ECON Study Set OG

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Efficiency

-get the maximum salable output -from the lowest possible cost of inputs -while minimizing the waste

Assume the price of gas increases by 50 percent over the next few months and nothing else changes. As a result, there is:

A decrease in the quantity demanded of gasoline.

The law of supply states that, other things staying the same, a decrease in the price of a canoe leads to:

A decrease in the quantity supplied of canoes.

If fixed cost are $2000 and average variable costs are $10, a firm producing 1000 units of its product has total cost of ________?

$12,000

Which of the following can occur when there is a budget deficit?

Some private sector borrowers may be "crowded out" of the credit market

A quota is defined as a

Specific maximum amount that can be imported.

A quota is defined as a:

Specific maximum amount that can be imported.

If income distribution is made more equal by imposition of new tax laws, it is likely that the ______ will _______.

Standard of living, decrease.

When you read the price tag on an article of clothing, money is functioning as a

Standard of value.

Diminishing marginal utility sets in because:

As you consume added units of a good, you become less interested in consuming one more unit of that good.

The price of an acre of land is:

Totally determined by changes in the demand for land

Three basic societies

Traditional Market capitalist Command dictatorship

11) Suppose that the equilibrium price and quantity of new houses both increase. Which of the following could be a cause of this change? A) The wage paid carpenters who build new houses might have risen. B) More home buyers might have moved into the area. C) A technological advance in framing a new house might have occurred. D) The cost of wood framing used to build houses might have fallen. E) The rent for nearby apartments might have fallen.

13) Bagels and cream cheese are complementary goods. Suppose that the price for flour, which is used to produce bagels, increases. The equilibrium price of cream cheese ________ and the equilibrium quantity of cream cheese ________. A) falls; increases B) falls; decreases C) does not change; does not change D) rises; decreases E) rises; increases

Everything will be done the way it always has been done in a:

Traditional economy.

Accounting profits are always greater than or equal to economic profits. True False

True

Adding more and more paper airplane makers yields a diminishing marginal product of labor. True False

True

As long as the MP is positive, the TP will be increasing. True False

True

As we spend more money our total pleasure increases to a maximum point, but with additional increases in spending our marginal utility (additional pleasure) declines. True False

True

Average fixed costs always decrease as Q increases. True False

True

Beyond a small quantity, total utility increases at a decreasing rate. True False

True

Bowed-out PPCs obtain their shape from the production of products that demonstrate increasing opportunity costs.

True

Which of the following always results in an increase in price and quantity?

an increase in demand with no change in supply

If one seller in a competitive market sets his price higher than the equilibrium price:

Customers will shun him until goods selling at the lower price are all gone.

Which of the following describes unemployment when retailers and factories lay off workers in response to decreased spending in the economy?

Cyclical

If the unemployment rate is 9% and the natural rate of unemployment is 5.5%, then the:

Cyclical unemployment rate is 3.5%

17) New technology for producing plywood is developed. Which of the figures above best illustrates 17) this change? A) Figure A B) Figure B C) Figure C D) Figure D E) Figure A and Figure D

22) Suppose the equilibrium price of movie tickets is $10. If the supply curve for movies shifts ________, the equilibrium price will ________. A) rightward; increase B) leftward; decrease C) rightward; not change D) rightward; decrease E) leftward; not change

The Monopolist Profit Maximizes

The monopolist will produce Qm where MR = MC and profit will be maximized. The demand curve tells the monopolist that the price must be Pm in order to sell the quantity Qm

A combination of goods represented by a point lying outside the PPC is:

attainable only if economic growth occurs

A combination of goods represented by a point lying outside the ppc is

attainable only if economic growth occurs

5. The law of demand is illustrated when: a. An increase in tuition causes more students to enroll in college. b. An increase in the number of laptop computers purchased results from falling prices. c. Higher oil prices cause oil companies to drill for new sources of oil. d. Higher fees at golf courses cause golfers to purchase fewer golf balls.

b. An increase in the number of laptop computers purchased results from falling prices.

42. Economic profits do not last long in monopolistic competition industries because: a. Firms are too small to compete. b. Any new innovation is quickly "cloned" by competitors. c. Customers do not like innovations. d. Innovating results in higher costs.

b. Any new innovation is quickly "cloned" by competitors.

