ECON 1030 Exam 1 Recharge
Suppose the government imposes a tax on suppliers of plastic drink cups equal to $1 per 100 cups. Before the tax 10,000 cups were sold. After the tax, 8,000 cups are sold. The tax revenue is equal to
$80
Whiich statements are true?
- The elasticity calculation uses percentage changes in price and quantity - Slope uses changes in price and quantity. - A relationship exists between slope and elasticity but they are not the same thing
When a supply curve shifts to the right
- its called an increase in supply - more of a good, service, or resource is produced at all prices
Identify the features of competitive markets
- many buyers and sellers - no externalities - free entry and exit of firms
Which of the following correctly states the three main reasons the demand curve is downward sloping?
- substitutes - purchasing power - marginal benefit
Which of the following are reasons the demand curve is downward sloping? (reasons for the inverse relationship between price and quantity demanded)
- substitution effect - income effect - diminishing marginal utitlity
Suppose that when the price of gasoline is $4 per gallon, the total amount of gasoline purchased in the United States is 8 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon, the total amount of gasoline purchased is 12 million barrels per day. Based on these numbers and using the midpoint formula, the price elasticity of demand for gasoline is
-1.40
Suppose that when the price of gasoline is $3 per gallon, the total amount of gasoline purchased in the United States is 8 million barrels per day. Also suppose that when the price of gas decreases to $2.25 per gallon, the total amount of gasoline purchased is 12 million barrels per day. Based on these numbers and using the midpoint formula, the percentage change in price is
-28.6%
You paid $25 for a concert ticket and received a consumer surplus of $10. You were willing to pay
25+10= $35
Suppose that when the price of gasoline is $3.50 per gallon, the total amount of gasoline purchased in the United States is 6 million barrels per day. Also suppose that when the price of gas decreases to $3 per gallon, the total amount of gasoline purchased is 8 million barrels per day. Based on these numbers and using the midpoint formula, the percentage change in the quantity demanded is
28.6%
Which of the following would shift the supply curve for soft drinks to the left?
A 2 cent per ounce tax on all soft drinks
When a tax is imposed on buyers, what happens in the market?
The demand curve shifts to the left
The price of hotdogs, a complement to hotdog buns, decreases. How will this affect the market for hotdog buns?
The demand for hotdog buns will increase at every price
Producers expect the price of lumber to increase next month. How will producers respond today?
The supply of lumber will decrease at every price (not quantity supplied)
_____________ economics is a branch of economics that focuses on measuring the well-being of market participants and how changes in the market affect their well-being
Welfare
A firm that provides financial services - such as accepting deposits and providing loans to its customers is called
a financial institution
The market adjusts to a new equilibrium price and quantity when
a non-price determinant of supply changes
The benefit enjoyed by a third party that is not directly involved in the production or consumption of a good or service is called
a positive externality
When a nonprice determinant of supply changes what will be the effect on the market?
a shift in the curve at all possible prices
An increase in supply is
a shift to the right
A production possibilities frontier that illustrates a 1-for-1 trade off between goods is drawn as
a straight, downward-sloping line
A market is
a system where buyers and sellers interact to trade goods, services, or resources
Graphically producer surplus is the area __________ the supply curve and _____________ the equilibrium post from zero to the quantity traded.
above, under
Because the world is characterized by scarcity, people must choose between different uses for the resources at their disposal. In economics, we refer to this as:
allocating resources
When there is _______________ and ___________________ efficiency, the market produces the right goods in the correct amounts using the fewest resources possible
allocative and productive
When the marginal benefit of the last unit equals the marginal cost of the last unit, production is ___________ efficient
allocatively
In terms of the production possibilities curve allocative efficiency means that at any point in time
an ideal combination of production is based on consumer preferences
When a tax is imposed on a market, it can affect:
both demand and supply
We can determine how price or quantity will change, but not both, when
both demand and supply change
Whether a good or a service is a luxury or a necessity is determined by the
buyer
When both demand and supply change, the
change in either the equilibrium price or quantity will be indeterminate
A price floor will
change the incentives that both buyers and sellers face
A producer has a(n) ______ advantage in the production of a good or a service if his or her relative opportunity cost of production is lower than the opportunity cost of other producers.
