Econ 102 comprehensive quiz

Other things remaining equal, the law of demand says that higher prices will lead to:

a smaller quantity demanded and lower prices to a larger quantity demanded.

Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium:

after an adjustment period that varies.

Social benefit is the total benefit from the consumption of a good or service that includes:

both private and external benefits

In what type of economy does the government decide how most economic resources will be allocated?

centrally planned

The substitution effect for a normal good is __________ while the substitution effect for an inferior good is __________.

inversely related to price, inversely related to price

When you compute a price elasticity of demand the answer is always:

negative

Prolonged shortages arise if:

prices are not allowed to rise to equilibrium

Absolute advantage is the ability of an individual, firm, or country to:

produce more of a good or service than competitors using the same amount of resources

At the market equilibrium price:

quantity demanded equals quantity supplied.

Many people donate to charity and leave tips to servers in restaurants even when they will never visit the restaurant again. Economists consider this type of behavior to be:

rational, because it shows people value fairness

In a price system:

relative prices change constantly to reflect changes in supply and demand.

when supply decreases, a __________ develops at the original price. Equilibrium price will __________ and equilibrium quantity will __________ as a new equilibrium is established.

shortage; rise; fall

The income effect is the change in quantity demanded of a good that results from __________, holding all other factors constant

the effect of a price change on consumer purchasing power

Given linear demand curves, if demand and supply both increase but demand increases by a greater amount than supply, then

the equilibrium price and quantity both increase.

Given linear demand curves, if demand and supply increase by identical amounts, then:

the equilibrium price stays the same and the equilibrium quantity rises.

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?

10%, rise

The substitution effect is the change in the quantity demanded of a good that results from __________, holding constant the effect of the price change on consumer purchasing power.

A change in price making the good more or less expensive relative to other goods

When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number of health-care providers also increases, but by only 25%. What is the effect on the price of health-care services over time?

It increases because demand increased by more than supply.

In the circular flow model, which of the following refers to markets where goods such as computers or services such as medical treatment are offered?

Product market

Washington state had a bumper apple crop this year, significantly increasing the supply of apples in the U.S. Given this information, choose the statement that correctly describes the effect on the U.S. apple market.

The quantity of apples demanded will increase as the price of apples falls.

Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks?

The quantity of soft drinks demanded decreases. The supply of soft drinks decreases.

According to the theory of comparative advantage, specialization and free trade will benefit:

all trading partners who specialize in goods where they have comparative advantage

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the _ the payoff to devoting additional resources to that activity.

smaller

Price controls that put a price floor on goods and services create __________.

surpluses

Given linear demand curves, if demand increases and supply decreases, then __________.

the equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous

Which of the following gives people an economic incentive to actively assist in repopulating an endangered species?

Allowing people to own the endangered species and to charge the public to view them in nature displays, safaris, and other natural venues

Which of the following represents an inferior good?

When consumer income increases, the demand for bologna decreases.