Economics Exam 1

Which of the following is evidence of a shortage of walnuts?

The quantity demanded of walnuts is greater than the quantity supplied

An increase in the quantity of a product supplied is caused by an increase in the price of the product

True

in economics, the term ________ means "additional" or "extra."

marginal

________ is the difference between the willingness to pay and the price paid for a good.

Consumer surplus

The steps needed to evaluate the best way to organize an economy include:

Determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes.

The three fundamental questions that must be answered by any economy include

How much to produce, how to produce goods, and who gets the goods

Which of the following are assumptions needed for simple arithmetic

Numbers exist. Addition

If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then

The market equilibrium quantity of tacos is efficient. The market equilibrium quantity of enchiladas is efficient.

A budget constraint is a straight line because

a consumer faces a fixed price of both goods that do not change with changes in consumption.

The law of demand implies, holding everything else constant, that as the price of gelato

decreases, the quantity of gelato demanded will increase.

If demand is inelastic, the absolute value of the price elasticity coefficient is greater than one.

False

Economics teaches us that people

Fundamentally want more goods.

Trade

Has been a feature of nearly all economies

The substitution effect of a decrease in the price of movie tickets results in

an increase in the quantity of movie tickets demanded

The demand curve for most goods is normally

downward sloping

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time.

Marginal utility is the

extra satisfaction received from consuming one more unit of a product

An item has utility for a consumer if it

generates enjoyment or satisfaction

A good is said to have a relatively elastic demand if the value of price elasticity is

greater than 1.

The buyers of a good will want to purchase it as long as their willingness to pay for the good is:

greater than or equal to the price

Price elasticity of supply is used to gauge

how responsive suppliers are to price changes.

A surplus occurs when the actual selling price is above the market equilibrium price

true

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to

pivot rightward along the horizontal

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint

pivots leftward without a change in the intercept on the horizontal axis.

By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good

price; quantity; price

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits

rationally

A budget constraint

refers to the limited amount of income available to consumers to spend on goods and services

The ________ the sale of an additional unit of a product is a marginal benefit to the firm.

revenue received from

Economics is the study of

scarcity

Economic Studies

scarcity, the social institutions used to address scarcity; how to produce, how to produce it, and who gets it

economic question involves...

should we

The supply curve for watches

shows the relationship between the price of watches and the quantity of watches supplied.

One would speak of a change in the quantity of a good supplied, rather than a change in supply, if

the price of the good changes.

The law of demand implies, holding everything else constant, that as the price of bagels increases,

the quantity of bagels demanded will decrease

Making optimal decisions "at the margin" requires

weighing the costs and benefits of a decision before deciding if it should be pursued

Adam Smith's Invisible Hand Theorem indicates that competitive markets are efficient because:

Competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best way possible.

_______ is the measure of the sensitivity of one variable to a change in another

Elasticity

If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

False

When buyers and sellers operate in a competitive market, they are

Following their own self-interest, doing whatever serves them best.

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

It is elastic at high prices and inelastic at low prices

Advantages of trade include that

It permits specialization. It permits people some people to produce more than they consume. It takes advantage of comparative advantage

Scarcity in an economy emerges from

Limited resource and infinite wants

Adam Smith's proposition or theorem consists of

Market outputs are efficient, those outputs are produced efficiently, and those outputs are allocated among buyers in the most efficient way.

describes the steps in simple arithmetic as proceeding from

Numbers to cardinal numbers to addition to subtraction to multiplication to division

Which of the following can be derived from other assumptions about numbers

Subtraction. Multiplication. Division

Which of the following describes the substitution effect of a price change?

The change in 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.

Which of the following statements correctly differentiates between the slope of the demand curve and price elasticity of demand along a linear demand curve?

The price elasticity of demand for a good varies along the demand curve, whereas the slope of the demand curve remains the same at different points on the curve.

Which of the following is a normative economic statement?

The price of wheat is too low

n October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the United States?

The supply curve shifted to the left

If the United States placed an embargo on Swedish products, what would happen in the U.S. market for Swedish furniture?

The supply curve would shift to the left

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price

True

Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price.

True

The additional cost to a producer of hiring an additional unit of labor is called the marginal cost. T or F

True

in response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplies will decrease until equilibrium is reached

True

Which of the following examples best describes the Law of Demand

When the price of tea increased, the quantity demanded of tea decreased.

Which of the following is the formula to calculate arc elasticity of demand?

[(Q2 - Q1) / (Q2+ Q1)/2] / [(P2 - P1) / (P2 + P1)/2]

If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as

a decrease in quantity demanded

The phrase "demand has decreased" means that

a demand curve has shifted to the left.

An increase in the price of pineapples will result in

a larger quantity of pineapples supplied.

If opportunity costs are constant, the production possibilities frontier would be graphed asIf opportunity costs are constant, the production possibilities frontier would be graphed as

a negatively sloped straight line.

Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service.

additional

Economists assume that individuals

are rational and respond to incentives.

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely

budget constraint

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

demand

if a demand curve shifts to the right, then

demand has increased

Making "how much" decisions involves

determining the additional benefits and the additional costs of that activity.

The opportunity cost of taking a semester-long economics class is

equal to the highest value of an alternative use of the time and money spent on the class

The production possibilities frontier model shows that

if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

A supply schedule

is a table that shows the relationship between the price of a product and the quantity of the product supplied.

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in

its price

Two goods are said to be complements when a fall in the price of one good

leads to a right shift in the demand for the other good

Economists assume that the goal of consumers is to

make themselves as well off as possible

The extra cost associated with undertaking an activity is called

marginal cost

A restaurant sells a large soft drink at a fixed price of $1.79. A term used by economists to describe the money received from the sale of an additional large soft drink is

marginal revenue

The demand by all the consumers of a given good or service is the ________ for the good or service.

market demand

The highest valued alternative that must be given up to engage in an activity is the definition of

opportunity cost

People do not feel rich bc

people always want more

If firms do not increase their quantity supplied when price changes, then supply is

perfectly inelastic

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to

pivot leftward along the vertical axis.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the budget constraint

By definition, economics is the study o

the choices people make to attain their goals, given their scarce resources.

If the price of music downloads was to decrease, then

the demand for MP3 players would increase

A change in the price of a good has two effects on the quantity consumed. What are these effects

the income effect and the substitution effect

The slope of a budget constraint represents

the opportunity cost of one good in terms of another

The price elasticity of supply is equal to

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

A demand curve shows

the willingness of consumers to buy a product at different prices

When people invest in a business, those investments

Are efficient if they are investing their own money.

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Which of the following best describes the difference between a demand curve and a demand schedule

A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil?

A twofold increase in the price of pens and a threefold increase in the price of pencils

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve

The key advantage of market exchange compared to one-on-one (barter) trade is that

Barter limits trades because each person must want what the other one has. Markets use money, which is generally better. Markets are more organized

If the price of a good increases, ________.

the consumer surplus decreases