ECON 202 - Exam 1 (Quiz Q&A)
John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________.
$3
Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.
0.5; The product is inelastic.
Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.
1.22
Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club memberships?
1.6
Suppose the value of the price elasticity of demand is -3. What does this mean?
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
Suppose the value of the price elasticity of supply is 4. What does this mean?
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
What is the difference between an "increase in demand" and an "increase in quantity demanded"?
An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.
What is the difference between an "increase in supply" and an "increase in quantity supplied"?
An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.
What is the formula to calculate arc elasticity of demand?
Arc elasticity of demand = [(Q2 - Q1) / (Q2+ Q1)/2] / [(P2 - P1) / (P2 + P1)/2]
Adam Smith's Invisible Hand Theorem indicated that competitive markets are efficient because:
Competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best possible way.
________ is the difference between the willingness to pay and the price paid for a good.
Consumer surplus
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
Demand is likely to be relatively inelastic.
(T/F) A normal good is a good for which the demand increases as income decreases, holding everything else constant.
False
(T/F) All else equal, as the price of a product falls, the quantity supplied increases.
False
(T/F) Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is".
False
(T/F) Suppose at a price of $50, Yoshi's Jazz Bar sells 20 tickets to its nightly jazz performance and at a price of $40, it sells 25 tickets. Based on this information, the demand for Yoshi's jazz performance is elastic.
False
Economics teaches us that people
Fundamentally want more goods
Advantages of trade include what?
Permits specialization, permits some people to produce more than they consume, and takes advantage of comparative advantage
In what ways are you richer than King George?
Indoor plumbing, Travel, music, and medical treatment
Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers?
It is perfectly elastic.
Which of the following goods is likely to have the highest price elasticity of demand?
Ketchup
Who are you richer than?
King George of England and Most people in the world today
Scarcity in an economy emerges from
Limited resources and infinite wants
Adam Smith's proposition or theorem consists of
Market outputs are efficient, those outputs are produced efficiently, and those outputs are allocated among buyers in the most efficient way
A hunter-gatherer society is a notable exception to which economic question?
None. They follow all economic questions.
What is an assumption needed for simple arithmetic?
Numbers exist and Addition
The video describes the steps in simple arithmetic as proceeding from
Numbers to cardinal numbers to addition to subtraction to multiplication to division
People do not "feel" rich because?
People always want more
Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers who did trade in their old automobiles to take advantage of the government offer would be exemplifying the economic idea that
People respond to economic incentives
According to the video, recycling is an economic problem because
Recycling requires and produces economic resources
What is an assumption of economics?
Scarcity
Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services?
Supply is perfectly elastic.
The principle of opportunity cost is that
The economic cost of using a factor of production is the alternative use of that factor is given up
Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long-run price elasticity of supply for oil?
The elasticity coefficient is likely to be higher in the long run than in the short run.
Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil?
The elasticity coefficient is likely to be low and supply is highly inelastic.
Greenaqua Corp. is the only supplier of bottled drinking water in the country Lithasia. Due to the profits the firm enjoys, new corporations are interested in entering the market. If a few more companies producing their own line of bottled drinking water enter the market, which of the following statements will be true about Greenaqua Corp.?
The elasticity of demand of Greenaqua Corp.'s product is likely to increase.
If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then
The market equilibrium quantity of tacos and enchiladas is efficient
Adam Smith's book, The Wealth of Nations, investigated what?
The role of markets in determining economic efficiency
In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the United States?
The supply curve shifted to the left.
If the United States placed an embargo on Swedish products, what would happen in the U.S. market for Swedish furniture?
The supply curve would shift to the left.
Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?
There is a decrease in the supply of pool maintenance services.
Harvey Rabbitt pays for monthly cable TV service. Last week the cable company informed Harvey that his monthly cable price would go down because the city council has granted approval for three new cable companies to service his area. How is the market for cable TV services affected by this?
There is an increase in the supply of cable TV service.
When sellers sell goods in a market they are doing so because
They can make more money selling that good than doing something else
When buyers buy goods in a market they are doing so because
They prefer the good to the other good.
Trade emerged when?
Trade has been a feature in nearly all economies.
(T/F) "An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.
True
(T/F) An increase in the quantity of a product supplied is caused by an increase in the price of the product.
True
(T/F) If consumers believe the price of iPads will decrease in the future, this will cause the demand for iPads to decrease now.
True
(T/F) If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.
True
(T/F) Necessities tend to have more inelastic demands than luxuries.
True
(T/F) Quantity supplied refers to the amount of a good or service that a firm is willing and able to supply at a given price.
