Unit I Exam

Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is

$60.

if the amount producers want to sell is equal to the amount consumers want to buy.

$60.

Which of the diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software?

A only

Which of the diagrams illustrate(s) the effect of a decrease in incomes on the market for second-hand clothing?

A only

Which of the following statements is correct?

An increase in the price of C will decrease the demand for complementary product D.

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.

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

Herbania is technologically superior to Duckistan in producing civilian goods.

Refer to the graph. Using Qd for quantity demanded and P for price, which of the following equations correctly states the demand for this product?

P = 10 − 0.2Qd

Refer to the graph. Using Qs for quantity supplied and P for price, which of the following equations correctly states the supply of this product?

P = 2 + 0.2Qs

Which of the following is one of the Five Fundamental Questions?

What goods and services will be produced?

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

central planning

Blu-ray players and Blu-ray discs are

complementary goods.

When an economist says that the demand for a product has increased, this means that

consumers are now willing to purchase more of this product at each possible price.

There will be a surplus of a product when

consumers want to buy less than producers offer for sale.

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.

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

decrease equilibrium price and increase equilibrium quantity.

If X is a normal good, a rise in money income will shift the

demand curve for X to the right.

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

demand curve for Z to the left.

Demand-side market failures occur when

demand curves don't reflect consumers' full willingness to pay for a good or service.

People enjoy outdoor holiday lighting displays and would be willing to pay to see them, but can't be made to pay. Because most people who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a

demand-side market failure.

One major part of the opportunity costs of one's decision to go to college after high school graduation is the

full-time job that one could have gotten instead of going to college.

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will

increase equilibrium price and quantity if the product is a normal good.

Other things equal, an excise tax on a product will

increase its price.

At the current price, there is a shortage of a product. We would expect price to

increase, quantity demanded to decrease, and quantity supplied to increase.

A government subsidy to the producers of a product

increases product supply.

Broadly defined, competition involves

independently acting buyers and sellers and freedom to enter or leave markets.

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are

inferior goods.

(Advanced analysis) The equation for the demand curve in the diagram shown.

is P = 35 − .5Q.

An economic system

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

Public goods are those for which there

is nonrivalry and nonexcludability.

Answer the question on the basis of the data given in the following production possibilities table. Refer to the table. For these data, the law of increasing opportunity costs is reflected in the fact that

larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

One reason that the quantity demanded of a good increases when its price falls is that the

lower price increases the real incomes of buyers, enabling them to buy more.

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

move from point y to point x.

Refer to the diagram. An increase in quantity supplied is depicted by a

move from point y to point x.

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. We can conclude that the government is correcting for

negative externalities in diagram (a) and positive externalities in diagram (b).

For most products, purchases tend to fall with decreases in buyers' incomes. Such products are known as

normal goods.

Refer to the diagram. A government price support program to aid farmers is best illustrated by

price C.

The law of supply indicates that, other things equal,

producers will offer more of a product at high prices than at low prices.

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market.

product; resource

Economists contend that most economic decisions are

purposeful.

Answer the question based on the given supply and demand data for wheat. If price was initially $4 and free to fluctuate, we would expect the

quantity of wheat supplied to decline as a result of the subsequent price change.

If we say that a price is too high to clear the market, we mean that

quantity supplied exceeds quantity demanded.

The term "quantity demanded"

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

Refer to the diagram. Arrows (1) and (2) represent

resources and goods, respectively.

An effective price floor on wheat will

result in a surplus of wheat.

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

shift from D2 to D1.

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

shift from S2 to S1.

An improvement in production technology will

shift the supply curve to the right.

If the price of product L increases, the demand curve for close-substitute product J will

shift to the right.

Refer to the diagram. A price of $20 in this market will result in a

shortage of 100 units.

The economic function of profits and losses is to

signal that resources should be reallocated.

Refer to the tables. Opportunity costs of producing military goods are

smaller in Duckistan than Herbania.

Refer to the diagram for athletic shoes. If the current output of shoes is Q3, then

society should produce fewer shoes to achieve the optimal allocation of resources.

