pre assessment d089

When a resident heard of an expected tornado, the individual ran to the store to stock up on survival items including bread, peanut butter, batteries, and water. Which statement is likely to occur on the demand graph in response to this situation?

A shift to the right due to an increase in demand in expectation of a shortage

Where does a price floor need to be set to create a surplus?

Above the market equilibrium price

How would a production possibility frontier be drawn for an economy that produces two goods with homogeneous resources?

As a constant slope, downward from left to right

Which scenario covers a topic included in microeconomics?

As a result of a hard freeze, the price of cherries increases.

Why is inflation good for borrowers and bad for lenders?

Because inflation reduces the value of the money paid back to lenders

The Federal Reserve has a primary goal of curbing inflation or reducing economic stagnation or recession. Which action is authorized for the Federal Reserve?

Buy securities

Which description accurately characterizes demand?

Changes in income will shift the demand curve, and changes in the market price of the good will result in a movement along the curve.

Which early tool was used to measure the degree of monopoly power in an industry?

Concentration ratio

A government wants to incentivize domestic producers to grow and sell more organic vegetables locally rather than selling them internationally. The government plans to enact a flat tax on all domestic organic produce shipped outside of the country. Which type of tariff is the government enacting?

Export

How does market competition provide incentives for innovation?

Firms can earn higher profits from new products.

How do firms in a perfectly competitive market maximize profits when facing perfectly elastic demand for their products?

Firms choose how much to produce.

What allows for the money creation process in the economy?

Fractional reserve banking system

A country produces two goods (A and B) and currently operates on the bowed out production possibilities frontier. What is the relationship between the productions of Good A and Good B?

If production of Good A increases, then production of Good B will decrease.

What will households provide to firms in a factor market?

Land, labor, capital, and entrepreneurship

Which outcome is caused by adverse selection in the used car market?

Only poorly maintained cars being available for sale

Which type of market is characterized by firms with no market power for any individual firm?

Perfect competition

A local farm grows apples and oranges. Production possibilities for this farm are provided in the following figure:

Production of apples will increase by 50 pounds, and production of oranges will increase by 15 pounds.

Which statement accurately describes a concentration ratio for an industry?

The combined market shares of the top-selling firms

Which situation occurs for a firm in the long run?

The quantities of all inputs are variable.

Which statement describes how higher input costs affect equilibrium in the market for a good?

They reduce supply, causing prices to rise.

Why is the circular flow model used?

To describe the interaction of businesses and households in markets

What are firms trying to accomplish when they choose particular combinations of inputs such as land, labor, and capital?

To maximize the difference between total revenue and total costs

What is a result of increasing opportunity costs?

To produce more of one good, the economy gives up more and more of other goods.

A local government is making public policy decisions about spending funds. The residents have differing opinions on whether the funds should be used for road repair, school expansion, health care increases, or construction of a senior center. The local government must decide the priority. Which economic question is this decision an example of?

What to produce

Which set of questions is answered when a society decides how to distribute its scarce resources?

What, how, and for whom to produce goods and services

When will a monopolist choose to produce one more unit of a product?

When marginal revenue exceeds marginal cost

A government imposes a 2.5% tariff on the market value of imported furniture. Which type of tariff is the government enacting?

ad valorem

What is the largest component of gross domestic product (GDP) in the United States?

consumption

A country is experiencing an inflationary gap. Which type of fiscal policy should the government undertake?

contractionary

A country is experiencing a recessionary gap. Which type of fiscal policy should the government undertake?

expansionary

Which factor determines the distinction between nominal and real gross domestic product (GDP)?

inflation

Which effect does an increase in income have on the money demand curve?

shifts to the right

Which situation reduces the effectiveness of using the Phillips curve as a policy menu?

stagflation

Which element of the circular flow model is supplied by households?

taxes

The market price of a product increased by 7%. The absolute value of the price elasticity of demand for this product is 3.8.

26.6% decrease

Point X represents the consumption point of Country A without trade, and Point Y represents the consumption point of Country B without trade. These two points can be seen in the following graphs: What will be the gains from trade in total world production if these two countries specialize and trade?

90 fish and 50 corn

The market demand for high-end eyeglass frames is currently at 5,000 units per month, and identical firms operating in this market are facing constant returns to scale in the product range of 500 to 1,000 units per month. There are currently 10 firms supplying frames to the market. While prices of frames have not changed, their market demand has decreased to 4,500 units per month. Which change should be expected in the number of firms supplying frames to this market in the long run?

A decline in the number of firms; one to five firms will exit the market.

Which statement is true about the law of demand, all else being equal?

