Econ 202 Exam 1
Economics is best defined as
a social science that studies how individuals and societies make choices regarding the use of scarce resources
A demand schedule is:
a table showing how much of a good consumers will buy at different prices.
If goods A and Z are complements, an increase in the price of good Z will:
decrease the demand for good A.
Along a given demand curve, an increase in price of the product will:
decrease the quantity demanded.
A decrease in demand, with no change in supply, will lead to a(n) _____ in equilibrium quantity and a(n) _____ in equilibrium price.
decrease; decrease
In a centralized, or socialist, economy:
government planning boards may set output targets.
If two goods are substitutes, their cross-price elasticity of demand should be:
greater than 0.
A shirt manufacturer sold 10 dozen shirts per day when the price was $4 per shirt but sold 15 dozen shirts per day when the price was $3 per shirt. The price elasticity of demand (using the midpoint method) is:
greater than 1 but less than 3.
Joe manages a popular nightclub and lately revenues have been disappointing. Joe's bouncer suggests that raising drink prices will increase revenues, but his bartender suggests that decreasing drink prices will increase revenues. Joe is not sure who is right, but he does know that:
his bouncer thinks the demand for drinks is inelastic, whereas his bartender thinks the demand for drinks is elastic.
A perfectly elastic supply curve is:
horizontal
The pair of items that is most likely to have a negative cross-price elasticity of demand is:
hot dogs and mustard
A high-school graduate who gets a college degree is adding to the economy's stock of:
human capital
Manny is attending college and majoring in economics. By doing so, Manny is primarily improving his:
human capital
If an increase in income leads to a decrease in the demand for a good, then all else equal, the good is said to be:
inferior
If the income elasticity of demand for a good is negative, the good is said to be a(n):
inferior good
A rightward shift of the demand curve shows that:
something has happened to cause a higher quantity demanded at every given price.
A leftward shift of the demand curve shows that:
something has happened to cause a lower quantity demanded at every given price.
Which statement will result in an increased price of milk?
a shift to the right of the demand curve for milk
If goods A and B are substitutes, a decrease in the price of good B will:
decrease the demand for good A
If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:
0.75
(Figure: Demand and Supply of Gasoline) Examine the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1 and D, any price lower than _____ will create pressure for the price to _____.
$2.50; rise
Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is:
0
The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____ and demand is described as _____.
0.2; inelastic
(Table: Trade-off of Study Time and Leisure Time) Examine the table Trade-off of Study Time and Leisure Time. A student sleeps 8 hours per day and divides the remaining time between study time and leisure time. The table shows the combinations of study and leisure time that can be produced in the 16 waking hours of each day. If a student decides to consume one additional hour of leisure time, how many hours of study time must be given up?
1.00
The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand?
1.40
A local restaurant has estimated that the price elasticity of demand for meals is equal to 2. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by _____ and total revenue to _____.
10%; fall
The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently expanded its production capacity from 1,000 to 2,000 bunnies per day. If the price elasticity of demand for bunnies is 3.33, by how much will the company need to reduce its price to sell the additional 1,000 bunnies (using the midpoint method)?
20%
(Figure: Sugar and Freight Trains) Examine the figure Sugar and Freight Trains. Suppose the economy is operating at point B. The opportunity cost of producing the third freight train would be:
45 tons of sugar.
In the market for corn tortilla chips, what would cause a price increase?
A fungus kills much of the corn crop in Nebraska.
_____ illustrates a direct relationship between price and quantity.
A supply curve
___________ illustrates a direct relationship between price and quantity
Supply Curve
Which statement is NOT true regarding a price-elastic demand curve?
The absolute value of the price elasticity is a fraction less than 1
When a chef creates a dinner plate of food for a customer, which option represents physical capital?
The oven
The substitution effect of a price change is described by which statement?
When the price of canning jars falls, consumers will substitute these lower-priced canning jars for higher-priced goods
Which statements is a positive statement? Which is a normative statement? X. The federal minimum wage is increasing to $7.50 an hour. Y. The minimum wage should be high enough that families will not live in poverty
X is positive; Y is normative.
If the estimated price elasticity of demand for foreign travel is 4, then:
a 20% decrease in the price of foreign travel will increase the quantity demanded by 80%.
The primary difference between a change in supply and a change in the quantity supplied is that:
a change in quantity supplied is a movement along the supply curve, whereas a change in supply is a shift in the supply curve
Assuming that hardcover books are a normal good, which statement could cause a decrease in demand for hardcover books?
a decrease in incomes
An increase in supply can result from:
a decrease in the price of goods that are used in production.
In the market for beef tacos, each of these shifts the supply curve to the left EXCEPT:
a decrease in the price of tacos.
A decrease in supply means:
a shift to the left of the entire supply curve
The problem of scarcity is confronted by:
all societies
When calculated for a normal demand curve, the price elasticity of demand will:
always be negative
Which statement ALWAYS results in an increase in price and quantity?
an increase in demand with no change in supply
Assuming that paperback books are an inferior good, which statement could cause a decrease in demand for paperback books?
an increase in incomes
Suppose the input costs associated with manufacturing hair replacement treatments decreases over time. This would lead to:
an increase in the supply of such treatments, lower prices, and an increase in the equilibrium quantity.
