EXAM 1 ECON

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60) How many pints of ice cream will their family buy when the price of a pint of ice cream is $10? A) 10 B) 0 C) -10 D) 20

7) In a perfectly competitive market, the market clearing price is ________ the equilibrium price. A) always equal to B) unrelated to C) always lower than D) always higher than

1) Empiricism refers to the process of ________. A) measuring variables B) testing ideas using data C) collecting and organizing data D) making choices using values and beliefs

32) An increase in the demand for a good is represented by ________. A) a leftward shift of a demand curve B) a rightward shift of a demand curve C) a leftward movement along a demand curve D) a rightward movement along a demand curve

7) When the objective of an experiment or a study is to understand the changes in the attributes of a variable on a month-to-month basis, a ________ is most useful. A) pie chart B) time series graph C) histogram D) bar chart

9) The demand curve for most goods is normally ________. A) upward sloping B) downward sloping C) parallel to the y-axis D) parallel to the x-axis

11) As the number of billboards for a firm's product increases from 100 to 500, its sales increase from $1,000 to $10,000. If this information is plotted on a line chart, the slope of the line equals ________. A) $20 B) $0.044 C) $22.5 D) $30.33

34) Which of the following pairs of goods is likely to be considered substitutes? A) Coffee and sugar B) Printers and printing ink C) A Ford car and public transportation D) A Nokia cell phone and a Nokia cell phone charger

6) A variable that is potentially affected by an experimental treatment is referred to as a(n) ________. A) omitted variable B) independent variable C) dependent variable D) compulsory variable

30) A change in the quantity demanded of a good is ________. A) the outcome of a change in consumer income B) represented by a shift of a demand curve C) the outcome of a change in tastes and preferences D) represented by a movement along a demand curve

4) Which of the following is NOT a key principle of economics? A) Optimization B) Equilibrium C) Empiricism D) Substitution

When a market is in equilibrium, both buyers and sellers do NOT perceive a benefit from changing their behavior. Why?

In most economic situations, an economic agent is not optimizing individually. His decision is influenced by the decisions taken by other economic agents. In equilibrium, each and every economic agent is doing the best that they can do, given the information they have and given the actions of other economic agents. Therefore, nobody perceives a benefit from changing his or her behavior.

26) A fall in the price of flour, used in making cakes, is likely to ________ of cakes. A) increase the supply B) decrease the supply C) increase the quantity supplied D) decrease the quantity supplied

6) All else being equal, an increase in the price of Nike Air Jordan XXXI Fly Low shoes will cause an ________. A) increase in quantity supplied B) increase in supply C) increase in quantity demanded D) increase in demand

1) Which of the following statements is TRUE? A) Economics is concerned with money, not choices. B) Economics can be used to predict people's actions. C) Economics does not provide insights into human behavior. D) Economic reasoning tends to reduce the quality of decision making.

10) A consumer has $20 that he wants to spend on two goods: pens priced at $2 each and pencils priced at $1 each. Which of the following correctly represents his budget constraint? A) $20 = ($2/Quantity of pens) + ($1/Quantity of pencils) B) $20 = ($2 × Quantity of pens) + ($1 × Quantity of pencils) C) $20 = ($3/Quantity of pens + Quantity of pencils) D) $20 = $3 × (Quantity of pens - Quantity of pencils)

12) Which of the following examples best describes the Law of Demand? A) When John's income doubles, his telephone bill also doubles. B) When the price of bread doubles, John's consumption of bread halves. C) When the price of watches increases, a local manufacturer starts offering more watches for sale. D) When a new anti-tobacco commercial is released, the consumption of tobacco products decreases sharply.

12) Which of the following is an example of a positive economic statement? A) The government should ideally work as a welfare state. B) An increase in income causes an increase in savings. C) Economics is the most useful social science. D) Eliminating poverty is more important than reducing inflation.

55) How does the study reported in the Evidence-Based Economics element in this chapter demonstrate the law of demand? A) It relies on theoretical graphs of the demand curve for gasoline. B) It uses different tax and subsidy policies across Latin American countries as a natural experiment. C) It compares the quantity demanded before and after the Venezuelan government ended gasoline subsidies. D) It compares the quantity demanded between Latin American countries and Middle East countries.

Scenario: Suppose that the government imposes a price control on gasoline where the legal price is set at $1.50 per gallon while the equilibrium price would be $2.25. A shortage ensues. Worried that you may not have enough gas to commute to school and do errands, you get up before dawn to go to a gas station to fill up the tank. But you find yourself waiting in a long line. Fortunately, the station did not run out of gas before your turn came up, and you were happy to drive away with a full tank. 3) Refer to the scenario above. The shortage results because ________. A) consumers demand more than sellers can produce B) consumers demand more than sellers are willing to supply at the legal price C) consumers demand more than the quantity of the resource that physically exists D) the government withholds a large quantity of the resources under the price control

The market for running shoes can be represented by the following equations: QD = 2000 - 10P and QS = 10P - 80. 67) Refer to the information above on the market for running shoes. What is the equilibrium price of running shoes? A) $96 B) $104 C) $192 D) $208

2) The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in ________. A) supply B) income C) its price D) tastes and preferences

2) Which of the following was an effect of the price ceiling placed on gasoline in the United States in the 1970s? A) The inventory of unsold gas increased, and gas stations incurred losses. B) Those who valued gas the most were able to buy gas under the price ceiling. C) Gas stations ran out of gas as the quantity of gas demanded exceeded the quantity supplied. D) Car owners started buying luxury cars that were less fuel efficient as the price of gas was very low

66) Which of the following would cause a decrease in price and quantity in the market for paperback textbooks? A) Students expect the price of textbooks to rise. B) College enrollment increases. C) The price of e-textbooks decreases. D) The price of paper decreases.

1) The quantity supplied of a good is ________. A) inversely related to the price of the good B) determined irrespective of the market price C) always equal to the quantity demanded of the good D) the amount of the good that sellers are ready to supply at a given price

10) Which of the following is NOT a required characteristic of a market? A) A collection of economic agents (e.g., buyers and sellers) B) Trade or exchange of a good or service C) Rules and arrangements for trading D) Government setting the price of the good or service

14) Which of the following statements is TRUE of the concept of willingness to pay? A) The willingness to pay is the lowest price that a buyer is willing to pay for an extra unit of a commodity. B) The willingness to pay for a commodity increases exponentially as the consumption of the commodity increases. C) The willingness to pay for a commodity increases linearly as the consumption of the commodity increases. D) If a consumer is consuming 10 units of a commodity and she is ready to pay $2 for the eleventh unit, her willingness to pay for the eleventh unit is $2.

18) Which of the following is a feature of a perfectly competitive market? A) There is only one seller of a commodity. B) The government rations commodities. C) The product of each seller differs marginally from its rival products. D) Each seller is too small to influence the market price.

19) Which of the following statements correctly describes a competitive market? A) Buyers and sellers negotiate prices before making exchanges. B) The market price for the same good varies from seller to seller. C) A single seller sometimes has the ability to dictate the market price. D) The market price is determined by the interaction of demand and supply.

3) Which of the following statements is TRUE? A) A bar chart has many limitations in comparison to pie charts. B) A bar chart does not allow for the comparison of a single variable across many segments. C) A bar chart can only be used to represent independent variables. D) A bar chart indicates the frequency of a variable by using rectangles of different heights or lengths

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. 0) Refer to the scenario above. If Maria borrows her parents' car and pays for only the gasoline, what is her total cost of driving to destination A? A) $90 B) $250 C) $300 D) $340

Refer to the scenario above. What is the change in the quantity demanded in the market if the price of Gatorade falls from $4 per 20-ounce bottle to $3 per 20-ounce bottle? A) No increase B) Increase of 1 bottle C) Increase of 2 bottles D) Increase of 4 bottles

7) Define economics. Who are economic agents?

Economics is the study of how agents choose to allocate scarce resources and how these choices affect society. An economic agent is an individual or a group that makes choices.

13) Should an economist consider a Web-based job search portal like Monster.com as a market?

Economists define a market as a group of economic agents who are trading a good or service, and the rules and arrangements for trading. It need not have a specific physical location. Monster.com is a Web-based job market that operates wherever there's a computer and an Internet connection.

13) Explain the term "free riders."

Free riders are people who do not contribute but still benefit from the actions that others undertake. When people pursue their own private interests and do not contribute voluntarily to the public interest, the problem of free riding arises. For example, a free rider may avoid paying taxes but enjoy the same benefits enjoyed by tax payers.

22) What are the key features of a perfectly competitive market?

In a perfectly competitive market, (i) all sellers sell an identical good or service, and (ii) any individual buyer or any individual seller is not powerful enough to affect the market price of that good or service

1) A price ceiling imposed by the government ________. A) can create situations of excess demand B) is a tax that increases the market price of a good C) involves pricing a commodity above the market price D) helps establish equilibrium in case of a shortage or surplus

2) Feasible options are options that are ________. A) available and affordable B) available but not affordable C) affordable but not available D) optimal for an economic agent

The market for running shoes can be represented by the following equations: QD = 2000 - 10P and QS = 10P - 80 73) Refer to the information above on the market for running shoes. If both the price of rubber, which is used to make the soles of running shoes, increases and the weather gets colder and people stop running, what happens to the equilibrium price and quantity of running shoes? A) The price will increase and the change in quantity will be ambiguous. B) The change in price will be ambiguous and the quantity will decrease. C) The price will increase and the quantity will decrease. D) The price will decrease and the quantity will decrease.

