ECO Exam #1

A leftward shift of a supply curve is called a(n)

decrease in supply.

What are some examples of prices in a market system?

1.) Prices have the crucial job of balancing supply and demand. 2.) Prices send signals to buyers and sellers to help them make rational economic decisions. 3.) Prices coordinate economic activity.

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that the opportunity cost of 1 table is

5 chairs for Mike and 3 chairs for Sandy.

Which of the following statements is an example of a positive, as opposed to normative, statement? A.) Americans deserve a cleaner environment. B.) Reducing emissions reduces days missed from school due to asthma. C.)All Americans are entitled to quality health care. D.) Economic policies should focus on improving equality.

B.) Reducing emissions reduces days missed from school due to asthma.

Which of the following might cause the supply curve for an inferior good to shift to the right? A.) An increase in input prices B.) A decrease in consumer income C.) An improvement in production technology that makes the production of the good more profitable D.) A decrease in the number of sellers in the market

C.) An improvement in production technology that makes production of the good more profitable

Imagine you have a job that pays $15.00 per hour. Your boss asks you to work two extra hours tomorrow, but those hours fall during your college economics class meeting. Which of the following displays "economic decision-making"? A.) You decide to work the extra two hours, and there is no tradeoff because there is no attendance being taken in economics, and there is no graded work being forfeited B.) You decide to work the extra two hours, and there is no tradeoff because you will get paid $30 to work but nothing to attend class. C.) You decide to work the extra two hours, and there is a tradeoff because you are giving up an entire economics class session and all of the learning. D.) You decide to attend the economics class, and there is no tradeoff because attendance in class is mandatory so no real choices are offered.

C.) You decide to work the extra two hours, and there is a tradeoff because you are giving up an entire economics class session and all of the learning.

Which of the following would not result from all countries specializing according to the principle of comparative advantage? A.) The size of the economic pie would increase. B.) Worldwide production of goods and services would increase. C.) The well-being of citizens in each country would be enhanced. D.) Each country's production possibilities frontier would shift inward.

D.) Each country's production possibilities frontier would shift inward.

A leftward shift of a supply curve causes a _______ in supply.

Decrease

True or False? A decrease in the legal drinking age in America, from 21 to 18, is likely to cause a decrease in the demand for alcohol due to decreasing marginal utility.

False

True or False? An increase in the price of a product, ceteris paribus, will result in decrease in the quantity supplied.

False

Equilibrium price must increase when demand...

Increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously.

An increase in quantity demanded...

Is a movement downward and to the right along a demand curve.

Trade between countries allows what?

It allows each country to consume at a point outside its production possibilities frontier.

What must be given up to obtain an item is called:

Opportunity Cost

A improvement in production technology will shift the supply curve to the right or left?

Right

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?

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.

What would happen to the equilibrium price and quantity of lattés if the cost to produce steamed milk, which is used to make lattés, increased, and scientists discovered that lattés cause heart attacks?

The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.

Choices arise from scarcity. We say that a resource is scare if...

There are many alternative uses and limited quantities.

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when...

They choose not to trade with one another.

True or False? Evaluating normative statements involves values as well as facts.

True

The demand curve can be thought of as:

a graphical illustration of how a buyers willingness and ability to pay for product changes as the quantity demanded changes

A Price increase in the market for raisins results in:

an increase in quantity supplied

Recent forest fires in the western states are expected to cause the price of lumber to rise in the next six months. As a result, we can expect the supply of lumber to

fall now.

The law of demand states that, other things equal, when the price of a good...

falls, the quantity demanded of the good rises.

Jane's reduced willingness to pay for microwave tv-dinners after getting a promotion at work is likely due to:

microwave tv-dinners being an inferior good

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price.

An increase in quantity demanded

results in a movement downward and to the right along a demand curve.

Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the

supply of flour to increase.

Another way of defining the opportunity cost for sellers is:

the minimum price for which they would sell a given quantity of a good and the sum total of all sacrificed value, income, revenues, input and production costs resulting from sale of a given quantity of a good.

Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As a result of this information, today's demand curve for Mustangs

will not shift; rather, the demand curve for Mustangs will shift to the right next month.

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth...

Is more equal but less efficient for society.

If Korea is capable of producing either shoes or soccer balls or some combination of the two, then what is the relationship with opportunity costs between the two items?

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

A person can benefit from specialization and trade by obtaining a good at a price that is...

Lower than his or her opportunity cost of that good.

Both Bill and Mary produce t-shirts and hats. If Bill's opportunity cost of 1 t-shirt is 4 hats and Mary's opportunity cost of 1 t-shirt is 3 hats, then

Mary has a comparative advantage in the production of t-shirts.

A competitive market is a market in which...

No individual buyer or seller has any significant impact on the market price.

Quantity Supplied can best be defined as:

The minimum quantity sellers will sell at a particular price

True or False? If a market is a perfectly competitive and free, then the equilibrium price and quantity are allocativly efficient.

True

True or False? In a market economy, economic activity is guided by self-interest and prices.

True

True or False? Positive statements are descriptive, while normative statements are prescriptive.

True

True or False? When two products are substitutes, an increase in the price of one good results in an increase in the demand for the other good.

True

Suppose economists are warning that the price of a specific medicine, that everyone in the economy currently consumes, has been increasing more rapidly than the prices of other goods and will likely continue to increase in the near future. Which of the following statements is most likely to be true.

When the price gets higher the first buyer to switch from having a positive quantity demanded to having a zero units demanded of the good will be the buyer who has a willingness (or ability) to pay for the good that is less than every other buyers willingness and less than every other buyers ability to pay for the good.

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded

applies to most goods in the economy, is represented by a downward-sloping demand curve, and is referred to as the law of demand.

A student that loves cappuccino drinks them all day. With each drink of a cappuccino the student drinks, That student's enjoyment of cappuccino...

is likely to decrease gradually with each successive cappuccino as a result of decreasing marginal benefit.