ECO 151 Exam 1

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26. If the price of a good decreases by 3 percent and total revenue increases, the elasticity of demand for the good could possibly be

(A) 1.3

22. If the price of paperback books increases and consumer expenditures on paperback books also increase, which of the following is necessarily true?

(E) The demand for paperback books is inelastic.

law of supply

-There is a direct relationship between the price of a good or service and the amount that suppliers are willing to produce - upward sloping

A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about the price elasticity of demand for concert tickets? A. Demand is inelastic B. Demand is elastic C. Demand is unit elastic D. Demand is perfectly inelastic E. Demand is perfectly elastic

According to the graph above, which of the following will occur if a legal price ceiling is imposed at price X? A. Shortages will occur B. Surpluses will occur C. Demand will increase D. Q1 will be purchased E. Supply will decrease

During the peak phase of a business cycle, a business could be expected to have A. high prices. B. reduced sales. C. low profits. D. staff reductions.

Mary is a bagger at Glen's Market. On a weekly average, she works 30 hours and fills 876 bags of groceries. Her productivity is ___________ bags of groceries per hour. A. 29.2 B. 26.2 C. 28.6 D. 22.8

The category of GDP called gross private domestic investment includes A. all purchases of capital goods. B. all exports of goods and services. C. purchases made by private individuals. D. inventories held over from previous years.

Economic theory a. is a set of definitions, postulates, and principles assembled in a manner that helps make cause-and-effect relationships clear in economics. b. is like a guidebook in that it points out what to look for. c. provides economists with a common language and way of thinking about how the world works. d. is all of the above.

A. is a set of definition, postulates, and principles assembled in a manner that helps make cause-and-effect relationships clear in economics.

b. the public interest would be served quite well.

Adam Smith believed that if people were free to pursue their own interests, a. less would be produced than if government planners were in charge of the economy. b. the public interest would be served quite well. c. they would generally apply their talents to unproductive activities that would generate little value to society. d. they would have little incentive to undertake productive activities.

If there is an increase in demand for a good, what will most likely happen to the price and quantity of the good exchanged? Price Quantity A. No change No change B. Increase Increase C. Increase Decrease D. Decrease Increase E. Decrease

Points A, B, and C in Figure 2-8 indicate consumption and investment for three economies. Other things constant, which of the economies is likely to grow more rapidly in the future? a. economy A b. economy B c. economy C d. They would all be expected to grow at the same rate. (see #66 in study guide for image)

d. They would all be expected to grow at the same rate.

The substitution effect causes a consumer to buy less of a product when the price increases because the A. product is now less expensive compared to similar products B. product is now more expensive compared to similar products C. consumer's real income has decreased D. Consumer's real income has increased E.. consumer will buy more inferior goods and fewer normal goods

Why should productivity be measured? A. To find new ways to meet customer needs B. To see whether the business's objectives are being met C. To determine the best ways to invest company profits D. To locate new sources of inputs

A country's easy monetary policy is often used to correct the problem of A. globalization. B. high taxes. C. unemployment. D. import quotas.

Compare 2000 with 2001. Which of the following statements is (are) true? Year Quantity Sold Price 2000 30,000 $10 2001 50,000 $20 I. Demand has increased. II. Quantity demanded has increased III. Supply has increased. IV. Quantity supplied has increased V. Supply has decreased. A. I only B. V only C. I and IV only D. I and V only E. I, II and III only

If the price of lunch at the school cafeteria increases and cafeteria revenue remains constant, the elasticity of demand for a school lunch must be A. elastic B. perfectly elastic C. unit elastic D. inelastic E. perfectly inelastic

Sam has been invited to go to the movies with one friend and to Dairy Queen for ice cream with another friend. Because he has only $5.00, Sam can't do both. If he decides to go the movies, the opportunity cost of his choice is A. staying at home. B. both the ice cream and the movie. C. ice cream at Dairy Queen. D. the movie.

What type of government policy involves raising or lowering taxes, and increasing or decreasing government spending? A. Disciplinary B. Monetary C. Fiscal D. Social

Which of the following actions would government take to increase economic growth: A. Decrease exports B. Increase taxes C. Increase government spending D. Decrease government subsidies

Which of the following represents a good time for a country's government to use its fiscal policy to increase taxes: A. While the economy is expanding B. When a recession lasts too long C. When inflation is too high D. While the economy is contracting

6. People produce more when they ___ ____ ____ ___ ____ ___ ____

CN keep more of what they earned

Which of the following is true when a potato farmer keeps some of the farm's potatoes for personal use: A. The potatoes must be reported in the gross domestic product. B. The farmer is engaging in an illegal activity. C. The farmer is not producing salable goods. D. The potatoes are not counted in the gross domestic product.

Which of the following might cause supply of a good to decrease: A. Advertising B. Sales skills C. Inelastic demand D. Government regulations

What do economists mean when they state that a good is scarce? a. There is a shortage or insufficient supply of the good at the existing price. b. It is impossible to expand the availability of the good beyond the current amount. c. People will want to buy more of the good regardless of the price of the good. d. The amount of the good that people would like exceeds the supply freely available from nature.

D. The amount of the good that people would like exceeds the supply freely available from nature.

A downward sloping demand curve can be explained by I. diminishing marginal utility II. diminishing marginal returns III. the substitution effect IV. the income effect A. I only B. II only C. I and III only D. I and IV only E. I, III and IV only

Product %of Change in Income $ of Change in Quantity A. +5 +5 B. _5 -5 C., 19, -5 D. -10 _10 A. Product A only B. Product B only C. Product D only D. Product A and C only E. Product B and D only

Positive economics

Economic statements that can be proven or disproven

The price of wheat used to make cereal has increased. At the same time, the price of milk (a compliment good) has decreased. Given these two events, what do you expect to happen to the equilibrium price and quantity of cereal?

Equilibrium price will increase, the effect on quantity is ambiguous.

Which of the following is true of exchange?

Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage

Human resource

Experience, talent creativity *Can be physical, can be mental

Objective

Facts, provable or disprovable

Which of the following is not consistent with the basic postulate of economics that incentives matter?

Farmers produce fewer bushels of wheat in response to an increase in the price of wheat

Which of the following statements is correct? Select one: a. The human desire for goods and services is limited while the resources required for their production are unlimited. b. The human desire for goods and services is virtually unlimited while the resources required for their production are limited. c. Both the human desire for goods and services and the resources required for their production are virtually unlimited. d. Both the human desire for goods and services and the resources required for their production are limited

FeedbackThe correct answer is: The human desire for goods and services is virtually unlimited while the resources required for their production are limited

The expression "There's no such thing as a free lunch" means Select one: a. if one person gains, someone else must lose. b. each person must pay for exactly what he or she receives. c. the use of resources to produce a good has an opportunity cost because of scarcity. d. you cannot have a free lunch at the expense of someone else.

FeedbackThe correct answer is: the use of resources to produce a good has an opportunity cost because of scarcity.

All possible combinations of goods and services that can be produced given a countries resources assumes:

Fixed amount of resources, fixed amount of technology, and efficient use of resources

If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

Harry reaped $10,000 of consumer surplus from the transaction.

Which one of the following states a central element of the economic way of thinking?

Incentives matter—human choice is influenced in predictable ways by changes in personal costs and benefits.

Fallacy of composition

Incorrect view that what's true for the individual will also be true for the group

Suppose the demand for tacos increases. Ceteris paribus, what will happen to producer surplus in the market for tacos?

It increases.

Suppose a major civil war broke out in an important oil-producing nation. What impact would this have on the market for oil?

Middlemen can be viewed as agents who create value by reducing transaction costs and, thereby, facilitating gains from exchange

Statistical Murder

Spending an amount of money to save 50 people when you could spend the same amount on something else and save 100 people

Which of the following is true of taxes?

Taxes drive a wedge between what buyers pay and what sellers receive

If Sean sells Susan a DVD player for $30, we would expect that Select one: a. Both Shawn and Susan will gain from this transaction. b. Sean will gain from the transaction, but Susan will lose. c. Susan will gain from the transaction, but Sean will lose. d. The well-being of both parties will be unchanged.

The correct answer is: Both Shawn and Susan will gain from this transaction.

When two individuals agree to a voluntary exchange, Select one: a. Both receive more than what they give up. b. They place an equal value on what they receive and what they give up. c. If one of them gains, the other must lose. d. Neither of them gains unless the trade expands total production.

The correct answer is: Both receive more than what they give up.

According to economic reasoning, you should offer one hour of volunteer service per week when Select one: a. The total benefits of doing so are less than the total costs. b. The additional costs of doing so are great than the additional benefits. c. The additional costs of doing so are the same as the additional benefits. d. The additional benefits of doing so are greater than the additional costs.

The correct answer is: The additional benefits of doing so are greater than the additional costs.

Which of the following are scarce? Select one: a. time for recreation b. clean air c. information d. all of the above

The correct answer is: all of the above

Question text The choices of a charitable person will be influenced by Select one: a. changes in benefits but not costs. b. changes in costs but not benefits. c. both changes in benefits and costs. d. neither changes in benefits nor costs.

The correct answer is: both changes in benefits and costs.

Individuals economize and respond predictably to Select one: a. positive incentives but not negative incentives b. negative incentives but not positive incentives c. both positive and negative incentives d. neither positive or negative incentives

The correct answer is: both positive and negative incentives

Consumer surplus

The difference between the maximum price consumers are willing and able to pay and the price that they actually pay

Consumer Surplus

The difference between the maximum price consumers are willing to pay and the the price they actually pay

Define a command economy and name nation(s) that use them.

The government holds most property rights. Ex: Russia, Vietnam, China

Other things constant, an increase in the demand for motorcycles will a. decrease the price of motorcycles. b. decrease the quantity of motorcycles bought and sold. c. decrease the demand for motorcycle workers and lower their wages. d. increase the demand for motorcycle workers and increase their wages.

d. increase the demand for motorcycle workers and increase their wages.

An increase in the expected future price of a good will cause the current demand for the good to a. decrease, which is a shift to the left of the demand curve. b. decrease, which is a shift to the right of the demand curve. c. increase, which is a shift to the left of the demand curve. d. increase, which is a shift to the right of the demand curve.

d. increase, which is a shift to the right of the demand curve.

Refer to Figure 2-9. The opportunity cost of obtaining 15 additional toasters by moving from point D to point C is a. 10 toothbrushes. b. 20 toothbrushes. c. 30 toothbrushes. d. none of the above; the economy cannot move from point D to point C. (see #68 in study guide for image)

d. none of the above; the economy cannot move from point D to point C.

A demand curve for concert tickets would show the a. quality of people who want to buy these concert tickets. b. number of tickets the box office is willing to sell at various prices. c. number of people who need tickets. d. number of tickets that will be purchased at various prices.

d. number of tickets that will be purchased at various prices.

The total economic cost of producing a good or service is called the a. comparative value of construction. b. social consequence of resources. c. marginal valuation of output. d. opportunity cost of production.

d. opportunity cost of production.

Transaction costs

The time, effort, and other resources needed to search out and negotiate an exchange.

Money is

Whatever is generally used to pay for goods, services, and resources

In order to be successful in a market economy, entrepreneurs must a. combine resources in a manner that increases their value. b. produce a good that consumers value less than the resources used to produce it. c. use only personal financial capital so they can avoid interest payments on borrowed funds. d. produce anything that consumers value, regardless of cost.

The income and living standard of a country will generally improve when I. property rights are protected. II. jobs are protected. III. banks are protected. a. I only b. II and III c. II only d. I and II

Which of the following provides the clearest evidence that a business firm is using resources productively? a. economic profit b. economic loss c. high wages paid to workers d. low wages paid to workers

When there is excess supply of a product in a market, which of the following is true? a. Price must be above the equilibrium price. b. Price will tend to rise. c. Producers will expand output and sales will rise. d. Price must be below the equilibrium price.

a. Price must be above the equilibrium price.

In Figure 3-6, suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to cause a shift from S1 to S2 in the market for ice cream? a. an increase in the price of sugar, an ingredient used to produce ice cream b. a decrease in the price of frozen yogurt, a substitute for ice cream c. abnormally hot weather that temporarily increases consumer desire for ice cream d. a decrease in the price of milk, an ingredient used to produce ice cream (see #137 in study guide for image)

a. an increase in the price of sugar, an ingredient used to produce ice cream

When economists say the demand for a product has increased, they mean the a. demand curve has shifted to the right. b. price of the product has fallen, and consequently, consumers are buying more of it. c. cost of producing the product has risen. d. amount of the product that consumers are willing to purchase at various prices has decreased.

a. demand curve has shifted to the right.

market

an arrangement that allows buyers and sellers to make exchanges

In a free market economy, current consumption, saving and investment decisions a. are controlled largely by the government. b. shape the future course of the national economy. c. are necessarily controlled by big businesses. d. require protection from foreign forces if individuals desire wealth accumulation.

Researchers find that the income elasticity of poultry demand in Indonesia is 1.2. This implies that if income is expected to grow at 5%, then projected demand for poultry will: a. Increase by 5% b. Increase by 6% c. Increase by 6.2% d. Increase by 4.2%

Variability in prices for grains tends to be _____ (less than, greater than) variability in price for beef and hogs. a. Less than b. Greater than

Which of the following most accurately states the economic significance of voluntary exchange? a. Goods and services have value because they exist; exchange causes some people to win while others lose. b. Exchange creates value because it makes it possible for the trading partners to expand total output as the result of specialization and division of labor. c. Exchange moves goods and services from people who value them more to parties who value the goods less. d. Exchange cannot create additional value because it does not create additional goods and services.

Which of the following policies is most likely to encourage innovation, higher quality goods, and lower prices? I. Encouraging public-private partnerships II. Passing government regulations to reduce business failures and protect consumers III. Reducing barriers that limit entry of firms into new and existing markets a. II and III b. III only c. I only d. I and II

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, then it would be reasonable to conclude that a. the opportunity cost of growing oranges is higher in Florida than in Georgia. b. Georgia has a comparative advantage in producing peaches. c. Florida has a comparative advantage in producing peaches. d. total output will be expanded when Georgia allocates more resources to producing oranges and Florida allocates more resources to producing peaches.

b. Georgia has a comparative advantage in producing peaches.

Which of the following is often referred to as the basic postulate of economics? a. Individuals act only out of selfish motives. b. Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits. c. The accuracy of the assumptions is the best test of an economic theory. d. The value of a good is objective; it is equal to the cost of producing the good.

b. Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits.

If air travel and bus travel are substitutes, a. an increase in the price of bus travel will decrease the demand for air travel. b. a decrease in the price of bus travel will decrease the demand for air travel. c. an increase in the price of bus travel will generally have no effect on the demand for air travel. d. an increase in the price of bus travel will shift the demand curve for air travel to the left.

b. a decrease in the price of bus travel will decrease the demand for air travel.

The price elasticity of demand for a commodity is determined primarily by the a. size of the consumer surplus. b. availability of good substitutes for the good. c. incomes of consumers. d. availability of complementary goods.

b. availability of good substitutes for the good.

Jim enjoys the feeling of wind in his hair enough to ride his motorcycle without a helmet, even though he fully realizes the greater potential for injury it creates by not wearing one in the unlikely event he is in an accident. To an economist, Jim is a. making an irrational choice. b. making a rational choice. c. not fully considering the personal costs and benefits of his decision. d. not responding to the incentives he faces.

b. making a rational choice.

Your professor loves his work, teaching economics. He has been offered other positions in the corporate world that would increase his monetary income by as much as 25 percent, but he has decided to continue working as a professor. His decision to continue teaching rather than taking other positions would not change unless a. the marginal cost of teaching increased above the marginal benefit. b. the marginal benefit of teaching increased above the marginal cost. c. the marginal cost of teaching decreased. d. the marginal benefit of a corporate job decreased.

b. the marginal benefit of teaching increased above the marginal cost.

Each point on the demand curve indicates a. the amount people want to buy at different income levels. b. the quantity demanded at that price. c. the amount that people need. d. the demand for the product.

b. the quantity demanded at that price.

If the value of a Nation's merchandise exports exceeds merchandise imports, the nation is running a

balance of trade surplus

(Select the best answer): The introduction of hybrid varieties of corn had a major influence in: a. Increasing population density b. Increasing land in production c. Increasing yields per unit land d. Increasing agricultural trade

Individuals economize and respond predictably to a. positive incentives, but not negative incentives. b. negative incentives, but not positive incentives. c. both positive and negative incentives. d. neither positive or negative incentives.

The Law of One Price holds true because a. All farmers agree on a single price to sell their product b. Government price supports level the playing field c. Profit seeking individuals try to buy low and sell high d. Food is generally price inelastic

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen? a. The quantity of milk demanded will increase. b. The quantity of milk supplied will decrease. c. There will be a surplus of milk. d. There will be a shortage of milk.

c. There will be a surplus of milk.

The actual incidence of a tax a. depends on the statutory incidence. b. is entirely random. c. depends on the elasticities of supply and demand. d. falls entirely on buyers or entirely on sellers.

c. depends on the elasticities of supply and demand.

The difference between microeconomics and macroeconomics is that a. microeconomics involves mathematical relationships, and macroeconomics is predominantly a verbal analysis. b. microeconomics deals with the principle of scarcity, and macroeconomics deals with the problem of poverty. c. microeconomics deals with narrowly defined units, and macroeconomics focuses on highly aggregated markets. d. microeconomics is normative, and macroeconomics is positive.

c. microeconomics deals with narrowly defined units, and macroeconomics focuses on highly aggregated markets.

When the production possibilities curve is bowed out, resources are a. equally well-suited to production of both goods. b. not being used efficiently. c. not equally suited to the production of both goods. d. available in larger and larger quantities as more of one good is produced.

c. not equally suited to the production of both goods.

By 2003, the average person in the West had about a. 50% more income than the average person in the West in 1820. b. twice as much income as the average person in the West in 1820. c. ten times as much income as the average person in the West in 1820. d. twenty times as much income as the average person in the West in 1820.

Does voluntary exchange create wealth? a. No, exchange merely shuffles the existing supply of goods and services among people. b. No, if one person gains, the other party must lose an equal amount. c. Uncertain, it will increase wealth if it creates more goods and services; otherwise it exerts no impact on the wealth of people. d. Yes, exchange makes it possible for the trading partners to gain more value from the existing supply of goods and it also makes larger output levels possible.

Even-handed enforcement of contracts fuels economic prosperity because it a. permits individuals to invade or infringe on the property rights of others. b. increases transaction costs. c. increases market uncertainty and the probability of contract violations. d. promotes gains from trade by keeping transaction costs low.

How did people like Mark Zuckerberg of Facebook and the late Steve Jobs of Apple become so rich? a. mostly by stealing from those who were less fortunate b. by acquiring more years of schooling than almost anyone else c. by obtaining large subsidies from powerful politicians d. by providing highly valued goods and services to consumers at attractive prices

If there is an increase in the demand for a good, what will happen to the equilibrium price and quantity of the good exchanged? Price Quantity a. Decrease Decrease b. Increase Decrease c. Decrease Increase d. Increase Increase

In September, USDA estimates that for Corn, the Yield per Harvest Acre is likely to be higher than that predicted in the previous month. The change in estimate (all else equal) will: a. Increase estimates of Production of Corn b. Increase estimates of Total Supply c. Decrease estimates of Ending Stocks d. a and b are correct e. a, b and c are correct

Higher prices that result from a tax on luxury goods are likely to result in A. fewer customers and less productivity. B. more customers and more productivity. C. fewer customers and more productivity. D. more customers and less productivity.

If an excise tax is imposed on a product, consumer surplus and producer surplus for this good will most likely change in which of the following way? Consumer surplus Producer surplus A. Decrease Decrease B. Decrease Increase C. Decrease Not change D. Not change Increase E. Not change Not change

If the price of a good decreases by 3 percent and total revenue increases, the elasticity of demand for the good could possibly be A. 1.3 B. 1 C. 0.8 D. 0.2 E. 0

The labor force participation rate of women in the United States has been a. increasing for several decades and this has strongly affected GDP. b. decreasing for the past several decades after increasing dramatically in the early 1900s. c. approximately constant during the last three decades. d. decreasing since the early 1900s.

a. increasing for several decades and this has strongly affected GDP.

If consumer purchases of a good are not very sensitive to the price of the good, economists say the demand for the good is relatively a. inelastic. b. elastic. c. robust. d. inverse.

a. inelastic

If the quantity of a good supplied is not very sensitive to the price of the good, economists say the supply of the good is relatively a. inelastic. b. elastic. c. robust. d. inverse.

a. inelastic

The opportunity cost of choosing an alternative a. is the value of the highest valued alternative forgone as the result of the choice. b. includes only the amount of time spent on whatever is chosen. c. includes only the money cost of the option. d. is irrelevant for most choices individuals face.

a. is the value of the highest valued alternative forgone as the result of the choice.

The resource market is important from a macroeconomic perspective because a. it coordinates the allocation of productive resources and determines the costs of production. b. it determines the interest rates faced by borrowers and lenders. c. inflation rates are set in the resource market by the government. d. resource prices determine the position of the long-run aggregate supply curve.

a. it coordinates the allocation of productive resources and determines the costs of production.

If an economy is operating at a point inside the production possibilities curve,

a. its resources are not being used efficiently.

