Microeconomics Chapter 1 Midterm

Refer to the tables. Suppose that technology and the quality of resources are the same in both countries. We can conclude that

Herbania has more resources than Duckistan.

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

Those most willing and able to pay for them.

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially

Through the guiding function of prices and the incentive function of profits.

Consumer sovereignty and "dollar votes" guide the market system in dealing with which fundamental economic question?

What goods and services will be produced?

Which of the following is not one of the five fundamental questions?

What prices will be charged for goods and services?

Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of Good X. The coefficient of income elasticity of demand is

positive, and therefore X is a normal good.

A point or combination that is on the production possibilities curve is

attainable, and resources are fully employed.

In the simple circular flow model,

businesses are sellers of final products.

In the circular flow model of the market system, households' major role is to

buy products and sell resources.

A perfectly elastic demand schedule

can be represented by a line parallel to the horizontal axis.

A perfectly inelastic demand schedule

can be represented by a line parallel to the vertical axis.

Firms are motivated to minimize production costs because

competitive pressures in the market will drive out higher-cost producers.

the cross elasticity of demand for Product X with respect to the price of Product Y is −1.2. It can be inferred that X and Y are

complementary products.

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.

A point outside (to the right of) the production possibilities curve of a nation

is not attainable for this nation.

Refer to the above graph with three demand curves. A "decrease in demand" would be illustrated as a change from

line A to C.

A price ceiling is a

maximum price set by government and designed to help consumers

If consumer incomes increase, the demand for product X

may shift either to the right or left.

If the price elasticity of demand for orange juice is 0.8, then a reduction in the price of orange juice will cause buyers to buy

more bottles of orange juice, but their total spending on orange juice will decrease.

A typical concave (bowed out from the origin) production possibilities curve implies that

opportunity costs increase as an economy tries to produce more of a good.

The diagram shows two product demand curves. On the basis of this diagram, we can say that

over range P1P2, price elasticity of demand is greater for D1 than for D2.

The price elasticity of demand coefficient, Ed, is measured in terms of

percentage change in price and percentage change in quantity demanded.

Refer to the above graph with three demand curves. An "increase in quantity demanded" would be illustrated by a change from

point 4 to point 1.

When the price of movie tickets in a certain town was reduced, the movie theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price elasticity coefficient of

1.0

The law of demand states that, other things equal,

price and quantity demanded are inversely related.

the demand curve shows the relationship between

price and quantity demanded.

The supply curve shows the relationship between

price and quantity supplied.

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium

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

In a market system, employees and suppliers

are usually shielded from risk but at the cost of not sharing in the profits of the firm.

The invisible-hand concept suggests that

assuming competition, private and public interests will coincide.

The income elasticity of demand for food is roughly 1. Suppose a consumer's monthly income is $5,000, of which 10 percent is spent on food. If the income of this consumer doubles, the amount she'll spend on food will be

$1,000 per month.

The income elasticity of demand for food is roughly 1. Suppose a consumer's monthly income is $2,000, of which 20 percent is spent on food. If the income of this consumer doubles, the amount she'll spend on food will be

$800 per month.

The coefficient value for cross elasticity that separates substitutes from complements

0

Refer to the diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be

1.2.

A nation can produce two products: steel and wheat. The following table is the nation's production possibilities schedule. The opportunity cost of producing the 76th unit of wheat is approximately

1/15 of a unit of steel.

Refer to the table. If the economy is producing at production alternative B, the opportunity cost of the sixth unit of consumer goods will be approximately

1/4 of a unit of capital goods.

The price elasticity of demand for widgets is 0.8. Assuming no change in the demand curve for widgets, an increase in sales of 16 percent implies a

20 percent reduction in price.

the table below shows the weekly demand for candy bars in a market where there are just three buyers. At a price of $1, the weekly market quantity demanded for candy bars is

23.

Refer to the above graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting from the initial equilibrium (point 1), which point on the graph is most likely to be the new equilibrium after an increase in wages of bicycle workers, and a significant increase in the price of gasoline?

4

Refer to the above graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting from the initial equilibrium (point 1), which point on the graph is most likely to be the new equilibrium after the introduction of technological improvements in bicycle production and successful publicity campaigns by the government on the virtues of bicycling to work?

5

If the price elasticity of demand for a product is equal to 0.5, then a decrease in price of 10 percent will increase quantity demanded by

5 percent

The elasticity of supply of Product X is unitary if the price of X rises by

8 percent and quantity supplied rises by 8 percent.

Suppose the price elasticity coefficients of demand are 1.0, 0.45, 1.31, and 2.29 for products A, B, C, and D, respectively. A 1 percent decrease in price will increase total revenue in the cases of

C and D only.