4. Price and cost: a. Mean the same thing in economics. b. Are different; price is the MC of the buyer and cost is the MC of the seller. c. Are different; price is the MB of the buyer and cost is the MB of the seller. d. Are different; price is the MB of the seller and cost is the MC of the seller.

b. Are different; price is the MC of the buyer and cost is the MC of the seller.

40. Most monopolies today are: a. Tiny. b. Found in government-regulated industries. c. Firms with very low fixed costs. d. In the petroleum industry.

b. Found in government-regulated industries.

21. When economic profits are _________ zero, an industry will expand until economic profits _____________. a. Greater than; increase. b. Greater than; fall to zero. c. Equal to; become less than zero. d. Equal to; become greater than zero.

b. Greater than; fall to zero.

12. Researchers have found a hybrid of corn that is cheaper to grow. This technological breakthrough, when adopted, will: a. Increases the demand for corn. b. Increases the supply of corn. c. Decreases the supply of corn. d. Both options a. and c. are correct.

b. Increases the supply of corn.

5. Which of the following is true? Marginal revenue: a. Can be found by MR=PxQ. b. Is the additional revenue received when the firm sells one more unit of the product. c. Is an upward sloping line above the demand curve. d. Is the same as total revenue.

b. Is the additional revenue received when the firm sells one more unit of the product.

The four categories of resources are: a. Money, capital, labor, and products. b. Labor, land, entrepreneurship, and capital. c. Financial capital, physical capital, workers, and supervisors. d. Goods, services, raw materials, and money.

b. Labor, land, entrepreneurship, and capital.

38. Market power is defined as a firm's ability to: a. Buy out the other firms in the industry. b. Manipulate the market price. c. Compel customers to buy combinations of its products. d. Raise its price without any decrease in quantity sold.

b. Manipulate the market price.

29. ______________ arises when a small number of firms emerge out of ____________. a. Monopoly; perfect competition. b. Oligopoly; monopolistic competition. c. Monopolistic competition; monopoly. d. Perfect competition; oligopoly.

b. Oligopoly; monopolistic competition.

27. A monopoly occurs when: a. Each firm produces a product that is slightly different from other firms. b. One firm only sells a good having no close substitutes and a barrier blocks entry for other firms. c. There are many firms producing the same product. d. A few firms control the market.

b. One firm only sells a good having no close substitutes and a barrier blocks entry for other firms.

3. Which of the following is a basic income statement? a. Costs + Revenues = Profits. b. Revenues - Costs = Profits. c. Costs + Taxes = Revenues. d. Revenues - Markup = Costs.

b. Revenues - Costs = Profits.

18. An increase in the tax on gasoline has increased the costs of supplying gasoline. As a result, the equilibrium price of gasoline _______ and the equilibrium quantity of gasoline _______. a. Rises; rises. b. Rises; falls. c. Falls; rises. d. Falls; falls.

b. Rises; falls.

When we are forced to make choices we are facing the concept of: a. Valuation. b. Scarcity. c. Marginal analysis. d. Shortage.

b. Scarcity.

33. Catfish farming is an industry in perfect competition. The industry suffered large economic losses in 1999. As a result: a. New catfish farmers entered the industry in 2000. b. Some catfish farmers exited the industry. c. No catfish farmers entered or exited the industry. d. The price of catfish fell in 2000. e. Both options b. and d. are correct.

b. Some catfish farmers exited the industry.

16. Economic profit is calculated by: a. TR - explicit costs. b. TR - (explicit + implicit costs) c. TR - normal profit. d. TR - implicit costs.

b. TR - (explicit + implicit costs)

43. The ultimate result of industry expansion in monopolistic competition is: a. Government control. b. The creation of an oligopoly. c. The creation of a monopoly. d. Rising prices.

b. The creation of an oligopoly.

In most societies, a prosperous "middle class" was developed when: a. The ruling elite favored a special group of people. b. The individual's right to own and keep private property was honored. c. Government distributed added income to its poorer people. d. Taxes were imposed on rich people and transferred to poor people.

b. The individual's right to own and keep private property was honored.