True
(T/F) The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.
True
A major question that faced societies 250 years ago was
What would happen if you organized more of the economy with markets?
A budget constraint is a straight line because:
a consumer faces a fixed price of both goods that do not change with changes in consumption
If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as
a decrease in quantity demanded.
Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced
a decrease in supply.
The purpose of guilds includes a. managing entry b. ensuring quality c. keeping prices high d. All of the abovev
d. All of the above
An increase in the price of off-road vehicles will result in
a larger quantity of off-road vehicles supplied.
An increase in the price of pineapples will result in
a larger quantity of pineapples supplied.
If a decrease in income leads to a decrease in the demand for mac and cheese, then mac and cheese is
a normal good.
An increase in the demand for a good is represented by:
a right shift to a new demand curve.
We can derive the market demand curve for gold earrings
by adding horizontally the individual demand curves of each gold earring consumer.
Which of the following would result in a higher absolute value of the price elasticity of demand for a product? a. A wide variety of substitutes are available for the good. b. The expenditure on the good is small relative to one's budget. c. The good is a necessity. d. The time period under consideration is short.
a. A wide variety of substitutes are available for the good.
Which of the following is a positive economic statement? a. If the price of iPhones falls, a larger quantity of iPhones will be purchased. b. The U.S. government should not have bailed out U.S. auto manufacturers. c. The government should revamp the health care system. d. The standard of living in the United States should be higher.
a. If the price of iPhones falls, a larger quantity of iPhones will be purchased.
Which of the following is a positive economic statement? a. Raising the tax on gasoline raises the selling price of gasoline. b. The government should ban the production and sale of incandescent light bulbs. c. The government should revamp its immigration policies. d. U.S. citizens should only buy products which are produced in the United States.
a. Raising the tax on gasoline raises the selling price of gasoline.
Which of the following is a positive economic statement? a. Scarcity necessitates that people make trade-offs. b. The government should mandate electric automobiles. c. People should not buy SUVs. d. Foreign workers should not be allowed to work for lower wages than the citizens of a country.
a. Scarcity necessitates that people make trade-offs.
Which of the following statements is true? a. Testing with data enables economists to distinguish between good models and bad models. b. The scientific method used by economists is based on idealism and not empiricism. c. Models that economists use are perfect replicas of reality. d. Models help economists to explain the past, but do not help in predicting the future.
a. Testing with data enables economists to distinguish between good models and bad models.
Which of the following examples best describes the Law of Demand? a. When the price of tea increased, the quantity demanded of tea decreased. b. When Alex received a pay hike, his consumption of all goods increased. c. When the price of Nokia phones increased, the demand for Samsung phones increased. d. When the price of gasoline increased, the demand for cars fell.
a. When the price of tea increased, the quantity demanded of tea decreased.
The revenue received from the sale of _________ of a product is a marginal benefit to the firm
an additional unit
Economists assume that individuals
are rational and respond to incentives
Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil? a. A decrease in the consumer's income b. A twofold increase in the price of pens and a threefold increase in the price of pencils c. An increase in the consumer's income d. A twofold increase in the prices of both pens and pencils
b. A twofold increase in the price of pens and a threefold increase in the price of pencils
Which of the following is a normative economic statement? a. The federal government is considering increasing regulations on the use of fossil fuels to promote the use of wind power. b. Farmers should not be allowed to grow and sell genetically-modified crops. c. Rising corn prices have increased the price of corn-based ethanol. d. With rising home prices and falling mortgage interest rates, the amount of home foreclosures has decreased.
b. Farmers should not be allowed to grow and sell genetically-modified crops.
Which of the following is a positive economic statement? a. The standard of living in the United States is too low. b. If the price of beef falls, a larger quantity of it will be bought. c. The government should implement a national consumption tax. d. The U.S. government should increase regulations on the banking industry.
b. If the price of beef falls, a larger quantity of it will be bought.
Which of the following describes the substitution effect of a price change? a. The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. b. The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. c. The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. d. The change in quantity demanded of a good that results from the change in the price of a substitute for the good.
b. The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
A correlation between two variables implies that:
there is a mutual relationship between both the variables.
Which of the following statements correctly differentiates between the slope of the demand curve and price elasticity of demand along a linear demand curve? a. The price elasticity of demand for a good is the same at different points on the demand curve, whereas the slope of the demand curve varies depending on the point where it is measured. b. The price elasticity of demand for a good varies along the demand curve, whereas the slope of the demand curve remains the same at different points on the curve. c. The price elasticity of demand is a ratio, whereas the slope of a demand curve is a product. d. The price elasticity of demand is a product, whereas the slope of a demand curve is a ratio.
b. The price elasticity of demand for a good varies along the demand curve, whereas the slope of the demand curve remains the same at different points on the curve.
