ECON CHapter 6 7

Suppose good X has a negative income elasticity of demand. This implies that good X is

inferior good

When demand is inelastic, a decrease in price increases total revenue. a. TRUE b. FALSE

B

Equilibrium quantity must increase when demand A. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase. B. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease. C. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply increase. D. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease.

A

When a variable that is not named on either axis of a graph changes, we read the change as a movement along the curve. a. TRUE b. FALSE

B

When the government attempts to improve equality in an economy the result is often A. a reduction in equality. B. a reduction in efficiency. C. additional government revenue since overall income will increase. D. an increase in overall output in the economy

B

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is A. 1.50, and an increase in price will result in a decrease in total revenue for good A. B. 0.67, and an increase in price will result in an increase in total revenue for good A. C. 0.67, and an increase in price will result in a decrease in total revenue for good A. D. 1.50, and an increase in price will result in an increase in total revenue for good A

B

Which of the following could be the cross-price elasticity of demand for two goods that are complements? A. 0.2 B. -1.3 C. 1.4 D. 0 Hide Feedback

B

With careful planning, we can usually get something that we like without having to give up something else that we like A. True B. False

B

"If all economists were laid end to end, they would not reach a conclusion." Who made this whimsical observation? A. Harry Truman B. Ronald Reagan C. George Bernard Shaw D. John Maynard Keynes

C

Trade A. allows specialization, which increases costs. B. reduces specialization, which reduces costs. C. allows specialization, which reduces costs. D. reduces specialization, which increases costs.

C

What will happen in the market for shotgun-shell ammunition now if buyers expect higher shotgun-shell prices in the near future? A. The demand for shotgun-shell ammunition will be unaffected. B. The demand for shotgun-shell ammunition will decrease. C. The demand for shotgun-shell ammunition will increase. D. The supply of shotgun-shell ammunition will increase.

C

When constructing a production possibilities frontier, which of the following assumptions is not made? A. Firms produce goods using factors of production. B. The economy produces only two goods or two types of goods. C. The quantities of the factors of production that are available are increasing over the relevant time period. D. The technology available to firms is given.

C

When the "invisible hand" guides economic activity, prices of products reflect A. only the values that society places on those products. B. only the costs to society of producing those products. C. both the values that society places on those products and the costs to society of producing those products. D. none of the above; when the "invisible hand" guides economic activity, prices of products are set by the government in a manner that is thought to be "fair."

C

Which of the following is not an example of a graph of a single variable? A. a pie chart B. a time-series graph C. a scatterplot D. a bar graph

C

Central planning refers to A. government guiding economic activity. Today many countries that did not have this system have implemented it. B. markets guiding economic activity. Today many countries that had this system have abandoned it. C. markets guiding economic activity. Today many countries that did not have this system have implemented it. D. government guiding economic activity. Today many countries that had this system have abandoned it.

D

Economics is the study of how society manages its A. limited wants and limited resources. B. limited wants and unlimited resources. C. unlimited wants and unlimited resources. D. unlimited wants and limited resources.

D

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest? A. immediately after the price increases B. one month after the price increase C. three months after the price increase D. one year after the price increase

D

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

True

When quantity demanded responds strongly to changes in price, demand is said to be

elastic

supply is typically more _____ in the long run than in the short run.

elastic

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

false

When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

false

complements have _____ cross-price elasticities

negative

inferior goods have ____ income elasticities

negative

Normal goods have ____ income elasticities

positive

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about

2.2

A demand curve shows the relationship A. between price and quantity demanded. B. between price and income. C. between income and quantity demanded. D. among income, price, and quantity demanded

A

A marginal change is a small incremental adjustment to an existing plan of action. a. TRUE b. FALSE

A

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates A. the ticket price is below the equilibrium price. B. the ticket price is at the equilibrium price. C. the ticket price is above the equilibrium price. D. nothing about the equilibrium price

A

An increase in demand will cause an increase in price, which will cause an increase in quantity supplied. a. TRUE b. FALSE

A

Economists may disagree about the validity of alternative positive theories about how the world works. a. TRUE b. FALSE

A

Good news for farming can be bad news for farmers because the A. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers. B. supply curve for an individual farmer is usually perfectly inelastic. C. supply curve for an individual farmer is usually perfectly elastic. D. demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers.

A

If a higher price means a greater quantity supplied, then the supply curve slopes upward. a. TRUE b. FALSE

A

If sellers do not adjust their quantities supplied at all in response to a change in price, A. supply is perfectly inelastic. B. the time period under consideration must be very long. C. advances in technology must be prevalent. D. supply is perfectly elastic.

