Chapter 1-4
An effective price ____ is an enforced regulation that sets the legal price below the market clearing price, which often leads to nonprice rationing devices and ____ markets.
ceiling, black
Governments sometimes impose price controls in the form of price ____ and price ____.
ceilings, floors
The city of New Raven has decided to impose rent controls on office buildings in the city. As a result of this, the new rent
celing is lower than the equilibrium rent and there will be a shortage of rental offices.
Each country has a unique economic system to allocate its scarce resources. However, the economic system of most of the world's nations are a combination of the _____ system and the _____ system.
central planning price
When both supply and demand decrease, the equilibrium price ________ and the equilibrium quantity ________.
change is uncertain decreases
Effective rent ____ impede the functioning of rental prices. Construction of new rental units is discouraged.
controls
"We ought to do more for the education of our children." Statements using words like ought or should are
normative statement.
The assumption of bounded rationality suggests that people might use rules of thumb to guide their decision making because
people can not examine every possible choice available to them.
Import quotas are an example of government-imposed
quantity restrictions.
Even when businesspeople can change prices, some rationing by waiting may occur. Such ____arises when there are large changes in demand coupled with high costs of satisfying those changes immediately.
queuing
In a rent controlled market, we would expect to observe
renters moving into the market to take advantage of the lower rents.
Each individual must make choices because
resources are limited and therefore cannot satisfy one's many competing wants.
A point inside the PPC means that
resources are not being fully utilized due to unemployment or inefficiency.
Scarcity
results from unlimited wants coupled with limited resources.
In a price system, changes in prices
signal to consumers that some goods are relatively more or less scarce.
Other things remaining equal, the law of demand says that higher prices will lead to a
smaller quantity demanded and lower prices to a larger quantity demanded.
When the ____ curve shifts outward or inward given an unchanged ____curve, equilibrium price moves in the direction opposite to equilibrium quantity.
supply demand
A decrease in the number of pizza producers or an increase in the cost of mozzarella cheese used to make pizza will shift the
supply curve for pizza inward.
With an agricultural price ____ system, the government sets a minimum price at which, say, qualifying farm products can be sold. Any farmers who cannot sell at that price in the market can "sell" their surplus to the government. The only way this system can survive is for the government or some other entity to buy up the excess quantity supplied at the support price.
support
The economic system in which individuals and families own all of the scarce resources used in production, decide how and what to produce, and how many products to produce, is best described as a price system.
True
(T/F) A black market is a market in which a price-controlled good is sold at an illegally high price.
True.
(T/F) An import quota is a supply restriction that prohibits the importation of more than a specified quantity of a particular good in a one-year period.
True.
(T/F) Consumer surplus is the difference between the total amount that consumers would have been willing to pay for an item and the total amount that they actually pay.
True.
(T/F) Middlemen specialize in lowering transaction costs.
True.
(T/F) Rationing by the price system leads to the most efficient use of available resources.
True.
(T/F) Voluntary exchange refers to an act of trading between individuals that makes both parties to the trade subjectively better off.
True.
A model is considered "good" if it yields usable predictions that are supported by real-world observations.
True.
Economics is a science since the study of economics uses models and theories that are subject to empirical testing.
True.
The bounded rationality hypothesis assumes people are not fully rational and therefore use simple rules of thumb to sort among the alternatives that happen to occur to them.
True.
The rationality assumption of economics is the assumption that people do not intentionally make decisions that would leave them worse off.
True.
A production possibilities curve represents
all possible combinations of output that could be produced assuming fixed productive resources and their efficient use.
The economic way of thinking will
allow you to make better decisions.
The division of labor increases the output of society by
allowing resources to specialize in the tasks for which they have a comparative advantage.
A demand schedule gives a schedule of ________ quantities demanded per time dimension at ________.
alternative; different possible prices
The economic way of thinking is best described as
an analytical framework enabling one to reach informed conclusions.
A rightward shift in the supply curve for a good may be caused by any of the following except
an increase in average consumer income.
An above-equilibrium minimum wage will result in ________ in the quantity of labor demanded and ________ in the quantity of labor supplied.
a decrease; an increase
A price ceiling is
a government-imposed maximum price that may be charged for a good or service, which can lead to shortages.
