Microeconomics Test CH 1-5

Price elasticity of demand =

% change in quantity demanded / % change in price

Price elasticity of supply =

% change in quantity supplied / % change in price

The slope of the PPF

(opportunity cost) The cost of something is what you give up to get it

Perfectly competitive market

-All goods are exactly the same -Buyers and sellers are so numerous that no one can affect the market price, "Price takers"

Increasing opportunity cost

-Bowed outward PPF -As more units of a good are produced, we need to give up increasing amounts of the other good produce

Prices determine...

-Interaction of buyers and sellers -Reflect the good's value to buyers -Reflect the cost of producing the good

Law of demand

-Other things are equal -When the price of a good rises, the quantity demanded of the good falls -When the price falls, the quantity demanded rises

Input prices

A fall in ______ ______ makes production more profitable at each output price -firms supply a larger quantity at each price -the S curve shifts to the right

Does not shift

A fall in price of tax return software S curve _______ 1. Increases 2. Decreases 3. Does not shift

PPF

A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

Market

A group of buyers and sellers (need not be in a single location)

Change in quantity demanded

A movement along a fixed D curve Occurs when P changes

Change in the quantity supplied

A movement along a fixed S curve Occurs when P changes

Increase

A price ______ has two effects on revenue: -Higher revenue: because of the higher P -Lower revenue: you sell fewer units (lower Q)

Changes in demand

A shift in the D curve Occurs when a non-price determinant of demand changes (like income # of buyers)

Change in supply

A shift in the S curve Occurs when a non-price determinant of supply changes (like technology or costs)

Efficiency and equality

A typical society strives to get the most it can from its scarce source. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between... a. guns and butter b. efficiency and equality c. inflation and unemployment d. work and leisure

The marginal benefit of going to Spain increases

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision? a. the marginal benefit of going to Spain increases b. the marginal cost of going to Spain increases c. the marginal benefit of going to Ireland increases d. the marginal cost of going to Ireland decreses

Quantity supplied

Amount of a good sellers are willing and able to sell

Quantity demanded

Amount of a good that buyers are willing and able to purchase

Number of sellers

An increase in the ______ __ ______ increases the quantity supplied ay each price and shifts the S curve to the right

Inflation

An increase in the overall level of prices in the economy

Tastes

Anything that causes a shift in ______ toward a good will increase demand for that good and shift its D curve to the right Ex: The Atkins diet --> caused an increase in demand for eggs, shifted the egg demand curve to the right

(200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars)

Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier? a. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars) b. (200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars) c. (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars) d. (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars)

Equality

Benefits are distributed uniformly among society's members

1.22, and basketball tickets are a normal good

Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is a. 0.82, and basketball tickets are a normal good b. 0.82, and basketball tickets are an inferior good c. 1.22, and basketball tickets are a normal good d. 1.22, and basketball tickets are an inferior good

$42,000

Consider Mandy's decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Mandy's cost of going to college is... a. $32,000 b. $42,000 c. $50,000 d. $58,000

complements (cross price elasticity)

Cross-price elasticity < 0

substitutes (cross price elasticity)

Cross-price elasticity > 0

Inelastic

Demand for drugs is ________: P rises proportionally more than Q falls Result: an increase in total spending on drugs, and in drug-related crime

Technology

Determines how much inputs are required to produce a unit of output A cost-saving _________ improvement has the same effect as a fall in input prices, shifts S curve to the right

Reduces

Education _______ the demand for drugs P and Q fall Result: A decrease in total spending on drugs, and in drug-related crime

Computing percentage change =

End value - start value / star value x 100%

Short run vs long run example

Example gasoline in the short run vs. gasoline in the long run --> there's not much people can do in the short run, other than ride the bus or carpool --> in the long run, people can buy smaller cars or live closer to work

Examples of substitutes

Example: Breakfast cereal vs Eggs --> Prices of both of these good rise by 20%. Which good does Qd drop the most? -Breakfast cereal has close substitutes, so buyers can easily switch if the price rises -Eggs has no close substitutes, so a price increase would not affect demand very much

Examples of luxuries and necessities

Example: Insulin vs. Yachts Prices of both of these goods rise by 20%. For which good does Qd drop the most? --> Insulin is a necessity to diabetics. A rise in price would cause little or no decrease in demand --> A yacht is a luxury. If the price rises, some people will forego it

Substitues

Examples of ______ Pizza and hamburgers (An increase in the price of pizza increases demand for hamburgers, shifting hamburger demand curve to the right) Coke and pepsi, laptops and tablet, music CDs and music downloads

Complements

Examples of _______ Computers and software (if price of computers rises, people buy fewer computers, and therefore less software; software demand curve shifts left) College tuition and textbooks, bagels and cream cheese, eggs and bacon

Input prices

Examples of _______ _____ --> wages and prices of raw materials

Future

Expectations about the _______ Ex: Events in the middle east lead to expectations of higher oil prices --> owners of texas oilfields reduce supplu now, save some inventory to sell later at the higher price --> S curve shifts left --> Sellers may adjust supply when their expectations of future prices change