A

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome, A. a decrease in the number of unskilled jobs available. B. a decrease in the number of workers wanting unskilled jobs. C. an increase in the number of unskilled jobs available. D. None of the above is correct.

A

If the producers of canned green beans expect the price of canned green beans to increase in the future due to an increase in demand, they may put some of their current production into storage and supply less in the market today. a. TRUE b. FALSE

A

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price inelastic. a. TRUE b. FALSE

A

In surveys of professional economists, fourteen propositions were endorsed by an overwhelming majority of respondents. a. TRUE b. FALSE

A

Price elasticity of supply measures how much the quantity supplied responds to changes in the price. a. TRUE b. FALSE

A

Scenario 5-4 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. The change in equilibrium price will be A. greater in the milk market than in the beef market. B. the same in the milk and beef markets. C. greater in the beef market than in the milk market. D. Any of the above could be correct.

A

If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75. a. TRUE b. FALSE

B

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate? A. People respond to incentives. B. Rational people think at the margin. C. Markets are usually a good way to organize economic activity. D. Trade can make everyone better off

A

The point where both x and y are zero is known as the A. origin. B. null. C. center. D. zero coordinate.

A

What is the most important factor that explains differences in living standards across countries? A. productivity B. the level of unemployment C. the quantity of money D. equality

A

Which of the following should be held constant when calculating an income elasticity of demand? A. the price of the good B. income C. the quantity of the good demanded D. All of the above should be held constant.

A

Which of the following would not shift the supply curve for mp3 players? A. an increase in the price of mp3 players B. a decrease in the number of sellers of mp3 players C. an increase in the price of plastic, an input into the production of mp3 players D. an improvement in the technology used to produce mp3 players

A

If the demand for a good falls when income falls, then the good is called an inferior good. a. TRUE b. FALSE

B

A rightward shift of a demand curve is called a(n) A. decrease in demand. B. increase in demand. C. increase in quantity demanded. D. decrease in quantity demanded.

B

Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana A. does not depend on how many bananas Ashley has already eaten. B. can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana. C. determines Ashley's marginal cost of the first and second bananas. D. cannot be determined unless we know how much she paid for the bananas

B

Both The Wealth of Nations and the Declaration of Independence share the point of view that A. every person is entitled to life, liberty, and the pursuit of happiness. B. individuals are best left to their own devices without the government guiding their actions. C. because of human nature a strong legal system is necessary for a market system to survive. D. the government plays a central role in organizing a market economy.

B

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic. a. TRUE b. FALSE

B

Elasticity is A. the maximum amount that a buyer will pay for a good. B. a measure of how much buyers and sellers respond to changes in market conditions. C. the study of how the allocation of resources affects economic well-being. D. the value of everything a seller must give up to produce a good.

B

Government policies that improve equality usually increase efficiency at the same time. a. TRUE b. FALSE

B

If a line passes through the points (20,5) and (10,10), then the slope of the line is 1/2. a. TRUE b. FALSE

B

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker A. decreased by 1.7 percent between 1998 and 2008. B. increased by 6.25 percent between 1998 and 2008. C. remained unchanged between 1998 and 2008. D. increased by 4.75 percent between 1998 and 2008.

B

One effect of the government-imposed seat belt law in the U.S. has been A. safer driving. B. an increase in the number of accidents. C. a dramatic decrease in the number of driver deaths. D. a dramatic decrease in the number of pedestrian deaths.

B

Positive statements are A. prescriptive. B. claims about how the world is. C. made by economists speaking as policy advisers. D. claims about how the world should be.

B

The difference between slope and elasticity is that slope A. measures changes in quantity demanded more accurately than elasticity. B. is a ratio of two changes, and elasticity is a ratio of two percentage changes. C. is a ratio of two percentage changes, and elasticity is a ratio of two changes. D. None of the above is correct; there is no difference between slope and elasticity.

B

The market demand curve shows how the total quantity demanded of a good varies as the income of buyers varies, while all the other factors that affect how much consumers want to buy are held constant. a. TRUE b. FALSE

B

The price elasticity of demand measures how much A. demand responds to a change in supply. B. quantity demanded responds to a change in price. C. quantity demanded responds to a change in income. D. price responds to a change in demand.

B

The value of the price elasticity of demand for a good will be relatively large when A. there are no good substitutes available for the good. B. the good is a luxury rather than a necessity. C. the time period in question is relatively short. D. All of the above are correct.

B

Total revenue A. increases as price increases, as long as demand is elastic. B. remains unchanged as price increases when demand is unit elastic. C. decreases as price increases, as long as demand is inelastic. D. always increases as price increases.