The law of demand states that
as price increases, quantity demanded decreases, all other things equal.
The law of supply states that
as price increases, quantity supplied increases, all other things equal.
Economics
assumes individuals are rational and respond to different incentives.
Rent Demanded Supplied $400 3,000 1,600 $450 2,500 1,800 $500 2,000 2,000 $550 1,500 2,200 $600 1,000 2,400 1. What is the market price of apartments in this town? 2. What is the equilibrium quantity of apartments in this town? 3.If this town imposes a rent control of $450 per month, how many studio apartments will be rented?
1. $500 2. 2000 3. 1800
Which of the following is not generally considered to be a resource (factor of production)?
A bond.
Suppose that the price of a bag of coffee is $10 and the price of a box of tea is $6. -What is the relative price of a bag of coffee? -What is the relative price of a box of tea?
1.667 (price of coffee / price of tea) 0.6 (price of tea / price of coffee)
Which of the following would cause a decrease in the demand for beef?
A decrease in the price of fish, a substitute for beef.
Which of the following is not true about economic models?
A good model must be realistic.
Which of the following statements about production possibilities curves is not true?
A linear production possibility curve illustrates the concept of increasing opportunity costs.
What happens in the market with an upward sloping supply curve when there is a shift in the demand curve due to an external shock?
A new equilibrium price will be achieved over some period of time.
Which of the following is consistent with the law of demand?
A reduction of the price of salt led to a 5 percent increase in the quantity of salt purchased.
Given the existence of relative scarcity, resources can be rationed by
A. a system of prices. B. queuing, or standing in line. C. political mandate. D. All of the above!!!!!
Price ceilings, such as rent controls
A. reduce tenant mobility as people may be reluctant to change apartments. B. discourage the construction of new housing. C. lead to the deterioration of existing housing. D. All of the above!!!!!
What is the difference between absolute advantage and comparative advantage?
Absolute advantage is when someone can produce more of a good using a given quantity of inputs while comparative advantage is when someone can produce a good at a lower opportunity cost.
What is the economic effect of price ceilings?
An effective price ceiling will lead to a shortage.
Increased demand for laptop computers will drive up their price.
An improvement in computer manufacturing technology.
Consider the following statement based on a positive economic analysis that assumes that all other things remain constant: Falling gasoline prices will result in additional vacation travel. Which of the following (initially assumed constant) could occur and thus offset the stated outcome?
An increase in hotel taxes at popular resorts.
Which of the following is consistent with the law of supply?
An increase in the market price of MP3 players causes an increase in the production of MP3 players.
Consider the following statement based on a positive economic analysis that assumes that all other things remain constant: A reduction in income tax rates will result in more people working. Which of the following (initially assumed constant) could occur and thus offset the stated outcome?
An increase in the outsourcing of jobs.
Which of the following would cause a decrease in the supply of beef?
An increase in the price of inputs to beef production.
Which of the following is a true statement about self-interest as used in the study of economics?
Any action can be based on self-interest if the person has some reason for the action
Celeste, who uses earnings from her regularly scheduled hours of part-time work to pay for her room and board at college, will decide to buy a newly released DVD this week only if she is able to work two additional hours.
Based on the rationality assumption.
For every 10 exam points Myrna must earn in order to pass her economics course and meet her graduation requirements, she will study one additional hour for her economics test next week.
Based on the rationality assumption.
The table above indicates the demand schedules for four types of consumers. Suppose there are 8,000 consumers, evenly divided between the four types of customers above (A−D). The quantity demanded at a price of $7 is
Divide 8000 / 4 to find number for each row go to $7 row (QA x A#) + (QB x B#) + (QC x C#) + (QD x D#) = answer
There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous decrease in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these outcomes?
Demand decreases and supply increases.
There are simultaneous changes in the demand for and supply of tablet devices, with the consequences being an unambiguous decrease in the equilibrium quantity of these devices but no change in the market clearing price. What changes in the demand for and supply of tablet devices could have generated these outcomes?