Future

Expectations about the ________ -expect an increase in income, increase in current demand -expect higher prices, increase in current demand Ex: If people expect their incomes to rise, their D for meals at expensive restaurants may increase now

Raise

Facing a shortage, sellers ______ the price

Cutting

Facing a surplus, sellers try to increase sales by _______ price

Right

Fall in cost producing software S curve shifts to the ______ at each price, Q increases

E > 1: % change in Q > % change in P TR decrease: the fall in revenue from lower Q > the increase in revenue from higher P

For a price increase, if demand is elastic

E < 1: % change in Q < % change in P TR increases: the fall in revenue from lower Q < the increase in revenue from higher P

For a price increase, if demand is inelastic

Society faces a tradeoff

Getting more of one good requires sacrificing some of the other

Imports

Goods produced abroad and sold domestically

Exports

Goods produced domestically and sold abroad

24 units of cheese and 15 units of wine

Hours needed to make 1 unit of.... England: Cheese --> 1 hour, Wine --> 4 hours France: Cheese --> 5 hours, Wine --> 2 hours Numbers of Units produced in 40 hours... England: Cheese --> ?, Wine --> ? France: Cheese --> ?, Wine --> ? Refer to Table 2. Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then the total of production is... a. 8 units of cheese and 10 units of wine b. 24 units of cheese and 15 units of wine c. 40 units of cheese and 20 units of wine d. 48 units of cheese and 30 units of wine

The slope of England's production possibilities frontier would be -0.25 and the slope of France's production possibilities frontier would be -2.5

Hours needed to make 1 unit of.... England: Cheese --> 1 hour, Wine --> 4 hours France: Cheese --> 5 hours, Wine --> 2 hours Numbers of Units produced in 40 hours... England: Cheese --> ?, Wine --> ? France: Cheese --> ?, Wine --> ? Refer to Table 2. We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for France. If we were to do this, measuring cheese along the horizontal axis, then... a. the slope of England's production possibilities frontier would be -4 and the slope of France's production possibilities frontier would be -0.4 b. the slope of England's production possibilities frontier would be -0.25 and the slope of France's production possibilities frontier would be -2.5 c. the slope of England's production possibilities frontier would be 0.25 and the slope of France's production possibilities frontier would be 2.5 d. the slope of England's production possibilities frontier would be 4 and the slope of France's production possibilities frontier would be 0.4

The slope of England's production possibilities frontier would be -4 and the slope of France's production possibilities frontier would be -0.4

Hours needed to make 1 unit of.... England: Cheese --> 1 hour, Wine --> 4 hours France: Cheese --> 5 hours, Wine --> 2 hours Numbers of Units produced in 40 hours... England: Cheese --> ?, Wine --> ? France: Cheese --> ?, Wine --> ? Refer to Table 2. We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for France. If we were to do this, measuring wine along the horizontal axis, then... a. the slope of England's production possibilities frontier would be -4 and the slope of France's production possibilities frontier would be -0.4 b. the slope of England's production possibilities frontier would be -0.25 and the slope of France's production possibilities frontier would be -2.5 c. the slope of England's production possibilities frontier would be 0.25 and the slope of France's production possibilities frontier would be 2.5 d. the slope of England's production possibilities frontier would be 4 and the slope of France's production possibilities frontier would be 0.4

26 units of cheese and 4 units of wine

Hours needed to make 1 unit of.... England: Cheese --> 1 hour, Wine --> 4 hours France: Cheese --> 5 hours, Wine --> 2 hours Numbers of Units produced in 40 hours... England: Cheese --> ?, Wine --> ? France: Cheese --> ?, Wine --> ? Refer to Table 2. Which of the following combinations of cheese and wine could England NOT produce in 40 hours? a. 12 units of cheese and 7 units of wine b. 16 units of cheese and 6 units of wine c. 20 units of cheese and 5 units of wine d. 26 units of cheese and 4 units of wine

6 units of cheese and 5 units of wine

Hours needed to make 1 unit of.... England: Cheese --> 1 hour, Wine --> 4 hours France: Cheese --> 5 hours, Wine --> 2 hours Numbers of Units produced in 40 hours... England: Cheese --> ?, Wine --> ? France: Cheese --> ?, Wine --> ? Refer to Table 2. Which of the following combinations of cheese and wine could France produce in 40 hours? a. 2 units of cheese and 20 units of wine b. 4 units of cheese and 15 units of wine c. 6 units of cheese and 5 units of wine d. 8 units of cheese and 20 units of wine

Income elasticity of demand

How much the quantity demanded of a good responds to a change in consumers' income Percentage change in quantity demand (divided by the percentage change in income)

Price elasticity of demand

How much the quantity demanded of a good responds to a change in the price of that good Measures the price-sensitivity of buyers' demand

Cross-price elasticity of demand

How much the quantity demanded of one good responds to a change in the price of another good