The U.S. government is offering a decrease in taxes to citizens who install solar panels on their homes. Using economic terms, how would you describe this incentive? A. Financial and positive B. Non-financial and positive C. Non-financial and negative D. Financial and perverse

The best time for a business to purchase new equipment is when A. interest rates are low. B. consumer demand decreases. C. job growth declines. D. the gross domestic product falls.

To stimulate the economy, the government is likely to A. increase spending. B. restrict trade. C. raise prices. D. decrease expenses.

A shortage occurs whenever a. quantity demanded exceeds quantity supplied at the equilibrium price. b. price is less than equilibrium price. c. quantity demanded is less than quantity supplied. d. goods are scarce. e. some of the people who need the product are not willing and able to buy it at the equilibrium price.

a. quantity demanded exceeds quantity supplied at the equilibrium price.

The basic difference between macroeconomics and microeconomics is that a. macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents). b. macroeconomics is concerned with policy decisions, while microeconomics applies only to theory. c. microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (subcomponents). d. opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.

A. Macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).

d. the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

Adam Smith's invisible hand principle stresses the tendency of a. self-interested individuals to pursue activities that benefit themselves, but harm the overall economic welfare of society. b. compassion to encourage productive economic activity. c. government regulation to bring the self interest of individuals into harmony with the economic welfare of society. d. the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

Which of the following adopted reforms that have substantially improved their economic freedom rating since 1980?

All of the above

When the market for a good is in the equilibrium

All units valued more highly than the opportunity cost of production will be supplied

Capitalism

An economic system in which productive resources are owned privately and goods and resources are allocated through market pricing

Socialism

An economic system in which the basic means of production are owned and controlled by the government and goods and resources are allocated through government central planning *Basic means of production are things like utilities, railroads, etc.

Other things constant, which of the following would you expect to increase the output growth rate of a country?

An increase in the rate of investment as a share of total output

Which of the following is most important if a country is going to achieve and sustain rapid economic growth?

An open and competitive capital market

Using a production possibilities curve, a technological advance that increases the amount of output for both goods while using the same amount of inputs would be illustrated by which of the following?

An outward shift of the curve.

Resources

Anything occurring in nature that is used to produce or create other things

Law of Supply

As price increases then quantity increases * Supply curve slopes up * Shows minimum price to produce

A country's standard of living can be calculated by dividing the goods and services its people have by A. social services. B. population. C. output. D. total production.

An increase in the price of gasoline will cause the demand curve for tires to shift in which direction? A. To the left, because gasoline and tires are substitutes B. To the left, because gasoline and tires are complements C. To the right, because gasoline and tires are substitutes D. To the right, because gasoline and tires are complements E. To the right, because an increase in the price of gasoline makes consumers poorer and thus not willing to pay as much for tires

As the gross domestic product increases, it is easier for all levels of government to A. maintain trade deficits. B. carry out their functions. C. reduce their spending. D. conserve natural resources.

Assume that the demand for apples is downward sloping. If the price of apples falls from $.80 per pound to $.65 per pound, which of the following will occur? A. A smaller quantity of apples will be demanded. B. A larger quantity of apples will be demanded C. Demand for apples will decrease D. Demand for apples will increase E. Supply of apples will decrease

Brook is spending all of her income consuming products X and Y. If MUx/Px=1 and MUy/Py=6, what should Brooke do to maximize her satisfaction? A. Buy more X and more Y B. Buy more X and less Y C. Buy less X and less Y D. Buy less X and more Y E. Make no changes

How do spending levels impact the economy in an inflationary period? A. Overall spending generally remains unchanged. B. Consumers and businesses spend less. C. Consumers spend less, but businesses tend to spend more. D. Consumers keep spending no matter what; businesses are more cautious

If a government wants to decrease economic growth, it would use a contractionary fiscal policy that might involve A. increasing government spending. B. increasing taxes. C. decreasing regulations. D. decreasing unemployment.

If interest rates go down, which of the following would most likely occur: A. Banks will pay more to borrow money. B. The stock market will go up. C. Consumers will spend less. D. U.S. exports will decrease.

If three employees each work 35 hours a week and produce a total of 9,765 items, what is their total hourly productivity level? A. 31 B. 93 C. 67 D. 105

In some states, it is against the law to sell alcohol on Sundays. This law was created to honor the Christian religious belief that Sunday is a special day of rest. This is an example of culture impacting the __________ of goods. A. production B. distribution C. pricing D. packaging

Interest rates rising and falling by a wide range on a regular basis often are an indication of A. seasonal unemployment. B. economic instability. C. flexible capital. D. price equilibrium.

John only had $40 to spend and couldn't decide whether to buy a new pair of jeans or to go to an amusement park. He finally decided to spend his money on the amusement park. What was the opportunity cost of his decision? A. $40 B. New pair of jeans C. Trip to amusement park D. No opportunity cost was involved.

The gross domestic product (GDP) is calculated each year in the United States to determine A. the level of exports. B. the health of the economy. C. whether income taxes should be lowered or raised. D. how much money should be printed during the year.

Vernon was the milkman in his neighborhood for 30 years. Then, supermarkets started selling milk right in the store, and Vernon's job became obsolete. Vernon is a victim of ___________ unemployment. A. seasonal B. structural C. frictional D. cyclical

What is a likely result when workers' wages rise throughout the economy while productivity decreases? A. Lower prices B. Inflation C. Prosperity D. Increased sales

What is the ratio of a pound of yellow squash @ $ .40 a pound and a pound of butternut squash @ $1.20 a pound? A. 1 to 4 B. 1 to 3 C. 1 to 2 D. 1 to 1

When a business cycle is affected by international relations, new discoveries, and social or political changes, it is said to have been changed by __________ factors. A. extraneous B. external C. internal D. intrinsic

When a nation's inflation rate is low, prices tend to A. increase dramatically. B. remain stable. C. fluctuate daily. D. reduce currency values

When consumer spending is high, the economy usually is in a(n) A. depression. B. growth stage. C. inflationary period. D. recession.

When customers buy the exact amount of goods that producers are selling at a specific price, the __________ price exists. A. market B. equilibrium C. unit D. production

When union members of Local 654 arrived at work today, they found a sign on the door stating that the business had closed temporarily and the employees were not allowed to work. This is a pressure strategy known as a(n) A. injunction. B. lockout. C. boycott. D. strike vote.

Which of the following actions would the Federal Reserve System take to expand monetary policy: A. Raise the Federal Discount Rate B. Buy securities on the open market C. Increase Reserve Requirements D. Open additional financial institutions

Which of the following is an example of excess supply: A. Price = $500, demand = 500, supply = 300 B. Price = $700, demand = 300, supply = 500 C. Price = $600, demand = 400, supply = 400 D. Price = $400, demand = 600, supply = 200

Why are resources considered limited? A. Entrepreneurs do not invest enough of them. B. There are not enough available so that everyone can have as much of them as desired. C. Everyone has them, and they change. D. There are so many that people must decide which ones to choose at any one time.

Why might businesses decide to hold on to products to sell later when the economy is experiencing high levels of inflation? A. Taxes will limit production. B. Prices will continue to rise. C. Cash will be in short supply. D. Income will remain constant.

___ What is the effect on society of a falling growth rate in productivity? A. Resources are used more efficiently. B. The standard of living drops. C. Inflation is prevented. D. Increased labor disputes may occur.

According to Adam Smith, individual self-interest a. is a powerful force for economic progress when it is directed by competitive markets. b. is a powerful force for economic progress when individuals are wisely directed by a strong central government. c. is a major factor in retarding the economic progress of humankind. d. could be either a positive or negative force for economic progress, depending on the moral influences of political leaders.

B. is a powerful force for economic progress when individuals are wisely directed by a strong central government.

In economics, man-made resources such as tools, equipment, and structures that are used to produce other goods and services are referred to as a. consumer goods. b. physical capital goods. c. marginal goods. d. infrastructures.

B. physical capital goods.

If the price of coffee decreases, the demand curve for tea (a substitute good) will a. remain unchanged. b. shift to the right. c. shift to the left. d. do none of the above

B. shift to the right

Absolute advantage

Being able to produce a product using the fewest resources

A couple constructs a decision matrix to select which charity will receive a $500 donation. Since "helping children" is the most important criteria to the couple, which of the following weights should it be assigned? A. .325 B. .25 C. .60 D. .100

A government's fiscal policies that are intended to encourage economic growth are known as __________ policies. A. appropriate B. complementary C. expansionary

If the cost of producing automobiles increases, the price, equilibrium quantity and consumer surplus will most likely change in which of the following ways? Price Quantity Consumer Surplus A. Increase Increase Increase B. Increase Increase Decrease C. Increase Decrease Decrease D. Decrease Increase Decrease E. Decrease Decrease Decrease

Justin is trying to decide whether he wants to spend a $50 birthday check on a new DVD player or tickets to a concert. If he chooses the DVD player, what is the opportunity cost of this decision? A. Birthday check B. DVD player C. Concert tickets D. $50

On the graph above, what area represents consumer surplus when the price is $10? A. A B. B C. C D. A and B E. B and C

The formula that is generally used to measure productivity is A. goods divided by time. B. labor divided by resources. C. outputs divided by inputs. D. inputs divided by labor.

The government uses some of the tax money it collects from individuals and businesses to support public welfare programs. What is the benefit of these welfare programs to businesses in a private enterprise economy? A. Recipients don't have to work. B. Businesses must budget more money for taxes. C. Funds received by recipients are spent in businesses. D. Government has control of how the recipients spend their money.

The use of thorough job orientation helps to increase productivity through A. mass production. B. participative decision making. C. training and education. D. quality of work life.

The young children's section of a U.S. amusement park features cartoon characters from a German TV show. Although the amusement park signed an agreement and paid a fee to display images of the cartoon characters, the TV show doesn't own or manage the park in any way. This is an example of A. a strategic alliance. B. franchising. C. licensing. D. exporting.

When management and union leaders negotiate but cannot reach an agreement, either one may call for a(n) A. grievance. B. injunction. C. arbitrator. D. probation.

When producers are hopeful about the economic business outlook, they often A. decrease their inventory levels. B. decrease their purchase of new goods. C. increase their investment in capital goods. D. increase their investment in savings.

Which of the following is a true statement about currency exchange rates: A. The value of a nation's currency increases when it experiences rapid inflation. B. World events do not usually impact currency exchange rates. C. Currency exchange rates change frequently. D. When the demand for a nation's currency increases, its currency's value decreases.

Which of the following statements is true regarding a nation's unemployment rates: A. Globalization does not usually have a major effect on a nation's unemployment rates. B. A nation's business cycles do not usually impact the country's unemployment rates. C. A nation always has a certain percentage of unemployed citizens at any given time. D. During times of great expansion, a nation's workers are generally underemployed.

Which of the following will not change the demand for oranges? A. A change in consumer's incomes B. A change in the price of grapefruits, a substitute for oranges C. A change in the price of oranges D. A change in consumers' taste for oranges E. An expectation that the price of oranges will increase in the future

Which of the following would policy makers monitor to understand personal consumption expenditures (PCEs): A. S&P 500 Stock Index B. Consumer Price Index (CPI) C. Retail sales D. Real Gross Domestic Product (GDP

The expression, "There's no such thing as a free lunch," implies that a. everyone has to pay for his own lunch. b. the person consuming a good must always pay for it. c. opportunity costs are incurred when resources are used to produce goods and services. d. no one has time for a good lunch anymore.

C. Opportunity costs are incurred when resources are used to produce goods and services.

If salsa and nacho chips are complements, an increase in the price of nacho chips would a. increase the price of salsa. b. decrease the demand for salsa. c. increase the demand for salsa. d. have no effect on the demand for salsa.

C. in crease the demand for salsa

Economics is primarily the study of a. why people like to make money. b. the management of a business. c. the choices people make as the result of scarcity. d. how to make money in the stock market.

C. the choices people make as the result of scarcity.

Change in Quantity Demanded

Change in price

Change in Quantity Supplied

Change in price

Change in quantity of demand vs. Change in demand

Change in quantity= Price; Change in demand= anything but price

d. The demand curve for snowmobiles will increase and the price of snowmobiles will rise.

Colorado experiences a record snowfall during the winter season. What impact will this have on the market for snowmobiles? a. The supply of snowmobiles will increase and the price of snowmobiles will fall. b. The demand curve for snowmobiles will decrease and the price of snowmobiles will fall. c. The supply of snowmobiles will increase and the price of snowmobiles will increase. d. The demand curve for snowmobiles will increase and the price of snowmobiles will rise.

When private ownership rights are well-defined and enforced, owners of physical assets and resources will have an incentive to do which of the following?

Consider the wishes of others before using their resources.

If Crusoe and Friday want to maximize their consumption possibilities,

Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption.

Dividing the dollar value of total sales by the cost of making those sales is one way that businesses often measure their A. accountability. B. profitability. C. liability. D. productivity.

During a football game, it starts to rain and the temperature drops. The senior class, which runs the concession stand and is studying economics, raises the price of coffee from 50 cents to 75 cents a cup. They sell more than ever before. Which answer explains this? A. The supply of coffee increased B. The demand curve for coffee was elastic C. The supply of coffee decreased D. The demand for coffee increased E. The demand curve for coffee was inelastic

If hot dogs are an inferior good, an increase in income will result in A, an increase in the quantity demanded for hot dogs B. an increase in the demand for hot dogs C. a decrease in the quantity demanded for hot dogs D. a decrease in the demand for hot dogs E. no change in the quantity demanded for hot dogs

In which of the following occupations would employees be organized into craft/trade unions: A. Hotel employee B. Restaurant worker C. Salesperson D. Plumber

One of the main functions of a country's monetary policy is to A. monitor government spending. B. supervise the banking system. C. issue new currency. D. regulate the economy.

The market's way of rationing limited resources, goods, and services to consumers in a market economy is through A. commissions. B. profits. C. incentives. D. prices.

The value of a country's currency declines when it implements policies that restrict trade. The primary factor affecting the change in value of the currency in this situation is A. cultural differences. B. civil unrest. C. demographics. D. isolationism.

What do businesses usually expect will increase when the economy experiences a continued rise in the level of inflation? A. Consumer spending B. Employment levels C. Industry growth D. Interest rates

What is one reason why the overall unemployment rate understates the actual employment situation? A. The rate reflects regional differences. B. The rate is not seasonally adjusted. C. Underemployed people are listed. D. Discouraged workers are not included.

What kind of strike occurs when the members of a union local stop work without the consent of their national organization? A. Sympathetic B. Limited C. Jurisdictional D. Wildcat

What usually decreases as the rate of inflation increases? A. Money supply B. Interest rates C. Export quotas D. Purchasing power

Which of the following is an economic activity: A. Following the stock market B. Reading a bank statement C. Balancing a checkbook D. Purchasing a candy bar

Which of the following is an example of a change in culture affecting the production of a good or service: A. A shortage of chocolate chips causes a cookie company to stop production. B. Laws banning smoking in restaurants result in a decrease in demand for cigarettes. C. An oil spill in the ocean causes local seafood restaurants to lose business. D. The "green movement" leads to an increase in demand for recycled products.

Which of the following is characteristic of a buyer's market: A. High demand B. Steady demand C. Low supply D. Low prices

Which of the following statements best reflects the law of diminishing marginal utility? A. "I have to have a scoop of ice cream on my pie." B. "I'll never get tired of your cooking." C. "The last bite tastes just as good as the first." D. "I couldn't eat another doughnut if you paid me." E. "I prefer to eat several small meals a day, rather than three large ones."

Which of the following will occur if a legal price floor is placed on a good below its free market equilibrium? A. Surpluses will develop B. Shortages will develop C. Underground markets will develop D. The equilibrium price will ration the good E. The quantity sold will increase

Why does the Federal Reserve System raise interest rates? A. To overcome inequalities of income distribution B. To increase demand for products C. To decrease supply of products D. To fight inflation

If drugs such as marijuana and cocaine were legalized, it would be likely that a. their prices would decrease. b. there would be a reduction in tainted or poor quality drugs. c. there would be less violence occurring in drug transactions. d. all of the above.

D. All of the above

Economic analysis assumes that a. individuals act only out of selfish motives. b. although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted. c. people are basically humanitarian, and their actions are, therefore, impossible to predict. d. changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

D. Changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

Which of the following goods are most likely to be substitutes? a. potato chips and chip dip b. bread and peanut butter c. ketchup and French fries d. bananas and apples

D. bananas and apples

For the typical student, taking an introductory course in economics should a. turn the student into an economist. b. teach the student solutions to all social problems. c. teach the student all the answers to the most complex social questions. d. help the student learn to rationally analyze and systematically think about social problems. e. All of the above are correct.

D. help the student learn to rationally analyze and systematically think about social problems.

A decrease in the price of leather used to make shoes would cause the a. demand for shoes to decrease. b. demand for shoes to increase. c. supply of shoes to decrease. d. supply of shoes to increase.

D. supply of shoes to increase.

If DeShawn only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the care, this indicates

DeShawn reaped $10,000 of consumer surplus from he transaction

Assume that corn and soybeans are alternatives that could be grown by most farmers, An increase in the price of corn will

Decrease the supply of corn

Producer Surplus

Difference between the price that supplies actually receive and the minimum price they will actually accept *Everything below the top price and above the surplus

a. demand for gas guzzling automobiles, such as the Hummer, decreased, causing their price to decline.

During 2007-2008, the price of gasoline increased from approximately $1.50 to $4.00 per gallon. As a result, the a. demand for gas guzzling automobiles, such as the Hummer, decreased, causing their price to decline. b. supply of gas guzzling automobiles decreased, causing their price to increase. c. demand for gas guzzling automobiles increased, causing their price to increase. d. supply of gas guzzling automobiles increased causing their price to fall.

During the 1990s, the price of VCRs fell by about 30 percent, and quantity sold decreased by the same amount. The demand for VCRs must A. be inelastic B. be elastic C. be unit elastic D. have shifted to right E. have shifted to the left

If the price of paper books increases and consumer expenditures on paperback books also increase, which of the following is necessarily true? A. Paperback books are normal goods B. Paperback books are inferior goods C. The demand for paperback books is unit elastic D. The demand for paperback books is elastic E. The demand for paperback books is inelastic

Which of the following statements about price controls is true? A. A price ceiling causes a shortage if the ceiling price is above the equilibrium price B. A price floor causes a surplus if the price floor is below the equilibrium price C. A price ceiling causes an increase in demand if the ceiling price is set below the equilibrium price D. A price ceiling causes a decrease in demand if the price floor is set above the equilibrium price E. Price ceilings and price floors result in a misallocation of resources

Which of the following will not cause the demand curve for athletic shoes to shift? A. A change in tastes for athletic shoes B. Widespread advertising campaign for athletic shoes C. Increase in money incomes of athletic-shoes consumers D. Expectations that the price of athletic shoes will decrease in the future E. A decrease in the price of athletic shoes

d. reflects that people are achieving higher income levels and living standards.

Economic progress a. indicates that scarcity is no longer a problem. b. indicates income levels are higher even though environmental and health conditions have worsened. c. requires that individuals work longer hours. d. reflects that people are achieving higher income levels and living standards.

b. entrepreneurial action directed by competitive markets.

Economic progress comes primarily through a. imposition of trade barriers. b. entrepreneurial action directed by competitive markets. c. government investment in heavy industry. d. central planning.

Difference between Sociology and Psychology

Economics is the study of human behavior and the choices we make and sociology is the study of human behavior when there are no choices to make

Define a free market economy and name nation(s) that use them.

Economy is based on the power of division of labor in which the prices of goods and services are determined in a free price system set by supply and demand. Ex: Brazil, Japan, USA, Sweden, Colombia, Sudan, etc.

2. Competition promotes the _____ ---- of resources and provides the _____ for innovative improvements

Efficient use, incentive

d. both Dan and Andrea will gain from this transaction.

If Andrea sells Dan a Wii gaming system for $150, a. the well-being of both parties will be unchanged. b. Andrea will gain from the transaction, but Dan will lose. c. Dan will gain from the transaction, but Andrea will lose. d. both Dan and Andrea will gain from this transaction.

b. both Sean and Susan will gain from this transaction.

If Sean sells Susan a DVD player for $30, a. the well-being of both parties will be unchanged. b. both Sean and Susan will gain from this transaction. c. Sean will gain from the transaction, but Susan will lose. d. Susan will gain from the transaction, but Sean will lose.

b. quantity demanded equals quantity supplied.

If equilibrium is present in a market, a. quantity demanded exceeds quantity supplied. b. quantity demanded equals quantity supplied. c. quantity supplied exceeds quantity demanded. d. the price of the product will tend to rise.

d. the gains from trade will increase

If the Internet helps buyers learn about the availability of products and find potential sellers more quickly, a. the volume of trade will decline. b. buyers will be better off, but sellers will be worse off. c. transaction costs will rise. d. the gains from trade will increase.

a. supply of corn will decrease and the price of corn will rise.

If the Midwest experiences a severe drought that damages the corn crops, we should expect the a. supply of corn will decrease and the price of corn will rise. b. demand curve for corn will decrease and the price of corn will fall. c. demand curve for corn will increase and the price of corn will rise. d. supply of corn will increase and the price of corn will fall.

d. producers will increase supply in the long run.