Demand increases and supply increases.
Which of the following statements is true?
Economics is a science since the study of economics uses models and theories that are subject to empirical testing.
Elizabeth can make 5 dozen cupcakes or 1 chocolate cake in one hour. Steven can make 3 dozen cupcakes or 1 chocolate cake in one hour. Based on this information, which of the following is a true statement?
Elizabeth has a comparative advantage in making cupcakes
(T/F) Markets which are temporarily out of equilibrium will always return to equilibrium immediately.
False
(T/F) When both supply and demand curves change, the outcome is definite for both equilibrium price and equilibrium quantity.
False
(T/F) In general, the less organized the market, the lower the transaction costs.
False.
(T/F) Most of the benefits from agricultural price supports have gone to small, family-owned farms.
False.
(T/F) Producer surplus is the sum of the total amount that producers would have been willing to accept for supplying an item and the total amount that they actually receive.
False.
(T/F) Rent control is a type of price floor.
False.
(T/F) The minimum wage is an example of a price ceiling.
False.
(T/F) The total value of the gains from trade is equal to the difference between producer surplus and consumer surplus.
False.
Labor is a key input at fast-food restaurants. Suppose that the government boosts the minimum wage above the equilibrium wage of fast-food workers. Which of the following best describes the response of the quantity of labor employed at restaurants?
Fewer workers will be employed since the wage increase will induce managers to seek to substitute other inputs for the now relatively more expensive labor.
Suppose a student is trying to decide whether or not to take another economics class. Which of the following is not an aspect of the economic way of thinking that would apply in this decision-making process?
Flipping a coin.
Suppose an employer is trying to decide whether or not to hire another worker. Which of the following is not an aspect of the economic way of thinking that would apply in this decision-making process?
Flipping a coin.
To which of the following household-type(s) does the phrase "unlimited wants and limited resources" apply? I. A low-income household II. A middle-income household III. A high-income household
I, II, and III.
Identify which of the following would generate a decrease in the market demand for e-book readers, which are a normal good. I. An increase in the price of downloadable apps utilized to enhance the e-book reading experience, which are complements. II. An increase in the number of consumers in the market for e-book readers. III. A decrease in the price of tablet devices, which are substitutes. IV. A reduction in the income of consumers of e-book readers.
I, III and IV.
Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases. Part 3
II and III.
Until 2008, the people of the fictitious nation of Dor relied mainly on private car companies to determine how many automobiles to produce. After 2008, the people of Dor have been relying on the Dor government to determine how many automobiles to produce. This represents a shift in the economic system of Dor from
Market System to Central Planning.
____, also known as intermediaries, specialize in linking ultimate sellers and buyers and lowering these parties' ____ costs.
Middlemen transaction
A coin toss will best predict Leonardo's decision about whether to purchase an expensive business suit or an inexpensive casual outfit to wear next week when he interviews for a high-paying job he is seeking.
Not based on the rationality assumption.
Which of the following is an implication of the law of supply? The law of supply then implies that a ____ ____ the supply curve occurs due to a change in market price.
Producers will offer more units at a higher price and fewer units at a lower price. movement along
Rachel has an absolute advantage in cooking and Grace has an absolute advantage in ironing. Assuming that the population consists only of Rachel and Grace,we know that
Rachel has a comparative advantage in cooking and Grace has a comparative advantage in ironing.
____ prices perform three functions: (1) allocating existing scarce housing among competing claimants, (2) promoting efficient maintenance of existing houses and stimulating new housing construction, and (3) rationing the use of existing houses by current demanders.
Rental
What is the relationship between wants and resources?
Resources are used to produce things that satisfy people's wants.
What is the economic effect of price floors?
Surpluses.
Which of the following would be a topic of study in microeconomics?
The amount of steel purchased by General Motors.
Suppose that you are investigating the market for wheat. The price of corn, a substitute good, has decreased. Which of the following would best describe the market reaction to this event?
The demand for wheat decreases, which creates a surplus of wheat, causing the price of wheat to decrease.
Falling gasoline prices will result in additional vacation travel.
The economy enters a recession with increased unemployment.
Which of the following is not an example of a transaction cost?