A fall in price will likely increase the quantity demanded.

Why do markets with excess demand move toward equilibrium?

Consumers are willing to pay higher prices, and firms will seek higher profits.

Which outcome is expected regarding the hot cocoa industry when the cost of cocoa from South America increases in price, making it more expensive to U.S. businesses?

Consumers will decrease hot cocoa purchases both to make at home or while out.

Country A provides domestic manufacturers with an export subsidy to incentivize international trade, which allows its companies to sell to Country B at below cost. Country B imposes tariffs on Country A's imports to protect its domestic manufacturers from any unfair trade practices. Which type of trade barrier is Country B enacting?

Countervailing duty

What is the name of a table depicting the relationship between the prices of a product and the quantities that consumers are willing to buy at those prices?

Demand schedule

Which effect is observed along the total cost curve as it becomes steeper?

Diminishing marginal returns

Which statement describes consumer spending?

Disposable income determines consumption spending.

Why is the sale of intermediate goods not included in the gross domestic product (GDP) calculation?

Double counting would overstate the size of the economy.

What is an outcome of a perfectly competitive market?

Firms will experience zero long-run economic profits.

How do payments flow from firms to households in the circular flow model?

Firms will provide households with wages, profit, interest, and rents.

An economy starts in a long-run equilibrium, and then there is a negative supply shock. Which economic outcome will result from this situation?

Higher price level and higher unemployment

Why is a firm's total costs in the long run always as low or lower than in the short run?

In the long run, a firm can alter its use of all factors of production.

Which trade policy could reduce exports?

Increase cost of production by raising taxes

A newspaper is trying to help citizens understand economic principles. Which misconception should the article address?

Increasing the money supply raises the standard of living for consumers in the long run.

What accurately characterizes capital?

It can be in the form of intellectual discoveries.

Canada reduces its tariffs by 25% on all manufacturing goods imported from the European Union. What is the long-run effect of this action?

It decreases the long-run average costs as manufacturing firms face more competition.

Which statement accurately characterizes the long-run aggregate supply (LRAS) curve?

It is equal to full-employment GDP.

Why does a price ceiling cause market failure?

It reduces the number of exchanges that take place without any shifts in the curve.

A government decision was made to spend 10 billion dollars on new technology to combat a serious problem in the country. What will happen to the aggregate demand curve?

It will shift to the right.

Which situation would cause the aggregate demand curve to shift to the right?

Lower chance of an upcoming recession

What is the effect when there is a decrease in aggregate demand?

Lower price level and higher unemployment

Which type of law causes a price floor?

Minimum wage

Generic drugs start appearing after pharmaceutical firms' patents expire. These generic drugs have the same formulation as name-brand drugs, but they are priced below name-brand medications. Producing generic drugs requires a significant capital investment to establish a modern manufacturing facility and established distribution networks. What is the market structure for these drugs?

Oligopoly

How should a government overcome the inefficiencies created by negative externalities?

Place a $2 tax on each item produced that contains harmful chemicals

Consider the following graph of a production possibilities frontier (PPF): Which points are attainable and efficient?

Points C, E, and G

What is a cause of structural deficits?

Political decisions

Which economic policy is associated with restraining trade between countries?

Protectionism

A local store sells products that have been imported from a country with a reputation for producing low quality electronics. To encourage buyers to purchase the electronic products, the seller offers customers the opportunity to pay a fee and have any required repairs or replacement done for free within the next two years. Which concept is this seller using?

Service contract

Which result occurs when adding additional variable inputs according to the law of diminishing marginal returns?

Smaller increases in output from each unit of input

An individual firm is considering entering a perfectly competitive market. The average total cost of the firm is lower than the market price. What will result if the firm enters the market?

The firm will enter the market and make a positive economic profit.

A group of roommates decides to buy pizza together. The table below shows the quantity of pizza demanded at different price levels: Demand for Pizza After a Drop in Price Price of Pizza Quantity Demanded (per slice) (in slices) $0.50- 20 $0.75- 15 $1.00-10 $1.25- 5 $1.50-0 The prize of pizza was originally $1.25 per slice, but it is now on sale for $0.75 per slice. How will the price change affect the quantity of pizza slices demanded?

The quantity demanded of pizza slices will increase by 10 slices.

A company is operating at a point inside its production possibility frontier.

The resources of the company are being inefficiently utilized.

The average price of eggs increases from $1.10 to $1.30. In response, the quantity supplied increases from 220 to 260 eggs. The elasticity of supply is equal to 1. Which term describes the price elasticity of this supply?

Unit elastic