27) If a particular choice that an individual faces gives him a benefit of $20 but costs $30, the net benefit from making this choice equals ________. A) $20 B) $10 C) −$10 D) −$30

28) Which of the following is a topic studied by macroeconomists? A) The savings of a single household B) The productivity of an agricultural farm C) The total output of an economy D) Price determination in a market

30) Which of the following statements correctly highlights the difference between microeconomics and macroeconomics? A) Microeconomics is descriptive, whereas macroeconomics is advisory. B) Microeconomics primarily deals with positive analysis, whereas macroeconomics primarily deals with normative analysis. C) Microeconomics deals with a small part of the economy, whereas macroeconomics deals with aggregate economic performance. D) Microeconomics describes what economic agents actually do, whereas macroeconomics describes what economic agents ought to do.

29) The development of genetically modified soybean seeds such as Roundup Ready seeds lowered tillage costs for soybean growers. How will this technological advance affect the supply of soybeans? A) Increase in only quantity supplied B) Increase in supply C) Decrease in only quantity supplied D) Decrease in supply

3) The ________ plots the relationship between prices and the quantity producers are willing to sell. A) average cost curve B) supply curve C) demand curve D) fixed cost curve

5) Which of the following statements is TRUE? A) Gold is not a scarce resource. B) Both life-saving drugs and ice cream are examples of scarce goods. C) If a scarce resource is given away for free, everyone will be able to consume it. D) Scarcity means that there is an imbalance between unlimited resources and limited wants.

6) A(n) ________ is a group of buyers and sellers who are trading goods and/or services. A) firm B) market C) enterprise D) government

15) The market supply is the ________ of the individual supplies of all the potential sellers. A) sum B) product C) square of the sum D) square root of the sum

48) Suppose Z is a normal good. The equilibrium price and quantity of Z in the year 2013 was $25 and 60 units, respectively. In 2017, the equilibrium price of Z had increased to $35 but the equilibrium quantity had decreased to 50 units. Other things remaining the same, which of the following could explain this change? A) A leftward shift of the supply curve of Z B) A rightward shift of the supply curve of Z C) A leftward shift of the demand curve for Z D) A rightward shift of the demand curve for Z

5) Which of the following does NOT illustrate one of the three principles of economics? A) Jessica is looking for a new job, but there are no jobs available. B) When driving on the highway, if one lane is moving faster than the other, people will change lanes until both lanes are moving at the same speed. C) Congress proposes an increase in income taxes, but they are worried that the tax hike might discourage work. Economists at the Congressional Budget Office are asked to examine data to see how labor supply responds to changes in the tax rate. D) Mallory owns a physical therapy clinic and has to decide if hiring an additional physical therapist would allow her to expand her business enough to offset the cost of the additional therapist and thus increase her profits.

5) Which of the following statements correctly describes perfectly competitive market equilibrium? A) Competitive markets converge to the price at which quantity supplied and quantity demanded are equal. B) Government intervention is necessary for the competitive market to reach equilibrium. C) There is always excess supply or excess demand when the competitive market is in equilibrium. D) Multiple equilibriums are possible for a given set of demand and supply curves in a competitive market.

52) Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, and the shift in demand is greater than the shift in supply. Then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________. A) a lower price and quantity B) a higher price and a lower quantity C) the same price and a lower quantity D) a lower price and a higher quantity

6) Which of the following statements is TRUE? A) Rational economic agents maximize more than just monetary income. B) An individual does not require information to make optimal decisions. C) The principle of optimization is only accurate when it comes to making monetary decisions. D) It is not necessary to consider the risks of alternatives while making an optimal decision.

61) How many pints of ice cream will their family buy when the price of a pint of ice cream is $6? A) 14 B) 12 C) 10 D) 0

63) Assume that people like to eat cookies while drinking milk. If the price of milk falls, what would happen to demand for cookies? A) The demand curve would shift right. B) The demand curve would shift left. C) The demand curve would not shift. D) We do not have enough information to answer this question

63) On April 20, 2020 oil prices closed at -$37.63 per barrel. Which of the following statements is FALSE regarding these negative oil prices? A) The reason for the decrease in the price of oil was that people knew the price was going to decrease and stopped buying oil. B) The negative price of oil indicates that oil producers were paying people to take their oil because they had nowhere to store it. C) The reason for the sudden decrease in the price of oil stemmed from the lockdowns associated with the coronavirus. D) The negative oil prices only lasted for one day

64) People frequently eat chips and guacamole together. Suppose the price of chips increases and there is a shortage of avocados, which are used to produce guacamole. How will these affect the equilibrium price and quantity of guacamole? A) The change in price is ambiguous, quantity will decrease. B) Price will remain the same, quantity will decrease. C) Both price and quantity will decrease. D) Price will decrease, the change in quantity is ambiguous

7) Assume that the economy is in a recession and consumers are expecting a fall in their income levels. This will cause a(n) ________. A) leftward shift in the market demand for all goods B) rightward shift in the market demand for all goods C) increase in the total quantity demanded of all goods D) decrease in the total quantity demanded of all goods

7) The term "free riders" refers to people who ________. A) don't contribute but still benefit from others' actions B) make economic decisions randomly and are not rational C) selflessly pay for others' consumption of goods and services D) haggle over the prices of the goods and services that they buy

8) Which of the following is likely to cause the demand curve for cars to shift to the left? A) A rise in the price of gasoline B) An increase in the economy's national income C) An increase in the cost of production, leading to an increase in the price of cars D) A rise in the price of cars

8) Who among the following is an example of a free rider? A) An individual who sneaks into a music concert B) A consumer who buys her groceries from a nearby store C) A taxpayer who exercises in the public park near his house D) A club member who makes voluntary contributions to the club

. 10) ________ is analysis that generates objective descriptions or predictions about the world that can be verified with data. A) Positive economics B) Negative economics C) Microeconomics D) Normative economics

13) The willingness to pay for a commodity ________. A) decreases as consumption of the commodity increases B) increases as consumption of the commodity increases C) is always less than the market price of the commodity D) is always greater than the market price of the commodity

15) Which of the following is an example of a normative economic statement? A) An increase in government expenditure will lead to an increase in well-being. B) An increase in the money supply will lead to an increase in the inflation rate. C) An increase in income is accompanied by an increase in savings. D) An increase in income is accompanied by an increase in consumption.

16) Which of the following statements correctly describes a perfectly competitive market? A) All participants in a perfectly competitive market are price-takers. B) Haggling and bargaining is commonly observed in a perfectly competitive market. C) In a perfectly competitive market, individual sellers and buyers can influence the market price. D) Buyers in a perfectly competitive market pay different prices according to their individual demand

17) Suppose the market for cement is such that the output of all sellers is identical in composition and quality. While there are a large number of buyers and sellers, everyone conducts transactions at a common market price. Which of the following statements is TRUE about the structure of the cement market? A) The cement market is perfectly competitive. B) The cement market is government regulated. C) All participants in the cement market are price-makers. D) All transactions in the cement market are likely to be involuntary

31) An expected increase in the market price of oil in the coming year is likely to ________ in the current year. A) shift the supply curve of oil to the left B) shift the supply curve of oil to the right C) shift the demand curve for oil to the left D) cause no changes in the demand and supply curves of oil

31) Why an economy contracts during slowdowns and the analysis of appropriate policies is studied under ________. A) macroeconomics B) microeconomics C) agricultural economics D) international economics

32) The impact of carbon taxes on the energy usage of individual households and firms is studied under ________. A) microeconomics B) macroeconomics C) normative economics D) positive economics

34) The relationship between a firm's advertising expenditure and its profit is studied under ________. A) microeconomics B) macroeconomics C) behavioral economics D) international economics

35) Which word best describes the main focus of economics? A) Choice B) Money C) Equilibrium D) Causation

36) Which of the following pairs of goods is likely to be considered complements? A) Pens and writing pads B) Laptops and electric heaters C) Motorcycles and typewriters D) Nokia and Samsung cell phones

37) Which of the following factors is likely to lead to an increase in the quantity demanded of pens? A) A fall in the price of pens B) A fall in the price of paper C) A rise in the incomes of all consumers D) A fall in the incomes of all consumers

37) Which of the following is NOT a question that would be asked by a microeconomist? A) Why has the level of income inequality been increasing over time? B) How large should a carbon tax be to lower pollution to an efficient level? C) How does class size influence student learning outcomes? D) How does the availability of men affect a woman's likelihood of marriage?

37) Which of the following would cause the supply curve for wheat to increase? A) A technological advance that allows farmers to harvest wheat twice as fast. B) A drought C) An increase in the price of wheat D) An increase in the price of fertilizer

38) If Darvez is willing to supply his labor according to the following supply: QS = 4P, Elliot is willing to supply their labor according to the following supply equation: QS = 3P - 9, and Ekta is willing to supply her labor according to the following supply equation: QS = 2P - 20, where Q is hours of labor and P is the price of labor (or the wage rate). How many hours will they all be willing to work if the market wage rate is $10 per hour? A) 61 B) 81 C) 24 D) 40

38) Las Vegas, Nevada, is a popular vacation destination for residents of Hawaii. If the Hawaiian economy experiences strong economic growth and, as a result, household incomes increase on average by 10 percent, what will likely happen to the demand for airplane tickets from Hawaii to Las Vegas? A) Demand will increase. B) Demand will decrease. C) No shift in demand will occur; quantity demanded will increase. D) No shift in demand will occur; quantity demanded will decrease.

39) If Darvez is willing to supply his labor according to the following supply: QS = 4P, Elliot is willing to supply their labor according to the following supply equation: QS = 3P - 9, and Ekta is willing to supply her labor according to the following supply equation: QS = 2P - 20, where Q is hours of labor and P is the price of labor (or the wage rate). If the wage falls from $10 to $8 per hour, how many fewer hours will they all be willing to work? A) 16 B) 20 C) 41 D) 45

4) The equilibrium quantity in a perfectly competitive market is determined at the point of ________. A) intersection of the demand and supply curves B) tangency between the demand and supply curves C) intersection of the supply curve and the quantity axis D) intersection of the demand curve and the quantity axis

4) Which of the following statements is TRUE? A) Testing with data is essential to developing a good theory. B) The knowledge of economics complicates decision making. C) Cost-benefit analysis can be applied only to limited economic decisions. D) Economics is more of a theoretical subject with limited applications in the real world.