Price elasticity of supply

How much the quantity supplied of a good responds to a change in the price of that good Measures sellers' price-sensitivity Percentage change in quantity supplied, divided by the percentage change in price

Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls

If Korea is capable of producing either shoes or soccer balls or some combination of the two, then... a. Korea should specialize in the product in which it has an absolute advantage b. it would be impossible for Korea to have an absolute advantage over another country in both products c. it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods d. Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls

Market economies

In _______ _______ prices adjust to balance supply and demand

Price elasticity of supply is greater in the long run than in the short run

In the long run: firms can build new factories, or new firms may be able to enter the market

Inferior goods

Income elasticity < 0

Normal goods

Income elasticity > 0

Amount of drug-related crimes

Inelastic demand for drugs Higher drugs price: higher total revenue Increase drug-related crime

Desirable

Interdependence and trade are ______ because they allow everyone to enjoy greater quantity and variety of goods and service

Moving along a PPF

Involves shifting resources from the production of one good to the other

Its average cost is less than its marginal cost

It costs a furniture company $8,750 to produce 25 tables. The company's total cost will be $9,125 if it produces a 26th table. If the company produces 26 tables, then... a. its average cost is greater than its marginal cost b. its average cost and its marginal cost are equal c. its average cost is less than its marginal cost d. this cannot be determined from the information given

Its average cost is greater than its marginal cost

It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company's cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of steak then... a. its average cost is greater than its marginal cost b. its average cost and its marginal cost are equal c. its average cost is less than its marginal cost d. there is insufficient information to compute average and marginal costs

6 pounds of meat and 4.5 pounds of potatoes

Labor hours needed to make 1 pound of: Framer: Meat --> 6, Potatoes --> 4 Rancher: Meat --> 3, Potatoes --> 6 Pounds produced in 24 hours: Framer: Meat --> 4, Potatoes --> 6 Rancher: Meat --> 8, Potatoes --> 3 Refer to Table 4. Assume that the farmer and the rancher each has 24 labor hours available. If each person divides his time equally between the production of meat and potatoes, then total production is... a. 6 pounds of meat and 4.5 pounds of potatoes b. 5.5 pounds of meat and 8 pounds of potatoes c. 12 pounds of meat and 9 pounds of potatoes d. 5 pounds of meat and 5.5 pounds of potatoes

2 pounds of meat and 2 pounds of potatoes

Labor hours needed to make 1 pound of: Framer: Meat --> 6, Potatoes --> 4 Rancher: Meat --> 3, Potatoes --> 6 Pounds produced in 24 hours: Framer: Meat --> 4, Potatoes --> 6 Rancher: Meat --> 8, Potatoes --> 3 Refer to Table 4. Which of the following combinations of meat and potatoes could the farmer produce in 24 hours? a. 1 pound of meat and 8 pounds of potatoes b. 2 pounds of meat and 2 pounds of potatoes c. 1 pounds of meat and 5 pounds of potatoes d. 3 pounds of meat and 2 pounds of potatoes

1 pounds of meat and 3 pounds of potatoes

Labor hours needed to make 1 pound of: Framer: Meat --> 6, Potatoes --> 4 Rancher: Meat --> 3, Potatoes --> 6 Pounds produced in 24 hours: Framer: Meat --> 4, Potatoes --> 6 Rancher: Meat --> 8, Potatoes --> 3 Refer to Table 4. Which of the following combinations of meat and potatoes could the rancher NOT produce in 24 hours? a. 5 pounds of meat and 1 pounds of potatoes b. 2 pounds of meat and 2 pounds of potatoes c. 1 pounds of meat and 3 pounds of potatoes d. 4 pounds of meat and 1 pounds of potatoes

Competitive market

Many buyers and many sellers, each has a negligible impact on market price

Elasticity

Measure of the responsiveness of Qd or Qs To a change in one of its determinants

Absolute advantage

Measures the cost of a good in terms of the inputs required to produce it

Productivity

Most important determinant of living standards

Low price elasticities of demand and low income elasticities of demand

Necessities such as food and clothing tend to have... a. high price elasticities of demand and high income elasticities of demand b. high price elasticities of demand and low income elasticities of demand c. low price elasticities of demand and high income elasticities of demand d. low price elasticities of demand and low income elasticities of demand

Decrease in # of buyers

Number of buyers Decreases quantity demanded at each price Shifts D curve to the left 1. Increase in # of buyers 2. Decrease in # of buyers

Increase in # of buyers

Number of buyers Increases the quantity demanded at each price Shifts D curve to the right 1. Increase in # of buyers 2. Decrease in # of buyers

Law of supply

Other things equal When the price of a good rises, the quantity supplied of the good rises When the price falls, the quantity supplied falls

Inefficient levels of production

Points inside production possibilities frontier

Higher

Price elasticity is ______ for narrowly defined goods than for broadly defined ones