The enjoyment of using the good.
In a market system, how are the terms of exchange established?
The forces underlying supply and demand interact to set a price.
A reduction of income tax rates will result in more people working.
The foreign exchange value of the dollar increases causing domestic exports to decline.
Kyla is buying clothes. She can choose between blue jeans, khaki pants, and black jeans. She doesn't like black jeans, and after some thought, she chooses blue jeans. What is the opportunity cost of this choice
The khaki pants.
Marissa is buying vegetables. She can choose between carrots, lettuce, and green beans. Shedoesn't like green beans, and after somethought, she chooses carrots. What is the opportunity cost of thischoice
The lettuce.
The price of orange juice increases. Which of the following is not part of the likely chain of events that follows from this price change?
The manufacturers of orange−picking machines lay off some workers.
The concept of consumer surplus is best described by the following situation.
The maximum price that Jackie was willing to pay for an iphone was $400, but she bought it for $250 on black Friday.
Suppose that at first the price of a bag of coffee is $15 and the price of a box of tea is $9. Then, the price of a bag of coffee changes to $30 and the price of a box of tea changes to $21. What has happened the money prices and relative prices of these two goods?
The money price of a bag of coffee and a box of tea have risen and the relative price of a bag of coffee has fallen while relative price of a box of tea has risen.
Suppose that at first the price of a pair of shoes is $5 and the price of a t−shirt is $3. Then, the price of a pair of shoes changes to $10 and the price of a t−shirt changes to $7. What has happened the money prices and relative prices of these two goods?
The money price of a pair of shoes and a t−shirt have risen and the relative price of a pair of shoes has fallen while relative price of a t−shirt has risen.
--------------------2003-----2004 Hospital Room $250 $275 Hotel Suite $350 $375 Based on the table above, which of the following is true?
The money prices of both goods increased, the relative price of hospital rooms increased, and the relative price of hotel suites decreased
If you receive a free ticket to a concert, what, if anything, is your opportunity cost of attending the concert? If miserable weather on the night of the concert requires you to leave much earlier for the concert hall and greatly extends the time it takes to get home afterward, the opportunity cost of attending the concert
The next best activity that can't be done while attending the concert. increases.
What is relative price?
The price of a commodity in terms of another commodity
The market for corn is initially in equilibrium. Suppose the production of biofuels, which use corn as an input, increases, and at the same time, increases in the price of oil cause farm production costs to rise. Which of the following explains the effect on equilibrium price and quantity in the corn market?
The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information.
A professor with a Ph.D. in Economics can write a short essay in economics in 2 hours and can mow the lawn in 4 hours. A student in economics can write a short essay in economics in 4 hours and can mow the lawn in 4.5 hours. Which of the following statements is true?
The professor should write the essay since he has the comparative advantage in writing.
Suppose that a rap group called RG2 has released its first CD with Live Records at an intended list price of $14.99. Music stores have discovered that they can markup the price to $17.99 with continued strong sales. What information does this higher price convey to the recording label?
The recording label should expand the production and distribution of RG2's first CD.
Last year, the price of chicken was $6 per pound and the price of fish was $7 per pound. This year, the price of chicken is $10 per pound and the price of fish is $11 per pound. All other things equal, and assuming that Brian purchased both items before, what would you expect to happen to his purchases of chicken (relative to fish) this year?
The relative price of chicken has increased, so Brian would be expected to purchase less.
The graph shows a production possibilities curve for a student who currently spends 8 hours a week studying. How could the student get a B in both classes?
The student could study more than 8 hours a week.
Why do economists avoid making the distinction between wants and needs?
The term need is subjective making it difficult to distinguish between something someone wants and something they need.
In a market-based economy, what is the role of a system of prices?
To address the problem of scarcity.
(T/F) A market demand curve is derived by summing (at each price) the individual quantities demanded by all buyers in the market.
True
Which of the following statements is true concerning the consequences of rent controls?
Upper income earners are big winners due to the fact that they can better exploit nonprice rationing devices.
