econ 1
Which one of the following expressions best states the idea of opportunity cost? "All that glitters is not gold." "He who hesitates is lost." "A penny saved is a penny earned." "There is no such thing as a free lunch."
"There is no such thing as a free lunch."
The market system's answer to the fundamental question "Who will get the goods and services?" is essentially "Those who physically produced them." "Those most willing and able to pay for them." "Those who get utility from them." "Those who most need them."
"Those most willing and able to pay for them."
The market system's answer to the fundamental question "How will the system accommodate change?" is essentially "Through training and retraining programs." "Through trial and error." "Through the guiding function of prices and the incentive function of profits." "Through government leadership and direction."
"Through the guiding function of prices and the incentive function of profits."
The market system's answer to the fundamental question "How will the system promote progress?" is essentially "Through training and retraining programs." "Through government-funded research programs." "Through the profit potential that encourages development of new technology." "Through redistribution of income to promote greater equality."
"Through the profit potential that encourages development of new technology."
Refer to the budget line shown in the diagram. If the consumer's money income is $50, the prices of C and D cannot be determined. consumer can obtain a combination of 5 units of both C and D. price of C is $5 and the price of D is $10 .price of C is $10 and the price of D is $5.
.price of C is $10 and the price of D is $5.
a. Suppose that businesses buy a total of $110 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $64 billion in wages, $12 billion in rent, and $22 billion in interest, how much are households paid for providing entrepreneurial ability? $ --------- billion b. If households spend $60 billion on goods and $50 billion on services, how much in revenues do businesses receive in the product market? $ ---------- billion
12 110
For each item, decide if it describes a moral hazard problem or an adverse selection problem. a. A person with a terminal illness buys several life insurance policies through the mail. b. A person drives carelessly because she has automobile insurance. c. A person who intends to torch his warehouse takes out a large fire insurance policy. d. A professional athlete who has a guaranteed contract fails to stay in shape during the off season. e. A person who anticipates having a large family takes a job with a firm that offers exceptional child care benefits.
Adverse Moral Adverse Moral Adverse
Upon learning that his auto transmission is about to fail, Ray sells his car to an unsuspecting buyer. This circumstance illustrates the moral hazard problem. adverse selection problem. principal-agent problem. free-rider problem.
Adverse Selection Problem
Which of the following statements concerning a public good is false? It is impossible to exclude nontaxpayers from the enjoyment of the public good. The private sector does not have an economic incentive to produce a socially optimal amount of a public good. All benefits associated with the production and use of a public good are received by the government. The availability of a public good to one person simultaneously makes it available to all members of society.
All benefits associated with the production and use of a public good are received by the government.
Which of the following best illustrates the circular flow model in action? Bobbie goes to work and builds cars; she uses the income she receives to buy food at the grocery store. Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier and uses the rest to take her family out to dinner. Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers. All of these answers illustrate the workings of the circular flow model.
All of these answers illustrate the workings of the circular flow model.
Which of the following statements is correct? An increase in income will reduce the demand for a normal good. An increase in the price of C will decrease the demand for complementary product D. A decrease in income will decrease the demand for an inferior good. A decline in the price of X will increase the demand for substitute product Y.
An increase in the price of C will decrease the demand for complementary product D.
Examples of command economies are Cuba and North Korea. the United States and Japan. Sweden and Norway. Mexico and Brazil.
Cuba and North Korea.
