Econ Final Review

A subsidy is a:

reverse tax.

Which of the following statements correctly defines a demand curve?

A demand curve is a function that shows the relationship between prices and their associated quantities demanded.

A change in the state of technology in an industry will cause a shift in demand.

False

As the price of a complement increases, the demand for the original good shifts to the right.

False

Inferior goods are those goods which government standards have deemed to be unworthy of human consumption.

False

People's tastes and preferences do not factor into economics as they cannot be quantified.

False

Sunk costs are an important element in decision making.

False

When making a decision, all information is worth obtaining.

False

Recall the chapter opening story about the British sea captains and the convicted felons. In what way did economics use the idea of incentives to solve the problem of the high mortality rate on board the ships?

Payment (to ship captains) was made dependent on the survival rate of prisoners.

An outward shift of supply and an inward shift of demand occur in a market. What happens to the equilibrium price and quantity?

The equilibrium price decreases; the change in the equilibrium quantity is ambiguous.

An outward shift of demand and an inward shift of supply occur in a market. What happens to the equilibrium price and quantity?

The equilibrium price increases; the change in the equilibrium quantity is ambiguous.

A firm produces volleyballs and soccer balls. What happens to the supply of soccer balls if the market price of volleyballs increases?

The opportunity cost of producing soccer balls rises, so the supply curve of soccer balls decreases.

Corky-Coly and Prippsy are substitute soft drinks. Which of the following would cause the demand curve for Prippsy to shift to the left?

The price of Corky-Coly decreases.

Because of new production technology, the manufacturers of plasma television screens have reduced the number of defective screens that are scrapped in production. What effect will this have in the market for plasma televisions?

The supply curve will shift outward.

What does the law of supply state?

There is a positive relationship between price and quantity supplied

If the price of a good falls and this results in an increase in total revenue for the firm, we are operating in the elastic portion of the demand curve.

True

Which of the following factors does not result in a shift of the supply curve?

a change in the demand for the product

Which of the following answer choices contains only factors that cause the supply curve to shift to the right?

a rise in technology, a fall in the costs of production, a fall in taxes on output

In the market for fertilizer, an:

advance in technology will shift the supply of fertilizer outward.

The term ceteris paribus means:

all other things remaining constant or equal.

The quantity supplied is the:

amount of a good that firms are willing and able to sell at a particular price during a given period of time

Which of the following would cause an outward shift in the demand for gasoline?

an approaching hurricane, which threatens a major oil refinery in Texas

The Law of Demand states that:

as the price of a good goes down, people will choose to have more of it.

Economists think that people are self-interested:

because they respond to incentives in predictable ways.

Adam Smith's metaphor of the "invisible hand" refers to the notion that:

behavior based on self-interest can lead to an overall benefit to society.

Which of the following are likely to be complements?

books and book-lights

Which of the following does not shift the demand curve?

changes in the price of the product itself

A decrease in income causes the demand to ________ for a normal good, and an increase in income causes the demand to ________ for an inferior good.

decrease; decrease

An increase in income will lead to a _____________ shift in demand for a ____________ good.

rightward, normal

The only determinant that can shift both demand and supply is _____________.

expectations

In free markets, shortages lead to:

higher prices.

The elasticity of demand measures:

how sensitive the quantity demanded is to a change in price.

If a major earthquake hits California, we expect the price of Californian wines to ___________ and the quantity sold to ___________.

increase, decrease

If Beanie Babies all of a sudden come back in style, we would expect for their price to ___________ and the number sold to ____________.

increase, increase

All prices contain:

information

Points which lay ________ the production possibilities frontier are considered to be an inefficient use of resources.

inside

The demand curve for physician office visits is quite inelastic; therefore, a:

large increase in price causes quantity demanded to decrease by very little.

In free markets, surpluses lead to:

lower prices.

___________ analysis is concerned with what actually happens, not what one believes should happen.

positive

Which of the following are factors that shift the demand curve?

price of substitutes, tastes, price of complements

The main incentive for business activity is:

profit.

In a market, the equilibrium condition is given by the following:

quantity demanded = quantity supplied

The ________ price takes into account the fact that the value of money changes.

real

The idea that markets work efficiently:

refers to the fact that self-interest can be aligned with social interest.

Potato chips and popcorn are substitutes. A subsidy for potato chips will ___________ the demand for popcorn and the quantity of popcorn will ______________.

shift inward; decrease

If producers form expectations that copper prices will be higher in the future, then this will shift the:

supply curve of copper to the left.

A government subsidy causes the:

supply of the product to shift outward.

If the price of milk increases, the ___________ for cheese will shift ___________.

supply, leftward

As the population of elderly increases in the United States:

the demand curve for certain products will shift outward.

Which of the following would cause the current supply of iPods to increase?

the expectation that the future price of iPods will decrease

The fact that people stop eating at some point at an all you can eat buffet illustrates __________________.

the law of diminishing marginal utility

The law of demand states that:

the lower the price, the greater the quantity demanded.

If sellers want to sell more products than buyers are willing to purchase, we know that:

the market price is greater than the equilibrium price.

The opportunity cost of a choice is:

the value of the opportunities lost.