B

A circular-flow model and production possibilities frontier are similar in that A. neither allows economic analysis to occur. B. both make use of complex equations to arrive at solutions. C. both make use of assumptions. D. neither can be represented visually on a graph.

C

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct? A. the city manager B. the mayor C. The answer depends on the price elasticity of demand. D. The answer depends on the costs of construction of the new municipal swimming pool

C

A key determinant of the price elasticity of supply is the A. extent to which buyers alter their quantities demanded in response to changes in prices. B. number of close substitutes for the good in question. C. length of the time period. D. extent to which buyers alter their quantities demanded in response to changes in their incomes

C

A linear, upward-sloping supply curve has A. both a constant slope and a constant price elasticity of supply. B. a changing slope and a constant price elasticity of supply. C. a constant slope and a changing price elasticity of supply. D. both a changing slope and a changing price elasticity of supply.

C

A movement upward and to the left along a demand curve is called a(n) A. increase in demand. B. decrease in demand. C. decrease in quantity demanded. D. increase in quantity demanded.

C

Almost all economists agree that local and state governments should A. prevent companies from outsourcing work. B. increase subsidies to professional sports franchises. C. eliminate subsidies to professional sports franchises. D. copy economic policy from Washington, D.C.

C

Economic models A. are usually detailed replications of reality. B. are useful to researchers but not to teachers because economic models omit many details of the real-world economy. C. incorporate simplifying assumptions that often contradict reality, but also help economists better understand reality. D. are people who act out the behavior of firms and households so that economists can study this behavior.

C

Efficiency is illustrated by A. neither the production possibilities frontier nor the circular-flow diagram. B. both the production possibilities frontier and the circular-flow diagram. C. the production possibilities frontier only. D. the circular-flow diagram only

C

In the markets for factors of production in the circular-flow diagram, A. households provide firms with savings for investment. B. firms provide households with goods and services. C. households provide firms with labor, land, and capital. D. firms provide households with revenue.

C

Lawrence is a photographer. He has $230 to spend and wants to buy either a flash for his camera or a new tripod. Both the flash and tripod cost $230, so he can only buy one. This illustrates the principle that A. trade can make everyone better off. B. rational people think at the margin. C. people face trade-offs. D. people respond to incentives. Hide Feedback

C

People are willing to pay more for a diamond than for a bottle of water because A. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. B. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. C. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. D. water prices are held artificially low by governments, since water is necessary for life.

C

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? A. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. B. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. C. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. D. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguou

C

The income of a typical worker in a country is most closely linked to which of the following? A. market power B. government policies C. productivity D. population

C

The price elasticity of demand for a good measures the willingness of A. firms to produce more of a good as price rises. B. consumers to avoid monopolistic markets in favor of competitive markets. C. consumers to buy less of the good as price rises. D. firms to respond to the tastes of consumers.

C

Which of the following principles is not one of the four principles of individual decisionmaking? A. People respond to incentives. B. People face tradeoffs. C. Trade can make everyone better off. D. Rational people think at the margin.

C

The demand for Godiva mint chocolates is likely quite elastic because A. the market is narrowly defined. B. there are many close substitutes. C. this particular type of chocolate is viewed as a luxury by many chocolate lovers. D. All of the above are correct. Hide Feedback

D

In the market for oil in the short run, demand A. is elastic and supply is inelastic. B. and supply are both elastic. C. is inelastic and supply is elastic. D. and supply are both inelastic.

D

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct? A. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. B. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant. C. Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. D. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve

D

When studying the effects of changes in public policy, economists believe that A. the assumptions used in studying those effects should be the same for the short run as for the long run. B. the short-run effects of those changes are always more beneficial to society than are the long-run effects. C. the long-run effects of those changes are always more beneficial to society than are the short-run effects. D. it is important to distinguish between the short run and the long run.

D

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is A. inelastic, and her demand curve would be relatively flat. B. elastic, and her demand curve would be relatively steep. C. inelastic, and her demand curve would be relatively steep. D. elastic, and her demand curve would be relatively flat

D

When two variables have a negative correlation, A. they tend to move in the same direction. B. one variable will move while the other remains constant. C. the variables' values are never positive. D. they tend to move in opposite directions

D

he current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair. As a result, A. the equilibrium quantity of blue jeans exceeds the quantity demanded at the $30 price. B. there is a surplus of blue jeans at the $30 price. C. the quantity supplied of blue jeans exceeds the quantity demanded of blue jeans at the $30 price. D. All of the above are correct.

D