In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact would you expect this event to have on the following? a. The supply of cattle hides: b. Hide prices: c. The supply of leather goods: d. The price of leather goods:
Decrease increase decrease increase
Review Question 01-02 Indicate whether each of the following statements applies to microeconomics or macroeconomics: a. The unemployment rate in the United States was 3.7 percent in December 2018: b. A U.S. software firm laid off 15 workers last month and transferred the work to India: c. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise: d. U.S. output, adjusted for inflation, increased by 2.3 percent in 2017: e. Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point: f. The consumer price index rose by 2.2 percent from November 2017 to November 2018:
Macro micro micro macro micro macro
Which of the following would not be classified as an economic resource by economists? money in a business checking account a professional soccer player the manager of the local hamburger restaurant water in a town's reservoir
Money in a business checking account
For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. a. 3,000 units at which MC = $10 and MB = $13: b. 11 units at which MC = $4 and MB = $3: c. 43,277 units at which MC = $99 and MB = $99: d. 82 units at which MC < MB: e. 5 units at which MB < MC:
More fewer current more fewer
Match each of the following characteristics or scenarios with either the term negative externality or the term positive externality. a. Resources are overallocated: b. Tammy installs a very nice front garden, raising the property values of all the other houses on her block: c. Market demand curves are too far to the left (too low): d. Resources are underallocated: e. Water pollution from a factory forces neighbors to buy water purifiers:
Negative Positive positive positive negative
Which of the following is a capital resource? a computer programmer software used by a firm silicon (sand) used to make computer chips a corporate bond issued by a computer manufacturer
Software used by a firm
What two conditions must hold for a competitive market to produce efficient outcomes? Firms must minimize production costs, and consumers must minimize total expenditures. Firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay. Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
Discussion Question 03-04 a. What are the determinants of supply? check all that apply Income Prices of other goods Technology Tastes and preferences Resource prices Number of producers b. What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. i. Change in market price: ii. Change in factor productivity: iii. Change in producer expectations: iv. Change in the price of other goods: v. Change in technology: vi. Change in resource prices: vii. Change in taxes: c. Given the following diagram, indicate whether the specified changes below represent a change in supply or a change in the quantity supplied. In the graph, the horizontal axis is labeled Quantity and the vertical axis is labeled Price. The graph shows a solid rising slope labeled S and a dotted rising slope labeled S subscript 1 which start from bottom left and end at top right. A horizontal dotted line from (0, P subscript 1) intersects S subscript 1 at point C and S at point A and a vertical dotted from the horizontal axis intersects S at point B and S subscript 1 at point C. A change from point A to point B: A change from point A to point C:
Technology Resource prices Number of producers Movement along the line shift of the line shift of the line shift of the line shift of the line shift of the line shift of the line change in quantity supplied change in supply
If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true? Consumer surplus will be maximized, and producer surplus will be minimized. The benefit surpluses shared between consumers and producers will be maximized. There will be no consumer or producer surplus. The benefit surpluses received by consumers and producers will be equal.
The benefit surpluses shared between consumers and producers will be maximized.
Which of the following best describes the invisible-hand concept? The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest. The inability to substitute resources creates a conflict between private and public interests and calls for government intervention. Central direction by the government will improve resource allocation in a capitalistic economy. The market system is the best system for overcoming the scarce resources-unlimited wants problem.
The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
a. Which of the following represents a positive economic statement? Taxes should not be increased since that will lower spending. The unemployment rate is too high. The government should extend unemployment benefits. The unemployment rate is 4.8 percent. b. Which of the following represents a normative economic statement? The unemployment rate is higher than it was last year. The government will have a larger deficit if unemployment benefits are extended. The government ought to lower taxes so people have more money. Higher taxes will lower spending.
The unemployment rate is 4.8 percent. The government ought to lower taxes so people have more money.
Which of the following is one of the Five Fundamental Questions? What goods and services will be produced? Which products will be in scarce supply and which in excess supply? Who should appoint the head of the central bank? How much should society save?
What goods and services will be produced?
Which of the following is not one of the five fundamental questions? What prices will be charged for goods and services? Who will get the goods and services? What goods and services will be produced? How will the system promote progress?
What prices will be charged for goods and services?
In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by an increase in the price of coffee. an increase in the cost of making donuts. a change in buyer tastes. consumers expecting donut prices to fall.
a change in buyer tastes.
The economic perspective entails short-term but not long-term thinking. irrational behavior by individuals and institutions. a comparison of marginal benefits and marginal costs in decision making rejection of the scientific method.
a comparison of marginal benefits and marginal costs in decision making.
Which of the following is a labor resource? software used by a firm a computer a computer programmer silicon (sand) used to make computer chips
a computer programmer
Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences a a consumer surplus of $9, and Nathan experiences a producer surplus of $3. a consumer surplus of $12, and Nathan experiences a producer surplus of $3. a producer surplus of $9, and Nathan experiences a consumer surplus of $3. a producer surplus of $9, and Nathan experiences a producer surplus of $12.
a consumer surplus of $9, and Nathan experiences a producer surplus of $3.
Assume the demand curve for product X shifts to the right. This might be caused by a decline in income if X is an inferior good. an increase in the price of Y if X and Y are complementary goods. a change in consumer tastes that is unfavorable to X. a decline in the price of Z if X and Z are substitute goods.
a decline in income if X is an inferior good.