One way to describe the labor-leisure trade-off is:

The more hours you work, the higher value you place on the next leisure hours foregone

8.The rationing mechanism in a command economy is: a. Purchasing power. b. Income. c. Favoritism. d. Beauty.

c. Favoritism.

22. The primary driving factor that leads to industry expansion is: a. Owner greed. b. Government intervention. c. High customer demand. d. Economic losses.

c. High customer demand.

We have achieved consumer equilibrium when we see that all remaining choices have:

The same MU/P ratios

All the points along one indifference curve have: The same MU The same TU both the same MU and TU the same slope

The same TU

13. The opportunity costs of the owner's assets, time, and effort are: a. Fixed costs. b. Explicit costs. c. Implicit costs. d. Marginal costs.

c. Implicit costs.

31. Mark makes and sells dune buggies. At his current output, MR exceeds MC. In order to maximize his profit, Mark should: a. Not change his output. b. Decrease his output. c. Increase his output. d. Shut down the firm.

c. Increase his output.

11. An increase in the number of fast-food restaurants. a. Will raise the price of fast-food meals. b. Increases the demand for fast-food meals. c. Increases the supply of fast-food meals. d. Increases the demand for substitutes for fast-food meals.

c. Increases the supply of fast-food meals.

Real GDP measures:

Current output at base year prices

Congress imposes a price ceiling in the market for gasoline. It is below the equilibrium price. This will:

lead to a shortage of gasoline

The marginal benefit of a slice of pizza is the:

maximum amount that a consumer is willing to pay for the slice.

Freedom of entry and exit in monopolistic competition means that firms:

Enter the market when economic profits exist and exit when economic losses exist.

A country having a comparative advantage will _____ a foreign market and compete by offering a _____ price.

Enter, lower

The dollar value of all final goods and services produced within the nation's borders in one year is a measurement of

Gross Domestic Product (GDP)

If a firm's ATC is greater than the price, then the firm:

Has an economic loss.

The basic economic fact that generates international trade is:

Having a comparative advantage in producing a good or service.

Capital is best considered as:

Having been produced to make other goods and services

The required reserve ratio is 10%. You deposit $1000 in your checking account. The bank must immediately:

Increase required reserve by $100

As a result of free international trade, there is a net _____ in jobs in the U.S. and a net _____ in jobs in the nations of our trading partners.

Increase; increase

The imposition of a quota results in:

Increased domestic production, decreased imports, and decreased domestic purchases.

A significant, sustained increase in the worldwide price of a barrel of oil could lead to:

Increased inflation and decreased employment

After a nation starts exporting a good to other countries, the domestic employment in that industry:

Increases

The business cycle tracks:

The short-run ups and downs of the economy

We would decide to buy yet another unit of an item if:

It was offered to us at a lower price

Money gets its value from

Its purchasing power

Who studied consumer behavior in the early 1830s? Steven Manley Jeremy Bentham Karl Marx David Ricardo

Jeremy Bentham

______ wrote this in his influential book, "To each according to his need, from each according to his ability."

Karl Marx

Macro equilibrium can occur with abnormally low unemployment when:

Total spending is less than the economy's capability to produce.

Macro equilibrium can occur with high unemployment when:

Total spending is less than the economy's capability to produce.

A society's PPC shows the possible combinations of capital goods and consumer goods. If the society wishes to have stronger economic growth, it should:

Move along the PPC by increasing production of capital goods

The purpose of fiscal policy is to:

Move the economy to a level of full-employment with stable prices

Demand-pull inflation:

Occurs when total spending exceeds the economy's ability to provide output at the existing price level

On the production cost curve graph, we see that the:

Which of the following best describes the economic concept of a "free rider" problem?

Once provided, a public good can be used by everybody "for free"

Why Act Rationally?

People want to better themselves. -Improve their net worth. -Obtain satisfaction. -Obtain happiness.

Measuring Elasticity

Percent change method: --%change = (change) x 100/(original number) Calculate the percent change in quantity. Calculate the percent change in price. Now calculate elasticity: ---Elasticity = (%change in Q)/(%change in P) ---Elasticity = (%change in Q)/(%change in P) If elasticity > 1, demand is elastic. If elasticity < 1, demand is inelastic. If elasticity = 1, demand is unitary

Satisfying Unfilled Wants and Needs

Rational people set priorities. -Satisfy the highest priority first. What satisfies? -Goods things produced -Services actions produced

In a recession:

Real GDP usually decreases

When demand for workers in each skill field increases, wages rise ______ in low-skilled jobs and __________ for high-skilled jobs.