If the market price of a good is more than the opportunity cost of producing it, a. the situation will remain unchanged as long as supply and demand remain in balance. b. the market price of the product will increase in the long run. c. resources will flow away from production of the good, causing supply to decline with the passage of time. d. producers will increase supply in the long run.

5. A stable monetary policy is essential for the control of ______, efficient allocation of _____, and achievement of ______ ______

Inflation, investment, economic stability

Which of the following is true regarding investment?

Investment tends to have a larger impact on economic growth in countries with high levels of economic freedom because it is channeled to more productive uses.

Which of the following is true of the production possibilities curve?

It assumes a fixed level of technology.

Why is specialization in production beneficial?

It permits people to expand production and achieve rates of output that would otherwise be unattainable.

Why is private ownership an important source of economic prosperity?

It provides owners with a strong incentive to develop and use assets in ways that others value highly.

Which of the following is true of a production possibilities curve?

It reveals the maximum amount of any two goods that can be produced from a fixed quantity of resources.

As a general rule, what impact does technological progress have on a PPC?

It shifts the production possibilities curve outward, away from the origin

Ken values his boat at $5,000, and Monica values it at $8,000. If Monica buys it from Ken for $7,000, which of the following is true?

Ken gains $2,000 of value, and Monica gains $1,000 of value.

Ceteris Paribus

Latin for "all else held constant" or "all else equal"

a. Both Maria and Lisa expect to gain from this transaction.

Maria decides to buy a dress from Lisa; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction? a. Both Maria and Lisa expect to gain from this transaction. b. If Lisa gains from the transaction, Maria must lose an equal amount. c. If the dress originally costs more than $20, Maria gains and Lisa loses. d. If the dress originally costs less than $20, Lisa gains and Maria loses

Invisible hand principle

Market prices coordinate the actions of self- interested individuals and direct them toward activities that promote the general welfare

d. reduce transaction costs.

Middlemen: a. increase transaction costs. b. increase the price of goods, services and resources without providing any benefits. c. impede trade and hinder economic growth. d. reduce transaction costs.

Creative destruction

New products and methods of production replacing old ones

"Walmart is a low wage firm and this indicates that it exploits its workers" which of the following should cause one to question the validity of this statement?

No one is required to work for Walmart and therefore, it must attract workers by paying them more attractive wages than they would earn elsewhere

Current tax rates are insufficient to finance the benefits promised by both the Social Security and Medicare programs. Are these unfunded promises surprising according to economic theory?

No, the unfunded promises reflect the shortsighted nature of the political process.

Would one expect the imports and exports between two countries to be approximately equal?

No; there is no reason to expect that the purchases from and sales to any specific country will be equal because one country may not want to buy the items the other country produces at a low opportunity cost.

Scarcity

Not abundant enough in nature so that everyone can have as much as they want for free

Scarce good

Not so abundant in nature that you can get all you want *Commands a price

Why is the demand for one good elastic, but for another inelastic?

Number of substitutes

Two individuals engage in the same two productive activities. In which of the following circumstances would neither individual have a comparative advantage in either activity?

One individual's opportunity costs are the same as the other individual's opportunity costs

Subjective

Opinion, not provable or disprovable

Normative economics

Opinions, not provable or disprovable

What is important when remembering what, how, and for whom to produce?

Opportunity cost, trade creates value, and property rights

Which of the following explains why managers of government agencies have little incentive to achieve operational efficiency?

Public-sector managers need not fear bankruptcy when operational efficiency is not achieved, seldom receive personal benefits if they find ways to improve the efficiency of their operations, and typically do not face competition.

Rational Ignorance

Remaining ignorant about something where the cost of obtaining the knowledge is greater than the benefit of learning it

Which of the following will most likely occur under a system of clearly defined and enforced private property rights?

Resource owners will conserve vital resources for the future, particularly if they expect the resource to increase in value.

Which of the following will most likely occur under a system of clearly defined and enforced private property rights?

Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

Which of the following will most likely occur under a system of clearly defined and enforced private property rights? a. Resource owners will fail to conserve vital resources, even if they expect their supply to be highly limited in the future. b. Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned. c. Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources. d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

d. the law of comparative advantage

Specialization in goods and services one can produce at a low cost makes it possible for trading partners to produce a larger joint output. This is called a. the law of absolute advantage. b. the law of demand. c. the law of production possibilities. d. the law of comparative advantage

Susan is trying to decide whether to quit her $20,000 per year job so she can return to college next year. If she goes to college next year, her books and supplies will cost $500, tuition will cost $3,000, and her other expenses (transportation, housing, and food) will increase by $2,000. What is Susan's opportunity cost of attending college next year? Select one: a. $3,000 b. $3,500 c. $5,500 d. $25,500

The correct answer is: $25,500

The price of an airline ticket from Denver to Chicago costs $300. A bus ticket costs $150. Traveling by plane takes 2 hours compared with 32 hours by bus. Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than Select one: a. $2 per hour. b. $4.69 per hour. c. $5 per hour. d. $150 per hour.

The correct answer is: $4.69 per hour.

While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be Select one: a. Zero. b. 20 cents. c. 75 cents. d. 80 cents.

The correct answer is: 20 cents.

Economic analysis assumes that Select one: a. Individuals act only out of selfish motives. b. Although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted. c. People are basically humanitarian, and their actions are, therefore, impossible to predict. d. Changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

The correct answer is: Changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

A rational decision maker takes an action if and only if a. the marginal benefit of the action exceeds the marginal cost of the action. b. the marginal cost of the action exceeds the marginal benefit of the action. c. the marginal cost of the action is zero. d. the opportunity cost of the action is zero.

a. the marginal benefit of the action exceeds the marginal cost of the action.

The current demand for a good would decrease if a. the price of a complementary good rose. b. the price of a substitute good rose. c. consumers suddenly believed the price of the good would be sharply higher in the future. d. consumer income increased.

a. the price of a complementary good rose.

In economics the term utility refers to a. the subjective benefit or satisfaction a person expects to receive from a choice or course of action. b. the number of possible uses for a resource. c. the fact that human desire for goods is unlimited while the resources available to meet those desires is limited. d. the highest valued alternative that must be sacrificed when a choice is made.

a. the subjective benefit or satisfaction a person expects to receive from a choice or course of action.

When economists say the supply of a product has decreased, they mean that a. the supply curve has shifted to the left. b. the product price has decreased, and as a consequence, suppliers are producing less of the product. c. producers are now willing to sell more of this product at each possible price. d. the supply curve has shifted to the right.

a. the supply curve has shifted to the left.

Which of the following marketing pieces takes the concept of marginalism into account? Select one: a. Computers, monitors and other technical equipment in local dumps are causing $1 million dollars in environmental damage. Vote yes to allocate $100,000 in cleanup spending. b. Help save the manatees. Contribute to the campaign to raise $10,000. c. Contribute $50 annually to the Heifer Foundation and give a chicken to a family living in poverty. This gift will help generate an additional $100 in household income through the sale of the eggs produced. d. Stephanie, a new college graduate, accepts the first job offer for $50,000 a year.

The correct answer is: Contribute $50 annually to the Heifer Foundation and give a chicken to a family living in poverty. This gift will help generate an additional $100 in household income through the sale of the eggs produced.

Which of the following most accurately states the economic significance of voluntary exchange? Select one: a. Goods and services have value because they exist; exchange causes some people to win while others lose. b. Exchange creates value by permitting trading partners to expand total output as the result of specialization and division of labor. c. Exchange moves goods and services from people who value them more to parties who value the goods less. d. Exchange can not create additional value because no new goods or services are produced

The correct answer is: Exchange creates value by permitting trading partners to expand total output as the result of specialization and division of labor.

A local restaurant offers an "all you can eat" Sunday brunch for $12. Jenica eats two servings but leaves half of a third helping uneaten. Why? Select one: a. Her marginal value of brunch has fallen below $12. b. Her marginal value of additional food has fallen below $4.00 ($12 divided by 3 servings). c. Her marginal value of an additional bite of food has fallen to zero. d. The total value she places on brunch today exactly equals $12.

The correct answer is: Her marginal value of an additional bite of food has fallen to zero.

The 9/11 terrorists chose their plan of attack because Select one: a. Their actions were unaffected by economic incentives. b. It promised to produce the highest net benefits. c. They were greedy and selfish. d. The Pope and President Bush approved.

The correct answer is: It promised to produce the highest net benefits

According to economic reasoning, you should follow Nike's advice and "Just Do It" when Select one: a. The total benefits are less than the total costs. b. The additional costs are greater than the additional benefits. c. The additional costs are the same as the additional benefits. d. The additional benefits are greater than the additional costs.

The correct answer is: The additional benefits are greater than the additional costs.

Which of the following students would be most likely to drop out of college before completing their degree? Select one: a. a senior physics major with a solid B average b. a junior secondary education major who has just read about the substantial improvement in the job opportunities available for teachers with a college degree. c. an outstandingbaseball player in his junior year that just received a $500,000 offer from a professional team d. a junior economics major who wants to attend law school

The correct answer is: an outstandingbaseball player in his junior year that just received a $500,000 offer from a professional team

d. indicates the quantities of the good that people are willing to purchase at various prices.

The demand curve for a good a. is determined primarily by the cost of producing the good. b. indicates the relationship between the price of the good and the price of other goods. c. illustrates the quantity producers will provide at alternative prices. d. indicates the quantities of the good that people are willing to purchase at various prices.

Producer surplus

The difference between the minimum price suppliers are willing and able to sell something for and the price they actually sell it for

If inflation in the United States is higher than in Japan, what will happen to the exchange rate between the U.S. dollar and the Japanese yen?

The dollar will depreciate and the yen will appreciate.

Which of the following is GDP designed to measure? a. the total market value of goods and services produced domestically during the year b. changes in the cost of purchasing the typical consumer market basket of goods from one year to another c. the total size of the domestic underground economy d. the standard of living of the average citizen

a. the total market value of goods and services produced domestically during the year

d. at which the quantity supplied by producers is equal to the quantity demanded by consumers.

The equilibrium price of a good or service is the price a. at which the current quantity supplied by producers is equal to the potential output. b. fixed by the government so that producers do not over produce and consumers do not over purchase. c. at which all consumers can afford to purchase units of a good or service as long as they provide them with any value. d. at which the quantity supplied by producers is equal to the quantity demanded by consumers.

The price of a good will tend to rise when a. there is excess demand for the good. b. the supply of the good increases. c. demand for the good decreases. d. there is excess supply of the good.

a. there is excess demand for the good.

Producers are willing to offer greater quantities for sale at higher prices because a. they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses b. they will decrease their profits by expanding production at higher prices c. the government orders them to do so d. lower prices attract new firms, which have higher costs of production e. they hire superior quality, higher-priced resources as production expands

a. they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses

In economics, the term that refers to the time, effort, and other resources needed to search out, negotiate, and consummate an exchange is a. transaction costs. b. specialization costs. c. pecuniary costs. d. comparative costs.

a. transaction costs

In the absence of an even-handed legal system, high transaction costs will eliminate many potential mutally advantageous trades and the accompanying gains from

all of the above

c. even when market participants care only about their own self interests rather than about the overall efficiency of resource use.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources a. only if buyers and sellers really care, personally, about economic efficiency. b. even if business firms fail to produce goods efficiently. c. even when market participants care only about their own self interests rather than about the overall efficiency of resource use. d. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.

b. the low opportunity cost producer.

The law of comparative advantage indicates that if a group of individuals wants to maximize their joint output, then each good should be supplied by a. the person with the lowest wage rate. b. the low opportunity cost producer. c. the person with the most advanced technical knowledge. d. the person that can accomplish the task most rapidly.

When competition is present and private ownership rights are clearly defined and securely enforced,

all of the above are correct

How does voluntary exchange create wealth?

all participating parties expect to gain something; mutually beneficial to each side

When the market for a good is in equilibrium,

all units valued more highly than the opportunity cost of production will be supplied.

Which of the following would most likely cause a nation's currency to depreciate?

an increase in the nation's domestic inflation rate

name one event you have become aware of that concerns you or encourages you about our economy and tell why?

The presidential election, one candidate's decision to help the poor will place the nation in a situation where the citizens will promote large government and support systems like welfare that cost more than the benefits they actually provide. While the other would like to limit the government and bring it back to the values that were present with the formation of the nation, he has expressed a desire to create more jobs and to bring back jobs to the nation. The past chapter of the book highlighted that America needs trade with the outside world and new jobs are only valuable if it is a service people need.

$10 per hour.

The price of an airline ticket from Denver to Washington, D.C. costs $600. A bus ticket costs $150. Traveling by plane takes 6 hours compared with 51 hours by bus. Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than

A real estate salesperson sells a house in 1999 that was built in 1990. How does this transaction get counted in the GDP statistics?

The real estate salesperson's commission but not the price of the house is included in 1999's GDP.

A fact based on observable phenomenon that is not influenced by differences in personal opinion is called...

an objective concept

Which of the following is most likely to lead to an increase in the rental price of apartments near your campus?

an unexpected increase in enrollment at your college

Which of the following do private property rights involve?

The right to exclusive use of the property. b. Legal protection against those who would seek to use or abuse the property without the owner's permission. c. The right to transfer, sell, exchange, or mortgage the property.

Which of the following is true when collective decision making is utilized to resolve economic questions regarding the allocation of resources?

The role of markets will be replaced by political decision making.

c. the quantity of a good or service producers are willing to supply at alternative prices.

The supply curve graphically illustrates a. the difference between the current supply of a good or service and the potential supply producers are capable of producing. b. the difference between the current supply of a good or service and the potential amount consumers are willing to purchase. c. the quantity of a good or service producers are willing to supply at alternative prices. d. the quantity of a good or service consumers will purchase at alternative prices.

Invisible Hand Principle

The tendency for people, while pursuing their own interests, to promote the economic well-being of society.

b. transaction costs.

The time and resources needed to search out, negotiate, and consummate trades are referred to as a. trade deficits. b. transaction costs. c. tariffs. d. marginal costs.

law of comparative advantage

The total output of a group of individuals, an entire economy, or a group of nations will be greatest when the output of each good is produced by whoever has the lowest opportunity cost.

Law of comparative advantage

The total output of a group of people, an entire economy or a group of nations will be greatest when the output of each good is produced by the person (or firm) with the lowers opportunity cost for producing that good *Being able to produce a product with the lowers opportunity cost

Which of the following is true?

The value of a good generally depends on who uses it and circumstances such as when and where it is used

Which of the following provides the best explanation of why low-income countries general remain poof?

Their institutional arrangements and policies often discourage productive activity and reduce the potential gains from specialization and exchange.

Law of supply

There is a positive (direct) relationship between price and quantity supplied

Law of demand

There is an inverse relationship between price and quantity demanded

Law of Demand

Theres an inverse (or negative) relationship between the price of good or services and the quantity of it that consumers are willing to purchase.

Why are producers are willing to offer greater quantities for sale at higher price because of?

They have the incentives to pay the increasing opportunity cost of resources necessary to attract them from alternative uses

What role do losses play in a competitive market

They send a message that more value would be created if the resources were used to produce other goods

Which of the following is most likely to lead to an increase in the rental price of apartments near your campus? a. lower property taxes on apartment buildings b. an unexpected increase in enrollment at your college c. lower prices for the bricks used in the construction of apartments d. the building of a new large dormitory on the college campus

an unexpected increase in enrollment at your college

Transaction costs

anything that makes a transaction more expensive *Can be in terms of dollars or time or aggravation

Economic theory and history indicate that open elections and democratically elected governments

are unable to guarantee ether the emergence or continuation of economic institutions and policies that will encourage productive behavior.

A grower faces a price of $0.13/pound for his/her pumpkins. The buyers of the pumpkins will buy as many pumpkins as offered by the grower at this price. The pumpkin farmer evaluates his/her costs and finds that his/her production costs (average total costs) are $0.16 per pound. He/she also evaluates the marginal cost of production and finds that the marginal cost of production at the current level of production is $0.14 per pound. The average variable cost of production at the current level is $0.12 per pound. In the short run, the producer should try to: a. Increase amount produced to get maximum profit b. Decrease the amount produced to get maximum profit c. Leave unchanged the amount produced to get maximum profit d. Stop producing and let the pumpkins rot

Economic conditions favor firms getting larger (producing larger quantity) when the firms are producing under conditions of: a. Decreasing returns to scale b. Increasing returns to scale c. Constant returns to scale

If a college enforces a new policy where anyone caught cheating is immediately expelled, the basic postulate of economics suggests that a. cheating will be completely eliminated. b. fewer students will attempt to cheat. c. the amount of cheating will be unaffected. d. any of the above is possible because student behavior is unpredictable.

If a country, business, or person has a comparative advantage in producing a good or service, this means that this country, business, or person a. can produce this good at the same opportunity cost as others. b. can produce this good or service at a low opportunity cost. c. should buy this good from others d. can produce this good or service at a high opportunity cost.

If beginning stocks for 2014/2015 are adjusted upward in the May (2014) WASDE report, then the estimate of the supply of corn for 2014/15: a. Is decreased b. Is increased c. Is not affected by the adjustment

If the Midwest experiences a severe drought that damages the corn crops, we should expect the a. supply of corn will increase and the price of corn will fall. b. supply of corn will decrease and the price of corn will rise. c. demand curve for corn will decrease and the price of corn will fall. d. demand curve for corn will increase and the price of corn will rise.

In economics, secondary effects refer to the a. value of the goods that an individual must give up as the result of choosing an alternative. b. indirect effects that often result from an action or policy change. c. immediate and highly visible intended consequences of an action or policy change. d. value of a good derived by the consumer.

c. makes larger outputs possible as a result of specialization.

Voluntary trade promotes economic progress because it a. moves goods, services and resources from people who value them more to individuals who value them less. a. moves goods, services and resources from people who value them more to individuals who value them less. b. encourages individuals to become self-sufficient. c. makes larger outputs possible as a result of specialization. d. benefits buyers at the expense of sellers.

3 questions that every economy faces

What will be produced? How will it be produced? For whom will it be produced?

Change in demand

When consumers buy a different amount than before because of anything but a change in price *Ex if your income goes up and you buy more

Change in quantity demanded

When consumers buy a different amount than before because the price changed

Profits

When sales revenue is less than the cost of production. Taking a set of resources worth a certain amount when you buy them and combining them in such a way that the total value of the resources is now more than what you originally paid for them.

Losses

When sales revenue is less than the production. Taking a set of resources worth a certain amount when you buy them and combining them in such a way that you destroy some of the value of the resources when compared to how much you originally paid for them. Not to be encouraged.

b. the value of the products to the consumers will exceed the costs of the resources required for their production.

When the equilibrium price of a product is present a. neither consumers nor producers will benefit from the exchanges. b. the value of the products to the consumers will exceed the costs of the resources required for their production. c. the consumers will benefit from the exchanges, but the producers will experience losses. d. the producers will profit from the exchanges at the expense of consumers.

b. the quantity demanded will decrease.

When the price of a good increases, a. the opportunity cost of producing the good will increase, causing the supply to fall. b. the quantity demanded will decrease. c. the quantity supplied will decrease. d. the quantity demanded will also increase.

Which of the following is not one of the basic economic questions that all economies must answer?

Which government agency will set the prices of the goods produced?

b. When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity.

Which of the following is a major implication of the invisible hand concept? a. Government-operated firms tend to have lower costs than private sector firms. b. When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. c. Prosperity cannot be achieved unless the selfish nature of people can be changed. d. Competition is harmful to the health of an economy because it results in wasteful duplication.

a. Producers will increase the production of fuel-efficient cars.

Which of the following is a predictable, secondary effect of a sharp increase in gasoline prices? a. Producers will increase the production of fuel-efficient cars. b. The federal government will place a quota on the number of fuel-efficient cars for sale, thus "forcing" consumers to purchase the gas guzzling vehicles. c. the termination of research on the cost-effectiveness of alternative fuels to power automobiles. d. Producers will increase the production of gas guzzling vehicles.

a. production of additional goods and services that people value highly relative to the cost of their production

Which of the following is most important for the achievement of higher income levels and living standards? a. production of additional goods and services that people value highly relative to the cost of their production b. increases in government spending that create jobs c. restriction of imports that expand employment in the protected industries d. an increase in total employment

"Time is money."

Which of the following sayings best reflects the concept of opportunity cost?

A group of entrepreneurs is trying to decide which of five new product ideas to select. Which tool can be used to help make the decision? A. Decision matrix B. Entrepreneurial discovery process C. Business processes D. Opportunity cost analysis

An ethanol processing plant operates relatively efficiently when operating at its designed "capacity". The firm is willing to pay more for delivery of corn to maintain this level of output. This indicates that the firm is likely to experience ______ (higher, lower, the same) average total costs operating at less than this level of output. a. Higher b. Lower c. The same

China currently has a policy to subsidize grain production to keep farmers' income up. It sets a target price for the state purchase of the grains. Currently the price is higher than the world price. China's policy has led to: a. Increases in the domestic stocks of grain b. Decreases in the state purchases of grain c. Shortages of grain in China d. Reduction of imported grain for the use in livestock feed e. a and d

Converting corn into ethanol is most profitable when there is/are: a. High ethanol prices and low corn prices b. Low ethanol prices and low corn prices c. Low ethanol prices and high corn prices d. When the amount of ethanol produced approaches the limits of the amount required in production of gasoline blended with 10% ethanol (the current "blend wall") e. Restricted expansion of ethanol production capacity

Economic progress a. reflects that people are achieving higher income levels and living standards. b. requires that individuals work longer hours. c. indicates that scarcity is no longer a problem. d. indicates income levels are higher even though environmental and health conditions have worsened.