comparative
The simple model of production assumes that the opportunity cost of production is
constant
When you see a production possibilities frontier (PPF) drawn as a straight line, the opportunity cost of one good or service (in terms of units of the other good or service that must be given up) is assumed to be
constant
__________ ___________ can be thought of as the wealth that trade creates for consumers in a market.
consumer surplus
If we want to evaluate the effect of a change in price of one good on the quantity demanded of a DIFFERENT good we use
cross-price elasticity of demand
The percentage change in the quantity demanded of one good divided by the percentage change in the price of ANOTHER good is the
cross-price elasticity of demand
When you plot the data from the demand schedule on a graph, the result is called the demand
curve
The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the ____________ loss
deadweight
A tax on demanders shifts the
demand curve to the left
A tabular representation of the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, describes the
demand schedule
Prices of related goods, complements and substitutes, are
determinants of demand
The wealth - or additional well-being - created by trade
does not have to be monetary
Producer surplus is measured in
dollars or money
The quality of a(n) _______ model can be measured by how well it reflects reality and whether it gives us insights that can be used in the real world.
economic
__________ is the study of how individuals and societies allocate scarce resources among many competing uses and how this decision-making affects the economy at large.
economics
When resources are allocated in such a way that it is possible to increase the production of one good ONLY by decreasing the production of another, then the allocation of resources is said to be
efficient
Combinations of output along the production possibilities frontier correspond to
efficient use of resources
________________ is a measure of how responsive one variable is to a change in another variable
elasticity
______ ability involves assuming risk and organizing resources into a productive process.
entrepreneurial
Without ____________ taking risks and putting their money on the line to establish companies that create new products or production processes, we wouldn't have many of the goods and services we now have at our disposal.
entrepreneurs
In general, the optimal level of pollution to either prevent or to clean up occurs where the marginal benefit of preventing pollution ________ the marginal cost of preventing pollution
equals
An 18.4 cent tax on every gallon of gasoline sold is an example of a(n) _________ tax
excise
_________ occur when property rights are not clearly defined
externalities
A system where the strong enforce the rules according to their whim - also known as "might makes right" is called the rule of
force
The horizontal summation of individual demand curves
gives the market demand curve
Good vs service
good is tangible, service is intangible
The non-price determinants or other factors that affect demand are
held constant for any given demand curve
The circular flow model shows how
households and firms interact in two key markets (resource and product)
The role of government in market economies include all the following except
identifying new markets
The ____________ period is the time period in which producers cannot increase their use of economic resources to increase quantity supplied
immediate
Consumer surplus is measured
in terms of price
_________ elasticity of demand is a measure of how responsive demand is to a change in consumer income.
income
As the amount of an activity increases, its marginal cost
increases
On the supply side of the market, when the price of a good increases, the quantity supplied of the good
increases
A tax
increases the cost of goods sold and shifts the supply curve to the left / up
On a production possibilities frontier (PPF), if you are able to increase the production of both goods at the same time, then initially resources were allocated
inefficiently
When a minimum wage results in unemployment, people may turn to ____________ markets to provide their labor
informal
A system where a society enforces property rights - contracts - and other rules according to an established and uniform set of laws and judicial system instead of arbitrary decisions is called the rule of
law
The ________ run is the time period in which all inputs of production can be changed.
long
The price elasticity of demand is often turned into a positive number to
make the number easier to work with when determining whether demand is elastic, inelastic, or unit-elastic
A market should produce until
marginal benefit = marginal cost
An economy should continue producing a good or a service so long as
marginal benefit exceeds marginal cost
When you decide - after studying for three hours - that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in
marginal decision making
When you decide to turn off the bedroom light on your way to the kitchen so that you can save a little money on your electric bill, you are engaging in
marginal decision making
Any place where or mechanism by which buyers and sellers interact to trade goods, services, or resources is a
market
The overall or total demand for a good, service, or resource is called ________ demand
market
When the market does not produce an output level that maximizes total surplus it is called a
market failure
An increase in quantity supplied is
movement upward on a given curve
A(n) ________________ externality is the uncompensated cost of an activity that is imposed on a third party
negative
The price elasticity of demand is a ______________ number because of the law of demand
negative
When a ______________ externality exists, the socially optimal level of output will be less than that resulting from a private market
negative
Cross-price elasticity of demand uses
negative and positive values to determine if goods are substitutes or complements
A good for which there is a direct relationship between the demand for the good and income is a(n) ______ good
normal
Combinations outside of the production possibilities frontier are
not currently possible to produce
The price elasticity of demand is a negative number because
of the law of demand
The value of the next-best forgone alternative is the
opportunity cost
Firms will be willing and able to produce more output ONLY when prices rise because the
opportunity cost of production is rising
__________ elasticity of supply is a measure of how responsive quantity supplied is to a change in price.
price
Shortages cannot push the market to an equilibrium in the presence of
price controls
Because a direct relationship exists between price and quantity supplied
price elasticity of supply is positive
A shortage persists when
price is not allowed to adjust upward
The primary determinant of the quantity demanded by consumers is the
price of a good or service
A demand curve is graphed by plotting
price on the vertical axis and quantity demanded on the horizontal axis.