Slowly, fast

When society's PPC is pushed outward:

Society's standard of living improves

Organizing a Business

Sole Proprietorship Partnership Corporation

The three major forms of business organization in the United States are:

Sole proprietorship, partnership and corporation.

Bentham concluded that consumers seek to _____ with _____. maximum profit; maximum cost maximum leisure; minimum responsibility maximum utility; minimum cost maximum Manley; minimum pain

maximum utility; minimum cost

Why is there an economic role for government?

modern society becomes impatient with the slow progress of the private sector's self correction to "fix" the economy

When money is exchanged for a product, this is called:

modern trade

compared to a command dictator system, the market system:

more fully satisfies individual wants and needs

An increase in the quantity demanded is shown as a

movement along the demand curve

If point a and b are on the same line, it is considered

movement along the line

Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be

positive statements

Technology

the application of knowledge to improve the process, or to improve the capital input

Maximum consumer utility is found where ___. MU = TU the budget constraint line is steepest the budget constraint line is tangent to the indifference curve the budget constraint line has the slope - price ratio.

the budget constraint line is tangent to the indifference curve

Marginal cost (MC)

the change in total costs associated with a one-unit change in output MC = (change in TR) / (change in Q) At low Q (start-up mode), MC falls at first, then rises rapidly through the range of normal production

Private Property Rights

the concept that people have the right and privilege to control their possessions as they wish Enlightened government should protect the rights of its citizens to earn, own, and keep private property. -protect from government confiscation -provides incentive to accumulate goods -provides incentive to improve their lot People move out of poverty and into the "middle class"

The opportunity cost of attending university is likely to include all except which of the following?

the cost of haircuts received during the school term

A consumer's willingness to pay reflects

the maximum price at which he or she would buy the good or service.

The "law of demand" refers to the fact that, other things remaining the same, when the price of a good rises

there is a movement along the demand curve to a smaller quantity demanded

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price ceiling in the market at a price of $0.40 per pound, then:

there will be a shortage of the good.

Everything will be done the way it always has been done in a

traditional economy

in a voluntary transaction between a buyer and a seller, both the buyer and the seller benefit.

true.

minimum wage laws result in a surplus of potential employees who are not working or work fewer hours.

true.

If a percent increase in price generates an equally sized percent decrease in quantity demanded, we can say that demand is: elastic inelastic unit-elastic excessive

unit-elastic

Scarcity exists because of

unlimited wants and limited resources.

For the US economy, the long run trend in economic growth is:

The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern.

utility

The amount of satisfaction obtained from consuming a specific item at one particular time is:

utility.

In a market society, producers will produce products based on

what customers are willing to buy

The opportunity cost of something is

what is given up to acquire it.

In a market society, producers will produce products based on:

what the customers are willing to buy

In a market society, producers will produce products based on:

what they can make the cheapest.

The production possibilities curve can be used to analyze all the options below except

whether or not to buy the textbook for this course

Marginal analysis studies how individuals decide

whether to do a bit more activity versus a bit less activity.

Diamonds usually cost more than water because: of the laws of supply and demand while TUw > TUd, MUw < MUd TUw < TUd MUw < TUd

while TUw > TUd, MUw < MUd

Any economy must answer all of these questions except

who shall be in charge

If the price of a good rises and your income does not:

you cannot buy as much of the product as you did before.

An increase in the price of a good will result in:

A decrease in quantity demanded

Private and Public Property

Owners care for their own goods Owners put their own goods to their best use. Publicly owned property is abused and overused. Most pollution problems deal with publicly owned goods, not privately owned goods: -the atmosphere -the lakes and rivers -the oceans

Economic Growth

PPC shifts outward. More wants and needs can be satisfied. How? -add resources -improve technology -reduce artificial restrictions

Production Possibilities Curve (PPC)

PPC shows all possible combinations of goods that can be produced given a fixed amount of resources and the existing technology. EX: Data: Cake (y) Cookies (X) 3 0 2 30 1 50 0 60 1.Trade-off: to get more of one good (cookies), you have to give up some of the other good (cake) 2.Where on the PPC? The values of mom and the kids will decide which combination best satisfies their current wants and needs

what if Government sets the price?