Which of the following would not shift the demand curve for beef? a widely publicized study that indicates beef consumption increases one's cholesterol an effective advertising campaign by pork producers a change in the incomes of beef consumers a reduction in the price of cattle feed
a reduction in the price of cattle feed
Which of the following is an example of a public good? a weather warning system a bottle of soda a sofa a television
a weather warning system
The horizontal axis is labeled quantity. The vertical axis is labeled price. The horizontal axis marks Q 1, Q 2 and Q 3 from left to right. The vertical axis marks P 1. The graph shows a falling line labeled, D and a rising line labeled, S. Two lines intersect at (Q 2, P 1). A vertical dashed line from Q 1, Q 2 and Q 3 passes through S and D. A horizontal dashed line from P 1 passes through the point of intersection. The region below D, above P 1, and to the left of Q 1 is marked a. The region below D, above P 1, and between Q 1 and Q 2 is marked b. The region above S, below P 1, and to the left of Q 1 is marked c. The region above S, below P 1, and between Q 1 and Q 2 is marked d. The region below S, above P 1, and between Q 2 and Q 3 is marked e. The region below P 1, above D, and between Q 2 and Q 3 is marked f. Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas c + d. a + b + c + d .a + c. a + b.
a+b
Which of the following is the best synonym for "marginal" in economics? basic scarce additional minor
additional
Specialization—the division of labor—enhances productivity and efficiency by allowing workers to take advantage of existing differences in their abilities and skills. all of the means identified in the other answers. avoiding the time loss involved in shifting from one production task to another. allowing workers to develop skills by working on one, or a limited number, of tasks.
all of the means identified in the other answers.
A budget line shows all possible combinations of two goods that yield the same level of utility to the consumer. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. the minimum amount of two goods that a consumer can purchase with a specific money income. the amount of product X that a consumer is willing to give up to obtain one more unit of product Y.
all possible combinations of two goods that can be purchased, given money income and the prices of the goods.
The assertion that "there is no free lunch" means that marginal analysis is used in economic reasoning. choices need not be made if behavior is rational. there are always trade-offs between economic goals. all production involves the use of scarce resources and thus the sacrifice of alternative goods.
all production involves the use of scarce resources and thus the sacrifice of alternative goods.
The basic purpose of the other-things-equal assumption is to allow one to focus upon micro variables by ignoring macro variables. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. determine whether X causes Y or vice versa. allow one to focus upon macro variables by ignoring micro variables.
allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.
Which of the following will cause the demand curve for product A to shift to the left? population growth that causes an expansion in the number of persons consuming A an increase in money income if A is an inferior good a decrease in the price of complementary product C an increase in money income if A is a normal good
an increase in money income if A is an inferior good
The socially optimal amount of pollution abatement occurs where society's marginal benefit of abatement is zero. benefit of abatement exceeds its marginal cost of abatement by the greatest amount. benefit of abatement equals its marginal cost of abatement. cost of abatement is at its maximum.
benefit of abatement equals its marginal cost of abatement.
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that there are many goods that are substitutes for bicycles. bicycles are normal goods. there are few goods that are substitutes for bicycles. there are many goods that are complementary to bicycles.
bicycles are normal goods.
Among the following examples, the one that best illustrates a public good is the laptops used by students in a college or university. bike paths around a city or town. movies produced by Hollywood companies. airline tickets bought by vacationers.
bike paths around a city or town.
The horizontal axis is labeled quantity. The vertical axis is labeled price. The horizontal axis marks Q 1, Q 2 and Q 3 from left to right. The vertical axis marks P 1. The graph shows a falling line labeled, D and a rising line labeled, S. Two lines intersect at (Q 2, P 1). A vertical dashed line from Q 1, Q 2 and Q 3 passes through S and D. A horizontal dashed line from P 1 passes through the point of intersection. The region below D, above P 1, and to the left of Q 1 is marked a. The region below D, above P 1, and between Q 1 and Q 2 is marked b. The region above S, below P 1, and to the left of Q 1 is marked c. The region above S, below P 1, and between Q 1 and Q 2 is marked d. The region below S, above P 1, and between Q 2 and Q 3 is marked e. The region below P 1, above D, and between Q 2 and Q 3 is marked f. Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas a + c. c + d. a + b. a + b + c + d.
c + d
The main mechanism that regulates the market system is self-interest. freedom of enterprise and choice. competition. private property.
competition
Market failure is said to occur whenever some consumers who want a good do not obtain it because the price is higher than they are willing to pay. government intervenes in the functioning of competitive markets. prices rise. competitive markets do not allocate resources in the most economically desirable way.
competitive markets do not allocate resources in the most economically desirable way.