Which of the following is not an example of the economic question of what to produce? a. Should we urbanize farmland? b. What is the best type of cellphone? c. How much should we recycle? d. Should we make breakfast tacos or waffles? e. Should we make SUVs or all electric cars?
b. What is the best type of cellphone?
Economic models do all of the following except a. simplify some aspect of economic life. b. portray reality in all its minute details. c. make economic ideas explicit and concrete for use by decision makers. d. answer economic questions.
b. portray reality in all its minute details.
If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.
budget constraint
Which of the following is a normative economic statement? a. The current high price of gasoline is the result of strong worldwide demand. b. When the price of gasoline rises, transportation costs rise. c. The price of gasoline is too high. d. When the price of gasoline rises, the quantity of gasoline purchased falls.
c. The price of gasoline is too high.
Economists assume that rational people do all of the following EXCEPT a. use all available information as they act to achieve their goals b. weigh the benefits and costs of all possible alternative actions c. undertake activities that benefit others and hurt themselves d. respond to economic incentives
c.undertake activities that benefit others and hurt themselves
Causation occurs when:
change in one variable is the reason for the change in another variable.
Early agricultural societies... a.. Limited the economic choices of many society members. b. Featured significant central control of land c. Featured significant control of water d. All of the above
d. All of the above
Which of the following is not an economic question? a. Do we have enough medical care in the economy? b. Should we recycle more? c. Should we make hybrids or SUVs? d. Is it better for stores to close on Sundays?
d. Is is better for stores to close on sundays?
Which of the following is a normative economic statement? a. With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. b. Rising global demand for coal has led to increases in the price of coal. c. The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. d. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.
d. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.
Which of the following is not an economic question? a. Should seniors get the first pick of seats in the student section at Kyle field? b. Should you study for a test or party? c. Should Texas A&M allocate seats in classes using a first-come, first-serve basis? d. Should you eat healthy food? e. All of the above are economic questions
d. Should you eat healthy food?
Which of the following is a normative economic statement? a. The current low price of wheat is the result of increased worldwide supply. b. When the price of wheat falls, the quantity of wheat purchased rises. c. When the price of wheat falls, the cost of wheat-based products falls. d. The price of wheat is too low.
d. The price of wheat is too low
Which of the following can be derived from other assumptions of economics a. scarcity b. tradeoffs c. Opportunity costs d. B and C e. A and B
d. Tradeoffs and opportunity costs
Which of the following examples best describes the Law of Demand? a. When the price of watches increases, a local manufacturer starts offering more watches for sale. b. When John's income doubles, his telephone bill also doubles. c. When a new anti-tobacco commercial is released, the consumption of tobacco products decreases sharply. d. When the price of bread doubles, John's consumption of bread halves.
d. When the price of bread doubles, John's consumption of bread halves.
Scarcity means that? a. We must make choices and give up things we really want b. We must find ways to deal with that scarcity c. Figure out the best set of social systems to address scarcity d. all of the above
d. all of the above
Using basic assumptions you can determine a. Why markets are efficient b. When markets are efficient c. When government intervention helps or hurts economic performance d. All of the above
d. all of the above
If smartwatches are considered substitutes for smartphones, the decline in the price of smartwatches would, all else equal,
decrease the demand for smartphones.
The ________ plots the relationship between prices and the quantity that buyers are willing to purchase.
demand curve
The steps needed to evaluate the best way to organize an economy include...
determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes.
The demand curve for most goods is normally:
downward sloping
The key advantage to market exchange compared to one-on-one (barter) trade is that a. Markets use money, which is generally better b. Barter limits trades because each person must want what the other one has c. Markets are more efficient d. A and B e. All of the above
e. All of the above
In general, a. People should never work in teams because they can make more money by specializing b. We should make more energy efficient cars c. We should recycle more d. All are true e. None are true
e. None are true
An outward shift of a nation's production possibilities frontier represents
economic growth.
If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is
elastic.
Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price.
elasticity
The opportunity cost of taking a semester-long economics class is
equal to the highest value of an alternative use of the time and money spent on the class.
The opportunity cost of going to an outdoor music festival is
equal to the highest value of an alternative use of the time and money spent on the festival
Economists assume that rational behavior is useful in explaining choices people make
even though people may not behave rationally all the time
Marginal utility is the
extra satisfaction received from consuming one more unit of a product
An item has utility for a consumer if it
generates enjoyment or satisfaction
A demand curve that is horizontal indicates that the commodity
has a large number of substitutes.