Price controls. -no longer a free market -command dictator system is at work Two kinds: -price ceiling -price floor

How is the Price Set?

Price is determined by the interaction of: -buyers' demand behavior, and -sellers' supply behavior.

Three Starting Possibilities

Price starts out too high -surplus situation Price starts out too low -shortage situation Price starts out just right -equilibrium situation

As a new industry expands:

Prices fall and economic profits tend toward zero.

Rational decision-making implies that you will elect to use your resources to acquire a product that is:

the demand curve:

shows how much of a good will be demanded at different prices.

When building a model, economists

simplify reality in order to highlight what really matters.

Which of the following is a final good or service?

A haircut

When economic profits are _____ zero, an industry will expand until economic profits _____.

Greater than, fall to zero

In the dollar-euro market, an increase in demand for dollars will:

Increase its price in euros.

Any increase in T, regardless of intention by Congress and the President, can:

Lead to increased unemployment

At macro equilibrium:

Leakages must equal injections.

A perfectly competitive firm can:

Sell as much as it produces at the prevailing market price.

Which of the following would not be part of the Fed's "easy" money policy?

Sell securities in the open market

Business firms ________ goods and services in the _____ market.

Sell; product.

Households _____ resources in the _____ market

Sell; resource

If an initial new deposit is $2000 and the required reserve ratio is 5%, or 1/20, the total new money that can be created by the cycle of new loans is:

$40,000

A market is:

- A place where potential buyers and potential sellers interact. - A place where trade occur

A surplus of candy means that:

- At the current price, the quantity demanded is less than the quantity supplied. - The current price of candy is greater than the equilibrium price.

equilibrium prices change when:

- Consumers' demand behavior changes. - Producers' supply behavior changes.

Cost-benefit analysis has the following characteristics:

- Decisions are made on the margin. - Decisions are made using one's valuation system - The value to be obtained is compared to the value to be given up.

Cost-benefit analysis has the following characteristics:

- Decisions are made on the margin. - Decisions are made using one's valuation system - The value to be obtained is compared to the value to be given up.

Technology:

- Is the application of knowledge to improve the process. - Is the application of knowledge to improve the capital input.

In a market society, producers will decide how to produce by:

- Selecting the most profitable way to produce. - Insuring the product produced is customer satisfying and salable. - Keeping resource use as low as possible.

price ceiling

- The government established price is lower than the equilibrium price. - The purpose is to help the buyers. - The government sets a maximum legal price.

price floor

- There will be a persistent surplus. - The government established price is higher than the equilibrium price. - The purpose is to help the sellers.

The price of milk rises from $4 to $5, while the Qd of cereal falls from 100 to 96. Using the midpoint formula, what is the cross price elasticity of demand? (DO NOT include absolute values in the formula, and round to 2 decimal places)

-0.18

Comparing Value to Price

-Consumers choose from many products. -The next item a consumer should by is the one with the highest MU per dollar (MU/P) spent. This increases TU the greatest. -The consumer maximizes TU when the next choices all have the same MU/P.

Creating a Market

-Demand curve represents buyers' current behavior -Supply curve represents sellers' current behavior -Create a market by letting the demand curve and the supply curve intersect

Demand decreases

-Demand shifts left. -Old equilibrium is upset: Surplus. -A new equilibrium is established. -Price falls from P1 to P2. -Quantity falls from Q1 to Q2

Demand increases

-Demand shifts right. -Old equilibrium is upset: Shortage. -A new equilibrium is established. -Price rises from P1 to P2. -Quantity rises from Q1 to Q2

consumer spending

-Durable goods -Nondurable goods -Services

Trade

-Everyone specializes in making one good -We make an amount available for sale -We receive income from the sale -We buy goods we want from other specialists

Monopolistic competition

-Many intensely competitive firms -Each sells a slightly different version of the product at slightly different prices -Easy entry and exit -One firm's product innovation captures the customers' imagination; that firm becomes a short term monopolist --Earns economic profits

Perfect competition

-Many small firms -Identical products sold at the same price -Easy to enter into and exit from the industry. -Each firm must accept the market price. -Each firm can only choose the quantity to produce (they choose the profit-maximizing quantity). -Economic profit quickly goes to zero.

