ECON2301 Study Guide 1

Corporate leadership sometimes waits until after presidential elections in order to make major business decisions. An economist would maintain that this is in anticipation of future

incentives

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause a(n) ________ in deadweight loss in the market for gaso line and a(n) ________.

increase; increase in the price of ethanol

A model without any simplifying assumptions

is highly complex and likely unworkable

The set of efficient points is best described as

points of the PPF only

When both supply and demand shift to the left, the equilibrium

quantity always falls

If consumers expect the price of a good to decrease in the future and all else is held constant, we would assume that the demand curve now would

shift from D1 to D3

A decrease in demand is represented by a

shift of the demand curve to the left.

Producers bear the entire incidence of a tax when

supply is perfectly inelastic

What is the opportunity cost of taking an exam?

the highest valued alternative that someone gave up to prepare for and attend the exam

According to the law of demand, all other things being equal,

the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls

The law of supply states that, all other things being equal,

the quantity supplied falls when the price falls, and the quantity supplied rises

Instead of taking an economics course, Adam could have taken a history course that meets at the exact same time. The total cost of taking the economics course would be

the tuition cost, the cost of the textbook and notebook, ant the fact that Adam could not take the history course at the same time

Consumer surplus is the difference between

the willingness to pay for a good and the amount that is paid to get it

As a government official, Nolan wants fewer people to smoke. He has decided to use taxes to discourage people from smoking. How would he describe his decision to an economist?

If I decrease taxes on cigarettes, there will be a decrease in demand, which means fewer people are smoking.

Why do incentives matter to economists?

Incentives explain how people make decisions, and are the key to understanding economics

For both parties to benefit from specialization and trade, the trading parties must agree on

a price somewhere between their opportunity costs of production.

The ability of one producer to produce a good at a lower opportunity cost than another producer is called

absolute advantage

Which of the following could cause the supply curve for the market for oranges to shift to the left?

an increase in the price of orange juice

Two goods that are used together are called

complements

The cost to society created by distortions in the market as a result of a tax is also known as

deadweight loss

Comparative advantage emerges because of the presence of

differing opportunity costs

A possible opportunity cost of NOT engaging in free trade is

economic growth

A tax that is applied to one specific good or service is a(n) ________ tax.

excise

A monopoly

exists when a single company supplies the entire market for a particular good or service.

The government has been trying to encourage the use of fuel-efficient cars. One way it has been doing this has been by allowing fuel-efficient cars to use a separate highway lane. This encourages people to use fuel-efficient cars because

those who plave a high value on their scarce time may ne encouraged to buy a fuel- efficent car to take advantage of the seperate highway lane.

It is crucial to recognize that ________ and ________ are separate evaluations made at the margin.

trade-offs; opportunity costs

Rational decision making under conditions of scarcity requires individuals to

understand that trade-offs are necessary.

Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer and consumer surplus (i.e., social welfare) in this market?

$7.10

What is Stefan's opportunity cost of a painting?

3 sculptures

Macroeconomics would be concerned with

A single national government choosing to implement trade tariffs

Suppose the printing press is invented. Which graph best depicts how this would affect the PPF?

Graph C

Katarina drives past the same gas station every day. She realizes that the gas station always changes its prices on Tuesdays but keeps the price steady the rest of the week. On Saturday, Katarina turns on the news and hears a report projecting that the price of gasoline is going to increase. Holding all else constant, what do yo u think would happen to Katarina's demand for gasoline on Monday?

Her demand would shift to the right

Which of the following is a microeconomic question?

How can we reduce the unemployment rate among Hispanic men?

Kelly is an architect, and she is trying to decide whether to hire Lawrence, a draftsman, to assist with her work. Kelly could hire Lawrence at $20 per hour, but it would take him three times as long to complete a task as it takes Kelly. Kelly is able to earn $90 per hour and has more architectural jobs than she is able to handle. Which of the following is true?

Lawrence should be hired at the $20 per hour wage rate.

Which of the following is a positive statement?

Legally requiring dogs to have rabies shots will reduce the number of rabid dogs.

________ is value added by making additional effort.

Marginal benefit

Who has a comparative advantage in painting?

Mikhail

Who has absolute advantage in painting?

Mikhail

As electric cars have become more acceptable to drivers, more companies are building and selling such cars. What would we expect to see happen to prices of electric cars in the future?

Prices for electric cars will fall in the future as more companies produce these cars.

Which of the following statements is concerned with equity rather than efficiency?

Tax rates on middle-class households are too high and should be reduced.

What would happen in the market for SUVs if the government started to subsidize the production of SUVs that get very few miles per gallon and the price of gasoline went up?

The equilibrium price will go down and equilibrium quantity will be indeterminate

In a small city, it is not unusual that a single place exists to buy or sell a car. How would we expect the owner of this car dealership to behave?

The owner would raise prices on cars because the dealership has market power.

Refer to the accompanying diagram. Which of the following scenarios would explain this change in equilibrium?

The price of a substitute of this good increased.

Which of the following is a normative statement?

Winters in Arkansas are too cold.

On a production possibilities frontier (PPF) that shows the trade-off between consumer goods and capital goods given a fixed amount of labor, unemployment is illustrated by

a point within the frontier.