Higher

Price elasticity is _______ for luxuries than for necessities

Higher

Price elasticity is _______ in the long run

Substitutes

Price elasticity is higher when close __________ are available

Demand is inelastic

Price elasticity of demand < 1 Price elasticity of demand = % change in Q / % change in P = <10% / 10% < 1

Demand is perfectly inelastic

Price elasticity of demand = 0 Demand curve is vertical Price elasticity of demand = % change in Q / % change in P = 0% / 10% = 0

Demand has unit elasticity

Price elasticity of demand = 1 Price elasticity of demand = % change in Q / % change in P = 10% / 10% = 1

Demand is perfectly elastic

Price elasticity of demand = infinity Demand curve is horizontal Price elasticity of demand = % change in Q / % change in P = any % / 0% = infinity

Demand is elastic

Price elasticity of demand > 1 Price elasticity of demand = % change in Q / % change in P = >10% / 10% > 1

Supply is inelastic

Price elasticity of supply < 1 Price elasticity of supply = % change in Q / % change in P = <10% / 10% < 1

Supply is perfectly inelastic

Price elasticity of supply = 0 Supply curve is vertical Price elasticity of supply = % change in Q / % change in P = 0% / 10% = 0

Supply is unit elastic

Price elasticity of supply = 1 Price elasticity of supply = % change in Q / % change in P = 10% / 10% = 1

Supply is perfectly elastic

Price elasticity of supply = infinity Supply curve is horizontal Price elasticity of supply = % change in Q / % change in P = any % / 0% = infinity

Supply is elastic

Price elasticity of supply > 1 Price elasticity of supply = % change in Q / % change in P = >10% / 10% > 1

Equilibrium

Price has reached the level where quantity supplied equals quantity demanded

Equilibrium price

Price where Q supplied = Q demanded

Revenue =

Price x Quantity

Invisible hand

Prices guide self-interested households and firms to make decisions that maximize society's economic well-being

Demand

Professional preparers raise their price This shifts the ______ curve for tax preparation software 1. Demand 2. Supply

Equilibrium quantity

Q supplied and demanded at the price equilibrium prices

Shortage (excess demand)

Quantity demanded is greater than quantity supplied

Surplus (excess supply)

Quantity supplied is greater than quantity demanded

Policy of drug education

Reduce demand for illegal drugs Left shift of demand curve Lower quantity Lower price Reduce drug-related crime

From Box B to Box C

Refer to Figure 1. Carla regularly buys fruits and vegetables at a grocery store. Roberto regularly pays a lawn-care company to mow his lawn. If the flow of fruits and vegetables from the grocery store to Carla is represented by an arrow from Box C to Box B of this circular-flow diagram, then the money paid by Roberto to the lawn-care company is represented by an arrow a. from Box A to Box D b. from Box B to Box C c. from Box C to Box B d. from Box D to Box A

From Box D to Box B

Refer to Figure 1. Devin works as an attorney for a corporation and is paid a salary in exchange for the legal services he performs. Juan owns office buildings and rents his buildings to companies in exchange for rent payments. If Devin's income is represented by a flow of dollars from Box D to Box B of this circular-flow diagram, then Juan's income is represented by a flow of dollars a. from Box A to Box C b. from Box C to Box A c. from Box B to Box D d. from Box D to Box B

9 units

Refer to Figure 1. If Yasmine and Mercedes are the only two consumers in the market, the the market quantity demanded at price of $12 is... a. 3 units b. 6 units c. 9 units d. 12 units

A and B

Refer to Figure 1. Raymond buys a refrigerator for his new home. To which of the arrows does this transaction directly contribute? a. A only b. A and B c. C only d. C and B

15 units

Refer to Figure 1. Suppose Yasmine and Mercedes are the only two consumers in the market. When the market price falls from $12 to $6, the quantity demanded increase by... a. 6 units b. 9 units c. 12 units d. 15 units

If the price is $12, the market quantity demanded is 9 units

Refer to Figure 1. Which of the following statements is correct? a. If the price is $6, the market quantity demanded is 15 units b. If the price is $9, the market quantity demanded is 24 units c. If the price is $12, the market quantity demanded is 9 units d. If the price is $15, the market quantity demanded is 39 units

All of the above are correct

Refer to Figure 10. If rectangle D is larger than rectangle A, then a. demand is elastic between prices P1 and P2 b. a decrease in price from P2 to P1 will cause an increase in total revenue c. the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded d. All of the above are correct

B + D

Refer to Figure 10. Total revenue when the price is P1 is represented by the area(s)... a. B + D b. A + B c. C + D d. D

A + B

Refer to Figure 10. Total revenue when the price is P2 is represented by the area(s)... a. B + D b. A + B c. C + D d. D

An improvement in donut production technology

Refer to Figure 2, Panel (a) and Panel (b). A shift of the economy's production possibilities frontier from Panel (a) to Panel (b) could be caused by... a. unemployment b. an improvement in donut production technology c. an improvement in coffee production technology d. an improvement in both donut and coffee production technology