Assume that as the price of cauliflower falls, the income effect causes consumers to buy fewer heads of cauliflower. It can be concluded that cauliflower is:
an inferior good.
(Figure: Demand and Supply of Gasoline) Examine the figure Demand and Supply of Gasoline. Given the resulting equilibrium after a change in supply from S1 to S2:
at the old price of $2.50, there will be pressure for the price to fall.
If an economy has to sacrifice increasing amounts of good X for each additional unit of good Y produced, then its production possibility frontier is:
bowed out from the origin.
A resource is anything that:
can be used in production
Markets that are characterized by many buyers and many sellers are referred to as:
competitive
Which of these is NOT a determinant of supply?
consumer tastes
The law of demand implies that:
consumers will buy more at lower prices.
Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. All else equal, the:
cross-price elasticity between cereal and milk is −2.
A negative relationship between the quantity demanded of a good and its price is called the law of:
demand
Using the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:
different elasticities, depending on whether price decreases or increases.
(Figure: Consumer and Capital Goods) Examine the figure Consumer and Capital Goods. The movement from Curve 1 to Curve 2 indicates:
economic growth.
All points on the production possibility frontier are:
efficient production points
The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that:
electricity and natural gas are substitutes.
If the quantity supplied in a market exceeds the quantity demanded in a market, prices would be expected to:
fall
A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price. If the demand for beef is perfectly elastic, this rancher's quantity demanded will:
fall to 0
If the income elasticity for hybrid cars was positive, then:
hybrid cars are a normal good
The production possibility frontier illustrates that:
if all resources of an economy are being used efficiently, more of one good can be produced only if less of the other good is produced.
The percent change in quantity demanded of a good divided by the percent change in income, all other things unchanged, is:
income elasticity of demand
A technological advance in the production of automobiles will:
increase the supply of automobiles.
An increase in demand, all other things unchanged, will result in a(n) _____ in equilibrium price and a(n) _____ in equilibrium quantity.
increase;increase
Microeconomics deals with
individual decision makers in the economy
All points inside the production possibility frontier represent:
inefficient production points
All points inside the production possibility frontier represent:
inefficient production production points
Consider a production possibility frontier for Iraq. If in 2014 Iraq's resources are not being fully utilized, Iraq will be somewhere _____ of its production possibility frontier.
inside
If a production possibilities frontier is a straight line, the opportunity cost of producing one more good of x,
is a constant amount of good Y
In movement along a production possibility frontier, the opportunity cost to society of getting more of one good:
is measured by the amount of the other good that must be given up
(Figure: Consumer and Capital Goods) Examine the figure Consumer and Capital Goods. Point Z:
is unattainable all other things unchanged
If an economy is producing at a point on its production possibilities frontier:
it is efficient in production but not necessarily in allocation.
If an economy has NOT achieved efficiency, there must exist ways to:
make some people better off without making others worse off.
A decentralized system comprised of many buyers and sellers each attempting to maximize their own gain under competitive conditions best describes:
market economy
Assume an economy is operating on its production possibility frontier, which shows the production of military and civilian goods. If the output of military goods is increased, the output of civilian goods:
must decrease
If the income elasticity of demand for a good is positive, the good is said to be a(n):
normal good.
Scarcity in economics means:
not having sufficient resources to produce all the goods and services we want
An economy is efficient in production if it is
not possible to produce more of one good without producing less of another good.
The price elasticity of demand for skiing lessons in New Hampshire is greater than 1.00. This means that the demand is _____ in New Hampshire.
price elastic
Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is:
price inelastic
Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:
price inelastic.
The price elasticity of demand measures the responsiveness of the change in the:
quantity demanded to a change in price.
When the price goes down, the quantity demanded goes up. The price elasticity measures how:
responsive the quantity change is in relation to the price change.
If the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases, all else equal, this indicates that these two goods are:
substitute goods
Suppose that the cross-price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. This implies that the two goods are:
substitutes
Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross price elasticity for water and lemons is −0.13. This means that butter and margarine are _____ whereas water and lemons are _____.
substitutes; complements
Whenever a choice is made:
the cost of that choice could be referred to as opportunity cost
If there is a widely held expectation that prices of cotton will be higher next year, then:
the demand for cotton will increase today.
(Figure: Demand for DVDs) Examine the figure Demand for DVDs. A decrease in the rental price of DVDs would result in a change illustrated by
the move from j to k in Panel C
A production possibility frontier that is a line sloping down from left to right would suggest that:
the opportunity costs of the goods are constant.
The university hopes to raise more revenue by increasing parking fees. This plan will work only if:
the price effect is larger than the quantity effect.
Total revenue is:
the price of a good times the quantity of the good that is sold.
For the vast majority of goods, demand curves slope downward because:
the substitution effect constitutes almost the entire effect of a price change, and this effect always causes quantity demanded and price to be inversely related.
Opportunity cost is:
the value of the best alternative forgone in making any choice
Market equilibrium occurs when:
there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, the market clears.
Suppose the equilibrium price of good Y is $5 and the equilibrium quantity is 150 units. If the price of good Y is $12:
there will be an excess supply of good Y
The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged?
total revenue will fall
A production possibility frontier illustrates the _____ facing an economy that _____ only two goods.
trade-offs; produces
A perfectly price-inelastic demand curve is:
vertical