Javier Portillo, ECON 202, Exam 1 study guide

The market price of pizza is $1.25 per slice,Manuel is willing to pay $1.50,the consumer surplus he gains from the 8th slice of pizza is

$0.25

Suppose the market for apple pie is a perfectly competitive market—that is, sellers take the market price as given. Alex owns a restaurant where he sells apple pie.The price of apple pie is $3.00 per slice, Alex is willing to supply his 8th slice of apple pie for $2.25 each week. Since he receives $3.00 per slice, the producer surplus he gains from supplying the 8th slice of apple pie is

$0.75.

You work as an assistant coach on the university basketball team and earn $13 per hour. One day, you decide to skip the hour-long practice and go to the county fair instead, which has an admission fee of $9. The total cost (valued in dollars) of skipping practice and going to the fair (including the opportunity cost of time) is

$22

Dmitri and Frances are partners at a management consulting firm. They are trying to determine which of them has a comparative advantage in creating the 50 slides required for a sales pitch to a prospective client. Dmitri can create 15 slides per hour. For other activities, he can bill clients $750 per hour. Dmitri's opportunity cost of creating slides is______per slide.

$50

Which of the following are positive (rather than normative) statements? Check all that apply. -An increase in the price of beer will lead to people drinking less beer. -People should drink less beer. -There are two policies designed to reduce alcohol consumption. Policy A leads to a larger reduction in the consumption of alcohol than policy B. -There are two policies designed to reduce alcohol consumption. You should support policy A.

-An increase in the price of beer will lead to people drinking less beer -There are two policies designed to reduce alcohol consumption. Policy A leads to a larger reduction in the consumption of alcohol than policy B

Which of the following would increase the current demand for beef? Check all that apply. -Higher pork prices -Widespread outbreak of mad cow or hoof-and-mouth disease -Higher prices of feed grains used to feed cattle -An increase in the price of beef -Higher consumer income, assuming that beef is a normal good

-Higher pork prices -Higher consumer income, assuming that beef is a normal good

If you have private-ownership rights to something, what does this mean? -It means that you can transfer, sell, or mortgage the good. -It means that you have the right to do anything you want with the good. -It means that you paid for the good. -It means that you have the right to infringe on the rights of others.

-It means that you can transfer, sell, or mortgage the good.

Which of the following factors might cause transaction costs to be high? Check all that apply. -A great number of middlemen in the economy -Licensing requirements -A lack of information -Physical obstacles

-Licensing requirements -A lack of information -Physical obstacles

ow does economic efficiency relate to the gains of consumers and producers? -In a market economy, when the demand for a good increases, its price will rise, which will motivate producers to supply more of the good. -In a market economy, when the demand for a good increases, its price will be efficient, which will motivate consumers to search for substitutes and cut back on additional purchases of the good. -The equilibrium reached by a market satisfies economic efficiency and the difference between consumer and producer surplus is minimized. -The equilibrium reached by a market satisfies economic efficiency, and the total gains from trade represented by the combined area of consumer and producer surplus are maximized.

-The equilibrium reached by a market satisfies economic efficiency, and the total gains from trade represented by the combined area of consumer and producer surplus are maximized.

Many underdeveloped economies have a large number of squatters—people who occupy a plot of land without any deed existing to give anyone formal ownership. Therefore, they use the land and its resources, but they do not officially own the land. How might the lack of well-defined property rights hold back economic growth? Check all that apply. -The land squatters occupy is not protected against seizure by someone else. -Squatters cannot mortgage, or borrow against, the land. -Squatters can legally sell the land they occupy.

-The land squatters occupy is not protected against seizure by someone else. -Squatters cannot mortgage, or borrow against, the land.

Which of the following must be true for a market to be able to achieve an efficient outcome? Check all that apply. -The market price is determined solely by the forces of supply of and demand for a good. -Firms can freely enter or exit the market without any barriers. -Private property rights are well-defined and enforced.

-The market price is determined solely by the forces of supply of and demand for a good. -Private property rights are well-defined and enforced.

Suppose that Francis makes the following statement: "Positive economics cannot tell us which agricultural policy is better, so it is useless to policymakers." Which of the following best describes this statement? -The statement is true because positive economics involves statements that cannot be measured with data, and so it would be impossible to determine which agricultural policy is more effective. -The statement is false because positive economics involves verifiable statements that can be assessed by data, so positive economics can be used to determine which agricultural policy is more effective in achieving a given goal.