Entrepreneurs a. will prosper if they undertake projects that increase the value of the resources. b. are people who extend loans to other business decision makers. c. are managers who generally work for a salary because they are unwilling to take risks. d. will propser if they charge prices higher than their rivals.

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, then it would be reasonable to conclude that a. Georgia has a comparative advantage in producing peaches. b. total output will be expanded when Georgia allocates more resources to producing oranges and Florida allocates more resources to producing peaches. c. Florida has a comparative advantage in producing peaches. d. the opportunity cost of growing oranges is higher in Florida than in Georgia.

Government spending programs that create jobs are often popular because a. the created jobs are highly visible, while the secondary effects of lost jobs in other areas, higher interest rates, and higher future taxes are less visible. b. if a spending program is approved by Congress, it means that the value of what is produced is greater than the value of the resources used to produce it. c. the benefits of job creation are always greater than the costs. Jobs are the key to economic progress. d. when spending programs are funded by the government there are no secondary effects.

If equilibrium is present in a market, a. the price of the product will tend to rise. b. quantity demanded equals quantity supplied. c. quantity demanded exceeds quantity supplied. d. quantity supplied exceeds quantity demanded.

If the government raised land taxes $20/acre, this would increase the farmer's average fixed cost. How would that affect (a profit maximizing) farmers' decision about the quantity of corn to produce in the short run? a. It would have little change because in the short run the farmer will consider only the Average Variable Cost (AVC) in making a decision on quantity supplied b. It will decrease the quantity the farmer is willing to supply because the Average Variable Cost (AVC) will increase for the farmer c. It will decrease the quantity the farmer is willing to supply because the farmer considers all costs in the short run in making a decision about quantity supplied d. None of the above

If the price of a good is below the equilibrium a. the inventories of producers will fall and the market price will tend to rise. b. the inventories of producers will rise and the market price will tend to fall. c. the inventories of producers will fall and the market price will tend to decline. d. the inventories of producers will increase and the market price will tend to rise.

If we are going to get the most value from our resources, entrepreneurs should choose the investment alternatives that a. yield a profitable rate of return. b. are most heavily subsidized by the government. c. result in the production of the largest possible output regardless of value to consumers. d. reduce the value of resources and retard wealth accumulation.

If you want to earn a high income you should figure out what others value because a. others will be willing to pay attractive prices for things they value. b. you will be able to gain at the expense of others. c. you will not have to compete in the job market. d. you will then be able to charge higher prices than alternative suppliers.

Large scale family farms represent about 10% of all farms and produce: a. Over half of the value of farm production b. About 10% of the value of production c. Less than 10% of the value of production d. About 20% of the value of production

Secure property rights promote economic progress because they a. encourage individuals to produce efficiently and undertake productive activities. b. weaken the incentive to take actions that increase the value of resources. c. transfer the costs of a decline in property value to the government. d. discourage property owners from engaging in activities that provide value to others.

Suppose a U.S. government program subsidizes the production of domestic sugar producers and places a tariff (tax) on the importation of sugar from other countries. This program a. helps the producers of sugar, but increase the opportunity cost of obtaining it. b. promotes the production of goods that consumers value highly relative to cost. c. creates wealth, because the government is providing the subsidies and imposing the tariffs. d. will reduce the opportunity cost of obtaining sugar and therefore lead to lower sugar prices.

The government introduced a requirement that all gasoline used in the US must use an increased share of ethanol in the gasoline sold. Consider the market of corn - a commodity which is used in ethanol production. Indicate whether there is a shift in supply (S) or demand (D). a. Demand b. Supply

The price elasticity for beef is -0.5. If price for beef in the market increases (by a small amount), beef producers can expect their total value of sales (total revenue) to: a. increase b. decrease c. stay the same d. can't tell from the available information

The principle of comparative advantage indicates that I. trade is a zero-sum activity. II. a nation can gain by specializing in the production of the goods it can produce at a low opportunity cost and trade for goods it can produce only at a high cost. III. comparative advantage applies to nations and not individuals. a. II only b. I only c. I and II d. I, II, and III

When competition is present and private ownership rights are clearly defined and securely enforced by the legal system, business firms will have a strong incentive to a. innovate and develop better products and lower cost production methods. b. spend time attempting to plunder (take) the resources of others. c. engage in wasteful activities that increase the cost of producing goods and services. d. use resources during the current period rather than conserving them for the future.

Which of the following is a major implication of the invisible hand concept? a. When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. b. Prosperity cannot be achieved unless the selfish nature of people can be changed. c. Competition is harmful to the health of an economy because it results in wasteful duplication. d. Government-operated firms tend to have lower costs than private sector firms.

Which of the following statements about incentives is true? a. Changing one incentive can result in several unseen effects. b. Understanding how people respond to incentives helps government planners organize the economy. c. Fair-minded people who care about others will not be affected by incentives. d. Emphasizing incentives ignores altruistic nonmonetary values.

Which of the following was an unintended consequence of the subsidies and mandated expansion in output of gasoline produced from corn-based ethanol? a. higher food and grain prices. b. a reduction in the demand for battery powered automobiles because of the low prices of gasoline produced from ethanol. c. sharply lower prices for feed grains because of a reduction in the demand for corn. d. a substantial reduction in crude oil prices because of the low-cost production of gasoline from ethanol.

Why do supermarkets stock thousands of items that people enjoy? a. Competition, self-interest, and market prices influence the supermarkets' decisions on which items to stock. b. The rules of the SNAP program, formerly known as food stamps, require supermarkets to stock certain items. c. State governments regulate supermarkets. d. The federal Food and Drug Administration requires supermarkets to stock certain items.

ukraine is a major producer of wheat, and exports much of its wheat to europe. if ukraine no longer is able to export to europe, consider the european market for wheat: indicate whether there is a shift in supply or demand in the european market a) supply b) demand

Which of the following would allow the production possibilities curve for an economy to shift outward?

a better social organization of economic activity, such as conversion from socialism to capitalism b. an increase in the labor force or resource base c. more investment leading to better technology and more innovation

If cable TV service and satellite TV service are substitutes

a decrease in the price of cable will decease the demand for satelite TV

If cable TV service and satellite TV service are substitutes,

a decrease in the price of cable will decrease the demand for satellite TV.

Which of the following would most likely increase the demand for peanut butter?

a decrease in the price of jelly, a good that is often used with peanut butter

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels?

a higher rate of investment

The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is

a larger output resulting from a more efficient use of resources.

Market organization

a method of organization in which private parties make their own plans and decisions with the guidance of market prices

change in quantity demanded

a movement along the curve caused by a change in the price of the good in question

quantity supplied

a movement along the curve caused by a change in the price of the good in question

Many Americans have been hurt by recent economic events. Raising the minimum wage is the best policy to improve the wages and employment opportunities of Americans. This argument is a. correct because a higher minimum wage will increase total income which will stimulate aggregate demand and employment. b. incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities. c. correct because most minimum wage workers are household heads trying to earn enough to support their family. d. incorrect because the government has too big a deficit to pay for the increase in the minimum wage.

Maria wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $2.50 per gallon, the car wash costs $2, but if she buys 10 gallons of gasoline, the car wash is free. For Maria, the marginal cost of the tenth gallon of gasoline is a. zero. b. 50 cents. c. $2.00. d. $2.50.

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Consumer surplus for the three individuals is a. $15. b. $20. c. $35. d. $80.

a. $15.

Which of the following is a positive economic statement? a. A tax on butter will reduce the quantity of butter sold. b. The rich do not pay enough in taxes. c. People in poor countries should not work for less than $5 per hour. d. All of the above are positive economic statements.

a. A tax on butter will reduce the quantity of butter sold.

In his book The Wealth of Nations, which famous economist argued that economic activity was directed by an "invisible hand"? a. Adam Smith b. Milton Friedman c. Alfred Marshall d. David Ricardo

a. Adam Smith

Which one of the following is a positive economic statement? a. An increase in the minimum wage will reduce employment. b. The minimum wage should be increased. c. Social justice will be served by increasing the minimum wage. d. Thoughtful people oppose an increase in the minimum wage.

a. An increase in the minimum wage will reduce employment.

Which of the following does the law of demand specifically imply? a. If the product price increases, quantity demanded will decrease. b. If consumer income increases, quantity demanded will increase. c. If the product price increases, quantity demanded will increase. d. If consumer income increases, quantity demanded will decrease. e. If supply increases, demand will increase.

a. If the product price increases, quantity demanded will decrease.

Refer to Table 2-4. Which of the following is correct?

a. In Lebos, the opportunity cost of producing one unit of food is equal to one unit of clothing. b. In Slavia, the opportunity cost of producing one unit of food is equal to two units of clothing. c. The opportunity cost of producing food in Lebos is less than the opportunity cost of producing food in Slavia. d. All of the above are correct.

Which of the following is true if equilibrium is present in a market? a. Quantity demanded equals quantity supplied. b. Quantity supplied exceeds quantity demanded. c. There is generally either a shortage or a surplus. d. Quantity demanded exceeds quantity supplied.

a. Quantity demanded equals quantity supplied.

Which of the following occurs when a shortage occurs in the market for a good? a. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. b. Quantity supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. c. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. d. Quantity supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption.

a. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.

Rent controls tend to cause persistent imbalances in the market for housing because a. Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. b. Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. c. Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. d. Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

a. Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.

Suppose an economy is operating at its maximum sustainable output rate. Neither recession nor economic boom are present. Which of the following would be true? a. The economy would be considered at full employment. b. Actual GDP would exceed potential GDP. c. Actual unemployment will be less than the natural rate of unemployment. d. One hundred percent of the labor force is employed.

a. The economy would be considered at full employment.

What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat? a. The supply of wheat would fall. b. The supply of wheat would rise. c. The demand for wheat would fall. d. The demand for wheat would rise.

a. The supply of wheat would fall.

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action? a. There will be a shortage of corn. b. There will be a surplus of corn. c. There will be a decrease in the quantity of corn demanded as the result of the price ceiling. d. There will be an increase in the quantity of corn supplied as the result of the price ceiling.

a. There will be a shortage of corn.

When does a shortage occur? a. When price is less than equilibrium price. b. When goods are scarce. c. When quantity demanded is less than quantity supplied. d. When quantity demanded exceeds quantity supplied at the equilibrium price. e. When some of the people who need the product are not willing and able to buy it at the equilibrium price.

a. When price is less than equilibrium price.

If cable TV service and satellite TV service are substitutes, a. a decrease in the price of cable will decrease the demand for satellite TV. b. an increase in the price of cable will decrease the demand for satellite TV. c. an increase in the price of cable will generally have no effect on the demand for satellite TV. d. an increase in the price of cable will shift the demand curve for satellite TV to the left.

a. a decrease in the price of cable will decrease the demand for satellite TV.

Which of the following would most likely increase the demand for peanut butter? a. a decrease in the price of jelly, a good that is often used with peanut butter b. the discovery that excessive consumption of peanut butter is harmful to one's health c. crop failures that raise the price of peanuts d. the invention of a new product that consumers think is a good substitute for peanut butter

a. a decrease in the price of jelly, a good that is often used with peanut butter

If a surplus exists in a market we know that the actual price is a. above equilibrium price and quantity supplied is greater than quantity demanded. b. above equilibrium price and quantity demanded is greater than quantity supplied. c. below equilibrium price and quantity demanded is greater than quantity supplied. d. below equilibrium price and quantity supplied is greater than quantity demanded.

a. above equilibrium price and quantity supplied is greater than quantity demanded.

Long-run equilibrium in the goods and services market requires that a. aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices. b. the unemployment rate is zero. c. prices are neither increasing nor decreasing. d. aggregate supply be larger than aggregate demand.

a. aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices.

Other things constant, which of the following would most likely cause the supply of garden hoses to decrease? a. an increase in the price of plastic used to make garden hoses b. a technological advance that lowers the cost of producing garden hoses c. the occurrence of a very dry year with little rain d. a decrease in the price of grass seed

a. an increase in the price of plastic used to make garden hoses

Because the height of the demand curve measures the marginal value of the good to consumers, the fact that a demand curve slopes downward to the right illustrates that a. as more of a product is consumed, consumers will value additional units less. b. as more of a product is consumed, consumers will value additional units more. c. the value of additional units of the good is unrelated to the amount consumed. d. the cost of production for a good generally rises as more of it is produced.

a. as more of a product is consumed, consumers will value additional units less.

Other things constant, a decrease in consumer income will a. decrease the demand for large-screen television sets. b. increase the demand for large-screen television sets. c. cause a movement along the demand curve for large-screen television sets, but it will not shift the demand curve. d. have no impact on the quantity demanded or the demand curve for large-screen television sets.

a. decrease the demand for large-screen television sets.

When economists say the quantity demanded of a product has decreased, they mean the a. demand curve has shifted to the left. b. demand curve has shifted to the right. c. price of the product has fallen, and consequently, consumers are buying more of it. d. price of the product has risen, and consequently, consumers are buying less of it.

a. demand curve has shifted to the left.

If consumer purchases of a good are highly sensitive to the price of the good, this is illustrated by a a. demand curve that is relatively flat (more horizontal). b. demand curve that is relatively steep (more vertical). c. supply curve that is relatively flat (more horizontal). d. supply curve that is relatively steep (more vertical).

a. demand curve that is relatively flat (more horizontal).

secure property rights promote economic progress because they

encourage individuals to produce efficiently and undertake productive investments

Economic progress comes primarily through

entrepreneurial action directed by competitive markets

"The economic wealth of this country is primarily the result of the profit made by some individuals at the expense of others." The person who made this statement

has failed to comprehend that mutual gains result from specialization and exchange.

If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who...

have a comparative advantage in the productive activity

If a nation wants to get the most out of its resources, each productive assignment should be carried out by those persons who

have a comparative advantage in the productive activity

If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who

have a comparative advantage in the productive activity.

The major categories of federal government spending are

health care, national defense, Social Security, and other income transfers.

The economic way of thinking suggests that if the government imposed a $500 tax on owners of red automobiles, a. fewer red automobiles would be produced and sold. b. more red automobiles would be produced and sold. c. there would be no change in the number of red automobiles produced and sold. d. red automobiles would cease to exist.

a. fewer red automobiles would be produced and sold.

Of the following goods, which is most likely to be quite inelastic? a. gasoline b. Chevrolet automobiles c. fresh tomatoes d. provolone cheese

a. gasoline

Many Americans have been hurt by recent economic events. Raising the minimum wage is the best policy to improve the wages and employment opportunities of Americans. This argument is

incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities

If there is excess demand

price will rise

Keri decided to sleep in today rather than attend her 9 a.m. economics class. According to economic analysis, her choice was

rational if Keri values sleep more highly than the benefit she expects to receive from attending the class.

money is valuable because it

reduces transaction costs

The wages of house painters will tend to rise when...

the alternative earning opportunities of house painters improve

The rational-ignorance effect is a result of

the expectation of individual voters that their vote will not be decisive.

The opportunity cost to the u.S. of placing a man on the moon was

the loss of utility from the highest valued bundle of products that had be forgone because of the moon mission

Inelastic supply

the quantity supplied is not very sensitive to changes in price. Thus, a change in price leads to only a relatively small change in quantity supplied.

Which of the following is a transaction cost?

time spent standing in line to buy the ticket

Which of the following best describes the implications of the law of comparative advantage? If each person sells goods for which he or she has the greatest comparative advantage in production and buys those for which his or her comparative advantage is least, the

total output available to each person can be expanded by specialization and exchange.

Transfer payments are

transfers of income from taxpayers to recipients who do not provide current goods and services for the payments.

Economic theory suggests politicians will be most likely to favor redistribution of income from

unorganized taxpayers to well-organized interest groups.

"The economic wealth of this country is primarily the result of the profit made by some individuals at the expense of others." The person who made this statement a. has failed to comprehend that mutual gains result from specialization and exchange. b. has failed to comprehend the fallacy of composition. c. has failed to understand the significance of the production possibilities constraint. d. has utilized the economic way of thinking; the statement is essentially correct.

a. has failed to comprehend that mutual gains result from specialization and exchange.

"Bill Gates has made billions of dollars producing and marketing computer software. Many workers and consumers must have suffered in order for Gates to amass such enormous wealth." The person who made this observation a. has failed to understand the principle of opportunity cost. b. has failed to comprehend the fallacy of composition. c. has failed to understand that specialization and voluntary exchange result in mutual economic gain. d. has utilized the economic way of thinking by thinking the gains of producers are made primarily at the expense of consumers and workers.

a. has failed to understand the principle of opportunity cost.

b. incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities.

"Many Americans have been hurt by recent economic events. Raising the minimum wage is the best policy to improve the wages and employment opportunities of Americans." This argument is a. correct because a higher minimum wage will increase total income which will stimulate aggregate demand and employment. b. incorrect because while some people will receive higher wages, others will experience less employment and fewer training opportunities. c. incorrect because the government has too big a deficit to pay for the increase in the minimum wage. d. correct because most minimum wage workers are household heads trying to earn enough to support their family.

b. the importance of secondary effects.

"Mediocre economists often consider only the immediate direct effects of a change, whereas a good economist will also consider indirect effects that may only become observable over time." This statement most clearly emphasizes a. the law of comparative advantage. b. the importance of secondary effects. c. the gains derived from voluntary exchange. d. economizing behavior.

the law of comparative advantage.

"Now that Blake paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects

Which of the following sayings best reflects the concept of opportunity cost?

"Time is money."

$10 per hour.

Change in Supply

(1)A change in resource prices (2)Change in technology (3)Natural disasters and political disruptions (4)Changes in tax systems

Change in Demand

(1)Change in consumer income (2)Change in the number of consumers in the market (3)Change in the price of a related good (4)Change in expectations (5)Change in demographics (6)Change in consumer tastes and preferences

21. If an excise tax is imposed on a product, consumer surplus and producer surplus for this good will most likely change in which of the following ways?

(A) Decrease Decrease

17. A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about the price elasticity of demand for concert tickets?

(A) Demand is inelastic.

18. According to the graph above, which of the following will occur if a legal price ceiling is imposed at price X?

(A) Shortages will occur.

6. Assume that coal is a normal good. If the price of coal increases and the quantity sold increases, which of the following is consistent with these observations?

(A) The price of oil increased, oil and coal being substitutes.

27. Advocates of higher minimum wages for unskilled labor defend their position by arguing that

(A) low-income workers deserve to earn incomes above the poverty level.

10. Assume that the demand for apples is downward sloping. If the price of apples falls from $.80 per pound to $.65 per pound, which of the following will occur?

(B) A larger quantity of apples will be demand- ed.

Brooke is spending all of her income consum- ing products X and Y. If MUx= 6, what should Brooke do to maximize her satisfaction? MUy/ P/ Px= 10 and y

(B) Buy more X and less Y.

3. If there is an increase in demand for a good, what will most likely happen to the price and quantity of the good exchanged?

(B) Increase Increase

5. An increase in the price of gasoline will cause the demand curve for tires to shift in which direction?

(B) To the left, because gasoline and tires are complements

23. The substitution effect causes a consumer to buy less of a product when the price increases because the

(B) product is now more expensive compared to similar products.

Which of the following will not change the demand for oranges?

11. On the graph above, what area represents con- sumer surplus when the price is $10?

13. Compare 2000 with 2001. Which of the following statements is (are) true?

12. If the cost of producing automobiles increases, the price, equilibrium quantity and consumer surplus will most likely change in which of the following ways?

20. If the price of lunch at the school cafeteria increases and cafeteria revenue remains constant, the elasticity of demand for a school lunch must be

8. Which of the following statements best reflects the law of diminishing marginal utility?

(D) "I couldn't eat another doughnut if you paid me."

7. During a football game, it starts to rain and the temperature drops. The senior class, which runs the concession stand and is studying economics, raises the price of coffee from 50 cents to 75 cents a cup. They sell more than ever before. Which answer explains this?

(D) The demand for coffee increased.

16. Which of the following will occur if a legal price floor is placed on a good below its freemarket equilibrium?

(D) The equilibrium price will ration the good.

4. If hot dogs are an inferior good, an increase in income will result in

(D) a decrease in the demand for hot dogs.

14. Producer surplus is the

(D) amount the seller is paid less the cost of production.

9. Which of the following will not cause the demand curve for athletic shoes to shift?

(E) A decrease in the price of athletic shoes

1. A downward sloping demand curve can be explained by

(E) I, III and IV only diminishing marginal utility. the substitution effect. the income effect.

19. Which of the following statements about price controls is true?

(E) Price ceilings and price floors result in a misallocation of resources.

24. Based on the information in the table above, which product(s) is/ are inferior?

(E) Product B and D only

15. During the 1990s, the price of VCRs fell by about 30 percent, and quantity sold decreased by the same amount. The demand for VCRs must

(E) have shifted to the left.

private property rights

-The right to exclusive use of the property -Legal protection against invasion from other individuals -The right to sell, transfer, exchange, or mortgage the property

Law of demand

-There is an inverse (negative) relationship between the price of a good and the quantity that buyers are willing to purchase -Results in a downward sloping _____curve.