Production of 1 donut and 4 cups of coffee becomes efficient

Refer to Figure 2, Panel (a) and Panel (b). Which of the following is not a result of the shift of the economy's production possibilities frontier from Panel (a) to Panel (b) a. the tradeoff between the production of donuts and coffee changes b. the opportunity cost of a cup of coffee is higher at all levels of coffee production c. production of 4 donuts and 2 cups of coffee becomes possible d. production of 1 donut and 4 cups of coffee becomes efficient

Possible but inefficient

Refer to Figure 2, Panel (a). Production at point K is... a. possible and efficient b. possible but inefficient c. impossible but efficient d. impossible and inefficient

Possible at points J, K, L, and M, but efficient only at points J, L, and M

Refer to Figure 2, Panel (a). Production is... a. possible at points J, K, L, and M, but efficient only at points J, L, and M b. possible at points J, K, L, and M, but efficient only at point K c. possible at points J, L, M, and N, but efficient only at points J, L, and M. d. possible at points J, L, M, and N, but efficient only at point N

Unemployment

Refer to Figure 2, Panel (a). The movement from point M to point K could be caused by... a. an advance in production technology b. an improvement in efficiency c. economic growth d. unemployment

2 cups of coffee

Refer to Figure 2, Panel (a). The opportunity cost moving from point J to point L is... a. 2 donuts b. 2 donuts and 2 cups of coffee c. 2 cups of coffee d. 6 cups of coffee

0 cups of coffee

Refer to Figure 2, Panel (a). The opportunity cost of moving from point K to point L is... a. 0 cups of coffee b. 1 donut c. 2 donuts d. 4 cups of coffee

2 donuts

Refer to Figure 2, Panel (a). The opportunity cost of moving from point M to point L is... a. 2 donuts b. 2 donuts and 4 cups of coffee c. 4 donuts d. 4 cups of coffee

6 cups of coffee

Refer to Figure 2, Panel (a). The opportunity cost of one cup of coffee is highest when the economy produces... a. 0 cups of coffee b. 2 cups of coffee c. 4 cups of coffee d. 6 cups of coffee

4 cups of coffee

Refer to Figure 2, Panel (a). To gain 2 donuts by moving from point L to point M, society must sacrifice... a. efficiency b. employment c. 4 cups of coffee d. more than one of the above is correct

180 bushels of apples and 0 sweaters

Refer to Figure 2. If this economy devotes all of its available resources to producing apples, then it will produce... a. 0 bushels of apples and 200 sweaters b. 80 bushels of apples and 160 sweaters c. 180 bushels of apples and 200 sweaters d. 180 bushels of apples and 0 sweaters

There is unemployment

Refer to Figure 2. If this society is producing at point T, then... a. there is unemployment b. production is efficient c. growth can only be achieved through an advancement in technology d. the opportunity cost of producing one more sweater is approximately 40 bushels of apples

It gives up 80 sweaters to get 40 bushels of apples

Refer to Figure 2. If this society moves from point U to point V, then... a. it gives up 40 bushels of apples to get 80 sweaters b. it gives up 140 bushels of apples to get 80 sweaters c. it gives up 80 sweaters to get 140 bushels of apples d. it gives up 80 sweaters to get 40 bushels of apples

Point A to Point B in Panel 1

Refer to Figure 2. Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. If the warning labels are successful, we could illustrate the plan as producing a movement from... a. Point A to Point B in Panel 1 b. Point B to Point A in Panel 1 c. Point A to Point C in Panel 2 d. Point C to Point A in Panel 2.

Point A to Point C in Panel 2

Refer to Figure 2. Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. We could illustrate the tax as producing a movement from... a. Point A to Point B in Panel 1 b. Point B to Point A in Panel 1 c. Point A to Point C in Panel 2 d. Point C to Point A in Panel 2

60 bushels of apples

Refer to Figure 2. The opportunity cost of moving from point U to point R is... a. 60 bushels of apples b. 80 bushels of apples c. 80 sweaters d. 160 sweaters

S and X

Refer to Figure 2. Which combination of points show production possibilities only achievable with improvements in technology or increases in resources? a. Q, R, U and X b. S and X c. T and W d. None of the above is correct

A tax was placed on cigarettes

Refer to Figure 3. The graphs show the demand for cigarettes. In Panel (a), the arrows are consistent with which of the following events? a. The price of marijuana, a complement to cigarettes, increased b. Mandatory health warnings were placed on cigarette packages c. Several foreign countries banned U.S. cigarettes in their countries d. A tax was placed on cigarettes

The price of cigarettes inceased

Refer to Figure 3. The graphs show the demand for cigarettes. In Panel (a), the arrows are consistent with which of the following events? a. Tobacco and marijuana are complements, and the price of marijuana decreased b. Tobacco is a "gateway drug," and the price of marijuana increased c. The price of cigarettes increased d. The arrows are consistent with all of these events