45) Other things remaining same, a rightward shift in the demand curve will lead to a(n) ________. A) increase in the equilibrium price and the equilibrium quantity B) decrease in the equilibrium price and the equilibrium quantity C) decrease in the equilibrium price and an increase in the equilibrium quantity D) increase in the equilibrium price and a decrease in the equilibrium quantity

Roberta is moving to be closer to her children. Roberta is a nurse and makes $45 per hour. She has to decide whether to hire movers to pack up her belongings or pack it all up herself. The movers will charge $1,000 to supply packing materials and pack up all of Roberta's belongings. It would take 20 hours for her to pack up herself, and she would need to spend $300 on packing materials. 42) Refer to the scenario above, what is Roberta's opportunity cost of packing up herself? A) $300 B) $900 C) $1000 D) $1200

8) Which of the following is TRUE of a market? A) A market must be under continuous surveillance and government control. B) A market always requires a specific physical location. C) Goods and services are exchanged at fixed prices in all markets. D) Price acts as a selection device for buyers and sellers in every market

9) On a line chart, the income of a consumer is measured along the horizontal axis, and his consumption is measured along the vertical axis. The slope of the line is equal to ________. A) change in consumption plus change in income B) change in consumption minus change in income C) change in consumption multiplied by change in income D) change in consumption divided by change in income

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. 31) Refer to the scenario above. Maria should choose to ________. A) drive, as it will save her $120 B) travel by train, because it is quicker C) drive, as it will give her a real saving of $150 D) travel by train, as it will save her $30 in travel time

Raleigh and Austin are a young couple, and the only people in their family. Raleigh's monthly demand for pints of ice cream is given by QD = 20 - P and Austin's monthly demand for pints of ice cream is given by QD = 10 - 2 P. 59) How many pints of ice cream will their family buy when the price of a pint of ice cream is $4? A) 18 B) 8 C) 16 D) 26

Roberta is moving to be closer to her children. Roberta is a nurse and makes $45 per hour. She has to decide whether to hire movers to pack up her belongings or pack it all up herself. The movers will charge $1,000 to supply packing materials and pack up all of Roberta's belongings. It would take 20 hours for her to pack up herself, and she would need to spend $300 on packing materials. 40) Refer to the scenario above. What is the total cost to Roberta of packing up herself? A) $1200 B) $900 C) $300 D) $1000

Roberta is moving to be closer to her children. Roberta is a nurse and makes $45 per hour. She has to decide whether to hire movers to pack up her belongings or pack it all up herself. The movers will charge $1,000 to supply packing materials and pack up all of Roberta's belongings. It would take 20 hours for her to pack up herself, and she would need to spend $300 on packing materials. 43) Refer to the scenario above, what is Roberta's net benefit of hiring the movers? A) -$300 B) -$200 C) $0 D) $1200

The market for running shoes can be represented by the following equations: QD = 2000 - 10P and QS = 10P - 80. 68) Refer to the information above on the market for running shoes. What is the equilibrium quantity of running shoes? A) 1040 B) 960 C) 2000 D) 1840

19) During the Battle of the Bulge in December 1944, American soldiers near Bastogne, Belgium, offered as much as $73 for a can of Campbell's soup that sold for $0.13 in U.S. grocery stores ($73 was nearly an entire month's pay for an army sergeant at that time). These large amounts of money offered for soup represent a(n) ________. A) exception to the law of demand B) high willingness to pay C) low willingness to pay D) decrease in demand caused by a decrease in income

2) Economic reasoning allows economic agents to make decisions ________. A) by random selection B) by comparing the costs and benefits of various options C) by replicating the choices made by other economic agents D) solely on the basis of tastes and preferences for various options

2) Which of the following graphical representations can be used most appropriately to show the distribution of a household's income, in terms of percentages, among the various categories of expenses? A) A bar chart B) A pie chart C) A histogram chart D) A time-series graph

2) Which of the following will hold TRUE if the market for cameras is in equilibrium at a price of $40? A) Sellers of cameras will have an incentive to charge a price higher than $40. B) The quantity of cameras produced will equal the quantity of cameras bought in the market. C) Buyers of cameras will want to buy fewer cameras than they are purchasing at equilibrium. D) If the cost of producing cameras falls below $40 per camera, all sellers will stop supplying cameras.

23) Cost-benefit analysis requires ________. A) choosing the alternative with the least net benefit B) that all costs and benefits be measured in the same unit C) evaluating the budget constraint before making a choice D) that the risks associated with different alternatives be ignored

23) ________ is the study of how individuals, households, governments, and firms make choices and how those choices affect prices, the allocation of resources, and the well-being of other agents. A) Cost-benefit analysis B) Microeconomics C) Macroeconomics D) Empiricism

24) Which of the following is a topic studied by microeconomists? A) National income calculations B) Price determination by a firm C) Measures to combat inflation D) Interest rate determination

28) Assume that a worker in a technology firm can produce 3 circuit boards in an hour. Due to subsequent innovation, she is now able to produce 6 circuit boards per hour. Other things remaining the same, the firm's supply curve is likely to ________. A) shift to the left B) shift to the right C) become steeper D) remain unchanged

3) The gasoline market in the United States is often said to be highly competitive. But it is not perfectly competitive. What makes this market not perfectly competitive? A) If you don't like the price at one gas station, you can go to another one. B) Different companies put different additives (designed to reduce engine deposits) in the gas they sell. C) An individual seller can dictate what price a consumer pays for its gas. D) Gas stations located near each other tend to charge the same or very similar prices.

3) Which of the following is NOT a scarce resource? A) Gold B) Pollution C) Petroleum D) iPhones

33) The relationship between the unemployment rate and inflation is studied under ________. A) microeconomics B) macroeconomics C) behavioral economics D) international economics

35) Which of the following statements is TRUE? A) A rational economic agent is not likely to optimize. B) Cost-benefit analysis can also be used for normative economic analysis. C) Cost-benefit analysis does not yield the same result as optimization analysis. D) The net benefit of an option that costs $50 and provides a benefit of $100 is equal to $150.

36) Which of the following is a normative statement? A) Income inequality has been increasing in the US since the 1980s. B) Income inequality is the biggest issue facing the next generation of leaders. C) Increasing the minimum wage should decrease income inequality. D) The earnings of top executives are many times higher than most of their employees.

38) In 2007, an unseasonably dry spring led to a sharp decline in the quantity harvested of black morels, a wild mushroom found throughout the upper Midwest. Due to the scant harvest, the price of black morels rose from $9 per pound to nearly $45 per pound. In 2008, slightly above-normal rainfall levels led to a large black morel harvest. Assuming that the demand for black morels did not change from 2007 to 2008, we would expect the 2008 black morel supply to ________ and the equilibrium price of black morels to ________. A) increase; rise B) increase; fall C) decrease; fall D) decrease; rise

4) A decision or choice that is made after optimization analysis ________. A) has zero opportunity cost B) is not necessarily risk free C) is the same for all individuals D) cannot be justified using normative analysis

4) In economics, scarcity refers to the situation of ________. A) making the best use of limited information B) having more wants than the amount of available resources C) the government rationing available goods and services D) sellers setting the prices of their products too high for people to be able to afford them

4) The Law of Supply states that ________. A) supply creates its own demand B) the quantity supplied of a good rises when the price rises, all other things remaining constant C) at the equilibrium price, there is always some excess supply in the market D) the quantity supplied of a good will always equal the quantity of the good demanded

4) Which of the following graphical representations is ideal for comparing a single variable across different groups? A) A histogram B) A bar chart C) A scatter plot D) A time series graph

43) Other things remaining same, a leftward shift in the demand curve will lead to a(n) ________. A) increase in the equilibrium price and the equilibrium quantity B) decrease in the equilibrium price and the equilibrium quantity C) decrease in the equilibrium price and an increase in the equilibrium quantity D) increase in the equilibrium price and a decrease in the equilibrium quantity

46) Which of the following factors is expected to cause the demand curve for coffee to shift to the right? A) A fall in the manufacturing cost of coffee B) A higher tax on the sale of tea, a substitute for coffee C) A higher personal tax on the income of all consumers D) An increase in the supply of coffee due to better weather

5) Which of the following is the best example of the Law of Supply? A) When the cost of production of cotton fell, the market price of cotton also fell. B) When the market price of pens increased, sellers started supplying more pens. C) When the market price of pens increased, sellers started supplying fewer pens. D) When the cost of production of cotton increased, all suppliers' willingness to accept decreased.

53) Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, and the shift in demand is greater than the shift in supply. Then in comparison to the initial equilibrium, the new equilibrium will be characterized by a ________. A) lower price and quantity B) higher price and quantity C) higher price and a lower quantity D) lower price and a higher quantity

6) If the current market price of wheat in the United States is $6 per bushel and the federal government sets the maximum price of wheat at $4 per bushel, what happens to the market price and quantity of wheat in the U.S. wheat market? A) The market price of wheat falls and the quantity traded rises. B) The market price of wheat falls and the quantity traded falls. C) There is no change in the market price of wheat or the quantity traded. D) The answer cannot be determined given the information provided.

