Microeconomics Test 1

If market demand decreases:

Equilibrium price and quantity will both decrease

According to the theory of comparative advantage:

Every country can produce some good with a lower opportunity cost

An inferior good is one that:

Experiences decreased demand when income increases

"The U.S. government should increase the federal minimum wage from 7.25 to 15 per hour" is an example of a positive statement.

False

If Maria is willing to pay $50 for a sweatshirt, how much consumer surplus does she earn if the market price for sweatshirts is $27.50 each?

$22.50

Absolute advantage derives from which of the following?

The lowest cost of production

The principles of comparative advantage, specialization, and trade apply to: I. individuals II. Communities III. Regions IV. Nation

All of the above

Which of the following would not shift the demand curve for energy drinks? A. A change in consumer income B. A change in the price of energy drinks C. A change in the expectation about a future price of energy drinks D. A change in the price of coffee, a substitute for energy drinks

B. A change in the price of energy drinks

An example of a marginal decision is deciding whether to:

Buy one more apple or one more banana.

How would a fall in the price of hot dogs impact the demand for hot dog buns?

Cause an increase in demand

How would an approaching hurricane that threatens a major oil refinery in Texas impact the demand for gasoline?

Cause an increase in demand

An increase in the future expected price of oil will _______ supply

Decrease

Leaving a tax on the production of paper-based products (a large producer of carbon) would _______ the supply of paper-based products

Decrease

If the U.S. economy produces only guns and butter and resources are specialized, technological improvements of both goods would shift the entire production possibilities frontier inwards and to the left.

False

In a world with trade, no one can afford to specialize.

False

True or False: A country could have comparative advantage in producing everything

False

True or False: A country that has the absolute advantage in production will also have the comparative advantage

False

True or False: An increase in the price of a good will decrease demand for that good.

False

True or False: If a price floor is above the equilibrium price it will have no effect in the market

False

True or False: The benefits of trade depend on absolute advantage, not comparative advantage

False

True or False: There is no relationship between present prices and future prices

False

Circular flow model of a market economy

Households buy and consume goods and services Firms pay wages to households Firms produce and sell goods and services

A point under the curve on a PPF graph represents an allocation of resources that is:

Inefficient

The relationship among markets, specialization, and trade is best characterized as:

Markets encourage specialization, which in turn increases the demand for trade

What is thinking on the margin?

Marking choices by comparing the additional benefits and additional costs from doing a little bit more of some activity

Positive or normative statement? The government should not have bailed out the domestic automobile market

Normative

A rock carving from ancient norway depicts two identical people doing different jobs in the same boat: one uses a bow to hunt while the other paddles. How does this early example illustrate the benefits of trade?

One learns to be very good at paddling and one learns to be very good at hunting; this is an example of specialization and division of knowledge

How would the supply curve shift for gasoline if there was an increase in the number of producers of gasoline?

Shift to the right

Why do people specialize?

Specialization increases productivity.

To benefit the most from trade, a country should:

Specialize in an activity for which it has a comparative advantage

Suppose it is widely believed that the price of 4k televisions will be lower next year. What will happen as a result of such beliefs?

The demand for 4k TVs will decrease now

The September 11th terrorist attacks turned many people away from flying. Following the attack, the supply and demand model would predict which of the following events in the airline travel market?

The demand for airline travel would decrease, resulting in a lower equilibrium price and lower equilibrium quantity

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?

The equilibrium price decreases; the change in the equilibrium quantity is uncertain

The better a country is at producing one good:

The higher its opportunity cost of producing other goods

Why is it less costly to attend college during a recession (in other words, when the economy is doing poorly)?

The opportunity cost is lower during a recession because there are fewer labor market opportunities.

A supply and/or demand graph typically shows

The quantity of the good on the horizontal axis and the price of the good on the vertical axis

A country has an absolute advantage if it can produce _________ good using _________ inputs than another country.

The same; fewer

If the demand curve for sunglasses shifts to the right, what happens with the supply curve for sunglasses?