The _______ of a good or service is the primary determinant of the quantity demanded by consumers
price or value
Social demand is the demand for a good or service that reflects both the ____________ and ____________ benefits of its consumption
private and public internal and external private and social
The demand for a good or service that considers only the private benefits of its consumption is called
private demand
If an economy is getting as much output as possible from its resources it must be
producing them at the lowest possible cost
In the circular flow model, the two markets are the resource market and the
product market
Producing output at the lowest possible total cost per unit of production is
productive efficiency
___________ rights involve the exclusive right to determine how a resource is used ____________ rights establish who owns what (like land, labor, and capital) and are essential for well-functioning markets
property
Property owned by the government is called __________ property
public
Private markets fail to provide the optimal amount of ____________ because they are non rival and non excludable
public goods
In equilibrium
quantity supplied equals the quantity demanded
The law of supply states as the price of a good decreases the
quantity supplied will decrease
Self-interest, marginal decision making, and optimization form the basis for
rational decision making
Drinkable water is ______ water in general.
relatively more scarce than
Any item (gift of nature, result of production, result of human effort) used to produce goods and services is a
resource
Although points on the production possibilities frontier represent the different combinations of output, ultimately what they show is how we allocate our scarce ________ to the production of two different goods or services.
resources
According to the Coase Theorem if a property right is well defined and transaction costs are low
resources will gravitate to their highest-valued use
When producers expect lower future prices, current supply shifts to the
right
How to calculate slope
rise/run, y2-y1/x2-x1, change in price/change in quantity demanded
When the consumption of a good or service by one person reduces the quantity available for consumption by others, the goods and services with this characteristic are _________ goods
rival
A private good is any good or service that is _________ and ____________
rival and excludable
A system where the rules are enforced by the good will of the enforcer - such as a monarch or other ruling group is called
rule of men
Due to the ______ of natural resources, we cannot have all the housing and all the forests we may want.
scarcity
A common economic situation where an economy's resources are insufficient to meet the existing wants and must be used judiciously is referred to as
scarcity (NOT poverty)
The idea that people choose to do the things that interest them is
self-interest
The _______ run is the time period in which at least one input of production is fixed but other inputs can be changed.
short
When the government sets the price below market equilibrium, there will be a(n) ________ in the market. A situation in which the quantity of output demanded is greater than the quantity of output supplied at the current market price is called a
shortage or disequilibrium
Economic surplus is also known as
social welfare or total surplus
The demand curve shifts when
something other than the price of a good changes
Because of differences in opportunity costs, individuals and businesses
specialize in the production of the good for which they wield a COMPARATIVE ADVANTAGE
A payment made by the government that does not necessarily require an exchange of economic activity in return is called a
subsidy
A(n) _______ to producers lowers the cost of producing
subsidy
When there are few for a good or service, demand tends to be relatively more inelastic
substitutes
When calculating producer surplus for an individual firm
subtract the firm's willingness to accept from the market price
When a shortage exists in a competitive market, the price provides incentives for
suppliers to increase the quantity of a good or service supplied to the market
A change in taxes and subsidies on producers alters market
supply
A tax on suppliers shifts the
supply curve to the left
The difference between the maximum price consumers are willing and able to pay for a good or a service and the price they actually pay is the consumer
surplus
To pay for needed services, governments often ________ economic activity.
tax
By changing the prices that buyers and sellers face in the market
taxes change market outcomes.
When considering how changes in tastes and preferences or demographics affect demand, we tend to evaluate
the ENTIRE market
Marginal benefit is
the additional benefit associated with one more unit of an activity (NOT opportunity benefit)
The price of tents, a complement to sleeping bags, increases. How will this affect the market for sleeping bags?
the demand curve will shift to the left
When people consume a nonexcludable good without paying for it it is called
the free-rider problem
A tax is a payment made to
the government that is the result of economic activity
Other things held constant, the demand curve will shift when
the nonprice determinants of demand change
Terms of trade refers to
the price of one good or service IN TERMS OF ANOTHER
Who has comparative advantage?
the producer with the lowest relative opportunity cost
Price elasticity of demand is a measure of how responsive
the quantity demanded is to a change in price
When the price of a good, service, or resource increases
the quantity supplied increases
When a nonprice determinant of supply changes
the supply curve shifts to the left or right
Social supply is
the supply of a good or service that reflects both the private and external costs of its production
Private supply is
the supply of a good or service that reflects only the private costs of its production.
The revenue collected from a tax equals
the tax times the quantity traded
When people do not own the resources they use
they tend to under invest in them or overuse them
Without predictable enforcement and the rule of law
uncertainty and risk can limit market interactions and economic development
Specialization refers to
using available resources to produce a single good or service rather than multiple goods and services