An omitted variable is a variable that:
has been left out, and if included, would explain why the variables considered in a study are correlated
The production possibilities frontier model shows that
if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.
If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other things equal, an increase in the price of the Apple Watch will
increase the demand for the Gear S2.
Suppose you are considering buying stock in the stock market, and your objective is to maximize your net worth. Furthermore, your study of the market reveals that the economy will be slowing down over the next several months. Under these conditions, it would be best to purchase stock in companies that produce
inferior goods.
In a production possibilities frontier model, a point ________ the frontier is productively inefficient
inside
A supply schedule
is a table that shows the relationship between the price of a product and the quantity of the product supplied.
The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:
its price
Two goods are said to be complements when a fall in the price of one good:
leads to a right shift in the demand for the other good.
If demand is inelastic, the absolute value of the price elasticity of demand is
less than one.
Economists assume that the goal of consumers is to
make themselves as well off as possible
In economics, the term ____________ means "additional" or "extra"
marginal
The extra cost associated with undertaking an activity is called
marginal cost
The extra cost associated with undertaking an activity is called?
marginal cost
The demand by all the consumers of a given good or service is the ________ for the good or service.
market demand
Higher price elasticity of demand means that a consumer's demand is:
more responsive to price changes.
The best alternative use of a resource is referred to as its
opportunity cost
Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that
people are rational
Holding all other personal characteristics- such as age, gender, and income-constant, economists would expect that
people with health insurance are more likely to be overweight than people without health insurance
If the value of price elasticity of demand for a good is equal to "∞", it implies that the good has a ________ demand.
perfectly elastic
At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is
perfectly inelastic.
If firms do not increase their quantity supplied when price changes, then supply is
perfectly inelastic.
If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:
pivot leftward along the vertical axis
A decrease in the price of either good will cause a consumer's budget constraint to:
pivot rightward
If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:
pivot rightward along the horizontal axis
If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:
pivots leftward without a change in the intercept on the horizontal axis
The price elasticity of an upward-sloping supply curve is always
positive
The percentage change in the quantity demanded of a good due to a percentage change in its price is referred to as the:
price elasticity of demand
By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.
price; quantity; price
Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas. To Lonnie,
raspberries and papayas are substitutes.
Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
rationally
A budget constraint
refers to the limited amount of income available to consumers to spend on goods and services
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
relatively elastic.
Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Based on the information above, the demand for Hendrix College education is
relatively inelastic.
If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is
relatively inelastic.
The supply curve for watches
shows the relationship between the price of watches and the quantity of watches supplied.
The market for smartwatches has begun to grow, due in part to the success of the Apple Watch. Following the successful launch of the Apple Watch in 2015, companies such as Samsung, Sony, and LG have all developed products to compete with the Apple Watch. The smartwatches introduced to compete with the Apple Watch would be considered
substitutes for the Apple Watch
Tomas increased his consumption of potato chips when the price of pistachios increased. For Tomas, potato chips and pistachios are
substitutes in consumption.
The quantity demanded of a good is:
the amount of a good that buyers are willing to purchase at a given market price
The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as
the budget constraint
The substitution effect of an increase in the price of peaches is
the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
The income effect of an increase in the price of peaches is
the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources
If the price of a good increases, ________.
the consumer surplus decreases
If the price of music downloads was to decrease, then
the demand for MP3 players would increase.
If the absolute value of the price elasticity of demand for aspirin equals 0.8 then
the demand for aspirin is inelastic.
Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:
the opportunity cost of buying sweaters increases
The slope of a budget constraint represents:
the opportunity cost of one good in terms of another
The price elasticity of demand is equal to
the percentage change in quantity demanded divided by the percentage change in price.
If the demand for a steak is unit elastic, then
the percentage change in quantity demanded is equal to the percentage change in price
Elasticity is:
the ratio of the percentage change in two variables.
If, in the market for oranges, the supply has increased then
the supply curve for oranges has shifted to the right
If in the market for peaches the supply curve has shifted to the left,
the supply of peaches has decreased.
Without an increase in the supplies of factors of production, how can a nation achieve economic growth?
through technological advancement which enables more output with the same quantity of resources
(T/F) When voluntary exchange takes place, both parties gain from the exchange
true
The points outside the production possibilities frontier are
unattainable
Making optimal decisions "at the margin" requires
weighing the costs and benefits of a decision before deciding if it should be pursued