If the price of Pepsi decreases, other factors constant, then we'd expect to see a consequent shift of the demand curve for

Coke to the left.

Refer to the graph above. Which demand curve is relatively most elastic between P1 and P2?

D1

The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially

In ways that minimize the cost of output.

Suppose the income elasticity of demand for toys is +2.0. This means that

a 10 percent increase in income will increase the purchase of toys by 20 percent.

Suppose the income elasticity of demand for toys is −0.5. This means that

a 12 percent increase in income will decrease the purchase of toys by 6 percent.

the coefficient of price-elasticity of supply for a product is 0.65 if

a 4 percent decrease in price causes a 2.6 percent decrease in quantity supplied.

Suppose the income elasticity of demand for toys is −3.0. This means that

a 6 percent increase in income will decrease the purchase of toys by 18 percent.

Refer to the above graph, which shows the market for beef where demand shifted from D1 to D2. The change in equilibrium from E1 to E2 cannot be a result of

a decrease in the productivity of cattle farms.

In a command system,

a government-appointed planning board makes production and allocation decisions.

The cross elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be

a positive number

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the

amount of oranges that will be available at various prices has declined.

Suppose the income elasticity of demand for toys is 0.4. This means that

an 8 percent increase in income will increase the purchase of toys by 3.2 percent.

A leftward shift of the supply curve for oil in the United States is most likely to result from

an increase in the costs of exploration and drilling for oil.

If demand for farm crops is inelastic, a good harvest will cause farm revenues to

decrease because of a percentage fall in price that is greater than the percentage increase in quantity sold.

With a downward sloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will

decrease equilibrium price and increase equilibrium quantity.

Buyer 2 goes on a diet and stops buying candy bars. How has the weekly market quantity demanded for candy bars at the price of $1 changed?

decreased from 23 to 13.

The upward slope of the supply curve reflects the

direct relationship between price and quantity supplied.

If the production possibilities curve is a straight line,

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

The market system ..

effectively provides incentives to workers and entrepreneurs.

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

elastic for price increases that reduce quantity demanded from 4 units to 3 units.

A 4 percent reduction in the price of a product has zero effect on the total dollar amount of consumer expenditure on the product. Therefore, price elasticity of demand is

equal to 1

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

greater than one.

The larger the positive cross elasticity coefficient of demand between products X and Y, the

greater their substitutability.

In the resource market

households sell resources to businesses.

Economic systems differ from one another based on who owns the factors of production and

how economic activities are coordinated and directed.

Suppose that at prices of $1, $2, $3, $4, and $5 for product Z, the corresponding quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these prices?

improved technology for producing Z

The price elasticity of demand is unity

in the $4-$3 price range only.

The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. In the immediate market period, the increase in demand will

increase equilibrium price but not equilibrium quantity.

When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n)

increase in the supply of gasoline.

An increase in the price of product A will

increase the demand for substitute product B.

Suppose the income elasticity of demand for jewelry is 2. Other things equal, a 10 percent increase in consumer income will

increase the quantity of jewelry purchased by 20 percent.

Refer to the table. Over the $8-$6 price range, supply is

inelastic

In terms of the circular flow diagram, households make expenditures in the _________blank market and receive income through the _________blank market.

product; resource

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 demand for a luxury good whose purchase would exhaust a big portion of one's income is

relatively price elastic.

The demand for a necessity whose cost is a small portion of one's total income is

relatively price inelastic.

The price elasticity of supply measures how

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

in the circular flow model of the market system, business's major role is to

sell products and buy resources.

Refer to the diagram. A decrease in supply is depicted by a

shift from S2 to S1.

A leftward shift of a product supply curve might be caused by

some firms leaving an industry.

If the income elasticity of demand for store-brand macaroni and cheese is −3.00, this means that

store-brand macaroni and cheese is an inferior good.

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,

the division of output is decided by central planning rather than by individuals operating freely through markets.

in the figure are two linear production possibilities curves for countries Alpha and Beta. We can conclude that

the opportunity cost of shelter is greater in Alpha than it is in Beta.

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in

the price of some other product.

A negative income elasticity of demand coefficient indicates that

the product is an inferior good.

In a market economy, the incomes of consumers depend primarily upon

the quantity and prices of resources that they possess.

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

the substitution effect.

At the equilibrium price,

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

The coordination problem in the centrally planned economies refers to the idea that

there was a failure to harmonize economic activity between producers and consumers.

The negative slope of the production possibilities curve is a graphical way of indicating that

to produce more of one product, we must do with less of another.

Refer to the diagram. Flow 1 represents

wage, rent, interest, and profit income.