-The statement is false because positive economics involves verifiable statements that can be assessed by data, so positive economics can be used to determine which agricultural policy is more effective in achieving a given goal.

According to the law of comparative advantage, what should be the distinguishing characteristic of the goods a nation produces? -The law of comparative advantage only applies to imports. -They have the lowest opportunity costs. -They have the lowest capital costs. -They have the lowest labor costs.

-They have the lowest opportunity costs.

Local government bans on plastic grocery bags due to environmental concerns have led to increased emergency room visits and deaths related to harmful bacteria such as E. coli, as many people do not wash their bags after each use. Which of the following best characterizes the statement? 1-The statement demonstrates that normative economics is often confused with positive economics. 2-The statement demonstrates that even when government policies are enacted with good intentions, they do not always guarantee good outcomes due to unintended consequences and secondary effects. 3-The statement shows that all environmental regulations have benefits that exceed the costs. 4-The statement is an example of the fallacy of composition because all foods do not contain harmful bacteria.

2-The statement demonstrates that even when government policies are enacted with good intentions, they do not always guarantee good outcomes due to unintended consequences and secondary effects.

Which of the following policy changes is most likely to lead to a rise in the birthrate in a country? -An increase in income taxes in the country -A decrease in the child tax credit -A reduction in the taxes imposed on those who have children -An increase in taxes imposed on those who have children

A reduction in the taxes imposed on those who have children

During the last four decades, entrepreneurs like Steve Jobs, Sam Walton, and Elon Musk have earned billions of dollars. Is the average American better or worse off as a result of the economic activities of these individuals? -Better off. These individuals have expanded the economy's production possibilities through innovation and entrepreneurship. -Better off. These individuals earn more than 99% of the working population and donate all their earnings to the less privileged. -Worse off. These individuals earn more than 99% of the working population. -Worse off. These individuals donate too much money, thus discouraging the less privileged part of the population.

Better off. These individuals have expanded the economy's production possibilities through innovation and entrepreneurship.

A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices

Demand Curve

A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices

Demand Schedule

The claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises

Law of Demand

The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises

Law of Supply

Would people be better off if there were no middlemen? -Yes, middlemen increase unemployment. -No, middlemen perform a productive function by reducing transaction costs. -No, middlemen reduce inflation. -Yes, middlemen impede an efficient flow of market resources.

No, middlemen perform a productive function by reducing transaction costs.

Categorize the statement as either positive or normative: The government should increase taxes on cigarettes.

Normative

The amount of a good that buyers are willing and able to purchase at a given price

Quantity Demanded

The amount of a good that sellers are willing and able to supply at a given price

Quantity Supplied

Jacques is training for a triathlon, a timed race that combines swimming, biking, and running. Jacques has only 20 hours per week that he can devote to training for his race. Which basic principle of individual choice does this sentence best illustrate?

Resources are scarce.

Consider the market for hamburgers in an economy where the market equilibrium is characterized by a quantity of hamburgers of 50 million and a price of $5.00 per hamburger. Suppose that currently 80 million hamburgers are being produced and sold at a price of $2.50. This outcome in the market for hamburgers is economically inefficient because: -The opportunity cost of producing the last hamburger equals the marginal benefit of consumption. -Some hamburgers produced incur opportunity costs of production that exceed their value or marginal benefit to consumers.

Some hamburgers produced incur opportunity costs of production that exceed their value or marginal benefit to consumers.

A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices

Supply Curve

A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices

Supply Schedule

How would a change in the meeting time of the introductory economics course, from 11:00 AM to 7:30 AM, affect a student's decision to attend the lectures? -The change in the meeting time would make it more likely that a student would attend the early class. -The change in the meeting time would reduce the incentive of a student to attend the class. -The change in the meeting time would have no effect on a student's decision to attend the class. -The change in the meeting time would encourage students to attend the early class.

The change in the meeting time would reduce the incentive of a student to attend the class.

occurs at the price at which quantity demanded equals quantity supplied

The market equilibrium

Suppose that the government raises the permissible minimum wage to $15 per hour. Which of the following describes a secondary effect that will likely result from this action? -The rise in the minimum wage may lead to increased employment as fewer people are willing to work and businesses hire more workers. -The rise in the minimum wage will lead to a drastic fall in the poverty rate in the country. -The rise in the minimum wage may lead to increased unemployment as more people are willing to work but businesses hire fewer workers. -The rise in the minimum wage will lead to an increase in all goods and services produced.

