Econ Exam 1 Practice Questions
If the price increases by 100% and the quantity decreases by 50%, then the elasticity of demand is
-0.5
Which example represents incentives for decisions?
1. tax deductions for individual retirement accounts 2. investment tax credits for businesses 3. tax deductions for education savings accounts (All of them)
Capital includes all of these EXCEPT: a. dollar bills in a bank b. copy machines in an insurance company c. tractor loaders of a construction firm d. drilling equipment
A. dollar bills in a bank vault
Consider the following statements. Which, if any, are positive statements? a. Main Street needs more coffee shops b. A new parking garage on campus will reduce parking congestion c. Last winter, the state should have spent more money on snow removal
B
Willingness to pay is the
highest value that a consumer believes a good or service is worth
Which is NOT considered a basic economic question?
How will the system accommodate change?
A basic belief of economics is that
In general, people respond to economic incentives
Consider the demand for olive oil. What would happen to the demand for olive oil if a study confirming its beneficial health effects is published at the same time that an investigate report finds that much of the olive oil imported into the country is actually sunflower oil that has been dyed?
We would expect demand to shift in each direction, but the final position will depend on which event has the bigger impact on demand
Marginal analysis would put an emphasis on
additional costs and benefits
If a store sells a good with a highly elastic demand, then a decrease in the price would lead to
an increase in total revenue
A market economy is also known as ______ economy, and decisions are made by ______.
capitalist, private individuals
Suppose the equilibrium price for a gallon of milk is $2.50, but due to government price supports, the minimum legal price is $2.75 per gallon. This price floor
causes a surplus of milk in the market
Tax burdens are higher on consumers when
demand is inelastic and supply is elastic
When market failure occurs, it often creates an incentive for
government intervention into the market
The more responsive buyers are to a change in price, the
greater the price elasticity of demand
Suppose your income falls from $35,000 to $33,000 and that your quantity demanded of a good increases from 40 units to 55 units. The good is said to be a(n)
inferior good
When quantity demanded in a market equals quantity supplied, than the
market is in equilibrium
Producer surplus is the difference between the
market price and the minimum price the seller is willing to accept
Which of these is NOT an economic factor of production? a. land b. entrepreneurial ability c. money d. labor
money
A country operating outside of the production possibilities frontier is
operating impossibly because a country cannot operate outside of the production possibilities frontier
The price elasticity of demand measures the
percentage change in quantity demanded divided by the percentage change in price
An effective price ceiling leads to
quantity demanded exceeding quantity supplied
When an economy is operating efficiently, the production of one more unit of a good will result in some loss of production of another good because
resources are limited and efficiency implies that all resources are already in use
When quantity supplied exceeds quantity demanded, a _____ occurs and prices are pushed _____ toward equilibrium
surplus; down
A common definition of economics is that it is the study of
the allocation of scarce resources to satisfy competing wants
The basic idea of opportunity cost is that
the decision to use resources in one activity means that the resources cannot be used elsewhere
When economists refer to a market demand curve, they mean that it represents
the horizontal summation of individual demand curves
Which concept would be addressed by microeconomics?
the price of college tuition that an individual student pays
In a market-based economy, scarce resources are allocated by
the price system
At any price below the equilibrium price
the quantity demanded exceeds the quantity supplied in the market
If a price ceiling is set above the equilibrium price in the market, producer surplus will be
the same as it would be without the price ceiling
When markets are efficient
the sum of consumer and producer surplus is maximized
Tax incidence is defined as
who bears the burden of a federal or local tax