What does price do?

-allocates -encourages conservation -ensures that products go to those who value them most highly

Things that cause supply curve to shift?

-cost of production -changes in technology -number of sellers in the market -natural disasters -tax policy

voluntary trade

-creates value and leads to economic progress -both parties are made better off.

8 Guideposts to economic thinking

1- There is always a tradeoff (opportunity cost) 2- Individuals choose purposefully, therefor economically (highest utility, lowest cost) 3- Incentives matter 4- People make decisions at the margin 5- Information is a costly good 6- Remembering the secondary effects 7- The value of a good or service is subjective 8- The test of a theory is it's ability to predict

Things that cause the demand to shift?

1- income 2- number of buyers 3- price of related products 4- innovations 5- expectations 6-anything but price

What cause Production possibilities curve to shift?

1- increase in the number of resources 2- increase in technology 3- more favorable laws, incentives 4- reduce leisure time (increase work)

Suppose that the consumer price index at year-end 2004 was 140 and by year-end 2005 had risen to 150. What was the inflation rate during 2005?

7.1 percent Inflation = (new PI - old PI)/ (old PI)

The production possibilities curve illustrates the basic principle that a. an economy's capacity to produce is unrelated to its population. b. if all the resources of an economy are being used efficiently, more of one good can be produced only if more of another good is produced. c. an economy will automatically move toward a point at which all of its resources are being used inefficiently. d. if all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

d. if all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

Because information is costly to acquire, a. people will rationally choose not to become fully informed when making decisions. b. people will generally choose to become as fully informed as possible when making decisions. c. people will generally choose to acquire no information that would be relevant to their decisions. d. none of the above are true.

d. none of the above are true.

The difference between positive economic statements and normative economic statements is that a. positive statements are based on opinion while normative statements are based on fact b. positive statements are true and normative statements are often false c. positive statements are often false and normative statements are true d. positive statements are based on fact while normative statements are based on opinion e. both b and d.

d. positive statements are based on fact while normative statements are based on opinion

Because of a late night out with friends, Alyssa decided to sleep in rather than attend her 7:50 a.m. economics class. According to economic analysis, her choice was a. irrational, because economic analysis suggests you should always attend classes that you have already paid for. b. irrational, because oversleeping is not in Alyssa's self-interest. c. rational only if Alyssa has not missed any other classes during the current semester. d. rational if Alyssa values the additional sleep more highly than the extra benefit she expects to receive from attending the class.

d. rational if Alyssa values the additional sleep more highly than the extra benefit she expects to receive from attending the class

Economic analysis indicates minimum wage legislation has a. made it possible for any teenager who wants to work to earn almost 80 percent as much as an adult. b. made it easier for teenagers to find jobs that offer the opportunity for training. c. been an important source of increases in income since most workers earn at or near the minimum wage. d. reduced the on-the-job training opportunities available to teenagers.

d. reduced the on-the-job training opportunities available to teenagers.

When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare a. the benefits expected from two cars with the cost of both. b. the additional benefits expected from a second car with the cost of the two cars. c. the dollar cost of the two cars with the potential income that the cars will generate. d. the additional benefits of the second car with the additional cost of the second car.

d. the additional benefits of the second car with the additional cost of the second car.

In a voluntary exchange, if the seller of a product gains, a. the buyer will generally lose an amount greater than the gain to the seller. b. the buyer must lose an amount equal to what the seller gains. c. someone else must lose an equal amount. d. the buyer must also gain; mutual gain provides the foundation for exchange.

d. the buyer must also gain; mutual gain provides the foundation for exchange.

Taxes adversely affect the allocation of resources because a. they do not always fall more heavily on the rich than on the poor. b. the taxes collected are not enough to finance government spending. c. not everyone pays taxes. d. they distort prices and thus distort the decisions of households and firms.

d. they distort prices and thus distort the decisions of households and firms.

Refer to Figure 2-9. The opportunity cost of obtaining 10 additional toasters by moving from point B to point A is a. 10 toothbrushes. b. 20 toothbrushes. c. 30 toothbrushes. d. zero, since the economy has the additional resources to produce 10 additional toasters. (see #69 in study guide for image)

d. zero, since the economy has the additional resources to produce 10 additional toasters.

A decrease in the expected future price of a good will cause the current demand for the good to...

decrease, which is a shift to the left of the demand curve.

When economists say the demand for a product has increased, they mean the...

demand curve has shifted to the right

If consumer purchases of a good are highly sensitive to the price of the good, this is illustrated by a

demand curve that is relatively flat (more horizontal).

If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has

depreciated, and Americans will find English goods more expensive.

Profit can be defined as the...

difference between the sales revenue of a business firm and the opportunity cost of the resources required to produce the goods supplied by the firm

Invisible hand

doing things in your own self- interest that also benefits society *causes natural order not central planning

data show that among the firms that produce bananas, dole has 26% of sales, del monte has 14% of sales, fyffes has 8% of sales and nabob has 5% of sales. all other firms has the rest of sales. this information suggests that: a) firms in the industry are "price takers" b) the firms in the industry are likely to engage in strategic behaviors and interaction c) the banana industry has a strong oligopoly d) the industry wold be described as monopolistic competitive e) b and c likely to occur

Suppose the government spends $10 billion subsidizing firms producing electricity with wind turbines because these firms are high cost producers. Will the subsidies lead to economic growth and higher income levels? a. Yes, because more people will be employed by the firms producing electricity with wind turbines. b. No, the turbines are an inefficient form of producing electricity and therefore the subsidies will increase the opportunity cost of supplying it. c. Yes, because the government will be able to finance the subsidies without reducing private sector output. d. Uncertain, higher income levels will be achieved if the employment of the firms producing electricity with the wind turbines expands; if not, incomes will fall.

The recent WASDE report shows a decrease in expected imports of wheat. The US "total supply" of wheat for the crop year is estimated to: a. Increase b. Decrease c. Remain unchanged d. Can't tell from available information

When economic profits are present in a market, a. firms will exit from the market. b. new firms will enter the industry and the existing firms will expand the scale of their operation. c. firms will raise their prices and reduce output. d. the value of the product is less than the value of the resources required for its production.

When resources are allocated by markets, profits and losses provide information about a. which products are priced too high and which are priced too low. b. which resources are being used productively and which resources should be allocated to other uses. c. which industries need to be subsidized and which need to be subject to additional regulation. d. which businesses should be taxed more heavily and which should be subsidized.

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels? a. higher tax rates b. a higher rate of investment c. a smaller trade sector d. greater use of taxation to transfer income from the rich to the poor

Which of the following is often referred to as the basic postulate of economics? a. Individuals act only out of selfish motives. b. Incentives matter; individuals respond in predictable ways to changes in personal costs and benefits. c. The accuracy of the assumptions is the best test of an economic theory. d. The value of a good is objective; it is equal to the cost of producing the good.

Which of the following is true? a. Large corporations earn profits, while smaller firms realize losses. b. Profits attract businesses to productive projects, while losses discourage them from undertaking unproductive activities. c. Profits indicate that businesses are over-charging customers, while losses suggest that they should raise customer prices. d. If corporations want to increase profits, they will always be able to do so by either increasing product prices or reducing employee wages.

Which of the following statements reflect sound economic reasoning? a. Foreign competition will reduce the wealth of Americans. b. If it is more economical to acquire a good through trade than by self-production, it makes sense to trade for it. c. If domestic production of a good will employ lots of people, the good should be produced domestically. d. Higher tariffs will increase the total volume of international trade.

Which of the following would be most likely to increase transaction costs? a. A new mall opens bringing together area merchants at one location. b. A city ordinance bans large superstores in order to protect small, local businesses. c. A canal is constructed, allowing ships to reduce travel time by 50 percent. d. A website quickly connects new students to people who are seeking roommates.

While waiting in line to buy two tacos at 75 cents each and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan, the marginal cost of purchasing the third taco would be a. zero. b. 20 cents. c. 75 cents. d. 80 cents.

Which one of the following statements is most clearly inconsistent with the economic way of thinking? a. "If you give a person a fish, you feed him for a day; if you teach him to fish, you feed him for life." b. "If the government provides a good free to citizens, then the opportunity cost of the good is zero." c. "If you derive the same satisfaction from a hamburger as a chicken sandwich, it makes sense to have the cheaper alternative for lunch." d. "When it is cheaper to have someone else mow your lawn than to mow it yourself, hiring someone to do the job is consistent with economizing behavior."

b. "If the government provides a good free to citizens, then the opportunity cost of the good is zero."

Which of the following sayings best reflects the concept of opportunity cost? a. "You can't teach an old dog new tricks." b. "Time is money." c. "I have a baker's dozen." d. "There's no business like show business."

b. "Time is money."

Refer to Figure 2-9. If the economy moves from point A to point D, the opportunity cost is a. 10 toasters. b. 20 toasters. c. 30 toasters. d. 30 toothbrushes. (see #67 in study guide for image)

b. 20 toasters

Which of the following events would definitely cause a decrease in the equilibrium price of cotton shirts? a. An increase in the price of wool shirts and a decrease in the price of raw cotton. b. A decrease in the price of wool shirts and a decrease in the price of raw cotton. c. An increase in the price of wool shirts and an increase in the price of raw cotton. d. A decrease in the price of wool shirts and an increase in the price of raw cotton.

b. A decrease in the price of wool shirts and a decrease in the price of raw cotton

What is willingness to pay? a. The maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. b. A measure of the value that a buyer places on a good. c. The amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. d. The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

b. A measure of the value that a buyer places on a good.

Given the demand and supply conditions shown in Figure 4-2, if the government imposes a price ceiling of a, indicate the quantity consumers would like to buy and the amount producers would be willing to supply. a. Consumers would want to buy t; producers would be willing to sell r. b. Consumers would want to buy r; producers would be willing to sell t. c. Consumers would want to buy t; producers would be willing to sell s. d. Consumers would want to buy s; producers would be willing to sell s. (see #176 for image)

b. Consumers would want to buy r; producers would be willing to sell t.

Other things constant, a decrease in consumer income will do which of the following? a. Cause a movement along the demand curve for large-screen television sets, but it will not shift the demand curve. b. Decrease the demand for large-screen television sets. c. Increase the demand for large-screen television sets. d. Have no impact on the quantity demanded or the demand curve for large-screen television sets.

b. Decrease the demand for large-screen television sets.

If price rises, what happens to the quantity demanded for a product? a. It does not change. b. It decreases. c. Uncertain--economic theory has no answer to this question. d. It increases.

b. It decreases.

How will a reduction in the price of cotton influence the market for blue jeans? a. The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the left. b. The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the right. c. The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the left. d. The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the right.

b. The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the right.

The Red Jacket Mountain View Inn in New Hampshire charges $150 per room in the winter ski season and $90 during the summer months. The number of rooms and operating costs are constant year round. Which of the following best explains the price difference? a. There is a rightward shift in demand in the summer. b. There is a rightward shift in demand in the winter. c. There is a leftward shift in demand in the winter. d. There is a leftward shift in the supply curve in the summer.

b. There is a rightward shift in demand in the winter.

How will consumers generally react to an increase in the price of butter? a. They will purchase a larger quantity of butter. b. They will substitute other goods like margarine for the more expensive butter. c. They will reduce their purchases of substitute goods like margarine. d. They will continue purchasing the same quantity of butter at the higher price.

b. They will substitute other goods like margarine for the more expensive butter.

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be a. a decrease in the supply of automobiles, which is a shift to the right of the supply curve. b. a decrease in the supply of automobiles, which is a shift to the left of the supply curve. c. an increase in the supply of automobiles, which is a shift to the right of the supply curve. d. an increase in the supply of automobiles, which is a shift to the left of the supply curve.

b. a decrease in the supply of automobiles, which is a shift to the left of the supply curve.

The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is a. an expansion in investment resulting from a reallocation of resources away from consumption. b. a larger output resulting from a more efficient use of resources. c. greater equality of income resulting from an increase in the number of workers. d. an increase in the profitability of business enterprises resulting from an increase in investment.

b. a larger output resulting from a more efficient use of resources.

When the market for a good is in equilibrium, a. consumer surplus will equal producer surplus. b. the total value created for consumers will equal the total cost of production for business firms. c. all units valued more highly than the opportunity cost of production will be supplied. d. all units that have value will be produced, regardless of their cost of production.

b. all units valued more highly than the opportunity cost of production will be supplied.

Which of the following will reduce the supply of motorcycles? a. an increase in the population age 16 to 35, the primary consumers of motorcycles b. an increase in taxes imposed on motorcycle producers c. a technological improvement reducing the production costs of motorcycles d. a government study that reveals motorcycle riders, on average, live 10 years longer than those who don't ride motorcycles

b. an increase in taxes imposed on motorcycle producers

Which of the following is the most likely outcome of minimum wage laws? a. an increase in both the quantity of labor supplied by workers and the quantity of labor demanded by firms b. an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms c. a decrease in the quantity of labor supplied by workers and an increase in the quantity of labor demanded by firms d. a decrease in both the quantity of labor supplied by workers and the quantity of labor demanded by firms

b. an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms

The law of demand is simply a reflection of the a. work of Alfred Marshall who formulated the law. b. basic principle of economics: Incentives influence behavior in a predictable fashion. c. production possibilities curve. d. law of comparative advantage.

b. basic principle of economics: Incentives influence behavior in a predictable fashion.

The more elastic the supply of a product, the more likely it is that the a. burden of a tax on the product will fall on sellers. b. burden of a tax on the product will fall on buyers. c. burden of a tax on the product will fall equally on both buyers and sellers. d. deadweight loss of the tax will be smaller.

b. burden of a tax on the product will fall on buyers.

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when a. workers are able to organize and develop strong unions. b. competitive markets direct the actions of self-interested individuals. c. the selfish instincts of individuals are controlled. d. political representatives are elected democratically.

b. competitive markets direct the actions of self-interested individuals.

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called a. price elasticity of demand. b. consumer surplus. c. the substitution effect. d. income elasticity of demand.

b. consumer surplus.

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements a. are essentially correct. b. contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand. c. contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand. d. contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars.

b. contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand.

If price rises, what happens to quantity supplied of a product? a. It increases. b. It decreases. c. It does not change. d. Quantity supplied is constant, but supply increases.

b. decreases.

If consumer purchases of a good are not very sensitive to the price of the good, this is illustrated by a a. demand curve that is relatively flat (more horizontal). b. demand curve that is relatively steep (more vertical). c. supply curve that is relatively flat (more horizontal). d. supply curve that is relatively steep (more vertical).

b. demand curve that is relatively steep (more vertical).

The curve that shows the relationship between the price of a good and the quantity that consumers are willing to purchase at each price is the a. supply curve. b. demand curve. c. production possibilities curve. d. consumption curve.

b. demand curve.

When property rights are clearly defined and enforced, private owners will a. use their property for selfish ends because they have little or no incentive to consider the desires of others. b. develop and direct their property toward uses that others value highly because the market will generally reward them for doing so. c. have little or no incentive to take care of their property or conserve it for the future. d. be unable to derive personal gain if they are sensitive to the desires of others when deciding how to use their property.

b. develop and direct their property toward uses that others value highly because the market will generally reward them for doing so.

Taxes create deadweight losses because they a. reduce profits of firms. b. distort incentives. c. cause prices to rise. d. create revenue for the government.

b. distort incentives.

If consumer purchases of a good are highly sensitive to the price of the good, economists say the demand for the good is relatively a. inelastic. b. elastic. c. robust. d. inverse.

b. elastic

If the quantity of a good supplied is highly sensitive to the price of the good, economists say the supply of the good is relatively a. inelastic. b. elastic. c. robust. d. inverse.

b. elastic

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in a. excess demand. b. equilibrium. c. excess supply. d. fixation.

b. equilibrium.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources a. only if buyers and sellers really care, personally, about economic efficiency. b. even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use. c. even if business firms fail to produce goods efficiently. d. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.

b. even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources a. only if buyers and sellers really care, personally, about economic efficiency. b. even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use. c. even if business firms fail to produce goods efficiently. d. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.

b. even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use.

If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who a. have the highest opportunity cost. b. have a comparative advantage in the productive activity. c. can complete the productive activity most rapidly. d. least enjoy performing the productive activity.

b. have a comparative advantage in the productive activity.

Corn and soybeans are alternatives that could be grown by most farmers. If government subsidies for ethanol lead to higher corn prices, this will a. increase the supply of corn. b. increase the supply of soybeans. c. decrease the supply of soybeans. d. decrease the supply of corn. e. have no effect on the supplies of corn and soybeans.

b. increase the supply of soybeans.

In Figure 2-1, point A is a. unattainable. b. inefficient. c. efficient. d. preferable to point B. (see #63 study guide for image)

b. inefficient

Because of price controls in the former Soviet Union, people often waited in long lines for food and other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in line is a. just as efficient. b. less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller. c. more efficient since waiting in line reduces the transaction costs of purchasing goods. d. more efficient since waiting in line reduces the cost of the goods to the consumer.

b. less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller.

Economists use the term ceteris paribus to indicate that a. supply and demand are in balance. b. other things are assumed to be constant. c. the analysis is true for the individual but not for the economy as a whole. d. their conclusions are based on normative economics rather than positive economic analysis.

b. other things are assumed to be constant.

When price is the rationing criterion, individuals have a strong incentive to a. ignore the wishes of others when making decisions about how to use their resources. b. provide services to others in exchange for income. c. avoid exchanges because in every exchange there will be one person who gains and another who loses. d. substitute promises for the consistent delivery of a quality product.

b. provide services to others in exchange for income.

When a price floor is above the equilibrium price, a. quantity demanded will exceed quantity supplied, so there will be a shortage. b. quantity supplied will exceed quantity demanded, so there will be a surplus. c. the market will be in equilibrium. d. This is a trick question because price floors are generally set below the equilibrium price.

b. quantity supplied will exceed quantity demanded, so there will be a surplus.

A tax imposed on the sellers of a good a. raises both the price buyers pay and the net price received by sellers. b. raises the price buyers pay and lowers the net price received by sellers. c. lowers the price buyers pay and raises the net price received by sellers. d. lowers both the price buyers pay and the price received by sellers.

b. raises the price buyers pay and lowers the net price received by sellers.

When economists say the quantity supplied of a product has increased, they mean the a. supply curve has shifted to the left. b. supply curve has shifted to the right. c. price of the product has risen, and consequently, suppliers are producing more of it. d. price of the product has fallen, and consequently, suppliers are producing less of it.

b. supply curve has shifted to the right.

People are willing to pay more for a diamond than for a bottle of water because a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. d. water prices are held artificially low by governments, since water is necessary for life.

b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the verge of extinction. These private owners charge fees for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result, a. the population of black rhinos has fallen substantially. b. the population of black rhinos has increased. c. many black rhinos are being poached. d. the incomes of residents in Zimbabwe has fallen substantially

b. the population of black rhinos has increased.

Which of the following would be included in this year's GDP? a. the value of a used car, at its sale price b. the value of a new domestic automobile, at its sale price c. a sale of Microsoft stock from one individual to another d. the face value of a life insurance policy paid to a woman at the death of her husband

b. the value of a new domestic automobile, at its sale price

To say that people make marginal decisions means that a. they usually wait until the last minute before making a decision to buy b. they weigh the additional costs and additional benefits of various activities before they make a decision c. most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence d. they consider the total cost and benefit of various activities before they make a purchase

b. they weigh the additional costs and additional benefits of various activities before they make a decision

If Harry Bartolini's Ford dealership sells Rosa Brown a new automobile for $30,000, economic analysis indicates that

both parties to the transaction will gain.

which of the following best summarizes the importance of business failure and the central idea of "creative destruction in a market economy?"

business failure allows the assets and resources from that business to move into other areas where they will be more productive

A highly charitable person, such as Mother Theresa, will be influenced by a. changes in benefits, but not costs. b. changes in costs, but not benefits. c. both changes in benefits and costs. d. neither changes in benefits nor costs.

A local restaurant offers an "all you can eat" Sunday brunch for $12. Jenica eats two servings but leaves half of a third helping uneaten. Why? a. Her marginal value of brunch has fallen below $12. b. Her marginal value of additional food has fallen below $4 ($12 divided by 3 servings). c. Her marginal value of an additional bite of food has fallen to zero. d. The total value she places on brunch today exactly equals $12.

As incomes increase worldwide, in addition to increased energy use, we expect to see use (and relative share) of grains and oilseeds used for animal feed a. increase in highly developed economies only b. to decrease worldwide c. to increase worldwide d. stay at relatively the same share

Final consumer demand for poultry in the US increases (shifts to the right) if a) consumer income decreases b) the price of chicken decreases c) the price of beef increases d) the price of pork decreases

If a business is earning an economic profit in a competitive market, it is a. price gouging its customers. b. exploiting it workers. c. producing goods and services that are valued more highly than the resources required to produce them. d. producing goods and services in a market that is characterized by high entry barriers.