The rise in the minimum wage may lead to increased unemployment as more people are willing to work but businesses hire fewer workers.

Consider the following statement: "Individuals who economize are missing the point of life. Money is not so important that it should rule the way we live." Which of the following is true regarding this statement? -The statement is true because individuals who try to save as much money as possible are not living life to the fullest. -The statement is false because the act of economizing involves choosing the option that brings the greatest satisfaction at the least cost.

The statement is false because the act of economizing involves choosing the option that brings the greatest satisfaction at the least cost.

Which of the following accurately explains why professional wrestlers earn more than nurses? -The supply of professional wrestlers is small relative to nurses, and price is determined by total value (not marginal value). -The supply of professional wrestlers is small relative to nurses, and price is determined by marginal value (not total value).

The supply of professional wrestlers is small relative to nurses, and price is determined by marginal value (not total value).

Which of the following most accurately explains why the supply curve for a good slopes upward to the right? -There is a direct relationship between a good's price and the amount offered for sale by suppliers. -There is a direct relationship between a good's price and the amount consumers are willing to purchase. -There is an inverse relationship between a good's price and the amount offered for sale by suppliers. -There is an inverse relationship between a good's price and the amount consumers are willing to purchase.

There is a direct relationship between a good's price and the amount offered for sale by suppliers.

In order to increase safety for children, the government enacts a policy that requires all children under two years of age to sit in child safety seats during flights. This requires parents to buy two airline seats instead of one. As a result, more parents travel by road. However, the likelihood of death by automobile accidents is much higher than that by air travel. Therefore, many more children are placed at risk than before the policy. Which of the following statements is most applicable to this scenario? -This is an example of careful economic reasoning being utilized by the government. -This is an example of the typical outcome of policies. -This is an example of unsound policy even though the intentions were good. -This is an example of sound economic policy.

This is an example of unsound policy even though the intentions were good.

Consider the following statement: "I examined the statistics for our basketball team's wins last year and found that, when the third team played more, the winning margin increased. If the coach played the third team more, we would win by a bigger margin." Which of the following applies to this statement? -This statement is correct. If the coach had played the third team more often, the winning margin would have increased. -This statement exemplifies the post hoc ergo propter hoc ("after this, therefore because of this") fallacy, whereby association is confused with causation. -The statement is logical and exhibits no fallacy. -This statement is correct because third teams always win by larger margins in basketball games.

This statement exemplifies the post hoc ergo propter hoc ("after this, therefore because of this") fallacy, whereby association is confused with causation.

True or False: Marginal analysis involves comparing the additional or extra benefit derived from consuming an additional unit of a product or service to the additional cost of consuming that unit of the product or service.

True

re prices an accurate measure of a good's marginal value? -No, prices are total benefit consumers derive from all units consumed. -No, prices are an accurate measure of a good's total value. -Yes, prices reflect marginal value, not total value. -Yes, prices depend on elasticity of supply and demand.

Yes, prices reflect marginal value, not total value.

The use of price as a rationing mechanism indicates that the economy is

a market economy

the quantity supplied increase, is reflected on the graph by amovement

along the supply curve.

People in business get ahead by meeting the needs of their consumers. As a result,

both businesses and customers benefit.

choose the correct type of resource for: A brick oven used by a local pizza parlor

capital

The difference between the maximum price consumers are willing to pay for a good and the price they actually pay.

consumer surplus

Tim is skilled at making both earrings and bracelets. Tim has no preference between making earrings or bracelets since he earns the same amount from the two activities. If the selling price of bracelets decreases from $20 to $10, then Tim's opportunity cost of making earrings

decreases

decrease in the price of hamburgers to the increase in the price of french fries. adjust the supply and demand curves to illustrate that

demand curve shifts left

suppose Japan produces two types of goods: agricultural and capital. alfalfa, an agricultural good, and airplanes, a capital good. How would the production possibilities frontier (PPF) change due to the effects of an agricultural innovation that increases the crop yield of each acre of land.

drag the end to the right on the x- asxis

Jones trades a used car to Smith for $5,000. Evaluate the following statement. True or False: Since nothing new is created, there is no way the transaction can improve the welfare of people.