Suppose that the U.S. federal government has borrowed $500 billion to expand its total spending on goods and services across the entire economy in an effort to boost by $500 billion the aggregate production by the nation's firms. Would we apply microeconomic or macroeconomic analysis to analyze this policy action?
We would apply macroeconomic analysis because this policy action would affect the behavior of the economy as a whole.
Suppose that the government has raised by $10 a per-carat tax rate it imposes on diamonds in an effort to influence production of this particular good by each of the firms that produce it and purchases by individual consumers. Would we apply microeconomic or macroeconomic analysis to analyze this policy action?
We would apply microeconomic analysis because this policy action would affect decision making undertaken by individuals (or households) and by firms.
Which of the following describes an inferior good?
When consumer income increases, the demand for eggs decreases.
Which of the following is not one of the three fundamental questions of economics?
Where will items be produced?
The three fundamental economic questions that a nation addresses in order to allocate society's scarce resources include all of the following except:
Why will the items be produced?
Does the richest person in the world face the problem of scarcity?
Yes, because even if you have money you will never be able to satisfy all of your wants and must therefore make choices
One of your classmates, Sally, is a hardworking student, serious about her classes, and conscientious about her grades. Sally is also involved, however, in volunteer activities and an extracurricular sport. Is Sally displaying rational behavior?
Yes, she is using her time allocated among school, studying, sports and volunteer work in a manner she deems best.
A leftward shift in the supply curve for a good may be caused by any of the following except
a change in consumer preferences.
The economic system in which a government establishes ownership of resources and issues rules for how to manage the production of products is best described as
a command and control system.
The effect of a quantity restriction is
a higher price.
A politician states "taxes should be raised to provide more spending on school lunch programs." This is
a normative economic statement.
An increase in the price of cigarettes will reduce the amount of cigarettes purchased. This is
a positive economic statement.
An increase in the price of gasoline will reduce the amount of gasoline purchased. This is
a positive economic statement.
The minimum wage is an example of
a price floor.
The consequences of decriminalizing illegal drugs have long been debated. Some claim that legalization will lower the price of these drugs and reduce related crime. Others claim that more people will use these drugs. Suppose that some of these drugs are legalized so that anyone may sell them and use them. Based on positive economic analysis, such decriminalization will lead to
a reduction in price of these drugs and an increase in quantity demanded.
If the current price of a good is less than the equilibrium price, there will be
a shortage of the good and its price will increase.
All of the following will decrease the supply of train trips except
a technological change that makes trains safer and more fuel-efficient.
Scarcity implies that
a way of rationing supplies of goods must be found.
As long as a price floor is ________ the market clearing price, imposing a price floor creates a ________.
above; surplus
Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium
after an adjustment period that varies.
The law of demand posits ____ relationship between the quantity demanded of a good and its price, other things being equal.
an inverse
Julie goes to a cooking academy to become a chef. This is an example of
an investment in human capital.
A decrease in the price of a complement good Y will lead to
an outward shift in the demand for good X.
An increase in the price of a substitute good Y will lead to
an outward shift in the demand for good X.
Specialization of labor and trade yield greater economic efficiency when applied to interstate trade,
and when applied to international trade.
The relative price of any commodity is its price in terms of
another commodity.
The publication Car and Driver reduces transactions costs for high-performance car buyers
by providing reliable information so that car buyers do not have to spend as much time doing their own research.
If the price of coffee rises, and as a result the demand for sugar falls, this implies that these two goods are ____.
complements
We measure the demand schedule in terms of a time dimension and in ____-quality units.
constant
According to the law of increasing additional cost, the opportunity cost of producing
cotton is likely to increase as society tries to produce more cotton.
Firms providing wireless (an alternative to cable) Internet access services reduce their prices. This will cause a(n)
decrease in demand.
There is a decrease in the incomes earned by consumers of cable-based Internet access services. This will cause a(n)
decrease in demand.
The law of ____ applies when other things, such as income and the prices of all other goods and services, are held constant.
demand
When the ____ curve shifts outward or inward with an unchanged ____curve, equilibrium price and quantity increase or decrease, respectively.
demand supply
When there is a normal good, an increase in consumer income will result in the
demand curve shifting to the right.