The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of the invisible hand. derived demand. market failure. consumer sovereignty.
consumer sovereignty.
If many people in a community get flu shots, the whole community benefits, including those who did not get flu shots. Therefore, not enough people may decide to get the shots. This is one illustration of demand-side market failure. supply-side market failure. the market allocating resources efficiently. monopoly power due to lack of competition.
demand-side market failure.
People enjoy outdoor holiday lighting displays and would be willing to pay to see them, but can't be made to pay. Because most people who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a demand-side market failure. negative externality. government failure. supply-side market failure.
demand-side market failure.
The relationship between quantity supplied and price is _____, and the relationship between quantity demanded and price is _____. inverse; inverse direct; inverse inverse; direct direct; direct
direct; inverse
In a market economy, a significant change in consumers' desire for product X will cause a reallocation of scarce resources. cause some industries to expand and others to contract. alter the profits or losses received by suppliers of product X. do all the things mentioned in the other answers.
do all the things mentioned in the other answers.
Discussion Question 01-09 a. Explain the typical shapes of the marginal-benefit and marginal-cost curves. The marginal-benefit curve is ------- sloping. The marginal-cost curve is -------- sloping. b. With these curves, the optimal allocation of resources to a particular product will occur when c. If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product?
downward upward MB = MC Fewer
Property rights are important because they encourage cooperation by improving the chances of mutually agreeable transactions. ensure an equal distribution of income. allow the government to control how resources are allocated. guarantee that any exchange will make all parties better off than prior to the exchange.
encourage cooperation by improving the chances of mutually agreeable transactions.
a. When negative externalities exist in a market, equilibrium price will be less than the efficient output. equilibrium output will be greater than the efficient output. equilibrium output will be less than the efficient output. equilibrium output will be greater than the efficient price. b. The government could correct these divergences between equilibrium output and efficient output by imposing regulations that force firms to internalize the external costs. imposing regulations that force firms to externalize the internal costs. shifting the demand curve down. c. An example of an external benefit is second-hand smoke. the safety provided by motion-detector lights. loud noise from your neighbor. pollution.
equilibrium output will be greater than the efficient output. imposing regulations that force firms to internalize the external costs. the safety provided by motion-detector lights
If competitive industry Z is making substantial economic profit, output will fall in all industries except industry Z. expand in industry Z, as more resources will move to that industry. fall in industry Z and firms will likely leave the market. expand in industry Z, but no new firms will enter the market
expand in industry Z, as more resources will move to that industry.
Which of the following is an example of a negative externality? the costs paid by a company to build an automated factory the higher price you pay when you buy a heavily advertised product falling property values in a neighborhood where a disreputable nightclub is operating an increase in the value of land you own when a nearby development is completed
falling property values in a neighborhood where a disreputable nightclub is operating
"Consumer sovereignty" refers to the fact that a federal agency exists to protect consumers from harmful and defective products. idea that the pursuit of self-interest is in the public interest. fact that resource prices are higher than product prices in capitalistic economies. idea that the decisions of producers must ultimately conform to consumer demands.
idea that the decisions of producers must ultimately conform to consumer demands.
Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact contradicts the economic perspective. implies that electronic media sources are displacing print sources for many consumers .is an example of irrational behavior. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.
implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.
What effect will each of the following have on the supply of auto tires? a. A technological advance in the methods of producing tires: b. A decline in the number of firms in the tire industry: c. An increase in the price of rubber used in the production of tires: d. The expectation that the equilibrium price of auto tires will be lower in the future than it is now: e. A decline in the price of large tires used for semi trucks and earth-hauling rigs (with no change in the price of auto tires): f. The levying of a per-unit tax on each auto tire sold: g. The granting of a 50-cent-per-unit subsidy for each auto tire produced:
increase decrease decrease increase increase decrease increase
Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease? a. Your budget increases from $100 to $150 while the prices stay the same: b. Your budget remains $100, and the price of books remains $25, but the price of movie tickets rises to $20: c. Your budget remains $100, and the price of movie tickets remains $10, but the price of a book falls to $15:
increase decrease increase
What effect will each of the following have on the demand for small cars such as the Mini Cooper and Fiat 500? a. Small cars become more fashionable: b. The price of large cars rises (with the price of small cars remaining the same): c. Income declines and small cars are an inferior good: d. Consumers anticipate that the price of small cars will decrease substantially in the near future: .e. The price of gasoline substantially drops:
increase increase increase decreases can not be determined
At the current price, there is a shortage of a product. We would expect price to increase, quantity demanded to increase, and quantity supplied to increase. increase, quantity demanded to decrease, and quantity supplied to increase. decrease, quantity demanded to increase, and quantity supplied to decrease. increase, quantity demanded to increase, and quantity supplied to decrease.