If a business is losing money on the goods it is producing, this indicates that a. the business is producing the goods at the lowest possible cost. b. the resources used to produce the goods are too expensive and need to be subsidized in order to be used productively. c. the resources would be used more productively producing other things. d. the consumer values the goods highly relative to costs.

If income in Africa increases by 4% and demand for poultry increases by 8%, then the income elasticity for poultry demand in Africa is projected to be: a. -0.8 b. 0.8 c. 2 d. 1.25 e. 1.50

If the cost of producing butter increases, what will happen to the equilibrium price and quantity of butter exchanged? Price Quantity a. Decrease Increase b. Decrease Decrease c. Increase Decrease d. Increase Increase

Profits and losses play an important role in helping a. to signal to government which businesses are suffering losses so that they can be subsidized. b. consumers decide which products they value the most by looking at each firm's profit. c. direct businesses toward productive projects and away from ones that are unproductive. d. ensure that the total profits in the economy exactly equal the total losses.

Public investment in crop breeding has tended to emphasize longer term research while investment by the private sector has emphasized: a. Investment in animal agriculture b. Investment to encourage small scale production c. Investment in cultivar development with short term payoffs d. All of the above

Recently several food companies have adopted policies for "humane" treatment of animals to apply to providers of their meats. The food companies expect that their action will help differentiate their product from their competitors who have not adopted such policies. They expect that "differentiation" of their product will allow them to: a) Do little to change their price because the food industry is a very competitive industry b) Lower price so they will be able to sell more product c) Raise price to cover higher input costs and get higher profit

The U.S. government subsidizes the production of ethanol from corn and requires gasoline to contain a specific percentage of ethanol.What are the unintended consequences of this program? I. higher corn prices II. higher prices for cornbread and tortillas, products made from corn III. lower prices for gasoline because corn is a renewable resource a. II only b. I only c. I and II d. I, II, and III

The cash price at your local elevator is $3.60/bu for corn. The relevant (nearby) futures contract for corn is the December contract and it is valued today at $3.50/bu. The "basis" for this location (market) is: a. $0.50/bu b. -$0.50/bu c. $0.10/bu d. -$0.10/bu

The expression "There's no such thing as a free lunch" means a. if one person gains, someone else must lose. b. each person must pay for exactly what he or she receives. c. when scarce resources are used to produce one good they are unavailable to produce others. d. you cannot have a free lunch at the expense of someone else.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources a. only if buyers and sellers really care, personally, about economic efficiency. b. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely. c. even when each market participant cares only about their own self-interest rather than about the overall efficiency of resource use. d. even if business firms fail to produce goods efficiently.

The period starting around 200 years ago is important in economic history because this is approximately the time when a. economies started to decline, resulting in lower standards of living. b. money was invented. c. economic growth began in some countries, resulting in sustained improvements in the standard of living. d. the world caught up to the standard of living of ancient Rome.

The price of an airline ticket from Denver to Chicago costs $450. A bus ticket costs $150. Traveling by plane takes 2 hours compared with 32 hours by bus. Other things constant, Erica would gain by choosing air travel if, and only if, she values her time at more than a. $5 per hour. b. $9.38 per hour. c. $10 per hour. d. $300 per hour.

The primary benefit of voluntary trade is that a. it allows developers to put land to better use through eminent domain. b. the prices of goods and services rise. c. people on both sides of the trade are made better off. d. it increases tax revenue.

The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that a. students will take better care of these commonly owned bicycles than they do their own bicycles. b. students will take equally as good care of these commonly owned bicycles as they do their own bicycles. c. students will not take as good of care of these commonly owned bicycles as they do their own bicycles. d. because universities have a lot of money, these bikes will be better maintained than the ones owned privately by college students who tend to have little money.

The wholesale price of cranberries in the market is currently $0.83/lb. The quantity supplied at this price is 90,000 pounds. The quantity demanded is 95,000 pounds. In this case, there is: a. Excess supply in the market and this is a signal for sellers to decrease price b. Excess supply in the market and this is a signal for suppliers to increase price c. Excess demand in the market and this is a signal for consumers to buy less d. Excess demand in the market and this is a signal for consumers to buy more e. The market is in equilibrium

Voluntary trade promotes economic progress because it a. encourages individuals to become self-sufficient. b. benefits buyers at the expense of sellers. c. makes larger outputs possible as a result of specialization. d. moves goods, services and resources from people who value them more to individuals who value them less.

When an American hires a Mexican worker to perform a job, we know that a. Both the American and the Mexican would be better off if they had dealt with someone in their own country instead. b. The American is made better off by exploiting the Mexican worker, who is worse off. c. Both the American and the Mexican are better off than they would be if they had not made this voluntary exchange. d. The Mexican worker is better off, but the American employer is worse off because he should have hired an American worker.

When individuals increase their personal wealth through production and exchange, they a. reduce the wealth of others. b. must rely heavily on government intervention and regulation. c. increase the wealth of others. d. must be selfish and greedy.

Which of the following actions would be most likely to increase economic growth in a developing country? a. establishment of a command economy that can set definite goals for the future and implement them b. an increase in foreign aid to finance spending on infrastructure such as roads and bridges c. development of a legal system that fairly protects people and their property d. construction of new colleges to expand higher education

Which of the following is most consistent with the basic postulate of economics: changes in incentives exert a predictable impact on human behavior? a. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. b. People will buy more milk at a price of $3 per gallon than at $2 per gallon. c. People will buy less gas if the price of gas increases by $0.50 per gallon. d. People will consume more beef if the price increases from $1 to $2 per pound.

Which of the following is most important for the achievement of higher income levels and living standards? a. an increase in total employment b. increases in government spending that create jobs c. production of additional goods and services that people value highly relative to the cost of their production d. restriction of imports that expand employment in the protected industries

Which of the following students would be most likely to drop out of college before completing their degree? a. a senior physics major with a solid B average b. a junior secondary education major who has just read about the substantial improvement in the job opportunities available for teachers with a college degree c. an outstanding baseball player in his junior year that just received a $500,000 offer from a professional team d. a junior economics major who wants to attend law school

In a typical college town, when students go home for the summer, the demand for many items such as pizza and beer a. decreases, which is a shift to the left of the demand curves for these goods. b. decreases, which is a shift to the right of the demand curves for these goods. c. increases, which is a shift to the left of the demand curves for these goods. d. increases, which is a shift to the right of the demand curves for these goods.

c or d

Refer to Figure 4-6. The amount of the excise tax I is a. $.50. b. $1.50. c. $1.00. d. $2.00. (see #179 for image)

c. $1.00.

136. Given the supply and demand conditions illustrated in Figure 3-2, the equilibrium price of steak is a. $2 per pound. b. $4 per pound. c. $6 per pound. d. $8 per pound. (see #136 in study guide for image)

c. $6 per pound.

Refer to Figure 2-10. If this economy put all available resources into the production of bananas, it could produce a. 200 bananas and also 150 baseballs. b. 300 bananas and also 100 baseballs. c. 400 bananas and no baseballs. d. It is impossible to know unless we know the quantity of resources available. (see #70 in study guide for image)

c. 400 bananas and no baseballs.

(I) When individuals engage in a voluntary exchange, both parties are made better off. (II) By channeling goods and resources to those who value them most, trade creates value and increases the wealth created by a society's resources.

c. Both I and II are true.

Amanda decides to buy a dress that Hillary has for sale; they both agree on a price of $20 for the exchange. Which of the following best describes who gains and who loses from the trade? a. If the dress originally costs more than $20, Amanda gains and Hillary loses. b. If the dress originally costs less than $20, Hillary gains and Amanda loses. c. Both parties expect to gain from this transaction. d. If Hillary gains from the transaction, Amanda must lose an equal amount.

c. Both parties expect to gain from this transaction.

Which of the following is true? a. Anticipated inflation is an increase in the price level that comes as a surprise, at least to most individuals. b. Unanticipated inflation is a change in the price level that is widely expected. c. Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy. d. Inflation will increase the prices of goods and services that households purchase but not the wage rates of workers.

c. Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy.

Which of the following is a positive economic statement? a. Government control of rent is a fair way to help poor people afford housing. b. Government control of rent keeps landlords from charging too much rent. c. Government control of rent decreases the number of new apartments constructed. d. Government control of rent is an injustice.

c. Government control of rent decreases the number of new apartments constructed.

If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that a. Harry is an irrational consumer. b. The seller earned a $10,000 profit on the sale of the car. c. Harry reaped $10,000 of consumer surplus from the transaction. d. The seller received $10,000 worth of producer surplus on the transaction.

c. Harry reaped $10,000 of consumer surplus from the transaction.

If price falls, what happens to the demand for a product? a. It decreases. b. Uncertain--economic theory has no answer to this question. c. It does not change. d. It increases.

c. It does not change.

If price rises, what happens to supply of a product? a. It increases. b. It decreases. c. It does not change. d. Uncertain--economic theory has no answer to this question.

c. It does not change.

Refer to Table 2-4. Which of the following is correct?

c. Lebos has the comparative advantage in food.

Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $15, then who would be willing to purchase the product? a. Mike b. Mike and Sandy c. Mike, Sandy, and Jonathan d. Mike, Sandy, Jonathan, and Haley (see #91 on study guide for image)

c. Mike, Sandy, and Jonathan

Which one of the following transactions would be included in GDP? a. Ms. Kim pays $50 for a used picture frame at a neighborhood garage sale. b. Mr. Doe donates $500 to his town's junior college scholarship fund. c. Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident. d. Ms. Smith pays $5,000 to purchase 100 shares of Microsoft stock (assume no sales commission is made on the exchange).

c. Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.

Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives. a. Farmers produce fewer bushels of wheat in response to an increase in the price of wheat. b. People will buy more milk at a price of $2 per gallon than at $1 per gallon. c. People will buy less gas if the price of gas increases by $.20 per gallon. d. People will consume more beef if the price increases from $1 to $2 per pound.

c. People will buy less gas if the price of gas increases by $.20 per gallon.

If the demand for a good increased, what would be the effect on the equilibrium price and quantity? a. Price would decrease, and quantity would increase. b. Price would decrease, and quantity would decrease. c. Price would increase, and quantity would increase. d. Price would increase, and quantity would decrease.

c. Price would increase, and quantity would increase.

Suppose that the nominal value of GDP increased by approximately 2 percent during a given year, but real GDP decreased by 3 percent. Which of the following best explains these events? a. The money supply decreased by approximately 5 percent. b. Prices fell by approximately 5 percent. c. Prices increased by approximately 5 percent. d. The real productive capacity of the economy increased by approximately 5 percent.

c. Prices increased by approximately 5 percent.

Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference? a. Harold must enjoy ironing more than Sarah does. b. Harold must be better at ironing than Sarah is. c. The opportunity cost of ironing is greater for Harold. d. Sarah has a higher opportunity cost of laundering her clothes than Harold does.

c. The opportunity cost of ironing is greater for Harold

If there is both an increase in the supply of a good and a decrease in demand for a good, which of the following will definitely occur? a. The price of the good will increase. b. The equilibrium quantity will decrease. c. The price of the good will decrease. d. The equilibrium quantity will increase.

c. The price of the good will decrease.

A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation? a. The supply of Florida oranges fell, causing the supply of California oranges to increase as well as their price. b. The supply of Florida oranges fell, causing the supply of California oranges to decrease and their price to increase. c. The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase. d. The demand for Florida oranges was reduced by the freeze, causing an increase in the price of California oranges and a greater demand for them.

c. The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase.

Suppose there was a country with an adult (age 16 and over) population of 1,000, of which 100 were unemployed and 700 were employed. Which of the following is true? a. The employment population ratio is 87.5 percent. b. The labor force participation rate is 70 percent. c. The unemployment rate is 12.5 percent. d. There are 700 individuals in this country's labor force.

c. The unemployment rate is 12.5 percent.

Under a system of private property, could a 60-year-old owner of a tree farm benefit by planting and caring for a crop of Douglas firs, most of which will not be ready to cut for 50 years? a. No, the farmer will be dead before the crop will be ready for harvest. b. No, the value of the farmer's land will decline since he is taking it out of production for the next 50 years. c. Yes, the farmer will benefit because this action will increase the value of the land if and when the farmer decides to sell. d. Yes, but only if the project is subsidized by the government or private conservation groups.

c. Yes, the farmer will benefit because this action will increase the value of the land if and when the farmer decides to sell.

In a market economy, a. a larger income for one person means a smaller one for another. b. the government answers all the basic economic questions. c. a larger income for one person means it is possible for others to benefit also. d. economic output shrinks as we discover better ways of doing things.

c. a larger income for one person means it is possible for others to benefit also.

Assume the demand curve for cookies is downward sloping. If the price of cookies falls from $1.50 to $1.25 per dozen, a. the demand for cookies will fall. b. the demand for cookies will rise. c. a larger quantity of cookies will be demanded. d. a smaller quantity of cookies will be demanded.

c. a larger quantity of cookies will be demanded.

If consumer incomes go up and you are analyzing the market for Harley Davidson motorcycles, the effect on the demand for motorcycles, ceteris paribus, will be a. an upward movement along the demand curve for motorcycles. b. a downward movement along the demand curve for motorcycles. c. a rightward shift in the demand curve for motorcycles. d. a leftward shift in the demand curve for motorcycles.

c. a rightward shift in the demand curve for motorcycles.

The economic way of thinking is a. a set of historical generalizations that indicates what goods should be produced. b. a body of statistical data that indicates how an economy should be organized. c. a set of basic concepts that helps one understand human choices. d. a set of complex, highly abstract theories that provides persons skilled in statistics with the information necessary to tell others what choices they should make.

c. a set of basic concepts that helps one understand human choices.

In Figure 3-7, suppose D1 and S1 indicate the initial conditions in the market for ice cream. Which of the following changes would tend to cause the shift from D1 to D2 in the market for ice cream? a. a decrease in the price of sugar, an ingredient used to produce ice cream b. an increase in the price of frozen yogurt, a substitute for ice cream c. abnormally cold weather that decreased consumer desire for ice cream d. an increase in the price of milk, an ingredient used to produce ice cream (see #138 in study guide for image)

c. abnormally hot weather that temporarily increases consumer desire for ice cream

A minimum wage that is set above a market's equilibrium wage will result in a. an excess demand for labor, that is, unemployment. b. an excess demand for labor, that is, a shortage of workers. c. an excess supply of labor, that is, unemployment. d. an excess supply of labor, that is, a shortage of workers.

c. an excess supply of labor, that is, unemployment.

Which of the following is the most likely result of an increase in the minimum wage? a. an increase in the employment of unskilled workers b. a decrease in the number of workers seeking minimum wage jobs c. an increase in the demand for unskilled workers d. a decrease in the employment of unskilled workers

c. an increase in the demand for unskilled workers

Which of the following would lead to an increase in the demand for designer blue jeans? a. a decrease in the price of designer blue jeans b. a reduction in the price of the cotton used to produce the jeans c. an increase in the income of youthful Americans d. an increase in the price of the cotton used to produce the jeans

c. an increase in the income of youthful Americans

The current demand for automobiles would decrease if a. the price of gasoline fell. b. consumer income rose. c. consumers suddenly believed the price of automobiles would be sharply lower in the near future. d. consumers suddenly believed the price of automobiles would be sharply higher in the near future.

c. consumers suddenly believed the price of automobiles would be sharply lower in the near future.

When policymakers impose price controls, they a. are usually following the advice of mainstream economists. b. usually improve the efficiency of economic activity. c. distort the signals that normally guide the allocation of resources. d. demonstrate a willingness to sacrifice equity in order to improve efficiency.

c. distort the signals that normally guide the allocation of resources.

A legal system that provides secure private property rights and unbiased enforcement of contracts a. is unnecessary for the smooth operation of markets. b. reduces the efficiency of markets. c. enhances the efficiency of markets. d. makes it easier for sellers to cheat or defraud consumers.

c. enhances the efficiency of markets.

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in a. fixation. b. excess supply. c. equilibrium. d. excess demand.

c. equilibrium

Economists use the term "business cycle" to refer to a. the growth of small businesses into major corporations. b. changes in products that occur from improved technology. c. fluctuations in the level of real output and employment. d. periods of increases and decreases in the rate of inflation.

c. fluctuations in the level of real output and employment.

After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators, and chainsaws) causes their prices to rise. These higher prices a. discourage the flow of these items into the area. b. encourage consumers to purchase the items even if they do not plan to use them. c. help to direct the items toward their highest valued uses. d. do all of the above.

c. help to direct the items toward their highest valued uses.

The wages of house painters will tend to rise when a. more people recognize that house painters have very low incomes. b. the alternative earning opportunities of house painters improve. c. house painters can no longer find good paying alternatives for their labor. d. unemployment in the economy is high and there are few alternative jobs available for house painters.

c. house painters can no longer find good paying alternatives for their labor.

In which statement(s) is "supply" used correctly? (I) "An increase in the price of eggs will increase the supply of eggs." (II) "As the cost of producing eggs rises, the supply of eggs will tend to fall." a. in both statements I and II b. in statement I only c. in statement II only d. in neither statements I nor II

c. in statement II only

The law of demand refers to the a. decrease in price that can be expected as more units of a product are demanded. b. increase in price that results from an increase in demand for a good of limited supply. c. inverse relationship between the price of a good and the quantity demanded. d. increase in the quantity of a good available when its price increases.

c. inverse relationship between the price of a good and the quantity demanded.

When a tax is imposed on a good, the actual incidence of the tax generally a. falls entirely on the buyer. b. falls entirely on the seller. c. is shared between the buyer and seller. d. is the same as the statutory incidence.

c. is shared between the buyer and seller.

The economizing problem is essentially one of deciding how to make the best use of a. limited resources to satisfy limited wants. b. unlimited resources to satisfy limited wants. c. limited resources to satisfy virtually unlimited wants. d. unlimited resources to satisfy unlimited wants.

c. limited resources to satisfy virtually unlimited wants.

The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is a. higher than the equilibrium price. b. equal to the equilibrium price since the number of tickets bought equals the number sold. c. lower than the equilibrium price. d. higher than the equilibrium price when the demand is inelastic but lower when the demand is elastic.

c. lower than the equilibrium price.

Bill is willing to cut lawns for a minimum of $200 a week. He is, however, paid $250 for the same service by a lawn maintenance company. This is an example of a. consumer surplus. b. employment discrimination. c. producer surplus. d. the derivation of accounting profit.

c. producer surplus.

Middlemen are individuals who a. add to the buyer's expense without performing a useful function. b. add to the seller's cost without performing a useful function. c. provide services that reduce the cost of transactions and help achieve additional gains from trade. d. act as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services.

c. provide services that reduce the cost of transactions and help achieve additional gains from trade.

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would a. create a surplus of rental housing. b. promote a rapid increase in the future supply of housing. c. result in poor service and quality deterioration of many rental units. d. lead to a reduction in housing discrimination against minorities.

c. result in poor service and quality deterioration of many rental units.

c. students will not take as good of care of these commonly owned bicycles as they do their own bicycles.

"The money and resources currently being devoted to the War on Terrorism reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following? a. the fallacy of composition. b. the idea that association is not causation. c. the concept of opportunity cost. d. the difference between positive and normative economics.

c. the concept of opportunity cost.

"Now that Blake paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects a. the importance of secondary effects. b. the fallacy of composition. c. the law of comparative advantage. d. behavior inconsistent with economizing.

c. the law of comparative advantage

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, a. the demand curve for physicals shifts to the right. b. the supply curve for physicals shifts to the left. c. the quantity demanded of physicals increases and the quantity supplied of physicals decreases. d. the number of physicals performed will increase.

c. the quantity demanded of physicals increases and the quantity supplied of physicals decreases.

The opportunity cost of an action is a. the monetary payment the action required. b. the total time spent by all parties in carrying out the action. c. the value of the best opportunity that must be sacrificed in order to take the action. d. the cost of all alternative actions that could have been taken, added together.

c. the value of the best opportunity that must be sacrificed in order to take the action.

The Laffer curve illustrates the concept that a. an increase in marginal tax rates will always cause tax revenues to increase. b. an increase in marginal tax rates will always cause tax revenues to decrease. c. when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase. d. when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline.

c. when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.

The purchasing power parity method of comparing income levels across countries

calculates the cost of purchasing a common bundle of goods in each country and then uses this price index to convert each country's income to a common currency.

A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called

capitalism.

When collective decision making (the political process) is used to resolve economic questions regarding the allocation of resources,

central planning and political bargaining will replace market forces.

Economic analysis assumes that...

changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior

Economic analysis assumes that

changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when...

competitive markets direct the actions of self-interested individuals

When the expenditure approach is used to measure GDP, the major components of GDP are

consumption, investment, government consumption and gross investment, and net exports.

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand.

Who was Adam Smith?

created the study of economics; attended Oxford and University of Glasgow (prof. of moral philosophy)

The process by which new products and methods of production are continuously replacing old ones is known as

creative destruction.

The type of unemployment caused by changes in the business cycle is

cyclical unemployment.