During her years of college, Dominique discovered that her three favorite subjects were astronomy, chemistry, and political science. She chose to major in astronomy because she had seen data indicating that science majors earn higher-than-average wages and because she liked astronomy better than both chemistry and political science. Upon graduation, however, she learned that average wages in chemistry fields were 20 percent higher than average wages earned by astronomers. Did Dominique's behavior violate the rationality assumption? Dominique's decision to major in astronomy
did not violate the rationality assumption because she preferred astronomy, and because, at the time she made her decision, data showed science majors earn higher-than-average wages.
According to the text, firms encounter rising costs when they attempt to produce more in the same time period. As a consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is
direct (or positive) and is called the law of supply.
Government-enforced prices such as price ceilings
disrupt the rationing function performed by prices in a market system.
The production possibilities curve will shift outward (upward, and or, to the right) when
economic growth occurs.
A society's institutional mechanism for determining the way in which scarce resources are used to satisfy human desires refers to its
economic system.
Gains from trade are
equal to the sum of consumer surplus and producer surplus.
If the price of automobiles ____ and as a result the demand for motorbikes falls, this implies that these two goods are substitutes.
falls
Many state governments claim a shortage of funds because there are "unmet needs." This claim is
false because of scarcity.
Prices in a market economy perform a rationing function because they reflect relative scarcity, allowing the market to clear. Other ways to ration goods in an economy include _____________.
first come first served, political power, physical force, random assignment and coupons.
When a ____ is placed on wages at a rate that is above market equilibrium, the result is an excess quantity of labor supplied at that minimum wage.
floor
Buyers and sellers receive information about what should be bought and what should be produced
from prices in a market system.
The following table indicates the supply schedules for four types of producers: A, B, C, and D and the number of producers in each group (top row).The quantity supplied by each type of producer (QA,QB,QC,and QD) is shown for market prices ranging from $8 down to $2. What is the combined quantity supplied at a market price of $3?
go to $3 row (QA x A#) + (QB x B#) + (QC x C#) + (QD x D#) = answer
Economic goods are
goods that are scarce.
A surplus occurs when quantity supplied is ________ than quantity demanded at a price ________ the market clearing price.
greater; above
Economics is best defined as the study of
how people allocate limited resources to satisfy unlimited wants.
When there is a shift in demand or supply, the new equilibrium price is not obtained ____. Adjustment ____.
immediately takes time
Quantity restrictions may take the form of ____ which are limits on the quantity of specific foreign goods that can be brought into the United States for resale purposes.
import quotas
Consumers' tastes shift away from using wireless Internet access in favor of cable-based Internet access services.
increase in demand.
Firms providing cable-based Internet access services reduce their prices. This will cause a(n)
increase in quantity demanded.
Other things remaining equal, a decrease in the world oil supply like those that occurred in 1973-74 and 1979 would
increase the price of airline travel and decrease its equilibrium quantity.
If the price of tennis racquets falls, and as a result the demand for tennis balls ____ this implies that these two goods are complements.
increases
Opponents of minimum wage legislation argue that higher minimum wages serve to
increase unemployment, particularly among unskilled minority teenagers.
The rationality assumption implies that
individuals will not intentionally make decisions that leave them worse off.
You and a friend decide to spend $100 each on concert tickets. Each of you alternatively could have spent the $100 to purchase a textbook, a meal at a highly rated local restaurant, or several internet movie downloads. As you are on the way to the concert, your friend tells you that if she had not bought the concert ticket, she would have opted for a restaurant meal, and you reply that you otherwise would have downloaded several movies. The relevant opportunity costs for you and your friend of the concert tickets that you purchased are
internet movie downloads for you and a meal at a highly rated local restaurant for your friend.
According to the law of demand, the quantity demanded of any commodity is ________ related to its price, other things being equal.
inversely
Based on the recommendation of a friend, you buy a ticket and attend a movie with high expectations. After seeing the movie, you think that it is the worst film ever made and that it was a complete waste of money. This situation
is consistent with rational behavior because you had thought that you were going to like the movie.