The prohibition of cigarette advertisement on television

Refer to Figure 3. The graphs show the demand for cigarettes. In Panel (b), the arrows are consistent with which of the following events? a. an increase in the price of cigarettes b. placing a tax on cigarettes c. the prohibition of cigarette advertisements on television d. decreasing the price of marijuana, given that tobacco and marijuana are complements

A decrease in the price of cotton

Refer to Figure 4. Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for beach towels? a. an increase in the price of beach towels b. an expectation by firms that the price of beach towels will increase in the very near future c. a decrease in the price of cotton d. a decrease in the number of firms selling beach towels

A decrease in the price of fiberglass and sail cloth

Refer to Figure 4. Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for sail boats? a. an increase in the price of sailboats b. a decrease in the number of firms selling sailboats c. a decrease in the price of fiberglass and sail cloth d. a decrease in the price of America's Cup sailing t-shirts

An expectation by firms that the price of beer will increase in the very near future

Refer to Figure 4. Which of the following would cause the supply curve to shift from Supply B to Supply A in the market for beer? a. a decrease in the price of beer b. an expectation by firms that the price of beer will increase in the very near future c. a decrease in the price of hops d. an improvement in technology that allows firms to use less labor in the production of beer

An increase in the price of milk

Refer to Figure 4. Which of the following would cause the supply curve to shift from Supply B to Supply A in the market for butter? a. a decrease in the price of butter b. an increase in the price of margarine c. an increase in the price of milk d. an improvement in technology that allows firms to use less labor in the production of butter

Shortage of 400 units

Refer to Figure 5. At a price of $15, there would be... a. surplus of 400 units b. shortage of 200 units c. shortage of 400 units d. shortage of 600 units

Excess demand. The law of supply and demand predicts that the price will rise from $20 to a higher price

Refer to Figure 5. At a price of $20, there would be a(n)... a. shortage. The law of supply and demand predicts that the price will fall from $20 to a lower price b. surplus. The law of supply and demand predicts that the price will rise from $20 to a higher price c. excess demand. The law of supply and demand predicts that the price will rise from $20 to a higher price d. excess supply. The law of supply and demand predicts that the price will fall from $20 to a lower price

Surplus of 400 units

Refer to Figure 5. At a price of $35, there would be a... a. shortage of 400 units b. surplus of 200 units c. surplus of 400 units d. surplus of 600 units

Excess supply, and the price would tend to fall from $35 to a lower price

Refer to Figure 5. At a price of $35, there would be... a. a shortage, and the price would tend to rise from $35 to a higher price b. a surplus, and the price would tend to rise from $35 to a higher price c. excess demand, and the price would tend to fall from $35 to a lower price d. excess supply, and the price would tend to fall from $35 to a lower price

400 units would be supplied and demanded

Refer to Figure 5. At the equilibrium price... a. 200 units would be supplied and demanded b. 400 units would be supplied and demanded c. 600 units would be supplied and demanded d. 600 units would be supplied, but only 200 would be demanded

$20

Refer to Figure 5. At what price would there be an excess demand of 200 units of the good? a. $15 b. $20 c. $30 d. $35

$30

Refer to Figure 5. At what price would there be an excess supply of 200 units of the good? a. $15 b. $20 c. $30 d. $35

$25 and 400 units

Refer to Figure 5. Equilibrium price and quantity are, respectively... a. $15 and 200 units b. $25 and 600 units c. $25 and 400 units d. $35 and 200 units

This cannot be determined from the table

Refer to Table 1. For whom is the good a normal good? a. Bert only b. Grover only c. Bert, Ernie, Grover, and Oscar d. This cannot be determined from the table

31 units

Refer to Table 1. If these are the only four buyers in the market, then the market quantity demanded at $1 is... a. 4 units b. 7.75 units c. 14 units d. 31 units

14 units

Refer to Table 1. If these are the only four buyers in the market, then the market quantity demanded at price of $2 is... a. 0 units b. 3.5 units c. 12 units d. 14 units

Decreased by 7 units

Refer to Table 1. If these are the only four buyers in the market, then when the price increases from $1.00 to $1.50, the market quantity demanded... a. decreased by 1.75 units b. increases by 2 units c. decreases by 7 units d. decreases by 24 units

Grover's

Refer to Table 1. Whose demand does NOT obey the law of demand? a. Bert's b. Ernie's c. Grover's d. Oscar's

Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of lemonade and 10 pizzas

Refer to Table 3. The values in the table represent the amounts of lemonade and pizzas that Alice and Betty can produce in one week without and with specialization and trade. What are Alice and Betty's gains from specialization and trade? a. Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of lemonade and 10 pizzas b. Alice gains 200 pitchers of lemonade and 100 pizzas, while Betty gains 180 pitchers of lemonade and 180 pizzas c. Alice gains 207 pitchers of lemonade and 110 pizzas, while Betty gains 193 pitchers of lemonade and 190 pizzas d. Alice gains 400 pitchers of lemonade and 0 pizzas, while Betty gains 0 pitchers of lemonade and 300 pizzas

