Firms are likely to produce more of a good or service when its price ____________ and less of a good or service when its price _____________
rises falls
What is the law of demand? The law of demand is the
rule that, holding everything else constant, when the price of a good falls, the quantity demanded will increase, and when the price of a good rises, the quantity demanded will decrease.
According to an article in the Wall Street Journal, some small publishers have argued that Amazon has been increasing the prices it sells their books for on its Web site. Amazon was increasing the prices by reducing the discount it offered consumers on the retail prices of the books. One small nonfiction publisher said that Amazon had reduced the discount on its books from about 30 percent to about 16 percent. According to the author of the article: "For this publisher, that means less revenue and less profit as some buyers reject the more expensive books." Some buyers will no longer buy the publisher's books at a higher price. The publisher will earn less revenue only if
sales fall significantly.
In a graph (not shown) of the banana market in the United States, the imposition of a tariff on banana imports would
shift supply leftward, increasing equilibrium price and decreasing equilibrium quantity.
A production possibilities frontier:
shows the maximum attainable combinations of two goods that may be produced with available resources.sh
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.
smaller
Effect on discouraging soda consumption When Demand for Soda Is Price Inelastic ____________ When Demand for Soda Is Price Elastic ___________
smaller effect Larger effect
goods and services that can be used for the same purpose are called
substitues
Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that: "the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States." This producer apparently assumed apples and bananas to be _____________ .
substitutes
Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. "There is nothing morally unattractive about saying: We need to analyze which way of spending money on health care will produce more benefit and which less, and using our money as efficiently as we can. I don't think there is anything immoral about seeking to achieve environmental benefits at the lowest possible costs." It would be more moral to reduce pollution,
taking the cost into account because money spent on pollution reduction is not available for other worthy activities
__________ which is a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
technological change
what is absolute advantage?
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.
What is the midpoint method for calculating price elasticity of demand? The midpoint method for calculating price elasticity of demand is:
the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices.
From the list below, select the variable that will cause the supply curve to shift:
the cost of raw goods
The demand for agricultural products is inelastic, and the income elasticity of demand for agricultural products is low. How do these facts help explain the disappearing family farm? The family farm has been disappearing because
the demand for food has not increased proportionally with increases inth income, and increases in the supply of food have resulted in significant decreases in food prices.
define equity
the fair distribution of economic benefits
In colonial America, the population was spread thinly over a large area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a result, most of the free population lived on small farms where they not only grew their own food but also usually made their own clothes and very rarely bought or sold anything for money. Why were the incomes of these farmers likely to rise as transportation costs fell? As transportation costs fell,
the farmers gained access to new markets and customers. Using comparative advantage, the farmers specialized, producing those goods for which they had lower opportunity cost. As they traded for other goods, their incomes and living standards increased.
if a demand curve is elastic then a decrease in price increases revenue because
the increase in quantity demanded is proportionally greater than the decrease in price.
if the demand curve is inelastic then a decrease in price reduces revenue
the increase in quantity demanded is proportionally smaller than the decrease in price.
if a demand curve is unit elastic then a decrease in price does not affect revenue
the increase in quantity demanded is proportionally the same as the decrease in price.
This idea is an important intellectual contribution because
the interaction of firms and consumers in markets produces outcomes that are economically efficient and that promote the economic growth that results in rising living standards.
What is the formula for the price elasticity of demand? The formula for the price elasticity of demand is
the percentage change in quantity demanded divided by the percentage change in price.th
The cross-price elasticity of demand is
the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
what is a relative price
the price of one good or service relative to the prices of other goods or services
Psychic rewards that an entrepreneur might receive include (check all that apply):
the pride of self-accomplishment. status within the community. being one's own boss.
what is Microeconomics
the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
what is macroeconomics
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More specifically,
the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in the consumers' purchasing power.
In the foreword to a report on property rights around the world, Peruvian economist Hernando De Soto noted that: "countries that have weak property rights also struggle to develop strong, innovative economic markets." What does De Soto mean by "strong, innovative economic markets"?
these are markets that search out opportunities to provide new goods and services.
President Obama and his advisers have failed to correctly forecast the effects of the 2011 changes to the loan programs because they
underestimated the number of students who would take advantage of the programs.
How should policymakers determine the amount of money that should be allocated for research curing heart disease? They should base their decision on
whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases.
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good
will have a comparative advantage if it has a lower opportunity cost of producing that good.
We can show economic inefficiency:
with points inside the production possibilities frontier.
We can show economic efficiency:
with points on the production possibilities frontier.
Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity?
yes. If the income elasticity of demand is greater than 1, then the good is a luxury. If the income elasticity of demand is positive but less than 1, then the good is a necessity.
According to an article in the Wall Street Journal, Staples Inc., an office supply store, "has found a new use for some of its roomy office-supply stores: make parts of them into offices." With many businesses having moved to storing their records digitally and many consumers now shopping online rather than in stores, Staples no longer needs as much floor space for filing cabinets and some other products. To use the surplus space, Staples has begun a partnership with Workbar, an office-sharing firm, to offer small business owners and professionals shared workspaces within select Staples retail stores. Does Staples incur a cost from using some of the space in its retail stores for office workspaces? If Staples does incur a cost, briefly explain what the cost would be.
Yes, if the surplus space could be used for some other alternative use, then Staples incurs an opportunity cost.
Consider the following two uses of the word "demand" in news articles: i. An article in the Wall Street Journal noted that an "increase in the price of oil quickly reduces demand for oil." ii. A different article in the Wall Street Journal noted: "Electric cars are poised to reduce U.S. gasoline demand by 5% over the next two decades...." Do you agree with how the first Wall Street Journal article uses the word "demand"? Do you agree with how the first Wall Street Journal article uses the word "demand"?
No, a change in the price of oil affects the quantity of oil demanded, not the demand for oil.
The chapter mentions that in 1965 married women with children worked an average of 32 hours per week while men worked an average of only 4 hours on house work long dash a total of 36 hours of housework. In 2016, the estimated average weekly hours of housework for women declined to 15.7, while the hours worked by men increased to about 9.7 long- a total of 25.4 hours of housework. Does the decrease in the total number of hours of house work long- from 36 to 25.4 long -mean that families are willing to live in messier homes?
No, because there are more labor saving devices so less time is required.
Can you think of any reason when it might be appropriate for states to provide expensive new drugs only to the patients who are most ill from a disease?
Yes, it might be appropriate when other uses of those resources have less value.
Use income elasticity to distinguish a normal good from an inferior good. For a normal good, the income elasticity of demand will be
positive, but for an inferior good, the income elasticity of demand will be negative.
The income elasticity of demand for a normal good is _____ and for an inferior good is ______.
positive; negative
Goods and services that can be used for the same purpose are ________, and goods and services that are used together are ________.
substitutes; complements
