Micro 165 Exam 1

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

Corporations.

Examples of command economies are:

Cuba and North Korea.

Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

False

Because economic generalizations are simplifications from reality, they are impractical and useless.

False.

Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:

Holly's statement is normative, but Ben's is positive.

Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that:

Increases in the supply of computer memory have exceeded increases in demand.

Which of the following is a consequence of rent controls established to keep housing affordable for the poor?

Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices. The quality of rental housing declines as landlords lack the funds and incentive to maintain properties. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled. ALL OF THEM.

Which of the following is not characteristic of the demand for a commodity that is elastic?

The elasticity coefficient is less than one.

Which of the following generalizations is not correct?

The price elasticity of demand is greater for necessities than it is for luxuries.

Which of the following is a positive statement?

The temperature is 92 degrees today.

Which of the following goods will least likely suffer a decline in demand during a recession?

Toothpaste

Central planning often suffers from a coordination problem and an incentive problem

True

If the demand for wheat is highly price inelastic, an extraordinarily large crop may reduce farm incomes.

True

Marginal analysis means that decision-makers compare the extra benefits with the extra costs of a specific choice.

True

Economic systems differ according to which two main characteristics?

Who owns the factors of production, and the methods used to coordinate economic activity.

Which of the following will not cause the demand for product K to change?

a change in price of K.

Which of the following do economists consider to be capital?

a construction crane.

The term "other things equal" means that:

a number of relevant variables are assumed to be constant.

Which of the following is a capital resource?

a piece of software used by a firm

The assertion that "There is no free lunch" means that:

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that:

bicycles are normal goods.

The law of increasing opportunity costs is reflected in a production possibilities curve that is:

bowed out from the origin.

The price elasticity of demand coefficient measures:

buyer responsiveness to price changes.

Which of the following is a distinguishing feature of a command system?

central planning.

The demand for a product is inelastic with respect to price if:

consumers are largely unresponsive to a per unit price change.

An increase in the price of a product will reduce the amount of it purchased because:

consumers will substitute other products for the one whose price has risen.

Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X, (2) the equilibrium price (P) of X and (3) the equilibrium quantity (Q) of X. A reduction in the number of firms producing X will:

decrease S, increase P, and decrease Q.

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded:

decreased by 7 percent.

If Z is an inferior good, an increase in money income will shift the:

demand curve for Z to the left.

For a linear demand curve:

demand is elastic at high prices.

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:

demand is elastic. (calculate it)

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is ____.

direct, inverse

If the production possibilities curve is a straight line:

economic resources are perfectly substitutable between the production of the two products.

Property rights are important because they:

encourage cooperation by improving the chances of mutually agreeable transactions.

The safest way for an individual to leave a burning theater is to run for the nearest exit; it is therefore also the best means of escape for a large audience. This assertion illustrates the:

fallacy of composition.

Most demand curves are relatively elastic in the upper-left portion because the original price:

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

A price floor means that:

government is imposing a minimum legal price that is typically above the equilibrium price.

If a demand for a product is elastic, the value of the price elasticity coefficient is:

greater than one.

n the resource market:

households sell resources to businesses.

"Consumer sovereignty" refers to the:

idea that the decisions of producers must ultimately conform to consumer demands.

The production possibilities curve illustrates the basic principle that:

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

You should decide to go to a movie:

if the marginal benefit of the movie exceeds its marginal cost.

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:

income effect.

An antidrug policy which reduces the supply of heroin might:

increase street crime because the addict's demand for heroin is highly inelastic.

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:

increase the amount demanded by more than 10 percent.

An increase in the price of product A will:

increase the demand for substitute product B.

A government subsidy to the producers of a product:

increases product supply.

Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be:

inelastic for price declines that increase quantity demanded from 6 units to 7 units.

An economic system:

is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

According to economists, economic self-interest:

is a reality that underlies economic behavior.

If there is a surplus of a product, its price:

is above the equilibrium level.

A market:

is an institution that brings together buyers and sellers.

Microeconomics:

is concerned with individual economic units and specific markets.