50 units of grain and 130 units of incense

Suppose that a worker in Agland can produce either 10 units of organic grain or 2 units of incense per year, and a worker in Zenland can produce either 5 units of organic grain or 15 units of incense per year. There are 20 workers in Agland and 10 workers in Zenland. Currently the two countries do not trade. Agland produces and consumes 100 units of grain and 20 units of incense per year. Zenland produces and consumes 50 units of grain and no incense per year. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by... a. 30 units of grain and 100 units of incense b. 30 units of grain and 150 units of incense c. 50 units of grain and 90 units of incense d. 50 units of grain and 130 units of incense

660 units

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 30 workers in each country. No trade occurs between the two countries. Boatland produces and consumes 75 units of wheat and 375 units of fish per year while Farmland produces and consumes 375 units of wheat and 75 units of fish per year. If trade were to occur, Boatland would trade 90 units of fish to Farmland in exchange for 80 units of wheat. If Boatland now completely specializes in fish production, how many units of fish could it now consume along with the 80 units of imported wheat? a. 490 units b. 500 units c. 610 units d. 660 units

Neither country could gain from trade with each other because neither one has a comparative advantage

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following statements is true? a. Both countries could gain from trade with each other b. Neither country could gain from trade with each other because Cornland has an absolute advantage in both goods c. Neither country could gain from trade with each other because neither one has a comparative advantage d. Oatland could gain from trade between the two countries, but Cornland definitively would lose

Price inelastic; so an increase in the price of wheat will increase the total revenue of wheat

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is a. income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers b. income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers d. price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers

Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Increase

Suppose the number of buyers increases. Then, at each P, Qd will.... 1. Decrease 2. Increase

2.33

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is a. 0.35 b. 0.43 c. 2.33 d. 2.89

Increases

Suppose the price of milk falls. At each price, quantity of lattes supplied will ________ 1. Increases 2. Decreases

750

Table 1 Hammes --> Nails 3 --> 900 6 --> ? 9 --> 300 Refer to table 1. If the production possibilities frontier is bowed outward, then "?" could be? a. 400 b. 450 c. 600 d. 750

Comparative advantage

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

Efficient levels of production

The economy is getting all it can from the scarce resources available

All of the above could be correct

The following table contains a monthly demand schedule for large, single-topping, carry out Price: $15 --> Quantity demanded --> A Price: $20 --> Quantity demanded --> 25 If the law of demand applies to these pizzas, then A could be... a. 40 b. 35 c. 30 d. all of the above could be correct

Comparative advantage

The gains from trade are based on ________ advantage 1. Absolute 2. Comparative

Flatter

The greater the price elasticity of demand, the _______ the demand curve

Flatter

The greater the price of elasticity of supply, the _______ the supply curve

Government actions that distort prices

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by... a. government actions that distort prices b. increased competition in markets c. enforcement of property rights d. too much attention paid to efficiency

Scarcity

The limited nature of society's resources

Midpoint method

The midpoint method is the number halfway between the start and end values

Greater price elasticity of supply

The more easily sellers can change the quantity they produce --> supply of beachfront property - harder to vary and thus less elastic than supply of new cars

Smaller opportunity cost, Comparative advantage

The person who has the ______ _______ ______ of producing the good is said to have a ______ _________

Absolute advantage

The person/country who can produce the good with a smaller quantity of inputs is said to have a(n) ________ _________ in producing the good

Right

The price of iPods fall. Music downloads and iPods are complements A fall in price of iPods shifts the demand curve for music downloads to the.... 1. Right 2. Left

Left

The price of music CDs falls Music CDs and music downloads are substitutes A fall in the price of music CDs shifts demand for music downloads to the ______ 1. Right 2. Left

Does not shift

The price of music downloads falls... The D curve _______ 1. Increase 2. Does not shift 3. Decrease

"Rise over the run"

The slop of a line equals the...

Constant

The slope of linear demand curve is __________, but its elasticity is not

Economics

The study of how society manages its scarce resources

Inelastic

The supply of beachfront property is _______

Elastic

The supply of new cars is ______

A situation in which the market on its own fails to allocate resources efficiently

The term market failure refers to... a. A situation in which the market on its own fails to allocate resources efficiently b. an unsuccessful advertising campaign which reduces demand for a product. c. a situation in which competition among firms becomes ruthless d. a firm that is forced out of business because of losses

Equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

The terms quality and efficiency are similar in that they both refer to benefits to society. However, they are different in that... a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources b. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs

An externality

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as... a. productivity b. an externality c. market power d. property rights

Give

To get something we like, we have to ________ up something else that we also like

P x Q

Total Revenue (TR) =

Firms and Households (households own the factors of production, sell/rent them to firms for income, buy and consume goods and services) (firms buy/hire factors of production, use them to produce goods and services, sell goods and services)

Two decision makers are...