A merchandiser decides to sell corn to a Blair, NE location and gain $0.17/bu on the trade (after transport). He/she can obtain the corn for this opportunity at a net cost of $0.10/bu. The merchandiser who made these transactions, is taking advantage of an opportunity for _________: a. Storage opportunities b. Monopoly gains c. Monopsony gains d. Arbitrage

A recent study found that the price elasticity of demand for apples is -0.4. This year's early freeze in major apple growing regions has led to a 6% decrease in the apple production (supply) compared to last year. What is the implied change in price expected this year for apples (and assume no apple exports or changes in stocks)? a. Decrease by 3% b. Decrease by 15% c. Decrease by 24% d. Increase by 15% e. Increase by 24%

According to economic reasoning, you should follow Nike's advice and "Just Do It" when a. the total benefits are less than the total costs. b. the additional costs are greater than the additional benefits. c. the additional costs are the same as the additional benefits. d. the additional benefits are greater than the additional costs.

Colorado experiences a record snowfall during the winter season. What impact will this have on the market for snowmobiles? a. The supply of snowmobiles will increase and the price of snowmobiles will increase. b. The supply of snowmobiles will increase and the price of snowmobiles will fall. c. The demand curve for snowmobiles will decrease and the price of snowmobiles will fall. d. The demand curve for snowmobiles will increase and the price of snowmobiles will rise.

Consider the demand curve for bananas. If the price of bananas falls, which of the following occurs? a. The demand curve shifts to the right. b. The quantity demanded declines. c. The demand curve shifts to the left. d. The quantity demanded increases.

Consider the supply of orange juice. If the price of orange juice rises, which of the following occurs? a. Producers of orange juice are satisfied with their revenue and leave production unchanged. b. Producers of orange juice decrease the quantity of orange juice that they produce. c. Producers of orange juice go out of business, and the supply of orange juice shifts to the left. d. Producers of orange juice increase their production of orange juice.

Joe trades an apple to Winston for two oranges. Because the exchange is voluntary, we can conclude that a. Joe is better off because he gets two things but Winston is worse off because he gives up more items than he receives. b. Winston is better off because he gives more than he receives. c. both Joe and Winston are worse off. d. both Joe and Winston are better off.

One way for a business to increase productivity is to increase its A. imports. B. environmental concern. C. prices. D. research and development.

The final consumer demand for chicken (a normal good) in China will shift if: a. Consumer income decreases b. If fewer consumers are present in the market c. If the price of pork decreases d. All of the above e. If either a or b occurs, but not c

The income and living standards of a nation will increase when a. jobs are protected and total employment expands. b. the prices of goods and services increase. c. the imports of goods and services fall. d. the availability of goods and services that people value increases.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources a. only if buyers and sellers really care, personally, about economic efficiency. b. even if business firms fail to produce goods efficiently. c. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely. d. even when market participants care only about their own self interests rather than about the overall efficiency of resource use.

The pursuit of profit will encourage firms to a. produce efficiently and keep their costs low. b. produce goods and services that consumers value highly relative to costs. c. discover and develop better products and lower-cost production methods. d. All of the above are correct.

When whale oil was in high demand in the middle of the nineteenth century, whales were being hunted to excess because a. of the excessive government regulation imposed on whale hunting. b. those who owned the hunting rights failed to see the future value of whale oil. c. the public ignored the need to curb whale oil consumption. d. no one owned the whales or the hunting rights, thus there was no incentive to conserve whales for the future.

Which of the following are scarce? a. time for recreation b. clean air c. information d. all of the above

Which of the following coordinates the choices of buyers and sellers, bringing quantity demanded and quantity supplied into balance? a. taxes and subsidies b. consumer demand c. government mandates d. the market price

Which of the following is true of exchange? a. Exchange is a zero sum activity; if one party gains, the other must lose an equal amount. b. The exchange value of a good is determined by the cost of the resources required to produce the good. c. The total output that trading partners are able to produce is not influenced by whether they trade with each other. d. Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage.

Which of the following will most likely occur under a system of clearly defined and enforced private property rights? a. Resource owners will fail to conserve vital resources, even if they expect their scarcity to increase. b. Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned. c. Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources. d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

Why is voluntary exchange an important source of economic prosperity? a. It moves goods from people who value them less to people who value them more. b. It makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production. c. It makes it possible to produce a larger output as a result of gains from division of labor and specialization. d. All of the above are correct.

You estimate that the income elasticity of demand for dairy products in the use is 0.20. If national income is predicted to decrease by 3%, what is the percentage change in dairy products expected (all else equal)? a. +3% b. -3% c. + 0.6% d. - 0.6% e. Can't tell from the available information

marketing services that add "time value" include: a) transportation b) processing c) marketing d) storage e) all of the above

the demand for ethanol is affected by the following factors (pick the best of the choices): a) the price of corn (an input to ethanol production) b) the number of ethanol plants that produce ethanol c) a change in the technology of ethanol production d) a new regulation mandating increased use of ethanol mixed gasoline e) all of the above

today the futures price for corn for december delivery in chicago is $3.30/bu and yesterday it was $3.40/bu. today the local cash price is $3.05/bu/ today, the local basis is: a) $0.35/bu b) -$.035/bu c) $0.25/bu d) -$0.25/bu e) not enough information is provided

Economists are generally opposed to tariffs or other restrictions on imported goods because of the negative secondary effects they create that more than offset the benefits to employment in the domestic industry. Which of the following could be considered a secondary effect of these trade restrictions? a. The price to consumers of the good in question will be higher as a result of the restriction, meaning consumers will be worse off. b. As consumers must spend more money to purchase the good, there will be employment losses in other domestic industries as consumers cut back on their spending on other things. c. Because there is a link between a country's imports and its exports, less imports from other countries will result in lower domestic employment in export industries. d. All of the above.

d. All of the above

Which of the following attributes of trade explain why it is important for economic prosperity? a. Trade moves goods from people who value them less to people who value them more. b. Trade makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production. c. Trade makes it possible to produce a larger output as a result of gains from division of labor and specialization. d. All of the above.

d. All of the above

Which of the following is a function performed by market prices? a. Market prices communicate information to buyers and sellers. b. Market prices coordinate the decisions of buyers and sellers. c. Market prices motivate entrepreneurs to produce those products that are currently most desired relative to their costs of production. d. All of the above are functions performed by market prices.

d. All of the above are functions performed by market prices.

Which of the following is true regarding the market for steak shown in Figure 3-1? a. If the price of steak were $2 per pound, producers would want to supply less steak than consumers would want to buy. b. If the price of steak were $4 per pound, producers would want to supply more steak than consumers would want to buy. c. If the price of steak were $3 per pound, producers would want to supply the same amount of steak that consumers would want to buy. d. All of the above are true regarding the market for steak shown in the figure. (see #135 in study guide for image)

d. All of the above are true regarding the market for steak shown in the figure.

Figure 4-3 indicates the demand (D) and supply (S) for the rental housing market in a large city. If the government imposed a price ceiling of a, which of the following would be true? a. The quantity of rental housing demanded would be t. b. The quantity of rental housing supplied would be r. c. There would be a shortage of rental housing. d. All of the above are true. (see #177 for image)

d. All of the above are true.

Which of the following is true of the interaction of supply and demand? a. As the price increases, the quantity demanded and the quantity supplied will increase. b. As the price increases, the quantity demanded and the quantity supplied will decrease. c. As the price increases, the quantity demanded increases and the quantity supplied will decrease. d. As the price increases, the quantity demanded will decrease and the quantity supplied will increase. e. As the price increases, neither the quantity demanded nor quantity supplied will change.

d. As the price increases, the quantity demanded will decrease and the quantity supplied will increase.

Which of the following best characterizes the circular flow of income? a. Households buy goods and services from businesses, and businesses sell goods and services to households. b. The government purchases resources from businesses and households and then sells goods and services to businesses and households. c. Businesses buy resources from the government, and households buy goods and services from businesses. d. Businesses buy resources from households, and households use their income to buy goods and services from businesses.

d. Businesses buy resources from households, and households use their income to buy goods and services from businesses.

Market prices provide information to consumers, helping them coordinate their activities so long as which of the following conditions is met? a. Prices are legally kept equal in all markets, preventing unfair price increases in markets with shortages and unfair price decreases when a market surplus is present. b. The government carefully screens producers and effectively keeps inefficient producers out of the market. c. Prices are not allowed to rise too high, causing a shortage. d. Competition is present and buyers and sellers are free to choose mutually agreeable prices.

d. Competition is present and buyers and sellers are free to choose mutually agreeable prices.

Legislation to protect red-cockaded woodpeckers by making their trees off limits to loggers created incentives that resulted in the premature harvesting of trees the woodpeckers like to nest in. This is an example of which of the following? a. Association or correlation is not causation. b. the fallacy of composition. c. the use of ceteris paribus conditions in economic analysis. d. Good intentions do not always lead to desirable outcomes; the problem of secondary effects.

d. Good intentions do not always lead to desirable outcomes; the problem of secondary effects.

Which of the following is a positive economic statement? a. Too much government spending is the biggest problem facing the U.S. economy. b. Creating jobs is the most serious problem facing the U.S. economy. c. Raising taxes provides additional revenue that should be used to finance health care. d. If taxes are over 50 percent of national income, job creation falls.

d. If taxes are over 50 percent of national income, job creation falls.

In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries? a. In Zimbabwe and Botswana, elephants are near the verge of extinction, while in Kenya, the population of elephants is growing rapidly. b. There has been a similar decline in the population of elephants in all of these countries. c. There has been a similar increase in the population of elephants in all of these countries. d. In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.

d. In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.

Which of the following is true when there is excess demand for a product in a market? a. Price must be above the equilibrium price. b. Price will tend to fall. c. Producers will reduce output and sales will fall. d. Price must be below the equilibrium price.

d. Price must be below the equilibrium price.

Which of the following individuals would be considered unemployed by the official government definition? a. George, a mathematician, who returned to graduate school after failing to find a job the last four months b. Gwen, a medical student, who is still in college and is not working c. Morgan, who is employed part-time but desires a full-time job d. Ralph, an auto worker who was laid off at a General Motors plant and is looking for another job

d. Ralph, an auto worker who was laid off at a General Motors plant and is looking for another job

d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

Which of the following best expresses the law of demand? a. An increase in price results from an increase in demand for a good of limited supply. b. The increase in the quantity of a good available when its price increases. c. A decrease in price can be expected as more units of a product are demanded. d. The inverse relationship between the price of a good and the quantity demanded.

d. The inverse relationship between the price of a good and the quantity demanded.

Refer to Figure 2-10. If the economy moves from point C to point B, then which of the following statements is correct? a. The economy benefited from a technological advance in the production of baseballs. b. The opportunity cost of each additional baseball is 2 bananas. c. The opportunity cost of each additional banana is 2 baseballs. d. The move involves no opportunity cost; it simply reflects the desires of the economy's citizens. (see #71 in study guide for image)

d. The move involves no opportunity cost; it simply reflects the desires of the economy's citizens.

Economists have argued that rent control is "the best way to destroy a city, other than bombing." Why would economists say this? a. They anticipate that low rents will cause low-income people to move into the city, reducing the quality of life for other people. b. They anticipate that rent control will benefit landlords at the expense of tenants, increasing inequality in the city. c. They anticipate that rent controls will cause a construction boom, which will make the city crowded and more polluted. d. They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

d. They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

Two goods are considered substitutes if a. a decrease in the demand for one leads to a decrease in the supply of the other. b. an increase in the demand for one leads to a decrease in the supply of the other. c. an increase in the price of one leads to an increase in the demand for the other. d. a decrease in the price of one leads to an increase in the demand for the other. e. a decrease in the supply of one leads producers to switch to production of the other.

d. a decrease in the price of one leads to an increase in the demand for the other.

The law of comparative advantage indicates that a. a group of people will reduce their output when each good or service is supplied by the low opportunity cost producer. b. trading partners lose when they can acquire a good through trade cheaper than they can produce it. c. trade is most effective when people trade only among those in their own nation. d. a group of people can increase their output when each good or service is supplied by the low opportunity cost producer.

d. a group of people can increase their output when each good or service is supplied by the low opportunity cost producer.

Suppose that vegetarian lobby groups run large advertising campaigns that are successful in substantially lowering the consumption of beef. As a result of the substantially lower desire for beef, we would expect a. the price of beef to fall. b. the profitability of being a cattle rancher to fall. c. a reduction in the number and size of cattle herds--and thus the number of cows--in the long run. d. all of the above.

d. all of the above

As the general price level in an economy rises, the aggregate quantity demanded of goods and services falls because a. the prices of domestic goods have risen relative to foreign goods, causing exports to fall and imports to rise. b. higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption. c. the value of money will fall, reducing the real wealth and, thus, the consumption of persons holding money balances. d. all of the above are correct.

d. all of the above are correct.

During the Prohibition period (when the production and sale of alcohol was illegal), a. the quality of alcohol sold became less reliable. b. the murder rate increased. c. gangsters dominated the alcohol trade. d. all of the above occurred.

d. all of the above occurred.

Private property rights involve a. the right to exclusive use of the property. b. legal protection against those who would seek to use or abuse the property without the owner's permission. c. the right to transfer, sell, exchange, or mortgage the property. d. all of the above.

d. all of the above.

If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by a. a decrease in the supply of the good. b. a decrease in the demand for the good. c. an increase in the demand for the good. d. an increase in the supply of the good.

d. an increase in the supply of the good.

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good, a. buyers and sellers will each share 50 percent of the burden, regardless of the elasticities of the demand and supply curves. b. sellers will bear a larger share of the tax burden. c. the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government. d. buyers will bear a larger share of the tax burden.

d. buyers will bear a larger share of the tax burden.

Which of the following could be considered to be a secondary effect caused by making drugs such as marijuana, cocaine, heroin and meth illegal? a. The higher prices that result from making drugs illegal results in more property theft by users to afford the drugs. b. The usage of police and law enforcement resources to enforce drug laws leads to lower enforcement (and thus a higher amount) of other crimes. c. Without the ability to use the legal system to enforce contracts in these underground markets, violence between buyers and sellers often results when one party to a drug deal does not live up to their end of the bargain, thus the amount of violence in society increases by making drugs illegal. d. When supplying the demand for a product that has been decreed illegal by the government, the supplier has no incentive to refrain from other illegal and equally punishable behaviors, thus increasing crime by making drugs illegal. e. All of the above would be considered valid and important secondary effects of making drugs illegal.

e. All of the above would be considered valid and important secondary effects of making drugs illegal.

Which of the following is a likely consequence of a price ceiling that fixes the price of rental housing below the market equilibrium? a. It will be difficult to find housing for rent. b. More new apartments will be built. c. Some rental apartments will be converted into offices or sold for other uses rather than be rented. d. All of the above are true. e. Both a and c are correct.

e. Both a and c are correct.

Suppose demand increases and supply decreases. Which of the following will happen? a. The change in equilibrium price and quantity cannot be determined. b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. c. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. e. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase.

e. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase.

An increase in demand will cause a. an increase in supply. b. a decrease in quantity supplied. c. a decrease in supply. d. a decrease in equilibrium price. e. an increase in quantity supplied.

e. an increase in quantity supplied.

If consumer tastes are changing more in favor of the consumption of a particular good the a. market demand curve will shift to the left. b. consumer will move up a given demand curve, decreasing the quantity demanded. c. consumer would move down a given demand curve, decreasing the quantity demanded. d. consumer would move down a given demand curve, increasing the quantity demanded. e. market demand curve would shift to the right.

e. market demand curve would shift to the right.

Describe the invisible hand theory.

each individual increases the nation's material wealth using individual interests, talents, and abilities to serve consumers in the market

According to the law of comparative advantage,

each product should be produced by the lowest opportunity cost producer in order to maximize output.

When resources are being used wastefully or inefficiently, the

economy is operating at a point inside its production possibilities constraint.

A point on the production possibilities curve represents a combination of goods that is

efficient.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources

even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources

even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use.

The invisible band principle indicates that competitive markets can help promote the efficient use of resources

even when each market participant cares only about their own self-interest rather than about the overall efficiency of resource use

Private property rights exist when property rights are

exclusively controlled by the owner or owners. b. transferable to others. c. protected by legal enforcement.

which of the following would result in a high rating on the economic freedom of the world index?

free trade & low taxes

competition is present when

freedom of entry and rival firms are present in a market

Richer economies often have more middlemen. Economic thinking indicates that such economies...

gain since the opportunity costs of arranging trades would be higher without middlemen

The four key markets that coordinate the circular flow of income are

goods and services, resources, loanable funds, and foreign exchange.

Which of the following would be most likely to enhance the growth rate of an economy?

gradual elimination of all tariffs over the next 10 years

Authoritarian political regimes

have produced movement toward sound economic institutions in Chile, South Korea and several other nations.

Which of the following statements reflect sound economic reasoning?

if it is more economical to acquire a good through trade than by self-production, it makes sense to trade for it

Frictional unemployment is the result of

imperfect information and temporary periods of unemployment while workers are changing jobs.

When equilibrium is present in the foreign exchange market, which of the following will tend to be in balance?

imports plus capital outflow and exports plus capital inflow

Which of the following policies would be most likely to reduce the efficiency of a country's economic organization

imposition of tariffs and other barriers limiting international trade

In Latavia, cultural pressures cause voluntary donations to orphanages to be very large; in Slobovia, people make smaller donations. If the governments of both countries suddenly grant a tax break to those donating money to orphanages, the basic postulate of economics predicts that donations

in both nations will increase

"If gasoline were taxed, the price of gasoline would rise. Consequently, the demand for gasoline would fall, causing the price to fall to the original level." This statement is...

incorrect--demand and quantity demanded are confused. The price increase would reduce quantity demanded, not demand

According to Adam Smith, individual self-interest...

is a powerful force for economic progress when it is directed by competitive markets

if a business firm continues to sustain losses, what usually happens in a market economy?

it goes out of business and the resources it was using become available for use in other areas

Specialization in production is beneficial because

it permits people to expand production and achieve rates of output that would otherwise be unattainable

If an economy is operating at a point inside the production possibilities curve,

its resources are not being used efficiently.

Lack of property rights =

lack of economic progress

Natural resource

land and anything contained within the land *ex. fish, trees, oceans, rivers, ore, etc.

If the U.S. dollar depreciates, then U.S. exports become ____ expensive to foreigners and foreign goods become ____ expensive to U.S. citizens.

less; more

The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is

lower than the equilibrium price.

The basic difference between macroeconomics and microeconomics is that

macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).

An appreciation in the U.S. dollar on the foreign exchange market will

make U.S. experts more expensive to foreigners

Doris, a burglar who breaks into houses, decides to break into the house at 265 Elm Street, rather than the house next door because the house next door has a sign in the yard that says "home protected by a security system." To an economist, Doris is...

making a rational choice

which of the following resulted from the smoot-hawley trade bill of 1930

many countries responded by imposing higher tariffs on american products and the volume of international trade fell sharply

Special-interest programs are highly attractive to vote-seeking politicians because

members of special interest groups favoring these programs feel strongly about them while most other voters are rationally uninformed about them.

If the value of a nation's merchandise imports exceeds merchandise exports, the nation is running a

merchandise trade deficit.

which of the following would result in a low rating on the economic freedom of the world index

monetary instability and trade restrictions

in recent decades labor markets in European countries like italy and spain have been

more highly regulated and the unemployment rates of european countries have been higher than the United States

are jobs the key to economic progress and the achievement of high income levels?

no. because the people must be employed in jobs where they are producing goods and services that others value highly relative to their cost

When the production possibilities curve is bowed out, resources are...

not equally suited to the production of both goods

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise" This statement contains

one error; the lower gasoline prices would cause an increase int he quantity demanded of gasoline, not an increase in demand

The expression, "There's no such thing as a free lunch," implies that

opportunity costs are incurred when resources are used to produce goods and services.

Production Possibilities Curve (PPC)

outlines all possible combinations of total output that could be produced, assuming a: 1. fixed amount of productive resources 2. given amount of technical knowledge 3. full and efficient use of resources

inflation is

persistent increase in the general level of prices

Stable money and prices are a key source of economic growth because

price stability reduces the risks that accompany investment and other long-term commitments

When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party,

private producers of such goods will have little incentive to control costs and provide them at low prices.

If the price level in the current period is higher than what buyers and sellers anticipated,

profit margins will be attractive and firms will expand output.

When voters pay taxes in proportion to the benefits they receive from government projects

projects that are efficient will tend to be favored by an overwhelming majority of voters.

Market prices

provide a strong incentive for private owners to consider the desires of others and to use and develop resources that are highly valued by others.

The primary value of real GDP is its ability to measure year-to-year changes in

real output.

economic analysis indicates that high tax rates will

reduce productive activity retard capital formation promote wasteful use of resources

an increase in marginal tax rates will

reduce the share of additional earnings that individuals are permitted to keep

trade restrictions like tariffs and quotas will

reduce the value of goods and services that we will be able to produce and consume

compared to a barter economy, money of stable and predicable value will

reduce transaction costs and increase the volume of trade

nternet sites such as eBay make it easier for sellers and buyers to find one another and, by doing so,

reduce transactions costs.

Physical resource

refers to machinery or tools like factories, hammers, backhoes, etc.

During 1980-2009, the per-capita incomes of less developed countries (LDCs)

registered a mixed growth record; some grew rapidly while others stagnated.

which of the following contributed to the soaring housing prices of 2002-2005

regulations designed to make housing more affordable increased the demand for housing and drove housing prices upward

which of the following is true of regulation?

regulatory agencies often ignore the secondary effects of their actions and fail to foresee future problems

which of the following will most likely occur under a system of clearly defined and enforced private property rights

resource owners will gain by discovering and employing their resources in ways that are highly valued by others

When an economy is operating efficiently, the production of more of one good will result in the production of less of some other good because

resources are limited (scarce) and efficiency implies that all are already in use.

