ECO exam 1
A market price support policy establishes price ________ the market equilibrium.
floors above
A scarce resource is one that
has two or more alternative uses.
When we are forced to make choices we are facing the concept of
scarcity.
If steak and potatoes are complements, when the price of steak goes up, the demand curve for potatoes
shifts to the left.
The arc price elasticity of demand method is best used for
small changes in price.
Economics is a
social science concerned chiefly with how people choose among alternatives.
In drawing a production possibilities curve, it is assumed that
technology does not change.
An example of a supply shifter is
technology.
Knowledge that can be applied to the production of goods and services is
technology.
(Exhibit: Strawberries and Submarines) Suppose the economy is now operating at point C. Achieving production at point F would require
that the economy improve its technology or increase the quantities of factors of production it has.
The problem of determining how goods and services should be produced is a problem of deciding
the best combinations of resources to be used for producing goods and services.
(Exhibit: Strawberries and Submarines) Suppose the economy is now operating at point G. This implies that
the economy is experiencing unemployment and/or inefficient allocation of resources.
Whenever a choice is made
the opportunity cost of that choice is the highest-valued other choice that could have been made.
A market surplus occurs if the
equilibrium price is below the actual price
The three fundamental economic questions of what, how, and for whom
exist because of scarcity.
The problem of determining what goods and services society should produce
exists because there are not enough resources to provide all the goods and services that people want to purchase.
In market capitalism
factors of production are privately owned and decisions are made privately.
(Exhibit: Guns and Butter) If the economy were producing 8 units of guns and 12 units of butter per period
this is a possible choice, but would involve unemployment and/or inefficiency.
(Exhibit: Demand and Supply Curves) The highest price per unit that buyers would be willing to pay for 250 units is
$10
Exhibit: Demand and Supply Curves) The lowest price per unit that sellers would be willing to accept for 50 units is
$10
(Exhibit: Demand and Supply Curves) If there are no restrictions on the actions of buyers and sellers, the market price and quantity will tend toward ________ and ________ units, respectively
$15; 150
(Exhibit: Demand and Supply Curves) A surplus of 200 units will occur at a price of ________ and a shortage of 200 units will occur at a price of ________.
$25; $10
(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points D and E is
-.14
(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points C and D is
-.60
Suppose at a price of $10 the quantity demanded is 100. When price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between the prices of $10 and $8 is approximately
-1.17.
(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points B and C is
-1.67.
(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points B and A is
-7.
(Exhibit: Strawberries and Submarines) Suppose the economy is now operating at point A. The first submarine, which is achieved at point B, would have an opportunity cost of _______ million tons of strawberries. Group of answer choices
50
The concept of the margin deals with
All of the above
The price of cotton rises. What happens in the market for cotton shirts?
The equilibrium price rises and the equilibrium quantity falls.
The primary difference between a change in demand and a change in the quantity demanded is
a change in quantity demanded is a movement along the demand curve, and a change in demand is a shift in the demand curve.
A proposition about the relationship between two variables that can be proven false is called
a hypothesis.
(Exhibit: Guns and Butter) The maximum amounts of guns and butter this economy can produce is
all of the above combinations are maximum possible combinations.
Given a supply curve that is positively sloped and a demand curve for a normal good that is negatively sloped, an increase in income will most likely result in
an increase in price and quantity.
A decrease in supply is caused by
an increase in returns from other alternative activities.
An increase in supply of a good is caused by
an increase in the number of sellers.
Two goods are substitutes if
an increase in the price of one leads to an increase in demand for the other.
If the price of a good is increased by 15 percent and the quantity demanded changes by 20 percent, then the price elasticity of demand is equal to
approximately -1.33.
(Exhibit: Strawberries and Submarines) The downward slope of the production possibilities curve implies that resources
are scarce.
(Exhibit: Guns and Butter) This production possibilities curve is
bowed out from the origin because of increasing opportunity costs.
If an economy has to sacrifice increasing amounts of good X for each additional unit of good Y produced, then its production possibilities curve is
bowed out from the origin.
