Principles of Economics Exam 1 Quiz 1-4

In order for Ireland to grow more potatoes, wool production must decrease. This situation is an example of

a tradeoff.

Specialization and trade

allows nations to consume combinations of products that are outside their individual production possibilities frontier.

A rightward shift in the Demand curve implies

an increase in demand

On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of apples?

0.5 of a pound of bananas

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

0.5, and supply is inelastic.

Using the midpoint method, when price rises from $6 to $9 quantity demanded falls from 15 to 10 units, the price elasticity of demand is

1.00

Economics is the study of

how society manages its scarce resources

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that

people face trade-offs.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

The supply curve for a good is a line that relates

price and quantity supplied

The law of demand states that, other things equal, an increase in

price causes quantity demanded to decrease

A country has a comparative advantage in the production of a good if it can

produce the good at the lowest opportunity cost

A likely example of substitute goods for most people would be

pencils and pens

Assume that an association of young workers has lobbied Congress to require that all workers retire once they reach the age of fifty. What impact would this law have on the nation's production possibilities frontier?

The production possibilities frontier would shift inward.

Ramona decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is

The value of the knowledge she would have received had she attended class.

The forces that make market economies work efficiently are

supply and demand

The invisible hand refers to:

the coordination that occurs from everyone working in their own self-interest.

Which of the following is the most likely to be a competitive market

wheat

Suppose researchers at the University of Notre Dame discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both price and total revenues.

Figure 4-16 Refer to Figure 4-16. Refer to Figure 4-16. In this market, equilibrium price and quantity, respectively, are

$10 and 50 units

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is

$108,000.

Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate. Minutes Needed to Make 1 Bushel of Wheat Pound of Beef Andia 20 12 Zardia 15 10 Refer to Table 3-1. At which of the following prices would both Andia and Zardia gain from trade with each other? 24 bushels of wheat for 34 pounds of beef 12 bushels of wheat for 19 pounds of beef Andia and Zardia could not both gain from trade with each other at any price 6 bushels of wheat for 10.5 pounds of beef

12 bushels of wheat for 19 pounds of beef

Which of the following is an assumption used when drawing a production possibilities frontier? 1. Human wants and desires are limited to what is available. 2. Only two goods are considered. 3. The level of technology is fixed and unchanging.

2 and 3

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

40 percent decrease in the quantity demanded.

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. If Chilean bus drivers are paid by the number of passengers they transport and Colombian bus drivers are paid by the hour, we can conclude that

Chilean bus drivers likely have a higher standard of living than Colombian bus drivers.

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?

Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous

Suppose that demand for a good decreases and, at the same time, supply of the good decreases. What would happen in the market for the good?

Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

For country Gamma the opportunity cost for producing 1 computer is 10 tons of steel. For country Beta the opportunity cost for producing 1 computer is 6 tons of steel. Which country has the comparative advantage in the production of steel?

Gamma

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

People respond to incentives

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of

a market failure caused by an externality

Suppose good X has a negative income elasticity of demand. This implies that good X is

an inferior good.

Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate. Minutes Needed to Make 1 Bushel of Wheat Pound of Beef Andia 20 12 Zardia 15 10 Refer to Table 3-1. Andia should specialize in the production of

beef and Zardia should specialize in the production of wheat

A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect

both the value of a good to society and the cost of making it.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

If the demand for apples is elastic, then an increase in the price of apples will

decrease total revenue of apple sellers.

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.

Figure 4-16 Refer to Figure 4-16. If price in this market is currently $14, then there would be a(n)

excess supply of 40 units. The law of supply and demand predicts that the price will fall from $14 to a lower price.

A good will have a more elastic demand, the

greater the availability of close substitutes.

Which of the following is likely to have the most price elastic demand?

ice cream

A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton

is equal to 1