Complements

Two goods are ______ if an increase in the price of one leads to a decrease in the demand for the other

Substitues

Two goods are _______ if, an increase in the price of one leads to an increase in the demand for the other

Circular-flow diagram

Visual model of the economy that shows how dollars flow through markets among households and firms

The demand for shotgun-shell ammunition will increase

What will happen in the market for shotgun-shell ammunition now if buyers expect higher shotgun-shell prices in the near future? a. the demand for shotgun-shell ammunition will increase b. the demand for shotgun-shell ammunition will decrease c. the demand for shotgun-shell ammunition will be unaffected d. the supply of shotgun-shell ammunition will increase

Opportunity cost

Whatever must be given up to obtain some item

Elastic demand

When D is elastic, a price increase causes revenue to fall

Inelastic demand

When D is inelastic, a price increase causes revenue to rise

Inelastic

When supply is ______, an increase in demand has a bigger impact on price than on quantity

Elastic

When supply is ______, an increase in demand has a bigger impact on quantity than on price

-1.3

Which of the following could be the cross-price elasticity of demand for two goods that are complements? a. -1.3 b. 0 c. 0.2 d. 1.4

Buyers as a group

Who determines the demand for the product? 1. Buyers as a group 2. Sellers as a group

Sellers as a group

Who determines the supply of the product? 1. Buyers as a group 2. Sellers as a group

Inferior, left

_____ good, other things constant An increase in income leads to a decrease in demand: Shifts D curve to the _____

Normal, right

______ good, other things constant An increase in income leads to an increase in demand: Shifts the D curve to the _______

Interdiction

___________ reduces the supply of drugs

300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland

c. Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country's maximum consumption of new radios and televisions per year will be... a. 100 radios, 300 televisions in Radioland and 300 radios, 100 televisions in Teeveeland b. 300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland c. 200 radios, 100 televisions in Radioland and 100 radios, 200 televisions in Teeveeland d. 300 radios, 100 televisions in Radioland and 100 radios, 400 televisions in Teeveeland

The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity

Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes? a. The supply curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity b. The supply curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity c. The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity d. The demand curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity

Greater in the milk market than in the beef market

Scenario 1: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 1. The change in equilibrium price will be... a. greater in the milk market than in the beef market b. greater in the beef market than in the milk market c. the same in the milk and beef markets d. any of the above could be correct

Greater in the beef market than in the milk market

Scenario 1: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 1. The change in equilibrium quantity will be... a. greater in the milk market than in the beef market b. greater in the beef market than in the milk market c. the same in the milk and beef markets d. any of the above could be correct

Increase in both milk and beef markets

Scenario 1: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 1. The equilibrium price will... a. increase in both the milk and beef markets b. increase in the milk market and decrease in the beef market c. decrease in the milk market and increase in the beef market d. decrease in both milk and beef markets

Decrease in both the milk and beef markets

Scenario 1: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 1. The equilibrium quantity will... a. increase in both the milk and beef markets b. increase in the milk market and decrease in the beef market c. decrease in the milk market and increase in the beef market d. decrease in both the milk and beef markets

Increase, and total consumer spending on beef will decrease

Scenario 1: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 1. Total consumer spending on milk will... a. increase, and total consumer spending on beef will increase b. increase, and total consumer spending on beef will decrease c. decrease, and total consumer spending on beef will increase d. decrease, and total consumer spending on beef will decrease

The demand curve

Shows how price affects quantity demanded, other things being equal

The supply curve

Shows how price affects quantity supplied, other things being equal

Marginal changes

Small incremental adjustments to a plan of action

Efficiency

Society gets the maximum benefits from its scarce resources

Incentive

Something that induces a person to act

Market power

Source of market failure ex: monopoly

Externality

Source of market failure ex: pollution

He should sell the car now for $3,800

Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do? a. He should sell the car now for $3,8000 b. He should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800 c. He should complete the additional work and sell the car for $5,800 d. It does not matter which action he takes since the outcome will be the same either way

Constant opportunity cost

Straight line of the PPF =

Market demand

Sum of all individual demands for a good or service

Market supply curve

Sum of individual supply curves horizontally

Market demand curve

Sum of the individual demand curves horizontally

Market supply

Sum of the supplies of all sellers of a good or service

Long-run

Supply and demand are elastic Decrease in supply: small increase in price

Short-run

Supply and demand are inelastic Decrease in supply: large increase in price

Illegal drugs

Supply curve shifts left Higher price and lower quantity

Negatively

Supply is ________ related to prices of inputs 1. Negatively 2. Positively

Less

Supply often becomes _____ elastic as Q rises, due to capacity limits

The $45,000 salary that you will be able to earn after having completed your graduate program

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost? a. the cost of tuition and books to attend the graduate program b. the $30,000 salary that you could have earned if you retained your job at the bank c. the $45,000 salary that you will be able to earn after having completed your graduate program d. the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank

Determinants of price elasticity of demand

substitutability, proportion of income, luxuries vs necessities, time

Bowed outward

A ________ ________ PPF is when -Different workers have different skills -Different opportunity costs of producing one good in terms of the other -There is some other resource, or mix of resources with varying opportunity costs