A model or theory in economics is
built using relevant observations, assumptions, and abstractions.
A linear demand curve
can have both elastic and inelastic price elasticity of demand.
Price controls
can result in inequitable outcomes.
(Exhibit: Guns and Butter) the combination of guns and butter at point H
cannot be attained given the level of technology and the factors of production available.
The three broad types of factors of production are
capital, labor, and natural resources.
A term that means "all other things unchanged" is
ceteris paribus.
An economy that has the lowest cost for producing a particular good is said to have a(n)
comparative advantage.
If an economy has to sacrifice only one unit of good X for each unit of good Y produced throughout the relevant range, then its production possibilities curve has a(n)
constant, negative slope.
If both the demand for a product and the supply of it decrease, then the equilibrium quantity will ________ and the equilibrium price will ________.
decrease; either increase, decrease, or remain constant
The price elasticity of a demand curve with a constant slope
decreases in absolute value as quantity demanded rises.
If a production possibilities curve were bowed in or convex to the origin of a graph, it would demonstrate
decreasing opportunity cost.
A negative relationship between the quantity demanded and price is called the law of ______.
demand.
A market shortage occurs if the quantity
demanded is greater than the quantity supplied.
An increase in the demand for medical services caused by an increase in the number of people over 65 is most likely attributable to which demand shifter?
demographic characteristics.
The price elasticity of demand is measured by
dividing the percentage change in quantity demanded by the percentage change in price.
The process through which an economy's production possibilities curve is shifted outward is
economic growth.
(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points A and B is
elastic, since total revenue increases when price falls from $8 to $6.
The ratio of the percentage change in a dependent variable to the percentage change in an independent variable, all other things unchanged, is
elasticity.
The economic way of thinking includes
emphasis on how choices are made at the margin
The production possibilities curve represents the fact that
if all resources of an economy are being used efficiently. more of one good can be produced only if less of another good is produced
The price elasticity of a demand curve with a constant slope
increases in absolute value as the price rises.
A variable that induces a change in another variable is a(n)
independent variable.
(Exhibit: Guns and Butter) Points A, B, E, and F
indicate combinations of guns and butter that society can produce using all of its factors efficiently.
(Exhibit: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter
involves a loss of 8 units of guns per period.
(Exhibit: Demand and Price Elasticity 2) Price elasticity of demand for small changes in price in the neighborhood of point C:
is -1.
(Exhibit: Demand and Price Elasticity 2) The demand curve going from point D to E
is price inelastic.
Although water is very abundant in most places, it is scarce because
it has two or more alternative uses.
A price ceiling will have no effect if
it is set above the equilibrium price.
A theory that has won virtually universal acceptance is a
law.
An increase in capital goods and a decrease in consumer goods will
lead to more rapid economic growth.
Increasing the level of education in the United States will
lead to workers possessing greater human capital.
(Exhibit: Guns and Butter) A movement from producing 12 units of guns and 16 units of butter per period to point B means a
loss of 4 units of butter and a gain of 4 units of guns per period.
Economists concerned about economy-wide trends in the unemployment of labor, the rate of inflation, and the level of economic production are studying
macroeconomics.
A simplified representation of a particular problem is a
model.
A maximum price set below the equilibrium price is a
price ceiling.
(Exhibit: Demand and Price Elasticity 2) Going from point B to C, the demand curve is
price elastic.
Along the upper half of a linear demand curve, the price elasticity of demand will be
price elastic.
A minimum price set above the equilibrium price is a
price floor.
Along the lower half of a linear demand curve, the price elasticity of demand will be
price inelastic.
Supply is best defined as the
relationship between the quantity of a good or service sellers are willing to offer for sale and various prices, all other things unchanged.
(Exhibit: Strawberries and Submarines) As the economy moves from point A towards, say, point D, it will find that the opportunity cost of each additional submarine
rises.
Which of the following is most likely an example of a free good?
sand in the middle of a desert
The fundamental economic questions that every economic system must answer are
what, how, and for whom.
An answer to the question "For whom" determines
who gets the goods and services produced.