false

True or False: The law of supply is a direct negative relationship between the price of a good or service and the quantity of it that producers are willing to supply. The height of the supply curve at any quantity shows the minimum price necessary to induce customers to purchase that unit.

false

True or False: The pricing system ensures that even the lowest-valued demands are satisfied.

false

True or False: Under market organization, individuals can communicate their preferences to other decision makers directly, through communication, but not indirectly, through their choice of whom to transact with.

false

One of the three basic questions an economy has to face is___________goods and services will be produced.

for whom

choose the correct type of resource for: The physical strength one develops through weight training

human resource

The tendency of market prices to direct individuals pursuing their own interests to engage in activities promoting the economic well-being of society.

invisible hand

suppose the market for pizzas is unregulated. That is, pizza prices are free to adjust based on the forces of supply and demand. If a shortage exists in the pizza market, then the current price must be _______ than the equilibrium price.

lower

Determine the following topic would more likely to be studied in microeconomics or macroeconomics. The effect of a large government budget deficit on economic growth

macro

Suppose that in the hypothetical country of Caffistan, coffee mugs are distributed on a first-come, first-served basis. This distribution rule gives the residents of Caffistan an incentive to spend time________

maintaining their prices in line

Determine the following topic would more likely to be studied in microeconomics or macroeconomics. A consumer's optimal choice when buying a flat-screen TV

micro

Determine the following topic would more likely to be studied in microeconomics or macroeconomics. A firm's decision about the size of its new factory

micro

choose the correct type of resource for: Oil that needs to be extracted for the production of gasoline

natural resource

Categorize the statement as either positive or normative: Too many people smoke.

normative

On the production possibilities frontier, which points are inefficient, efficient, or unattainable.

points on the curve are efficient, points under the curve are inefficient, points above the curve are unattainable

Categorize the statement as either positive or normative: If the government were to increase taxes on cigarettes, fewer people would smoke.

positive

Categorize the statement as either positive or normative: Lung cancer kills millions of people each year.

positive

market supply for kumquats. A severe drought destroys much of the crop of kumquats. Show the impact of the severe drought by shifting the supply curve

shifts left/ up

market demand for gasoline. Suppose that people expect the price of gasoline to fall in the near future. Show the impact of the expected future decrease in gasoline prices on the current demand for gasoline by shifting the demand curve

shifts left/down

market demand for potted meat, which is an inferior good. Suppose that a strong economic expansion causes consumer income to increase. Show the impact of the increase in income by shifting the demand curve

shifts left/down

market supply for gasoline. Congress and the president enact a per-gallon tax on the production of gasoline. Show the impact of the imposition of the gasoline tax by shifting the supply curve

shifts left/up

market demand for ice cream. Suppose that the price of cake, a complement for ice cream, decreases. Show the impact of the decrease in the price of cake by shifting the demand curve

shifts right /up

market supply for coffee. Firms expect the price of coffee to fall in the near future. Show the impact of the expected future decrease in coffee prices on the current supply for coffee by shifting the supply curve

shifts right/down

Suppose that the town recently made it onto the "top places to live" category in several lifestyle magazines. The positive press causes the town's population to increase sharply. Show the impact of the positive press coverage by shifting the demand curve.

shifts right/up

a decrease in the price of hamburgers is due to the fact that a new type of grill allows restaurants to cook a hamburger in half the time. adjust the supply and demand curves to illustrate that

supply curve shifts right

an economy that produces cars and computers. Suppose that a rise in this economy's saving rate allows for investment in modern, efficient manufacturing plants. how would the production possibilities curve change due to the economy's new production possibilities after the rise in the saving rate.

the whole curve will shift up

Evaluate the following statement about how private ownership influences the incentive of individuals to conserve resources for the future. True or False: People have a much stronger incentive to conserve privately owned property than they do commonly owned property.

true

True or False: Suppose that the hypothetical country of Kernaland has a chronic scarcity of corn, its staple grain. This implies that if Kernaland has a market economy, corn will be available only for a price.

true

True or False: There is a tendency for the price in a market to move toward the price that brings the two into balance.

true

True or False: We all face scarcity.

true

True or False: When a demand curve for a specific product (milk or soccer balls, for example) is constructed, changes in the number of consumers in the market are held constant.

true

True or False: When an entrepreneur earns a profit, this indicates that the value of the good or service produced exceeds the value of the other items that could have been produced with those same resources.

true