Opportunity cost
is the value of the next best alternative as a result of choosing some given alternative
Specialization and comparative advantage
lead to greater productivity. lead to greater output even if you can do everything better than someone else. lead to international trade and overall gains for the nations involved. All of the above.
Suppose that the government decides to place a ceiling on a specific Medicare-approved prescription drug, and it establishes the price ceiling below the previous equilibrium price of the drug. How will manufacturers of this drug respond to the government's price control? If the price ceiling is below the market clearing price, quantity supplied will be __________ the quantity demanded. As a result, a __________ will exist in the market.
less than; shortage
The impact of the national debt on the economy's unemployment is an example of
macroeconomics analysis.
Voluntary exchange
makes both parties to a trade better off.
The ____ ____ curve is derived by summing the quantity demanded by individuals at each price.
market demand
Canada goes to considerable lengths to protect its television program and magazine producers from U.S. competitors. The United States often seeks protection from food imports from Canada. From an economywide viewpoint, these efforts are
misguided because the enhanced output from specialization based upon comparative advantage is restricted.
Which of the following is not a factor of production
money.
An inverse graph has what kind of slope?
negative
The ceteris paribus assumption means
other things equal.
A key feature of the ____ system is ____ exchange, which involves trades between individuals that they both perceive to raise their well-being.
price voluntary
Black markets usually arise when there are
price ceilings.
When demand decreases and the (upward sloping) supply curve remains in the same position,
price falls and equilibrium quantity falls.
When supply increases and the (downward-sloping) demand curve remains in the same position,
price falls and equilibrium quantity rises.
A production possibilities curve that is bowed outward (from the origin) represents the concept that
production of additional units of one good requires that increasing quantities of the other good be given up.
Farmer McDonald has 100 acres of land on which he can grow soybeans or corn. An acre of land yields 200 bushels of soybeans or 100 bushels of corn or some combination of both. The accompanying figure refers to farmer McDonald'
production possibilities curve.
Any activity that results in the conversion of resources into products that can be used in consumption is called
production.
People often complain about price gouging after a natural disaster. Suppose the government imposed limitations on price increases in the aftermath of a disaster. One would expect
reconstruction to take longer because the quantity supplied of new materials would increase more slowly.
In a price system,
relative prices change constantly to reflect changes in supply and demand.
All of the following are government imposed quantity restrictions except
rent controls.
Economists assume that an individual acts as if motivated by
self-interest.
Economic growth can be pictured in the accompanying diagram by
shifting the PPC upward and outward.
An economic model
should capture only the essential relationships that are sufficient to analyze a particular problem or answer a particular question.
The division of productive activities among persons and regions so that no one individual or region is totally self-sufficient is known as
specialization.
The rationality assumption as used in economics
states that people respond to incentives.
If the price of bacon rises, and as a result the demand for sausage increases, this implies that these two goods are ____.
substitutes
If a decrease in the price of soft drinks leads to a decrease in demand for bottled water, the two goods must be
substitutes.
If an increase in the price of soft drinks leads to an increase in demand for bottled water, the two goods must be
substitutes.
The primary losers from minimum wages are
teenage and unskilled workers.
One reason that economists use microeconomics as the basis of macroeconomic analysis is
that all choices are made by individuals and firms.
Using the diagram to the right, click on the point labeled 'S' and drag the 'savings' slider to the right (denotes the production of more capital goods). Use this to help answer the question below. If a country devotes more resources toward the production of capital goods and less toward consumer goods then
that country will experience greater economic growth.
The existence of scarcity requires
that people must make choices and face trade-offs in using their resources.
An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve
the collection of data to evaluate the usefulness of the model.
Greater economic growth is shown as
the distance the production possibilities curve shifts outward.
Decisions must frequently be made by individuals, organizations, and even nations. Facilitating better decision-making is a fundamental goal of economics. The analytical framework advocated by economists that enables one to make informed decisions is called
the economic way of thinking.
Rational, self-interested government officials seeking more funding for mass transit through higher taxes should consider
the fact that raising taxes is generally unpopular and may result in a potential loss in a future election.
Suppose the market price of corn is $5 a bushel but the government sets a price of $7. As a result,
the government must purchase the surplus to maintain the price.