8) A budget constraint represents the ________. A) total money income that an agent earns in different time periods B) goods and services an economic agent can choose given her limited income C) inequality in the incomes earned by various economic agents D) aggregate income earned by all firms in an economy

8) Which of the following is most likely to be represented by a time series graph? A) The relationship between hourly wages and a worker's productivity B) The growth in consumer income over 5 years C) The contribution of each sector to the total output of an economy D) The different sources of tax revenue for the government

9) Economics is primarily the study of ________. A) the relationship between matter and its motion B) agents' choices and their impact on society C) events of the past and how these events affect present human behavior D) the different types of governments and the impact of their policies on a nation

9) If all sellers and all buyers face the same price during an exchange, it is referred to as the ________. A) mark-up price B) market price C) discounted price D) cost price

9) Which of the following statements is TRUE? A) A budget constraint remains the same for a consumer at all levels of income. B) A budget constraint quantifies the trade-offs that economic agents face while making decisions. C) A budget constraint is a function of the income of the consumer and not of the prices of the goods and services available for consumption. D) A budget constraint is based on the minimum amount of money that an economic agent can spend on goods and services.

9) Who among the following is an example of a free rider? A) A housekeeper cleaning a house B) A tax evader enjoying national security C) A consumer paying for pollution control D) An individual who buys a ticket for a baseball game

The market for soda in Newtown can be represented by QD = 100 - 10P and QS = 10P, where Q is the number of cases and P is the price per case. 77) Use the information above on the market for soda in Newtown. What would happen if the price of soda were $3 per case? A) There would be excess supply of 40 cases. B) There would be excess demand of 40 cases. C) There would be excess supply of 20 cases. D) There would be excess demand of 20 cases.

The market for soda in Newtown can be represented by QD = 100 - 10P and QS = 10P, where Q is the number of cases and P is the price per case. 78) Use the information above on the market for soda in Newtown. What would happen to the equilibrium price and quantity of soda if the price of sugar decreased while the city council imposes a tax on sugary beverages? A) The equilibrium price and quantity would fall. B) The equilibrium price would fall and the change in quantity would be ambiguous. C) The change in price is ambiguous and the quantity would increase. D) The equilibrium price would fall and the quantity would increase.

44) Other things remaining the same, a rightward shift in the supply curve will lead to a(n) ________. A) increase in the equilibrium price and the equilibrium quantity B) decrease in the equilibrium price and the equilibrium quantity C) decrease in the equilibrium price and an increase in the equilibrium quantity D) increase in the equilibrium price and a decrease in the equilibrium quantity

46) If the demand for gem-quality diamonds decreases AND the supply of gem-quality diamonds decreases, what can be said about equilibrium price and quantity in this market? A) Equilibrium price and quantity will both fall. B) Equilibrium price and quantity will both rise. C) Equilibrium quantity will fall, but the change in equilibrium price is uncertain. D) Equilibrium quantity will rise, but the change in equilibrium price is uncertain.

49) Suppose Z is a normal good. The equilibrium price and equilibrium quantity of Z in the year 2013 was $25 and 60 units, respectively. In 2017, the equilibrium price of Z had decreased to $15 and the equilibrium quantity had also decreased to 50 units. Other things remaining the same, which of the following could explain this change? A) A leftward shift of the supply curve of Z B) A rightward shift of the supply curve of Z C) A leftward shift of the demand curve for Z D) A rightward shift of the demand curve for Z

5) An independent variable ________. A) cannot be measured B) cannot be represented on a bar chart C) is manipulated by the experimenter in an experiment D) is determined by the other variables in an experiment

5) Which of the following statements is TRUE? A) Optimization requires individuals to foresee the future perfectly. B) An optimizing individual need not consider the risks involved in various choices. C) An optimizing individual is also likely to exhibit rationality. D) The less information that is available, the easier it is to make optimal decisions.

51) If the demand and supply curves for a commodity both shift to the left by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________. A) a higher price and quantity B) the same price and a higher quantity C) the same price and a lower quantity D) a lower price and a higher quantity

42) Explain how the following will affect the supply curve of coffee. a) A fall in the wages paid to coffee workers b) An increase in the availability of high-yielding coffee plants c) A decrease in the quantity of land under coffee cultivation

a) A fall in the wages paid to workers will shift the supply curve of coffee to the right. This implies an increase in the supply of coffee. b) An increase in the availability of high-yielding coffee plants will shift the supply curve of coffee to the right. This implies an increase in the supply of coffee. c) A decrease in the quantity of land under coffee cultivation will shift the supply curve of coffee to the left. This implies a decrease in the supply of coffee.

17) Which of the following statements correctly differentiates between positive and normative economics? A) Positive economics is descriptive, whereas normative economics is advisory. B) Positive economics describes what people ought to do, whereas normative economics describes what people actually do. C) Positive economics is based on judgments, whereas normative economics is not. D) Positive economics can only be applied to microeconomics, whereas normative economics can be applied to both microeconomics and macroeconomics.

2) Consider a market where the demand curve is downward sloping and the supply curve is upward sloping (so they are neither vertical nor horizontal). If the consumers' willingness to pay for the hundredth unit is $7.00 and the seller's willingness to accept for the hundredth unit is $10.00, then the equilibrium ________. A) quantity is less than 100 units B) quantity is more than 100 units C) price is less than $7.00 D) price is more than $10.00

2) The automobile market in the United States is often said to be highly competitive. But it is not perfectly competitive. What makes this market not perfectly competitive? A) Different car companies make different vehicles with different features. B) An individual car buyer can dictate what price he or she pays for a vehicle. C) More than three major car companies exist in this market. D) An individual seller can dictate what price a consumer pays for a vehicle.

2) Which of the following statements is TRUE? A) Data help establish whether theories match reality. B) Data are not an integral part of optimization analysis. C) Empiricism is not an integral part of optimization analysis. D) Empiricism refers to the testing of ideas without using data.

20) A seller who is a price-taker charges ________. A) the market price B) a price above the market price C) a price below the market price D) different prices to different buyers

21) The market demand is the ________ of the individual demand of all the potential buyers. A) sum B) product C) square of the sum D) square root of the sum

21) Which of the following is the most likely to be bought and sold in a perfectly competitive market? A) 24-karat gold B) cars C) breakfast cereal D) electricity

22) ________ is a calculation that adds up the costs and benefits using a common unit of measurement, like dollar values. A) Cost-benefit analysis B) Revenue-income analysis C) Budget constraint analysis D) Expenditure-income analysis

24) Suppose that Jinelle, an engineer, has to choose between two jobs. Which of the following statements is TRUE? A) When deciding between jobs, she should consider both the wage and the non-wage attributes of each job. B) When deciding between jobs, she should focus only on the costs of each job and ignore the benefits. C) When deciding between jobs, she should only focus on the benefits of each job and ignore the costs. D) When deciding between jobs, she should consider the wage attributes and ignore the non-wage attributes of each job.

25) Which of the following is a topic studied by microeconomists? A) Energy consumption by a firm B) Nationwide inflation rate C) Economic growth as a means to alleviate poverty D) Aggregate demand and aggregate supply in an economy

25) Which of the following is likely to lead to a rightward shift in the supply curve of cotton? A) An increase in labor productivity due to training programs B) A rise in labor costs due to wage demands by labor unions C) An increase in the price of cotton D) A decrease in the price of cotton

26) Out of a set of feasible alternatives, an optimizer should choose the alternative with the ________. A) highest net benefit B) highest opportunity cost C) lowest total cost, regardless of benefit D) highest total benefit, regardless of cost

27) Which of the following is a topic studied by macroeconomists? A) Aggregate demand in an economy B) Price determination by a firm C) The consumption choice of a single household D) The production decision of a firm

27) Which of the following is likely to lead to an increase in the quantity supplied of steel? A) A rise in the market price of steel B) An expected increase in the demand for steel in the future C) A fall in the wage rate of labor employed in the steel industry D) An increase in the productivity of capital due to technological innovation

3) A consumer has $40 that he wants to spend. He faces four choices: a camera that costs $60, a cell phone that costs $150, a book that costs $10, and a Bluetooth speaker that costs $45. Which of the following is a feasible option for the consumer? A) The book B) The camera C) The cell phone D) The Bluetooth speaker

3) Empiricism is analysis that uses ________ to test theories. A) data B) illustrations C) philosophy D) value judgments

3) When the market for a commodity is in equilibrium, ________. A) no economic agent will want to change his or her behavior B) there will still be some unsold stock of the commodity C) all buyers of the commodity will want to change their behavior D) all sellers of the commodity will want to change their behavior

3) Which of the following statements is FALSE? A) One of the benefits of studying economics is that you will finally understand how to make money in the stock market. B) Studying economics can help you think about the tradeoffs involved with shutting down the economy to prevent the spread of a deadly virus, such as COVID-19. C) One of the benefits to studying economics is the ability to make better decisions. D) The opportunity cost of filling a scarce slot on your course schedule with an economics course is the knowledge you could be acquiring by taking another course

3) Which of the following statements is TRUE of data? A) Data help verify causal relationships. B) Data are not important for evaluating theories. C) Anecdotes are good substitutes for data. D) The fewer data that are available, the better the empirical analysis will be.

30) Which of the following is likely to cause the supply curve for steel window frames to shift to the right? A) A decrease in the cost of production of steel due to a new subsidy B) A fall in the production of steel window frames due to factory lockouts C) A rise in the market price of steel window frames due to an increase in demand D) An increase in the wages of labor working in steel firms due to demands by trade unions

Roberta is moving to be closer to her children. Roberta is a nurse and makes $45 per hour. She has to decide whether to hire movers to pack up her belongings or pack it all up herself. The movers will charge $1,000 to supply packing materials and pack up all of Roberta's belongings. It would take 20 hours for her to pack up herself, and she would need to spend $300 on packing materials. 44) Refer to the scenario above. If Roberta found a 50% off coupon for the packing materials, how would that change her optimal choice? A) She would now save $50 by hiring the movers. B) She would now save $700 by hiring the movers. C) She would now save $50 by packing herself. D) She would now save $700 by packing herself.