Refer to the diagram for athletic shoes. If the current output of shoes is Q3, then

society would consider additional units of shoes to be less valuable than alternative products.

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

some firms leaving an industry.

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then

supply has decreased and equilibrium quantity has decreased.

If government set a minimum price of $50 in the market, a

surplus of 21 units would occur.

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. The shift of the supply curve from S to S1 in diagram (a) might be caused by a per-unit

tax on the producers of this product.

Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. One solution to this externality problem is to

tax producers by the amount DE per unit.

Refer to the diagram, in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should

tax producers so that the market supply curve shifts leftward.

The production possibilities curve tells us

the combinations of two goods that can be produced with society's available resources.

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes

the income effect.

Because of the free-rider problem,

the market demand for a public good is nonexistent or understated.

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

the price of the product will rise.

Allocative efficiency refers to

the production of the product mix most wanted by society.

At the point where the demand and supply curves for a product intersect,

the quantity that consumers want to purchase and the amount producers choose to sell are the same.

A negative externality or spillover cost occurs when

the total cost of producing a good exceeds the costs borne by the producer.

Productive efficiency refers to

the use of the least-cost method of production.

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

to do so will maximize the firms' profits

Which of the following most closely relates to the idea of opportunity costs?

trade-offs

Refer to the diagram. Flow 1 represents

wage, rent, interest, and profit income.

The optimal allocation of resources is found

where MB = MC.

The market system's answer to the fundamental question "What will be produced?" is essentially

"Goods and services that are profitable."

Refer to the diagram. A shortage of 160 units would be encountered if price was

$0.50

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit. Refer to the provided table, and suppose that the firm uses production technique D. If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the total profits of the firm from 70 units of Zenia?

$13

Refer to the above table. In this competitive market, the price and quantity will settle at

$25 and 1,200 units.

Refer to the diagram. If this is a competitive market, price and quantity will move toward

$40 and 150, respectively.

The graph above represents a competitive market for a product where the government has set a price ceiling of A. What quantity will buyers be able to buy after the imposition of the price ceiling?

0J

A nation can produce two products: tanks and autos. The table below is the nation's production possibilities schedule. In moving from combination C to B, the opportunity cost of producing 100 more autos is

1 unit of tanks.

Answer the question based on the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively. Which technique is economically most efficient in producing A?

4

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.

A and B are substitute goods, but A and C are complementary goods. If the cost of producing A decreases, then the demand for

B will decrease and the demand for C will increase.

Which of the diagrams illustrate(s) the effect of a decline in the price of irrigation equipment on the market for corn?

C only

Which of the diagrams illustrates the effect of a governmental subsidy on the market for AIDS research?

C only

In the diagrams below, the subscript "1" refers to the initial position of the curve, while the subscript "2" refers to the final position after the curve shifts. Which diagram illustrates the effects on the peanut butter market, if severe flooding destroys a large portion of the peanut crop in the economy?

D

Refer to the provided graph. Which point in the graph would allow a simultaneous increase in the production of both investment and consumer goods?

D

Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?

D only

Which of the following is the best example of rent-seeking behavior?

Students at a university lobby the administration to improve dorms and reduce class sizes without increasing tuition.

If two goods are complements,

a decrease in the price of one will increase the demand for the other.

Assume that a consumer purchases only two products and there is a decrease in the consumer's income. The prices of the two products stay constant. The decrease in income will result in

a shift of the budget line inward to the left.

Refer to the diagram. A price of $60 in this market will result in

a surplus of 100 units

A surplus of a product will arise when price is

above equilibrium, with the result that quantity supplied exceeds quantity demanded.

Which of the following will cause the demand curve for product A to shift to the left?

an increase in money income if A is an inferior good

"Consumer sovereignty" means that

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand?

diminishing marginal utility

Private property

encourages owners to maintain or improve their property to preserve or enhance value.

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial external benefits associated with the production of Z, then

government can improve the allocation of resources by subsidizing consumers of Z.

The "invisible hand" concept refers to the

guiding function of prices in a market system.

Unlike a private good, a public good

has benefits available to all, including nonpayers.

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.

A market is in equilibrium

if the amount producers want to sell is equal to the amount consumers want to buy.