increase, quantity demanded to decrease, and quantity supplied to increase.
Review Question 04-02 Assume that candle wax is traded in a perfectly competitive market in which the demand curve captures buyers' full willingness to pay while the supply curve reflects all production costs. For each of the following situations, indicate whether the total output should be increased, decreased, or kept the same in order to achieve allocative and productive efficiency. a. Maximum willingness to pay exceeds minimum acceptable price: b. Marginal Cost > Marginal Benefit: c. Total surplus is at a maximum: d. The current quantity produced exceeds the market equilibrium quantity:
increased decreased kept the same decreased
Sellers will opt out of markets in which standardized products exist. there are only foreign buyers. information about buyers is inadequate which allows some buyers to consequently impose high costs on the sellers. there are significant negative externalities
information about buyers is inadequate which allows some buyers to consequently impose high costs on the sellers.
Flow 1 is directed from Businesses to Households via Resource Market. Flow 2 is directed from Households to Businesses via Resource Market. Flow 3 is directed from Businesses to Households via Product Market. Flow 4 is directed from Households to Businesses via Product market. Refer to the diagram. Flow 2 represents land, labor, capital, and entrepreneurial ability. goods and services. wage, rent, interest, and profit income. consumer expenditures
land, labor, capital, and entrepreneurial ability.
It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Refer to the above information. Which of the following policies would be most appropriate for dealing with this problem? levy a Pigovian tax on the producers of paper products and use the tax revenues to clean up the river levy a Pigovian tax on the producers of electricity and use the tax revenues to clean up the river levy a Pigovian tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources levy a Pigovian tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products
levy a Pigovian tax on the producers of paper products and use the tax revenues to clean up the river
In constructing models, economists attempt to duplicate the real world. make simplifying assumptions. include all available information. must use mathematical equations.
make simplifying assumptions.
At the optimal quantity of a public good, total benefit equals total cost. marginal benefit is zero. marginal benefit equals marginal cost. marginal benefit exceeds marginal cost by the greatest amount.
marginal benefit equals marginal cost.
An increase in quantity supplied is depicted by a shift from S2 to S1. move from point y to point x. move from point x to point y. shift from S1 to S2.
move from point y to point x
Which of the following is a land resource? a farmer a machine for detecting earthquakes an oil drilling rig natural gas
natural gas
Street entertainers face the free-rider problem when they perform because of the rivalry characteristic nonexcludability characteristic. diminishing marginal utility. law of demand.
nonexcludability characteristic.
Discussion Question 05-01 a. A public good is rival but nonexcludable. rival and excludable. nonrival and nonexcludable. nonrival but excludable. b. Public goods are not privately provided because when goods are nonrival, those purchasing the good could allow others the use without requiring compensation. when goods are nonrival, there is too much competition for firms to earn a profit. when goods are nonexcludable, those purchasing the good could allow others the use without requiring compensation. when goods are nonexcludable, there is too much competition for firms to earn a profit. c. The free-rider problem occurs when people pay for the good without receiving the benefit. some people receive more in benefits than they pay in taxes. some people pay more in taxes than the good or service is worth to them. people benefit from the public good without contributing to the cost. d. Is U.S. border patrol a public good or a private good? What type of good is satellite TV? U.S. border patrol is a private good, but satellite TV is a public good. U.S. border patrol is a public good, but satellite TV is a private good. U.S. border patrol and satellite TV are both public goods. U.S. border patrol and satellite TV are both private goods.
nonrival and nonexcludable. when goods are nonexcludable, those purchasing the good could allow others the use without requiring compensation. people benefit from the public good without contributing to the cost. U.S. border patrol is a public good, but satellite TV is a private good.