Scenario: Suppose that the government imposes a price control on gasoline where the legal price is set at $1.50 per gallon while the equilibrium price would be $2.25. A shortage ensues. Worried that you may not have enough gas to commute to school and do errands, you get up before dawn to go to a gas station to fill up the tank. But you find yourself waiting in a long line. Fortunately, the station did not run out of gas before your turn came up, and you were happy to drive away with a full tank. 4) Refer to the scenario above. For the last gallon of gas that the seller is willing to produce at $1.50, the consumers are willing to pay ________. A) more than $2.25 B) more than $1.50 but less than $2.25 C) exactly $1.50 D) less than $1.50

The market for running shoes can be represented by the following equations: QD = 2000 - 10P and QS = 10P - 80 70) Refer to the information above on the market for running shoes. Which of the following is TRUE if the price of running shoes is $110? A) There will be excess supply of 120. B) There will be excess demand of 120. C) There will be excess supply of 170. D) There will be excess demand of 170

The market for running shoes can be represented by the following equations: QD = 2000 - 10P and QS = 10P - 80 71) Refer to the information above on the market for running shoes. If another shoe store enters the market and increases the quantity supplied of running shoes by 100 at each price, what will be the new equilibrium price of running shoes? A) $99 B) $101 C) $109 D) $202

The market for running shoes can be represented by the following equations: QD = 2000 - 10P and QS = 10P - 80 72) Refer to the information above on the market for running shoes. As the weather gets cold people stop running, which decreases the quantity demanded of running shoes by 40 at each price. what will be the new equilibrium price of running shoes? A) $102 B) $94 C) $104 D) $204

The market for soda in Newtown can be represented by QD = 100 - 10P and QS = 10P, where Q is the number of cases and P is the price per case. 75) Use the information above on the market for soda in Newtown. What is the equilibrium quantity in the market for soda? A) 50 cases B) 100 cases C) 60 cases D) 40 cases

The market for soda in Newtown can be represented by QD = 100 - 10P and QS = 10P, where Q is the number of cases and P is the price per case. 76) Use the information above on the market for soda in Newtown. What would happen if the price of soda were $8 per case? A) There would be excess supply of 60 cases. B) There would be excess demand of 60 cases. C) There would be excess supply of 30 cases. D) There would be excess demand of 30 cases.

50) Differentiate between a change in demand and a change in quantity demanded

A change in demand refers to the change in the quantity of a good purchased due to changes in any factors other than price. These factors may include a change in income, tastes and preferences, future expectations, or a change in the number and scale of buyers. A change in demand is graphically represented by a shift of the demand curve. In contrast, a change in quantity demanded refers to a change in the quantity of a good purchased due to a change in the good's price, other things remaining the same. Graphically, a change in quantity demanded is represented by a movement along the same demand curve.

18) Which of the following examples best describes the concept of diminishing marginal benefit? A) If the weather gets cold, the demand for ice cream will fall. B) With each additional pen Jill buys, her willingness to pay for another pen decreases. C) Each additional unit of ice cream that John consumes gives him more and more satisfaction. D) If a seller of notebooks in a perfectly competitive market charges above the market price, his profit decreases.

59) What will happen to the equilibrium price and quantity of cars if there is an increase in the price of gasoline?

An increase in the price of gasoline will cause the demand for cars to shift left, supply remaining unchanged. With supply unchanged and a leftward shift in the demand for cars, both the equilibrium price and quantity of cars will decrease

1) Which of the following correctly defines the term "equilibrium"? A) It refers to a situation in which data are used to arrive at conclusions. B) It refers to a situation in which all economic agents are simultaneously optimizing. C) It refers to a situation in which an optimizing decision is made by an individual economic agent. D) It refers to a situation in which government intervention efficiently allocates scarce resources.

10) Each member in a group might do what's best for himself or herself instead of behaving in a way that optimizes the well-being of the entire group. This gives rise to the problem of ________. A) Pareto inefficiency B) free riding C) irrational behavior D) disequilibrium

10) Which of the following best describes the difference between a demand curve and a demand schedule? A) A demand curve can be derived from a demand schedule, but a demand schedule cannot be derived from a demand curve. B) A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation. C) A demand curve shows the different quantities of a good demanded at different prices, whereas a demand schedule shows the different quantities of a good demanded at different incomes. D) A demand curve shows the different quantities of a good demanded at different incomes, whereas a demand schedule shows the different quantities of a good demanded at different prices.

11) A shortage occurs in a market when ________. A) supply exceeds demand B) price is lower than the equilibrium price C) price is higher than the equilibrium price D) the marginal utility of consumption is negligible

11) Which of the following statements is TRUE of free riding? A) Free riding is easy to detect and punish. B) Free riding is reduced with social pressure. C) Free riding is not affected by incentives. D) Free riding does not impose a cost on society.

12) A consumer has $50 to spend. He has to decide between buying two goods: magazines priced at $5 each and DVDs priced at $10 each. Which of the following combinations of the two goods will entirely exhaust his budget constraint? A) 3 magazines and 4 DVDs B) 2 magazines and 4 DVDs C) 6 magazines and 1 DVD D) 2 magazines and 2 DVDs

12) Assume that a house is rented by four students. When it comes to keeping the house clean, each of the four roommates has an incentive to leave the cleaning to the others. As a result, the house is never clean. Which of the following is the best solution to this problem of free riding? A) Asking every roommate to clean the house if they dirty it B) Requiring every roommate to contribute to a cleaning service C) Requiring each roommate to pay more toward the house rent and groceries D) Assigning one roommate the responsibility of watching over the other students

13) Why is an auction, or even a random lottery, considered better than the Henrico County scheme used to sell Apple laptops for $50? A) Because it results in each laptop being sold at the equilibrium price B) Because it avoids costs associated with waiting and injuries from a stampede C) Because it avoids Henrico County government's control of the market D) Because it will lower the price of laptops other than the 1,000 units offered by the government of Henrico County

14) In competitive markets, firms ________. A) coordinate pricing decisions with other firms B) take the market price as given C) have the government set maximum and minimum prices D) set the market price

16) Which of the following statements is TRUE? A) Positive economics deals with issues that are subjective. B) Normative statements depend on personal preferences. C) Positive economics recommends what people ought to do. D) Normative economic statements can be confirmed or disproven.

8) Assume that a seller in a perfectly competitive market charges more than the equilibrium price. It is likely that this seller will ________. A) increase his profit B) increase his sales C) lose only a few buyers D) lose almost all of his buyers

Which of the following is TRUE of equilibrium? A) Equilibrium refers to a situation where the government allocates resources among economic agents. B) Equilibrium refers to a situation where all economic agents simultaneously optimize after considering one another's actions. C) Equilibrium refers to a situation where all economic agents are making suboptimal choices and have an incentive to change their behavior. D) Equilibrium refers to a situation where an economic agent can be made better off without making anyone else worse off

1) A circular chart split into segments to show the percentages of parts relative to the whole is called ________. A) a histogram B) a time-series graph C) a pie chart D) a bar chart

1) Consider a market where the demand curve is downward sloping and the supply curve is upward sloping (so they are neither vertical nor horizontal). If the consumers' willingness to pay for the hundredth unit and the seller's willingness to accept for the 175th unit are both $5.00, then ________. A) the equilibrium price is $5.00 B) the equilibrium quantity is 100 units C) there is an excess supply of 75 units at the price of $5.00 D) there is an excess demand of 75 units at the price of $5.00

1) Which of the following statements is TRUE? A) All economic agents are necessarily individuals. B) A worker who shirks work is not an economic agent. C) A government is an example of aeconomic agent. D) A street gang is not an economic agent

10) At a price of $1 per table, the quantity supplied of tables is 100 units, whereas the quantity demanded is 70 units. Given this information, which of the following statements is TRUE? A) The equilibrium price is $1 per table. B) The market clearing price is $1 per table. C) At a price of $1 per table, there is a surplus in the market. D) At a price of $1 per table, there is a shortage in the market.

10) The slope of the line on a line chart measures the rate of change in ________. A) only the independent variable B) only the dependent variable C) the dependent variable as the independent variable changes D) the independent variable as the dependent variable changes

10) Which of the following could explain why there was a stampede at the Richmond International Raceway where 1,000 laptops were being sold at $50 each? A) The demand for laptops is not very responsive to price. B) The price of $50 per laptop was above the equilibrium price of laptops. C) The quantity of laptops demanded at $50 was higher than the quantity supplied. D) The people who bought the laptops at that price were those who valued laptops the most.

11) The Law of Demand states that ________. A) the demand for a commodity is directly related to consumers' income, all other things remaining constant B) the demand for a commodity always equals the supply of the commodity C) the quantity demanded of a commodity varies inversely with the price of the commodity, all other things remaining constant D) the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market

11) Which of the following is an example of a positive economic statement? A) The pricing policies followed in single-producer markets should be strictly supervised. B) Unemployment is more harmful than inflation. C) Higher interest rates will encourage more savings. D) Pollution is one of the most serious economic problems.

13) Which of the following statements is TRUE? A) All rational economic agents attempt to maximize their income. B) A rational consumer makes his decisions depending on what the majority chooses. C) A budget constraint is an economic tool that quantifies the trade-off between the consumption of two goods. D) A trade-off refers to the exchange of goods between economic agents through the barter system or mutual exchange

15) In a perfectly competitive market, ________. A) all exchanges take place involuntarily B) there is only one seller and many buyers C) all sellers sell an identical good or a service D) there is no provision for the protection of property rightS

17) Jenny likes chocolates. One day, a friend offers her a chocolate bar and she is extremely happy on receiving it. As the day progresses, many other people also buy her chocolate. As she gets more and more chocolates, her excitement on receiving each bar is seen to gradually lessen. Which economic principle is reflected in this example? A) The Law of Equi-Marginal Utility B) Aggregation of demand behavior C) The concept of diminishing marginal benefit D) The Law of Increasing Willingness to Pay

17) John has to choose between two jobs: one that offers him $50 per hour and one that offers him $35 per hour. The opportunity cost of choosing the job that offers him $50 per hour is ________. A) $1.5 per hour B) $15 per hour C) $35 per hour D) $85 per hour

19) Which of the following statements is TRUE? A) Positive economics describes what people ought to do. B) Normative economics describes what people actually do. C) Positive economics generates objective descriptions that can be verified with data. D) Normative economics is free from the value judgments, tastes, and preferences of economic agents.