Some people claim that the "economic way of thinking" does not apply to issues such as health care. All of the following choices clearly demonstrate how economics applies to this issue, except when
the individual decides against health care, as not having it may make him better off.
When Adam Smith's ten pin workers specialized, they were able to increase the output of pins in a day from 200 to 48,000. One reason for the increase in pin production was due to
the mastery each worker achieved over his assigned task.
Whenever a society forgoes current consumption in order to invest in capital goods,
the more the society can consume in the future.
Suppose a woman believes that men working in manufacturing earn lower wages and therefore have less to offer to a combined household. If she decides not to marry a man for this reason, all other things equal, her behavior is consistent with
the rationality assumption.
Economics is
the study of how limited resources are allocated to satisfy unlimited wants.
Opportunity cost refers to
the value of the next-best alternative.
A municipality taxing hotel guests to obtain funding for a new sports stadium should consider all of the following, except
the winning potential of the sports team using the stadium.
When an individual proclaims the need for a new car, the person typically means
they want something they currently do not have.
Suppose that in the figure to the right, a nation currently has sufficient resources to produce combinations located along only the innermost production possibilities curve, labeled A. In addition, suppose that the nation's residents have determined that smartphones function mainly as consumption goods while tablet devices function primarily as capital goods. If the nation produces no additional smartphones this year, will the intermediate-shifted PPC resulting from minimal economic growth, labeled B, or the farthest-shifted PPC caused by more significant economic growth, labeled C, be more likely to apply next year? If the nation produces no additional smartphones this year, the PPC that will be more likely to apply next year will be
the farthest-shifted PPC because there would be relatively more capital goods available to produce larger quantities of consumer goods next year.
Opportunity cost is defined as
the highest-valued, next-best alternative that must be given up to obtain something.
In determining how to allocate scarce land resources to automobile parking, individuals will incur an opportunity cost. That opportunity cost is
the next-highest-ranked alternative use of the space.
The ultimate purpose of economics is
to study how individuals make choices.
Proponents of behavioral economics suggest that traditional economic models assume that people exhibit all of the following "unrealistic" characteristics except
unbounded altruism.
A demand schedule shows
various quantities of a good or service demanded at various prices.
After the concert is over and you and your friend are traveling home, you discuss how each of you might otherwise have used the four hours devoted to attending the concert. The four hours could have been used to study, to watch a sporting event on TV, or to get some extra sleep. Your friend decides that if she had not spent four hours attending the concert, she would have chosen to study, and you reply that you otherwise would have watched the televised sporting event. The relevant opportunity costs for you and your friend for allocating four hours to attending the concert are
watching a sporting event on TV for you and studying for your friend.
A rational self-interested student decides whether to purchase a textbook required for a particular class based on all of the following, except
whether the textbook has an attractive dust jacket.
The division of labor refers to
workers being assigned specific tasks.
Economic growth implies
you can now have more of all goods.
You are investing your resources in a college education because
your personal PPC will grow faster by investing in human capital and you will be better off.
Ceteris Paribus means
"other things constant."
Ron advertised his car for sale for $6000, although he was willing to accept $4000. When he finally sells his car for $5500, his producer surplus from the sale is
$1500
As long as a price ceiling is ____ the market clearing price, imposing a price ceiling creates a ____.
below; shortage
During the time period assumed by a production possibilities curve, it is ________ to be at a point outside the curve and ________ to be at a point beneath the curve.
impossible; possible
If demand increases while supply remains unchanged, the equilibrium price of the product will ____ and the equilibrium quantity will ____.
increase increase
Factors of production include
land, labor, physical capital, human capital and entrepreneurship.
Price ceilings tend to ________ gains from trade, and price floors tend to ________ gains from trade.
reduce; reduce
Evidence indicates that the group which benefits most from rent ceilings is
upper-income professionals.
Consumer surplus at any specific quantity is measured as the ________ distance between the demand curve and the level of the market clearing ________.
vertical; price
Producer surplus at any specific quantity is measured as the ________ distance between the supply curve and the level of the market clearing ________.
vertical; price