The four factors of production are:

land, labor, capital, and entrepreneurial ability

In constructing models, economists:

make simplifying assumptions.

Which of the following is not considered by economists to be an economic resource?

money.

Which of the following is a land resource?

natural gas.

The price elasticity of demand is generally:

negative, but the minus sign is ignored.

We would expect the cross elasticity of demand between dress shirts and ties to be:

negative, indicating complementary goods.

An inferior good is:

not accurately defined by any of these statements.

The invisible hand refers to the:

notion that, under competition, decisions motivated by self-interest promote the social interest.

The Latin term "ceteris paribus" means:

other things equal.

The basic formula for the price elasticity of demand coefficient is:

percentage change in quantity demanded/percentage change in price.

A firm can sell as much as it wants at a constant price. Demand is thus:

perfectly elastic

The supply curve of a one-of-a-kind original painting is:

perfectly inelastic

"Macroeconomics is the part of economics concerned with individual units such as a person, a household, a firm, or an industry." This statement is:

positive, but incorrect.

We would expect the cross elasticity of demand between Pepsi and Coke to be:

positive, indicating substitute goods.

In which of the following instances will total revenue decline?

price rises and demand is elastic

Which of the following is a fundamental characteristic of the market system?

property rights.

If the supply and demand curves for a product both decrease, then equilibrium

quantity must decline, but equilibrium price may rise, fall, or remain unchanged.

The term "quantity demanded":

refers to the amount of a product that will be purchased at some specific price.

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is:

relatively elastic.

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:

relatively inelastic.

A nation's production possibilities curve is bowed out from the origin because

resources are not generally equally efficient in producing every good.

The price elasticity of supply measures how:

responsive the quantity supplied of X is to changes in the price of X.

An effective price floor will:

result in a product surplus.

Specialization in production is important primarily because it:

results in greater total output.

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

scarcity and opportunity costs.

An improvement in production technology will:

shift the supply curve to the right.

Compared to coffee, we would expect the cross elasticity of demand for:

tea to be positive, but negative for cream.

We would expect:

the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus:

the demand for peanuts is inelastic.

Which of the following would most likely increase the demand for gasoline?

the expectation by consumers that gasoline prices will be higher in the future.

If someone produced too much of a good, this would suggest that:

the good was produced to the point where its marginal cost exceeded its marginal benefit.

The elasticity of demand for a product is likely to be greater:

the greater the amount of time over which buyers adjust to a price change.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

In moving along a supply curve which of the following is not held constant?

the price of the product for which the supply curve is relevant

If there is a shortage of product X, and the price is free to change:

the price of the product will rise.

The fact that the slope of the production possibilities curve becomes steeper as we move down along the curve indicates that:

the principle of increasing opportunity costs is relevant.

If an effective ceiling price is placed on hamburgers then:

the quantity demanded will exceed the quantity supplied. a black market for hamburger may evolve. consumers may want government to ration hamburger. ALL OF THEM.

Which of the following will not produce an outward shift of the production possibilities curve?

the reduction of unemployment.

The process by which economists test hypotheses against facts to develop theories, principles, and models is called:

the scientific method.

When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes:

the substitution effect.

Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect:

the supply to increase as farmers plant more corn.

At the equilibrium price:

there are no pressures on price to either rise or fall.

The presence of market failures implies that:

there is an active role for government, even in a market system.

In a competitive market economy firms select the least-cost production technique because:

to do so will maximize the firms' profits.

A direct cost of going to college is:

tuition, while an indirect cost (opportunity cost) is forgone income while in college.

The fallacy of composition states that:

what is true for the individual must necessarily be true for the group.

The optimal allocation of resources is found:

where MB = MC.

Increasing marginal cost of production explains:

why the supply curve is upsloping.

Which of the following is a distinguishing feature of a market system?

wide-spread private ownership of capital.

The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

"Those willing and able to pay for them."

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:

1.37 (use formula to check)

If the demand curve for product B shifts to the right as the price of product A declines, then:

A and B are complementary goods.