2) Which of the following best describes equilibrium? A) A situation where the government intervenes to allocate resources B) A situation where only one individual or firm makes an optimal decision C) A situation where no economic agent would benefit by changing his or her behavior D) A situation where economic agents do not optimize as they do not have perfect information

33) Two goods are said to be substitutes when a fall in the price of one good ________. A) leads to a rise in the price of the other good B) does not affect the demand for the other good C) leads to a leftward shift in the demand for the other good D) leads to a rightward shift in the demand for the other good

39) The acai berry and products made from it are a popular dietary supplement, believed to reverse diabetes and lead to weight loss. Suppose that a peer-reviewed medical study reveals that there are no health benefits from consuming acai berry products. The likely effect of this medical study will be to ________. A) not cause a change in demand but to decrease quantity demanded B) not cause a change in demand but to increase quantity demanded C) cause a decrease in demand D) cause an increase in demand

54) Which statement is consistent with the study reported in the Evidence-Based Economics element in this chapter? A) The relatively low quantity of gasoline demanded in Brazil explains why its government taxes gasoline heavily. B) The relatively modest quantity of gasoline demanded in Mexico explains why the gasoline price in Mexico is between that of Brazil and Venezuela. C) The very low gasoline price due to large subsidies explains why more gasoline is consumed in Venezuela than in other countries. D) The very high gasoline price due to high taxes explains why more gasoline is consumed in Mexico than in Brazil.

56) Refer to the scenario above. If you are told that the increase in emerald sales was due to an increase in the supply of 1-carat commercial grade emeralds, you can conclude that commercial grade emerald prices ________. A) increased B) remained constant C) decreased D) was uncertain

65) Suppose there has been an increase in the equilibrium price and quantity in the market for chickens. Which of the following events could have caused this? A) A study recently came out highlighting the salmonella outbreaks linked to backyard chickens. B) More poultry farmers have started hatching chicks. C) People quarantining at home have decided they want to try raising backyard chickens. D) The price of chicken coops has gone up

7) Which of the following is NOT an example of a market? A) A cattle auction, where farmers and ranchers bring cattle to be purchased by packing plants B) Etsy.com, a Web site where artists, designers, and craftspersons offer items they have made to interested buyers C) A city requires homeowners to pay $500 for putting in a sidewalk on their street D) The National Residency Matching Program, where medical residents express their preferences for residencies, hospitals express their preferences for medical residents, and these preferences are used to match residents to residencies

8) If a job pays a wage of $50 per hour, but has a non-wage cost valued at $20 per hour, the net benefit of taking the job equals ________. A) $2.5 per hour B) $20 per hour C) $30 per hour D) $70 per hour

8) The ________ plots the relationship between prices and the quantity that buyers are willing to purchase. A) marginal cost curve B) supply curve C) demand curve D) budget constraint

8) Willingness to accept is ________. A) always lower than the marginal cost of production B) always higher than the marginal cost of production C) the lowest price that a producer is willing to receive to sell an extra unit of a good D) the highest price that a producer is willing to receive to sell an extra unit of a good

9) A surplus occurs in a market when ________. A) demand exceeds supply B) the price is lower than the equilibrium price C) the price is higher than the equilibrium price D) the marginal cost of production is negligible

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. 34) Refer to the scenario above. If the opportunity cost of time increases to $80 per hour, which of the following statements is TRUE? A) Maria should choose to drive, as it saves her $10. B) Maria should choose to drive, as it saves her $150. C) Maria should choose to travel by train, as it saves her $10. D) Maria should choose to travel by train, as it saves her $150.

Scenario: Suppose that the government imposes a price control on gasoline where the legal price is set at $1.50 per gallon while the equilibrium price would be $2.25. A shortage ensues. Worried that you may not have enough gas to commute to school and do errands, you get up before dawn to go to a gas station to fill up the tank. But you find yourself waiting in a long line. Fortunately, the station did not run out of gas before your turn came up, and you were happy to drive away with a full tank. 5) Refer to the scenario above. Your total cost of getting gas ________. A) is lower than the equilibrium price thanks to the price ceiling B) is exactly the same as the equilibrium price because you managed to get gas C) may be higher than the equilibrium price because of your opportunity cost of waiting in line and uncertainty about availability of gasoline D) may be higher than the equilibrium price because the seller usually charges an illegally higher price

The market for running shoes can be represented by the following equations: QD = 2000 - 10P and QS = 10P - 80 69) Refer to the information above on the market for running shoes. Which of the following is TRUE if the price of running shoes is $80? A) There will be excess supply of 1200. B) The quantity supplied will be 1200. C) There will be excess demand of 480. D) The quantity demanded will be 720.

The market for soda in Newtown can be represented by QD = 100 - 10P and QS = 10P, where Q is the number of cases and P is the price per case. 74) Use the information above on the market for soda in Newtown. What is the equilibrium price in the market for soda? A) $50 B) $10 C) $5 D) $4

Topic: Markets 11) Which of the following examples best approximates a competitive market? A) The market for F-35 fighter planes B) The market for Tesla electric cars C) The market for soybeans in the United States D) The market for Jackson Pollock paintings

Why do economists study perfectly competitive markets even though few, if any, markets in the real world are perfectly competitive? A) Because insights we gain from studying the perfectly competitive market are directly applicable to real markets, even though they are not perfectly competitive B) Because the behavior of buyers and sellers can be studied theoretically only in the perfectly competitive market model C) Because the perfectly competitive market is a good approximation to many markets in the real world and helps us understand how real markets work D) Because the perfectly competitive market is the most relevant model for actual government economic policies

8) Economics is primarily the study of ________. A) the mental functions and behavior of individuals and groups B) the state, nation, government, and politics and policies of governments C) the problems related to the existence and evolution of society D) how agents choose to allocate scarce resources and how these choices affect society

37) What is cost-benefit analysis? What are the steps involved in using cost-benefit analysis to make the optimal choice?

Cost-benefit analysis is a calculation that adds up the costs and benefits of a particular choice using a common unit of measurement. It involves the conversion of all costs and benefits to a common unit of measurement so that they can be compared. The difference between the benefits and costs of choosing an alternative is referred to as the net benefit of the alternative. The alternative with the highest net benefit is the optimal choice.

1) The quantity demanded of a good is ________. A) determined independently of the market price of the good B) always determined by government intervention C) the amount of the good that sellers are willing to supply at a given market price D) the amount of the good that buyers are willing to purchase at a given market price

1) Which of the following statements is TRUE of equilibrium? A) Economic agents have an incentive to divert from equilibrium. B) Each economic agent can reach equilibrium irrespective of the actions of others. C) In equilibrium, the opportunity cost of the choices made by each economic agent is zero. D) In equilibrium, all economic agents are choosing the best feasible option simultaneously

1) Which of the following statements is TRUE of optimization? A) Optimization analysis only relates to the financial budget of an economic agent. B) Individuals who optimize do not consider costs when choosing the most feasible alternative. C) Economic agents can optimize only when they are able to perfectly estimate all future costs and benefits. D) Economic agents who optimize attempt to choose the best feasible option, given the information that they have

11) An individual has 8 hours to spare. She has to divide her time between two activities: reading and writing. Which of the following allocations will completely exhaust the individual's budget? A) 3 hours of reading and 4 hours of writing B) 4 hours of reading and 6 hours of writing C) 2 hours of reading and 2 hours of writing D) 5 hours of reading and 3 hours of writing

12) In a perfectly competitive market, situations of surplus or shortage of a good ________. A) can exist simultaneously B) are permanent phenomena C) exist until the government or any ruling authority intervenes D) self-correct due to the competitive nature of the market

12) Suppose that, when you arrive at the sale site for $50 Apple laptops (described in the text) at 1:45 A.M., you find more than 2,000 people already waiting for the site to open. You turn around and go home to get some sleep. Later you buy an Apple laptop, the same model as the $50 one, for $1,070. This indicates that ________. A) more than fifty people in the crowd were physically stronger than you B) you are willing to pay at most $1,070 for the laptop C) your opportunity cost of waiting at the site (and pushing and shoving) is at most $1,020 D) your opportunity cost of waiting at the site (and pushing and shoving) is at least $1,020

13) ________ economics prescribes what an individual or society ought to do. A) Positive B) Negative C) Behavioral D) Normative

14) Which of the following is an example of a normative economic statement? A) A cut in the tax rate will lead to an increase in consumption. B) Relaxation of import duties will encourage imports. C) An increase in subsidies to farmers will boost agricultural production. D) An increase in social security benefits will increase the welfare of all economic agents.