There is a movement rightward rightward along the supply curve

At market equilibrium:

There is no incentive for price to change

Shortages in economic markets are inefficient because

Time spent waiting in line or searching for a product is wasted time, and hence a wasted resource

Where would a point be on a PPF graph that the economy cannot currently produce?

To the right of the curve

The law of increasing opportunity cost states that the more a good is produced, the opportunity cost of producing that good increases

True

True or False: A decrease in the supply of milk will lead to a decrease in the quantity demanded of milk

True

True or False: A price ceiling will only cause deadweight loss if it is placed below the equilibrium price

True

True or False: An increased use of technology and automation in the production of consumer electronics would cause the supply for consumer electronics to increase

True

True or False: If a frost destroys half of the potato crop in Idaho, the equilibrium price of potatoes will rise

True

True or False: It is virtually impossible for a country to be the low-cost producer of all goods and services

True

True or False: The demand for an inferior good increases when income decreases

True

True or False:If golf course fees decrease, the demand for golf balls will increase

True

A shortage results when

a binding price ceiling is imposed

An "economy" is

a method of resource allocation

A price floor is:

a minimum price allowed by law

Normative statement

a statement that expresses how something (like government) should function , describes what should or ought to be

Consumer surplus is the amount that consumers

are willing to pay for a good minus what they actually pay for it

Economists call the maximum legal price a price ceiling because the price:

cannot legally go higher than the ceiling

A straight-line production possibilities frontier represents

constant opportunity cost

If we expect the current streak of bad weather to lead to higher wheat prices in the future, the:

current demand for wheat will increase

When a price ceiling is in effect:

demanders compete for goods in short supply by accepting reductions in quality

Gains from trade are maximized at the:

equilibrium price and quantity

A nonbinding price ceiling leads to a(n)

equilibrium quantity

The quantity exchanged of a good ______ under a binding price floor.

falls

In the case of a binding price floor, the price paid in the market will be:

greater than the free market equilibrium price

If romaine lettuce and iceberg lettuce are substitutes, a(n) ________ in the price of romaine lettuce will ________ the demand for iceberg lettuce.

increase; increase

Xbox One controllers use two AA batteries. When the price of Xbox One fell from $399 to $299, the demand for AA batteries:

increased since they are a complement good to the Xbox One

Skis and ski boots are complements if a decrease in the price of skis,

increases the demand for ski boots

Quantity demanded:

is the amount that buyers are willing and able to buy at a particular price

New research suggests that cholesterol may not be as unhealthy as previously thought. If so, what will happen to the demand for eggs, a high cholesterol food?

it will increase because of consumers' taste for food that is perceived to be healthier

A price ceiling is a

legally established maximum price that can be charged for a good

If there is a surplus of a good, sellers will:

lower the price in order to increase quantity demanded

Comparative advantage is determined by what?

opportunity cost

The minimum wage is an example of

price floor

The _______ shows all combinations of goods that a country can produce

production possibilities frontier (PPF)

In a market, the equilibrium condition is given by:

quantity demanded = quantity supplied

The key condition for equilibrium to occur in a market is:

quantity demanded equals quantity supplied

A binding price ceiling leads to a(n)

shortage

Positive statement

statement which describes the world as it is

A binding price floor leads to:

surplus

Comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

Absolute advantage

the ability to produce a good using fewer inputs than another producer

If sellers want to sell more products than buyers are willing to purchase, we know that:

the current price is greater than the equilibrium price

The law of demand:

the lower the price, the greater the quantity demanded

The demand curve for oil shows:

the quantity demanded of oil at different prices

Anonymity on the internet has lowered the cost of rudely confronting people. As a result, what has happened to the supply of rude confrontations?

the supply has increased; shifting down and to the right

The opportunity cost of a choice is

the value of the opportunities lost

Law of demand

there is a negative relationship between price and quantity demanded

Opportunity cost formula

what you give up/what you gain

Price ceilings do not have much effect:

when market prices are at or below the ceiling