Match each term with the correct definition. a. The next-best thing that must be forgone in order to produce one more unit of a given product: . b. The pleasure, happiness, or satisfaction obtained from consuming a good or service: c. The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity: d. Making choices based on comparing marginal benefits with marginal costs:
opportunity cost utility economics marginal analysis
The Latin term "ceteris paribus" means that if event A precedes event B, A has caused B. that economics deals with facts, not values. prosperity inevitably follows recession. other things equal.
other things equal.
The market system does not produce public goods because their production seriously distorts the distribution of income. public enterprises can produce such goods at lower cost than can private enterprises. private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them. there is no need or demand for such goods.
private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
Allocative efficiency is concerned with producing every good with the least-cost combination of inputs .achieving the full employment of all available resources. reducing the concavity of the production possibilities curve. producing the combination of goods most desired by society.
producing the combination of goods most desired by society.
Which of the following is a fundamental characteristic of the market system? property rights government-set wages and prices unselfish behavior central planning by government
property rights
Copyrights and trademarks are examples of human capital. capital goods. property rights. public goods.
property rights.
The Lojack car recovery system allows the police to track stolen cars. As a result, they not only recover 90 percent of Lojack-equipped cars that are stolen but also arrest many auto thieves and shut down many "chop shops" that rip apart stolen vehicles to get their parts. If the government subsidized LoJack purchases, it would: provide only private benefits .increase social costs. add more to social costs than to social benefits. provide both private and social benefits.
provide both private and social benefits.
From society's point of view, the economic function of profits and losses is to reallocate resources from less-desired to more-desired uses. contribute to a more equal distribution of income. promote the equal distribution of real assets and wealth. achieve full employment and price level stability.
reallocate resources from less-desired to more-desired uses.
Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to reduce the demand for both soda and tacos. reduce the demand for soda and increase the demand for tacos. reduce the demand for tacos and increase the demand for soda. increase the demand for both soda and tacos.
reduce the demand for soda and increase the demand for tacos.
Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that resources are currently overallocated to the provision of holiday lighting in Anytown. resources are currently underallocated to the provision of holiday lighting in Anytown government should tax the producers of holiday lighting. the display creates negative externalities.
resources are currently underallocated to the provision of holiday lighting in Anytown
Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread, and potatoes are a consumer substitute for bread, we would expect the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to increase. rise, the supply of bread to decrease, and the demand for potatoes to decrease. fall, the supply of bread to increase, and the demand for potatoes to increase. rise, the supply of bread to decrease, and the demand for potatoes to increase.
rise, the supply of bread to decrease, and the demand for potatoes to increase
Discussion Question 02-08 The emergence of self-driving cars is an example of "creative destruction" because self-driving cars will likely replace most cars that require drivers. it shows that the automobile industry is becoming more efficient. the firms that produce cars today will likely be the main producers of self-driving cars. self-driving cars will be less expensive to build than current cars.
self-driving cars will likely replace most cars that require drivers.
A decrease in supply is depicted by a move from point y to point x. move from point x to point y. Shift from S1 to S2. shift from S2 to S1.
shift from s2 to s1
If the price of product L increases, the demand curve for close-substitute product J will shift to the right. shift to the left. remain unchanged. shift downward toward the horizontal axis.
shift to the right.
Other things equal, an increase in a consumer's money income eliminates the individual's economizing problem. shifts the individual's budget line rightward because she can now purchase more of both products. increases the amount of utility a consumer receives from a given quantity of a good. causes the consumer to choose a different combination of goods along a given budget line.
shifts the individual's budget line rightward because she can now purchase more of both products.
Economics may best be defined as the study of why people are rational. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. interaction between macro and micro considerations. empirical testing of value judgments through the use of logic.
social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
How will an increase in state subsidies to public colleges affect the market for public and private colleges? a. In the market for public colleges: demand will shift to the left. supply will shift to the right. supply will shift to the left. demand will shift to the right. b. In the market for private colleges: supply will shift to the right. supply will shift to the left. demand will shift to the left. demand will shift to the right.
supply will shift to the right. demand will shift to the left.
The horizontal axis is labeled quantity. The vertical axis is labeled price. The graph shows a rising line labeled S and a falling line labeled D. The rising line labeled S starts from a point on the vertical axis and ends at a point on the top right. The falling line labeled D starts from a point on the vertical axis, goes down and to the right, passes through S and ends at a point on the bottom right. The line labeled S is shifted to the left. The shifted line labeled S 1 is parallel and to the left of line S. Refer to the diagram, in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should tax producers so that the market supply curve shifts leftward. subsidize producers so that the market supply curve shifts leftward. not intervene because the market outcome is optimal. subsidize consumers so that the market demand curve shifts leftward.
tax producers so that the market supply curve shifts leftward.