15) The best alternative use of a resource is referred to as its ________. A) optimization cost B) market price C) social cost D) opportunity cost

16) A student has two options: she can either surf the web or work part-time. Working part-time pays her $20 per hour. What is the student's opportunity cost of surfing the web for 5 hours? A) $4 B) $20 C) $50 D) $100

16) The concept of diminishing marginal benefit states that ________. A) lower levels of consumption give lower level of utility B) the demand for a commodity declines as its price increases C) the demand for a commodity is more dependent on income than on price D) the willingness to pay for an additional unit declines as more of a good is consumed

18) Positive economics is descriptive because ________. A) it is based on ethical judgments B) its predictions cannot be verified with data C) it prescribes what an individual or society ought to do D) it explains what has happened or predicts what will happen

2) A supply schedule is a table that reports the ________. A) expected excess supply in the market at different prices B) profits earned by producers at different levels of production C) different quantities of a good that producers are willing to sell at different income levels D) different quantities of a good that producers are willing to sell at different prices

2) Which of the following best describes scarce resources? A) Resources that most people cannot afford to buy B) Resources that can only be distributed efficiently by the government C) Resources for which the quantity demanded is the same for all economic agents D) Resources for which the quantity that people want exceeds the quantity that is freely available

20) An increase in the price of aviation fuel will cause which of the following for the supply of flights from New York to Los Angeles? A) No change in supply, but an increase in quantity supplied B) No change in supply, but a decrease in quantity supplied C) An increase in supply D) A decrease in supply

25) The net benefit of a particular alternative equals ________. A) the benefits received from the alternative plus the costs incurred when choosing the alternative B) the benefits received from the alternative divided by the costs incurred when choosing the alternative C) the costs incurred when choosing the alternative divided by the benefits received from the alternative D) the benefits received from the alternative minus the costs incurred when choosing the alternative

26) ________ is the study of an economy as a whole. A) Microeconomics B) Cost-benefit analysis C) Behavioral economics D) Macroeconomics

29) Which of the following statements is TRUE? A) Microeconomics is the study of an economy as a whole. B) Macroeconomics studies how individuals make choices. C) The study of the inflation rate is covered under microeconomics. D) The study of the unemployment rate is covered under macroeconomics.

3) Consider a market where the demand curve is downward sloping and the supply curve is upward sloping (so they are neither vertical nor horizontal). If the consumers' willingness to pay for the hundredth unit is $9.00 and the seller's willingness to accept for the hundredth unit $9.00, then the ________. A) equilibrium quantity is less than 100 units B) equilibrium quantity is more than 100 units C) willingness to accept exceeds the willingness to pay for the ninety-ninth unit D) willingness to pay exceeds the willingness to accept for the ninety-ninth unit

3) Suppose Apple raises the cost of downloading a song from iTunes from $0.99 per song to $1.49 per song. This price increase will cause a(n) ________. A) increase in demand B) decrease in demand C) increase in quantity demanded D) decrease in quantity demanded

31) Which of the following factors will NOT cause a shift in the demand for a good? A) A change in consumer incomes B) A change in tastes and preferences C) A change in the number of consumers D) A change in the market price of the good

35) Two goods are said to be complements when a fall in the price of one good ________. A) leads to a fall in the price of the other good B) does not affect the demand for the other good C) leads to a leftward shift in the demand for the other good D) leads to a rightward shift in the demand for the other good

39) Which of the following statements is TRUE of economic reasoning? A) Economic reasoning hampers optimal decision making. B) Economic reasoning can only be used with normative choices. C) Economic reasoning implies that leisure time is free and costless. D) Economic reasoning helps people make the best use of scarce resources.

4) The gasoline market in the United States is often said to be highly competitive. It is not perfectly competitive, but it has features and results that are similar to those of a perfectly competitive market, such as ________. A) an individual buyer cannot influence the market price of gasoline by himself B) gas stations located near each other tend to charge the same or very similar prices C) an individual gas station cannot influence the market price by itself D) all of the above

42) Other things remaining the same, a leftward shift in the supply curve will lead to a(n) ________. A) decrease in the equilibrium price and the equilibrium quantity B) increase in the equilibrium price and the equilibrium quantity C) decrease in the equilibrium price and an increase in the equilibrium quantity D) increase in the equilibrium price and a decrease in the equilibrium quantity

47) Suppose Z is a normal good. The equilibrium price and quantity of Z in the year 2013 was $25 and 60 units, respectively. In 2017, the equilibrium price of Z had increased to $35 and the equilibrium quantity had increased to 70 units. Other things remaining the same, which of the following could explain this change? A) A leftward shift of the supply curve of Z B) A rightward shift of the supply curve of Z C) A leftward shift of the demand curve for Z D) A rightward shift of the demand curve for Z

49) Which of the following is likely to shift the market demand curve for school textbooks to the right? A) An increase in school tuition fees B) A fall in the price of school textbooks C) A fall in the total income of all consumers D) An increase in the enrollment rates in high schools

5) The buyers of a good will want to purchase it as long as their willingness to pay for the good is ________. A) equal to zero B) greater than zero C) less than the price D) greater than or equal to the price

5) Which of the following does NOT have a market in the real world? A) First-class mail delivery in the United States, where the U.S. Postal Service is the only legal carrier of such mail B) Kidneys for transplant, for which you cannot legally receive or pay money C) Illegal narcotic substances D) None of the above

5) Which of the following is a feature of a good theory? A) A good theory does not rely on data. B) A good theory cannot be tested with data. C) A good theory is free from approximations. D) A good theory closely predicts actual behavior.

50) If the demand and supply curves for a commodity shift to the right by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________. A) a higher quantity and price B) a lower quantity and a higher price C) the same quantity and a lower price D) a higher quantity and the same price

54) Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by ________. A) a lower price and quantity B) the same price and quantity C) a lower price and the same quantity D) a higher price and the same quantity

55) Refer to the scenario above. You can conclude that commercial grade emerald prices ________. A) increased B) remained the same C) decreased D) was uncertain

6) At the competitive equilibrium, the ________. A) demand curve is tangential to the supply curve B) quantity demanded exceeds the quantity supplied of a good C) quantity supplied exceeds the quantity demanded of a good D) quantity demanded is equal to the quantity supplied of a good

62) Which of the following would NOT cause their family demand for pints of ice cream to increase? A) A decrease in the price of pie, which is frequently consumed with ice cream B) An increase in the price of pudding, a dessert that people may consume instead of ice cream C) Raleigh and Austin have a child that also like to eat ice cream D) A decrease in the price of pints of ice cream

7) A seller's willingness to accept is the same as his ________ cost of production. A) total B) fixed C) average D) marginal

7) Which of the following correctly identifies the trade-off that a budget constraint represents? A) The amount of income that must be given up to obtain an additional unit of a good B) The maximum amount of two goods that a consumer can purchase given his income C) The optimum combination of goods that a consumer with a given income should purchase D) The amount of one good that has to be given up to purchase an additional unit of the other good

Roberta is moving to be closer to her children. Roberta is a nurse and makes $45 per hour. She has to decide whether to hire movers to pack up her belongings or pack it all up herself. The movers will charge $1,000 to supply packing materials and pack up all of Roberta's belongings. It would take 20 hours for her to pack up herself, and she would need to spend $300 on packing materials. 41) Based on the scenario above, which of the following statements is TRUE? A) Roberta should not hire the movers as she will save $1900. B) Roberta should not hire the movers as she will save $1000. C) Roberta should hire the movers as she will save $300. D) Roberta should hire the movers as she will save $200.

What is the rationale behind empiricism in economic analysis?

Empiricism refers to the use of data to test theoretical ideas or concepts. Empiricism is important, because it enables economists to determine whether economic theories are consistent with actual human behavior. This allows economists to refute faulty theories or modify them so that they are a better fit to the real world. Empiricism also enables researchers to identify causal relationships between different sets of variables.

11) Suppose the government decides that a particular commodity is a luxury and fixes its price above the market-determined price. What implications could this policy have?

If the government fixes the price of a commodity above the market-determined price, it will provide an incentive to sellers to supply more. This will result in an excess supply of the commodity.

9) Define marginal cost. Is it different from the concept of willingness to accept?

Marginal cost in production refers to the extra cost incurred in producing an additional unit of a commodity. Willingness to accept is the lowest price that a firm is willing to receive to sell an additional unit. In a competitive market, marginal cost is the same as a seller's willingness to accept. This is because the lowest price that any seller is willing to accept for an additional unit will equal the marginal cost of production of that unit. If she asks for a higher price, she will lose almost all of her buyers, and if she asks for a lower price, her cost of producing an additional unit will exceed the revenue she makes from selling it.

12) Explain the role of prices in a market.

Markets use prices to allocate goods and services. Prices act as a selection device that encourages trade between the sellers who can produce goods at low cost and the buyers who place a high value on the goods.

38) How does microeconomics differ from macroeconomics?

Microeconomics is the study of how individuals, households, firms, and governments make choices, and how those choices affect prices, the allocation of resources, and the well-being of other agents. In contrast, macroeconomics is the study of the economy as a whole. The scope of macroeconomics extends to the study of economy-wide phenomena, like the growth rate of an economy, the national unemployment rate, or the inflation rate.

40) Students in a class are discussing how a firm that does not face any competition in a market should decide how many units of output to supply in the market. Would this discussion be considered microeconomic or macroeconomic analysis?

Microeconomics is the study of how individuals, households, firms, and governments make choices. The students are discussing how a firm should make its output decision. This is a discussion about an individual entity and so is considered microeconomic analysis.

24) If there is excess demand in a perfectly competitive market, does the government need to intervene to restore the equilibrium price and quantity? Why or why not?

No. In a perfectly competitive market, no government intervention is required to restore equilibrium, as equilibrium is automatically restored. A situation of excess demand occurs when the market price is below the equilibrium price. Because quantity demanded exceeds quantity supplied in the market, some consumers will be willing to pay higher prices to buy goods. This will act as an incentive for suppliers to supply more, eliminating the shortage in the market.

18) Define opportunity cost. A student who has just graduated from college has three job offers: the first job pays $35,000 a year, the second job pays $23,000 a year, and the third one pays $15,000 a year. What is the student's opportunity cost of taking the first job?

Opportunity cost is the best alternative use of a resource. It is what an economic agent is giving up when he chooses a particular option. If the individual decides to take the first job, he will earn $35,000 a year. The opportunity cost of taking this job is the next-best offer that he could have taken. Therefore, the opportunity cost of the first job is $23,000 a year.