Spontaneous order

result of human action, not of human design

When regulations interfere with exchange and limit entry into various businesses and occupations, they will

retard economic progress.

A nation with cheap, efficient communications is likely to be...

richer, ceteris paribus, because transaction costs will be lower and trade greater

In the balance of payments accounts, a net importer of capital is a nation that

sells more assets to individuals in other countries than the assets it buys from them.

Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if

she spends less time doing other things.

when the money supply is expanding rapidly and the general level of prices increasing sharply economic growth is

slowed by the resulting unpredictability of the future level of prices

if the govt levies $20 billion in taxes to finance additional spending on military weapons, the net impact on total employment will be

small because of higher taxes will reduce spending in the private sector, which will tend to offset any jobs created by the govt. spending

A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called

socialism.

Which of the following will be required for a country to move up the income ladder and achieve high-income status?

sustained economic growth

which of the following is true of taxes

taxes drive a wedge between what buyers pay and what sellers recieve

other things constant, countries with higher investment rates will

tend to have higher incomes in the future

Economics is primarily the study of...

the choices people make as the result of scarcity

the concept of opportunity cost

When Benjamin Franklin wrote, "Remember that time is money!" he understood

the concept of opportunity cost.

The purchasing power parity method of comparing income across countries is based on

the cost of purchasing a specific bundle of goods and services in each country.

scarcity

the gap between what people want and the resources available to meet those wants (Scarcity = wants > available resources)

The maximum price that consumers are willing to pay for the hundredth unit of a good can be found as...

the height of the demand curve at a quantity of 100

opportunity cost

the highest valued alternative given up as a result of making a choice

technology

the knowledge available in an economy at any given time. -determines the amount of output we can generate with our limited resources.

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is

the law of comparative advantage

"Now that Blake paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects

the law of comparative advantage.

Gross domestic product is

the market value of final goods and services produced within a country during a time period.

Collective decision making

the method of organization that relies on public sector decision making to resolve basic economic questions.

If the real interest rate in the domestic loanable funds market increases,

the net inflow of foreign capital will tend to increase.

Opportunity cost

the one most highly valued thing you give up when you choose one option over another

Adam Smith believed that if people were free to pursue their own interests.

the public interest would be served quite well

Elastic supply

the quantity supplied is sensitive to changes in price. Thus a change in price leads to a relatively large change in quantity supplied.

a country's level of economic freedom is influenced by

the relative size of government expenditures, taxes, and enterprises the even-handedness of the court system and security of property rights freedom to trade internationally

The secondary effects of an economic action refer to the

the unintended consequences of a change that are not immediately identifiable but are felt over time

Which of the following activities describes the opportunity cost of attending an economics class?

the value of the highest valued alternative that must be forgone because of attending the class

Which of the following most accurately reflects the opportunity cost to a pharmacist who drives a taxi?

the value of the pharmacist's time in its highest valued use other than driving a cab

Producers are willing to offer greater quantities for sale at higher prices because

they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses

how do high tariffs and other restraints on international trade affect a nation's prosperity

they prevent the nation from fully realizing the potential gains from specialization, exchange, and competition

why do foreigners export goods and services to buyers in the United States?

they want to acquire dollars so they can purchase things from Americans

The owners of private property will

use their property in ways that others value because the market will generally reward them with profits (or a higher selling price) if they do so.

Which of the following is a private owner prohibited from doing?

using the property in a manner that invades or infringes on the property of another

which of the following is a private owner prohibited from doing?

using the property in a manner that invades or infringes on the property of another

The benefit (or satisfaction) that an individual expects to derive from an activity is called...

utility

under a system of private property,could a 60 yr old owner of a tree farm benefit by planting and caring for a crop of douglas firs, most of which will not be ready to harvest for 50 yrs

yes, the farmer will benefit from increased valuation of the land as the trees grow and harvest moves closer

What is likely to occur when the inflation rate increases, and workers do not receive pay increases? A. Lower standard of living B. Higher consumer demand C. Decreased unemployment D. Increased spending

Which of the following is an example of paradigm innovation: A. Windows computer operating system B. Energy-saving light bulbs C. The latest model of the Honda Civic D. Rechargeable batteries

If a nation is going to achieve and sustain a high rate of economic growth, it must

Have a mechanism capable of attracting savings and channeling them into wealth-creating projects (efficient capital market.)

If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

He reaped $10,000 of consumer surplus from the transaction.

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

Her marginal value of food has fallen to zero

Which of the following will discourage investment?

High and variable rates of inflation

7. People achieve ____ ____ when they are free to ___ with people in other countries

Higher incomes, trade

d. an increase in the availability of goods and services that people value.

Higher standards of living are the result of a. government subsidies that expand employment. b. trade restrictions that favor domestic industries over foreign competition. c. an increase in the general level of prices. d. an increase in the availability of goods and services that people value.

1.The foundation for economic progress is a _____ ______ that protect ______ ____ _______ and enforces _______ in an _____ _____

Legal system, privately owned property, contracts, evenhanded manner

The number of people willing to buy tickets to the Super Bowl is invariable greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is

Lower than the equilibrium price

Elasticity of Supply

Small change in price will lead to large change in quantity supplied

Entrepreneur

Someone who brings together and other three resources and produces something (a good or a service)

Middleman

Someone who or something that facilities trade *They bring together buyers and sellers rather than buyers and sellers having to hunt each other down

Even-handed enforcement of contracts fuels economic prosperity because it

Promotes gains from trade by minimizing the costs of entry and enforcements of contracts.

The value of a good is a. subjective. b. objective or intrinsic. c. determined by a government statistical agency. d. determined by its cost of production.

a. subjective

The large amount of violence associated with the current drug trade is mostly caused by a. the fact that drug markets must operate outside the normal legal system. b. buyers and sellers often being under the influence of drugs at the time of the transaction. c. buyers and sellers who are often unfamiliar with conducting normal transactions within the legal system. d. the lack of quantity supplied and quantity demand being in balance in black markets because there is no equilibrium price in these markets.

a. the fact that drug markets must operate outside the normal legal system.

Which of the following would be likely to cause a nation's currency to depreciate?

higher foreign interest rates

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is

voluntary exchange

*willingly* exchanging one thing for another

Types of rationing:

-First come first serve= inefficient -Subjective= arbitrary -Price=efficient

Where do constraints come from?

-Needs= limited -Desires= unlimited -Resources= limited

Property rights includes 3 elements:

-Rights to exclusive use of property -Legal protection -Right to transfer, sell, exchange, or mortgage the property

Constraints:

-Society's norms -Money -Parents -Time

consumer surplus

-The difference between the maximum amount consumers would be willing to pay and the amount that they actually pay. -is the area below the demand curve but above the price. -represents the net gains to buyers from market exchange.

Investment

-the purchase, construction, or development of resources -However, ______ requires us to give up consumption goods

Which of the following is true of the production possibilities curve?

. It assumes a fixed quantity of resources

Name the 6 pillars of free enterprise.

1) private property 2) specialization 3) voluntary exchange 4) the price system 5) market competition 6) entrepreneurship

Which of the following is most likely to cause the dollar to depreciate?

a shift by the Fed to a more expansionary monetary policy

change in demand

a shift of the curve caused by anything other than the change in price of the good in question

change in supply

a shift of the curve caused by anything other than the change in price of the good in question. a shift in the entire supply curve.

socialism

a system of economic organization where: -Ownership and control of the means of production rest with the state -Resource allocation is determined by centralized planning -suffers from an information problem

If there is excess supply

price will fall

if a business is realizing economic losses in a competitive market, it is:

producing goods and services that are valued less than the resources required to produce them

Which of the following is most important for the achievement of higher income levels and living standards?

production of additional goods and services that people value highly relative to the cost of their production

Economic choice and competitive behavior are the result of

scarcity

What are productive resources? Give examples of each.

anything that any business uses to add value; Ex: land, labor, capital, and entrepreneurial skill ("four factors of production")

which of the following is the best definition of money?

anything that widely serves as a medium of exchange, unit of account, and store of value

What would most likely increase the demand for peanut butter?

A decrease in the price of jelly, a good that is often used with peanut butter

Economic choice and competitive behavior are the result of a. scarcity. b. poverty. c. public ownership of resources. d. private ownership of resources.

A. scarcity.

The highest level of labor union organization is the A. state. B. federation. C. national. D. local.

Two products that are usually consumed jointly would be referred to as a. substitutes. b. complements. c. inferior goods. d. unrelated goods.

B. complements

Goods are scarce because a. of greed; if human beings were not so selfish, goods would not be scarce. b. the desire for goods is far greater than their availability from nature. c. of competition; if people were not so competitive, it would be possible to satisfy people's desire for material goods. d. of private property; if things were not owned privately, scarcity could be eliminated.

B. the desire for goods is far greater than their availability from nature.

A six-month decline in GDP is known as a A. depression. B. productivity increase. C. recession. D. trade deficit.

Price elasticity of demand

Degree of responsiveness of a consumer to change in price

Is association causation?

creation of wealth

The process by which some people become rich will make everybody richer. ex henry ford

The GDP deflator is designed to

adjust nominal GDP for changes in the price level.

a competitive market is important to society because it directs resources toward projects that

are valued more highly than their cost

the fed's low short-term interest rate policy of 2002-2004 encouraged decision makers to

borrow more and increase their purchasing of housing

To be considered scarce, an economic resource must beba I. free. II. limited. III. desirable. a. I, II, and III b. I only c. II and III d. II only

whoever does it the cheapest

lowest opportunity cost

Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the goods and services market represents

real output or real GDP.

When economists say goods are scarce, they mean...

the desire for goods and services exceeds our ability to produce them with the limited resources available

producer surplus

-is the difference between the lowest price a supplier will accept to produce the good (the opportunity cost of the resources) and the price they actually get (the market price)

capitalism

-tends to work better -Productive resources are owned privately -Goods and resources are allocated through market prices -is similar to natural selection. It uses the idea of market efficiency

A country is experiencing civil unrest. What is likely to happen to the value of its currency? A. It will stabilize. B. It will increase. C. It will decrease. D. It will not be affected.

Monetary and price instability will

Generate uncertainty, and encourage investors and businesses to move their activities to countries with a more stable monetary environment

Complements

Goods that are normally consumed together *Ex. peanut butter and jelly

Substitutes

Goods that perform similar functions

Why are demand curves downward sloping?

Number of substitutes

The law of comparative advantage suggests that

individuals, states, and nations can all benefit if they trade with others.

The law of comparative advantage applies to exchange betwee

individuals. b. regions. c. nations

A point inside the production possibilities curve represents a combination of goods that is

inefficient.

over the long haul, rapid increases in the supply of money lead to

inflation

When competition is present and private ownership rights are clearly defined and securely enforced by the legal system, business firms will have a strong incentive to

innovate and develop better products and lower cost production methods.

when the inflation rate is high and volatile

investment is more risky and gains from trade are reduced

Private entrepreneurs are likely to make better investment decisions than central planners because

investors who make mistakes must bear the costs of these mistakes personally

The law of comparative advantage implies that a nation, individual, or region should trade for those economic goods for which it

is a high opportunity cost producer.

Most voters will likely be concerned with

only a few special issues (those that exert the most impact on the voters' personal welfare).

When a country's real GDP is increasing at a faster rate than its population,

per capita GDP will be rising.

private ownership of property :

provides owners with an incentive to maintain and conserve resources

students will not take as good of care of these commonly owned bicycles as they do their own bicycles

When the residents of a nation are free to trade with foreigners, domestic producers will be able to

supply a larger quantity of goods they can produce at a relatively low cost.

the population of black rhinos has increased

So in equilibrium

there is nor excess supply or excess demand

Three basic decisions must be made by all economies. What are they?

what will be produced, how goods will be produced, and for whom goods will be produced

Does voluntary exchange create wealth?

yes, exchange makes it possible for the trading partners to gain more value from the existing supply of goods and it also makes larger output levels possible

Which of the following government actions is most likely to stimulate the economy: A. Raising the prime interest rate B. Lowering tax rates C. Printing less money D. Borrowing more money

Which of the following is a business comparing when it analyzes the cost of buying wood desks versus the cost of buying metal desks: A. Excess demand B. Relative price C. Inflated price D. Incentives

Which of the following is a negative economic incentive: A. Tax reductions on fuel-efficient cars B. High taxes on cigarettes C. A 1% decrease in city taxes for residents who recycle D. Free flu shots for all citizens

20 cents.

if the per capita income of a country is growing at 3.5 percent per year, approximately how long will it take for that income to double?

20 years

During this century, the growth rate of real GDP in the United States has averaged approximately

3 percent.

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Jordan, the marginal cost of the third taco would be...

50 cents

Advocates of higher minimum wages for unskilled labor defend their position by arguing that A. low-income workers deserve to earn incomes above the poverty level B. higher wages boost worker productivity and efficiency C. higher wages will cause employers to reduce the payroll but the total wages of remaining workers will be higher D higher wages induce more workers into the labor market and thus reduce unemployment E. it is more efficient for the private sector to provide a higher wage than for the government to provide transfer payments to low-income workers

Arm and Hammer baking soda, which was originally developed as a cooking ingredient, is now being sold as an effective refrigerator deodorizer. This is an example of ____________ innovation. A. positioning B. process C. distributed D. associative

Assume that coal is a normal good. If the price of coal increases and the quantity sold increases, which of the following is consistent with these observations? A. The price of oil increased, oil and coal being substitutes B. A wage increase was give to coal miners C. New machinery made coal mining more efficient D. Consumers' incomes fell E. The demand curve is inelastic

To reduce the chance of investigations and orders to cease production, businesses should A. adhere to government regulations. B. specialize. C. purchase the most up-to-date technology available. D. lobby members of Congress.

What usually results when interest rates continue to increase? A. Spending decreases. B. Production increases. C. Purchasing power increases. D. Unemployment decreases.

When changes in a product's price cause corresponding changes in consumer demand, the product has A. elastic demand. B. usefulness. C. utility. D. inelastic demand

When consumer spending and consumption decrease, consumer confidence tends to A. fall. B. rise. C. remain the same. D. be unpredictable.

When consumers' purchasing power decreases, the economy will experience a period of A. contraction. B. expansion. C. containment. D. emergence.

Which of the following does consumption rely on to provide goods and services: A. Producers B. Consumers C. Owners D. Deciders

Which of the following factors affects consumers' decisions to buy goods or services: A. Buying power B. Competition C. Labor costs D. Production costs

Why are human resources limited? A. Some people are unable to work. B. New equipment is expensive. C. Countries lack needed technology. D. World population continues to grow.

Which of the following events would definitely cause a decrease in the equilibrium price of cotton shirts?

A decrease in the price of wool shirts and a decrease in the price of raw cotton.

Market economy vs. command economy

A market economy used comparative advantage, opportunity cost, property cost, etc. to determine what, how, and who gets output; in a command economy if markets don't show you how to produce who does and how does it work?

Demand

A schedule of all various quantities of a good or service that consumers are willing and able to buy at various prices and a specified time, place and population

Economic efficiency

A state in which all potential gains from trade have been realized. An action is economically efficient only if it creates more benefits than costs.

Market equilibrium

A state in which the forces of supply and demand are in balance. Quantity supplied in the market will equal quantity demanded in the market.

Which of the following countries has had the highest growth rate of per capita GDP over the past 25 years?

Korea

A. An increase in the minimum wage will reduce employment.

Rationing

Allocating a scarce resource among those who want it

Adam Smith believed that if people were free to pursue their own interests, a. public interest would be served quite well. b. less would be produced than if altruism were the guiding principle. c. they would generally apply their talents to unproductive activities that would generate little value to society. d. they would have little incentive to undertake productive activities.

A. public interest would be served quite well.

If a good is scarce, a. there will be shortages of it if the good is rationed by markets. b. the good will have a price in a market setting. c. there will be enough of the good freely available from nature to satisfy the human desire for it. d. all of the above are true.

A. there will be shortages of it if the good is rationed by markets.

Marginal

Additional

Capital

Anything man- made that is used to produce or create other things

A U.S. company begins selling its products in France. Despite brisk sales, the company doesn't make enough profit to cover its expenses. When setting prices, the company simply used the same prices in both countries. For example, $5.99 = 5.99 French francs; $2.89 = 2.89 French francs. What risk of international business did the company not consider? A. Language variations B. Currency fluctuations C. Differences in laws D. Opportunity costs

During which phase of the business cycle would there most likely be shortages of workers in certain skill areas? A. Expansion B. Peak C. Trough D. Contraction

What often happens when a nation has a high unemployment rate? A. The gross domestic product increases. B. The consumer price index decreases. C. The nation experiences an economic slowdown. D. The stock market remains unaffected.

A large number of underemployed workers indicates that there is a problem in the economy because underemployment means that A. seasonal employees work only part of the year. B. many people have stopped looking for work. C. some workers are taking time off between jobs. D. there are not enough jobs for qualified people.

How long do most business cycles last? A. Two full years B. Two consecutive quarters C. At least 10 years D. Varying lengths of time

Producer surplus is the A. area under the supply curve to the left of the amount sold B. area under the supply curve to the right of the amount sold C. amount the seller is paid plus the cost of production D. amount the seller is paid less the cost of production E. cost to sellers of participating in a market

The amount of a product that is produced is most directly affected by A. labor unions. B. product utility. C. product value. D. consumer demand

Production possibilities curve

Graph that shows all possible allocations of the most output that can be produced from limited resources of an economy. It assumes resource base is fixed, technology is fixed and resources are being used efficiently

Free good

No price

Define a traditional economy and name nation(s) that use them.

People rely on traditions and long-established customs to make the what, how, and for whom choices. Ex: remote, rural areas in which agricultural activity is main involvement; goods produced meet needs of communities

3. Regulatory policies that _____ ____ and ______ competition impede ___ _____

Reduce exchange, restrict competition, economic progress

The law of comparative advantage explains which of the following?

Specialization and exchange will make it possible for trading partners to expand their combined output.

Poverty

Subjective concept

What do economists mean when they state that a good is scarce?

The amount of the good that people would like exceeds the supply freely available from nature.

Which of the following would be most appropriate for the measurement of differences in the average standard of living of people at different points in time? Select one: a. Nominal GDP b. Real GDP c. Nominal per capita GDP d. Real per capita GDP

The correct answer is: Real per capita GDP

The basic principles of economics are Select one: a. Important only to professional economists. b. Always complex. c. Necessarily abstract. d. Reflective of common sense.

The correct answer is: Reflective of common sense.

A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. What would happen?

The supply of florida oranges would fall, causing their price to increase and the demand for California oranges to increase

c. it moves goods, services and resources from people who value them less to individuals who value them more.

Voluntary trade promotes economic progress because a. it discourages businesses from seeking lower per-unit costs through adoption of mass production methods. b. it discourages trade based on the comparative advantage of suppliers. c. it moves goods, services and resources from people who value them less to individuals who value them more. d. This is a trick question; voluntary exchange does not promote economic progress.

4. To realize it's potential, a nation must have a mechanism that channels capital into _____-____ _____

Wealth-creating projects

b. the market price

Which of the following coordinates the choices of buyers and sellers, bringing quantity demanded and quantity supplied into balance? a. government mandates b. the market price c. taxes and subsidies d. consumer demand

If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that...

Y and Z are substitutes

Does voluntary exchange create wealth (value)?

Yes, trade generally permits the trading partners to gain more of what they value; this is why they agree to the terms of the exchange.

an announcement that the "beginning stocks" of corn were higher than expected is an indication that: a) prices would be expected to decrease more than previously expected b) prices would be expected to increase more than previously expected c) there is no effect on prices: stocks are unrelated to the level of future prices

if usda estimates that expected corn-based ethanol production will increase, this is expected to: a) increase estimated "use" of corn (in the current crop year) b) increase estimated "supply" of corn (in the current crop year)

today, the cash price for corn (delivery october) in nevada, ia is $3.30/bu and the cash price for corn is $3.24/bu in grinnell, ia. if a producer calculated that $0.08/bu was the amount that it would cost to cover all transportation and handling costs for shipping corn from grinnell to nevada, a farmer located near granola would: a) sell corn in grinnell b) pay transport costs and sell corn in nevada

If an economy is operating at a point inside the production possibilities curve, a. its resources are not being used efficiently. b. the curve will begin to shift inward. c. the curve will begin to shift outward. d. This is a trick question because an economy cannot produce at a point inside the curve.

a. its resources are not being used efficiently.

If Sean sells Tom a tennis racket for $50, we would expect

both parties to gain from this transaction.

Economists make assumptions in order to...

focus their thinking on the essence of the problem at hand

if import restrictions prohibit foreigners from selling various goods and services in the U.S Market

foreigners will have fewer U.S dollars with which to buy U.S goods and services

If you wanted to measure whether the output of an economy was increasing or decreasing across time periods, you would use the real GDP data rather than the nominal GDP data because

real GDP adjusts for changes in the general level of prices, but nominal GDP does not.

ECO 151 Exam 1

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