The distinction between microeconomics and macroeconomics is that microeconomics seeks to obtain an overview, while macroeconomics observes the details of individual components. so clear-cut that every topic can be readily labeled as either macro or micro. that microeconomics studies the behavior of individual consumers, workers, and firms, while macroeconomics studies the economy as a whole. that microeconomics examines the beach, while macroeconomics looks at the sand, individual rocks, and shells, so to speak.
that microeconomics studies the behavior of individual consumers, workers, and firms, while macroeconomics studies the economy as a whole.
Some large hardware stores, such as Home Depot, boast of carrying as many as 20,000 different products in each store. This volume of goods is the result of the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to satisfy their wants. the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to maximize profits. the purchasing agents at Home Depot who have determined what goods consumers want. the purchasing agents at Home Depot who have determined what goods producers have available.
the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to maximize profits.
Mia wants to buy a book. The economic perspective suggests that Mia will buy the book if she has enough money to pay for the marginal cost of the book. the marginal benefit of the book is greater than its marginal cost. the marginal cost of the book is greater than its marginal benefit. the marginal benefit of the book is a positive value.
the marginal benefit of the book is greater than its marginal cost.
Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates logrolling. the moral hazard problem. the special interest effect. the adverse selection problem.
the moral hazard problem
Productive efficiency refers to the use of the least-cost method of production. the production of the product mix most wanted by society. the full employment of all available resources. production at some point inside of the production possibilities curve.
the use of the least-cost method of production.
Buyers will opt out of markets in which there is inadequate information about sellers and their products. standardized products are being produced. there are significant negative externalities. there are only foreign sellers.
there is inadequate information about sellers and their products.
Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown in the following table. Which direction would the market demand curve shift if Tex withdrew from the market? What if Dex doubled his purchases at each possible price? Suppose that at a price of $6, the total quantity demanded increases from 22 to 32. Is this a "change in the quantity demanded" or a "change in demand"?
to the left to the right change in demand
Discussion Question 02-06 a. Consider the following statement: "The market system is a profit-and-loss system." This statement is true, because consumers purchase only what they want, producers will earn profits. false, because the market system does much more than provide profits and losses. true, because producer decisions are motivated by the attempt to earn profits. false, because consumers purchase only what they want, producers will earn profits. b. Consider the following statement: "Competition is the disciplinarian of the market economy." This statement is true, because when producers face competition, they are driven to provide goods and services at the lowest possible cost. false, because when consumers realize there is competition, they are driven to demand more goods and services. false, because when producers face competition, they are driven to provide more goods and services, and costs will rise. true, because when consumers realize there is competition, they are driven to demand more goods and services.
true, because producer decisions are motivated by the attempt to earn profits. true, because when producers face competition, they are driven to provide goods and services at the lowest possible cost.
Camille is at the candy store with Grandma Mary, who offers to buy her $6 worth of candy. If lollipops are $1 each and candy bars are $2 each, what combination of candy can Camille's Grandma Mary buy her? six lollipops and three candy bars one lollipop and three candy bars three lollipops and two candy bars two lollipops and two candy bars
two lollipops and two candy bars
Flow 1 is directed from Businesses to Households via Resource Market. Flow 2 is directed from Households to Businesses via Resource Market. Flow 3 is directed from Businesses to Households via Product Market. Flow 4 is directed from Households to Businesses via Product market. Refer to the diagram. Flow 1 represents goods and services. wage, rent, interest, and profit income. land, labor, capital, and entrepreneurial ability. consumer expenditures.
wage, rent, interest, and profit income.
Economists consider governments to be "wasteful" only when they underallocate resources to a project. only when they overallocate resources to a project. whenever they attempt to correct a market failure. whenever they over- or underallocate resources to a project.
whenever they over- or underallocate resources to a project.
Economic systems differ according to which two main characteristics? how goods are produced and who gets them the political system in place and the degree of scarcity facing the economy the technology used in production and the quantity and quality of natural resources who owns the factors of production and the methods used to coordinate economic activity
who owns the factors of production and the methods used to coordinate economic activity