20) Differentiate between positive and normative economics using examples.

Positive economics is analysis that generates objective descriptions or predictions about the world that can be verified with data. It is analysis that describes what people actually do. "A 5 percent fall in the unemployment rate will lead to a 2 percent increase in the inflation rate" is an example of a positive economic statement. In contrast, normative economics is analysis that prescribes what an individual or society ought to do. It is subjective and depends on personal preferences, tastes, attitudes, feelings, or ethical judgments. "Pollution in developing countries is one of the biggest global environmental problems" is an example of a normative economic statement.

21) Robert and Janet are discussing the unemployment and inflation in their country. Robert, on the basis of a recent newspaper report, claims that a 5 percent reduction in unemployment will lead to a 2 percent rise in inflation. In contrast, Janet insists that inflation is a far bigger problem than unemployment and should be considered as of prime importance. Classify Robert's and Janet's statements as descriptive or advisory. Explain your answer.

Robert claims that a 5 percent reduction in unemployment will lead to a 2 percent increase in inflation. This statement represents predictions that can be verified with data. Therefore, Robert's approach is positive, which means it is an analysis of things as they are. Positive economics describes what has happened or predicts what will happen. The conclusion of his statement can be verified with data and is not subject to tastes and preferences. Janet claims that inflation is a far bigger problem than unemployment and should be addressed as an issue of prime importance. Janet's statement is normative. Normative economics is analysis that recommends what people ought to do. Unlike Robert's statement, Janet's belief that inflation is a bigger problem than unemployment is based on her values or ethical judgments. Therefore, while Robert's statement is descriptive in nature, Janet's statement is advisory.

20) Sam pays $600 for 30 days of guitar classes. He attends an hour-long class every day. If, instead of attending class, he works at a part-time job, he would be paid $5 an hour. Alternatively, he could work at a fast-food outlet and earn $9 per hour. Once he has already paid a nonrefundable fee of $600 to enroll in the class, what is his opportunity cost of attending each hour of class?

Sam's opportunity cost will measure the next best use of an hour of his time plus the hourly cost of guitar classes. Once he pays the nonrefundable $600, there is no further cost other than the value of his time. For an hour of time, he has two options: work for $5 per hour or work for $9 per hour. Therefore, the next best use of an hour that Sam spends on guitar classes is equal to the $9 he could have earned per hour by working at the fast-food outlet. Sam's opportunity cost of attending his guitar classes is $9 per hour.

6) What are scarce resources? Why are economic agents concerned with the allocation of these resources?

Scarce resources are resources for which the quantity that agents want exceeds the quantity that is freely available. Economic agents need to satisfy their unlimited wants in a world of limited resources. This makes it important for them to understand how these scarce resources are to be used and distributed in order to optimize allocation.

20) Why is the competitive equilibrium price often referred to as the market clearing price?

The competitive equilibrium price is determined at the point of intersection of the market demand and the market supply curves. At the point of intersection, the quantity demanded is equal to the quantity supplied in the market, which implies that there is no excess supply or excess demand in the market. Because quantity demanded equals quantity supplied and markets clear at the competitive equilibrium price, the price is also referred to as the market clearing price.

52) With real-world examples, illustrate the various factors that can cause a shift in the demand curve of a commodity.

The demand curve of a commodity can shift for the following reasons. i) Tastes and preferences: a change in the tastes and preferences of individuals can lead to a change in demand without any change in the commodity's price. For example, if new research proves that caffeine can be very harmful to those who consume it regularly, it is likely that the demand for coffee might decrease, even though the price of coffee may not have increased. ii) The income and wealth of consumers: the income and wealth of individuals play an important role in determining demand. For example, a consumer who goes on vacation only once a year might start taking more vacations if his income increases. Thus, as income increases, the demand curve for a commodity, say movie tickets or vacations, shifts to the right. iii) The availability and prices of related goods: related goods are of two types, substitutes and complements. Two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the other good, and vice versa. In contrast, two goods are complements if an increase in the price of one good leads to a decrease in the demand for the other good. For example, if the price of public transport decreases, the demand for cars is likely to fall. These two goods are substitutes. However, if the price of gasoline goes up, the demand for cars is likely to fall. Gasoline and cars are complements. iv) The number and scale of buyers: the market demand for a commodity greatly depends on the number and scale of buyers. For example, if the enrollment rates in schools go up, the demand for textbooks is likely to increase, regardless of a change in textbook price. v) Expectations about the future: expectations about the future also play an important role in determining the demand for a commodity. For example, if consumers expect the price of refrigerators to increase substantially in the near future, consumers may demand more refrigerators in the present

41) With real-world examples, explain the various factors that can cause a shift in the supply curve of a commodity

The supply curve of a commodity can shift for the following reasons. i) The price of inputs used to produce the good: the price of inputs plays an important role in a producer's decision on how much of a good to supply. For example, a fall in the price of plastic is likely to increase the supply of plastic cups at every price level. ii) The technology used to produce the good: technology plays an important role in determining supply. If a new innovation increases labor productivity, it is likely that firms will start supplying more. For example, a new method of manufacturing cars can increase the number of cars supplied to the market at every price level. iii) The number and scale of sellers: the number and scale of sellers also determines the market supply. For example, if new firms enter the market for cigarettes, the supply of cigarettes will increase at every price level. iv) Expectations about the future: expectations about the future greatly influence producers' decisions. For example, if the producers of winter coats expect the next winter to be colder than normal, they will increase the production of winter coats.

39) A recent news report stated that the unemployment rate in the country of Lithasia had increased from 10.2 percent to 18.2 percent between 2003 and 2013 and that the government has adopted strict fiscal measures to expand employment. Would this report be considered microeconomic or macroeconomic analysis?

This report pertains to macroeconomics. Macroeconomics refers to the study of an economy as a whole. Macroeconomics covers economy-wide phenomena, like the growth rate of a country's total economic output, the inflation rate, or the unemployment rate.

14) Why do trade-offs occur? How are budget constraints related to trade-offs?

Trade-offs occur because of scarcity—economic agents need to satisfy their wants with limited resources. Therefore, in most cases, some benefits have to be given up to gain other benefits. Budget constraints quantify the relevant trade-offs that an economic agent faces. Once trade-offs are quantified, rational decision making becomes easier, allowing the individual to make an optimal decision.

Suppose workers decide to work more and consume less leisure when their hourly wage rate increases. What could explain this behavior?

With an increase in their hourly wage rates, workers work more and consume less leisure because of a change in their opportunity cost. Assuming that the initial wage of an employee is $10 per hour, the opportunity cost of one hour of rest or leisure is $10 per hour. If the wage rate increases from $10 to $20 per hour, the opportunity cost of one hour of rest or leisure also increases to $20 per hour. Therefore, taking an hour of rest becomes more expensive for employees, and so the workers tend to work more than they used to.

40) How are the following events likely to affect the market supply of rice in an economy? a) A fall in the wage rate of farm labor b) An increase in the productivity of farm capital due to better technology c) An increase in the use of agricultural land for non-agricultural purposes

a) A fall in the wage rate of farm labor will lower the cost of producing rice, allowing farmers to supply more at the same market price. There will be an increase in the supply of rice, and this will be represented by a rightward shift in the market supply curve. b) An increase in the productivity of farm capital implies a fall in the cost of production. This will allow farmers to supply more at a given price. This will be represented by a rightward shift in the market supply curve for rice. c) An increase in the use of agricultural land for non-agricultural purposes will imply a fall in the scale and size of rice producers. There will be a decrease in the supply of rice, and this will be represented by a leftward shift in the market supply curve of rice.

51) How would the following events affect the market demand for laser printers? a) A recession in the economy leading to a fall in income levels b) A fivefold increase in the price of printing paper

a) A recession in the economy that causes a fall in income levels will cause a fall in the overall demand in the economy, including a fall in the demand for laser printers. This will be represented by a leftward shift in the demand curve for laser printers. b) Printing paper and laser printers are complements. Therefore, a fivefold increase in the price of printing paper will make printing more expensive and subsequently reduce the demand for laser printers. This will be represented by a leftward shift in the market demand for laser printers.

If Tom spends 4 hours a day on Facebook, and the minimum wage in his country is $7 per hour. a) What is his opportunity cost of spending time on Facebook? b) Given that spending time on Facebook has an opportunity cost, does this analysis suggest that Tom should work rather than spend his time on social networking?

a) Opportunity cost refers to the best alternative use of a resource. In this case, the resource is time. So, if Tom decided to work instead of spending time on Facebook, he would earn $7 every hour. Therefore, Tom's opportunity cost of spending time on Facebook is equal to $7 × 4 = $28. b) No, economic analysis does not dictate choices. Economics would not tell Tom what to do; it would only help him identify the trade-offs that he is making in his decisions. Whether Tom chooses to work or spend time on Facebook is a normative choice that Tom should make based on costs and benefits.

22) Classify the following as positive economics statements or normative economics statements. a) An increase in an individual's income increases consumption, but by an amount less than the increase in income. b) The government should undertake the responsibility of providing healthcare to all its citizens. c) The government should fund infrastructure projects to foster economic development. d) An increase in net exports has a positive effect on a country's national income. e) The gross domestic product of India is increasing at 5 percent annually.

a) Positive economic statement b) Normative economic statement c) Normative economic statement d) Positive economic statement e) Positive economic statement

6) Define the three key principles of economics.

i) Optimization: optimization refers to the process of choosing the best option from a set of alternatives, given the available information. ii) Equilibrium: equilibrium is a special situation all agents are simultaneously optimizing, so that nobody would benefit personally by changing his or her behavior. iii) Empiricism: empiricism is analysis that is evidence-based—it uses data to test theories and to determine what is causing things to happen in the world.

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