Equilibrium

-No shortage. -No surplus. -Qd = Qs = Qe. -The price will not rise or fall until there is a shift in demand or in supply.

income earners

-Owners of land resources - rent -Owners of labor - wages/salary -Owners of financial capital - interest ----Owners of capital goods - return on investment -Entrepreneurs - profit, if successful

Barriers to Entry

-Patent -License requirement -Franchising requirement -Extraordinarily high start-up costs -Government regulation

What do we do with our Income?

-Pay taxes. -Save some. -Spend the rest.

Market structure

-Perfect competition -Monopoly -Monopolistic competition -Oligopoly

Surplus

-Price is too high. -Quantity supplied (Qs) exceeds quantity demanded (Qd). -Qs > Qd -Price will fall to Pe.

SHORTAGE

-Price is too low. -Quantity demanded (Qd) exceeds quantity supplied (Qs) -Qd > Qs -Price will rise to Pe.

Goals of Running a Business

-Provide a product that best satisfies customers' wants and needs -Do it using a production process that minimizes the use of scarce resources and keeps costs as low as possible -Return at least a normal profit to the business owners. -Strive to maximize profits.

Supply decreases

-Supply shifts left. -Old equilibrium is upset: Shortage. -A new equilibrium is established. -Price rises from P1 to P2. -Quantity falls from Q1 to Q2.

Supply increases

-Supply shifts right. -Old equilibrium is upset: Surplus. -A new equilibrium is established. -Price falls from P1 to P2. -Quantity rises from Q1 to Q2.

Consumer Equilibrium

-This is the state where the consumer has purchased all goods that have high MU/P and all remaining possibilities have the same MU/P ratio. -The consumer is indifferent to all these choices. ---The consumer has maximized total utility.

MR, MC and Profit Maximization

-When MR>MC, increase Q and profits will grow. -When MR<MC, decrease Q and profits will grow. -Produce the Q, labeled Qm where MR = MC and profit will be maximized. -The demand curve tells you that the price must be Pm.

elastic goods

-add a tax -seller increases P by the amount of the tax -elastic response; consumers cut back by a large amount -sales revenue decreases; seller sends in the tax out of profits -seller carries most of the burden of the tax

Inelastic Goods:

-add a tax -seller increases P by the amount of the tax -inelastic response; consumers cut back only a little -seller sends in the tax out of increased sales revenues -buyer carries most of the burden of the tax

Economics

-how individuals and society try to make the best use of scarce resources. -how scarce resources are allocated to fill the most valued unmet wants and needs. -how efficiency can be maximized to get the most satisfactions out of the resources consumed.

When Q = 0, total utility will always be ___. Positive Negative 1 0

The price of cigarettes rises from $4 to $5, while the Qd falls from 100 to 96. Using the midpoint formula, what is the price elasticity of demand? (include absolute values in the formula and round to 2 decimal places)

0.18

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

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

Demand increases and Supply decreases

1. Demand shifts right. 2. Supply shifts left.. -A new equilibrium is established. -Price rises from P1 to P2. -Quantity moves to Q2

Breakeven Analysis

1. Estimate P. 2. List the variable inputs; determine AVC per unit. Compute P - AVC. 3. List the fixed inputs; determine FC. 4. Compute breakeven Q = FC/(P - AVC). 5. Determine if you really can sell that much Q at that P in your market. 6. Don't forget to include normal profit as a fixed cost.

The price of Manley bobbleheads rises from $4 to $5, while the Qs rises from 100 to 140. Using the midpoint formula, what is the price elasticity of supply? (round to 2 decimal places)

1.5

Steven Manley's income rises from $40 billion to $50 billion, while his Qd of donuts increases from 6 to 10. Using the midpoint formula, what is his income elasticity of demand? (round to 2 decimal places)

2.25

The FC of producing four Brownies is $ _________ . (Answer to 2 decimal places)

2.50

The price of cookies rises from $4 to $5, while the Qd falls from 100 to 50. Using the midpoint formula, what is the price elasticity of demand? (include absolute values in the formula and round to 2 decimal places)

These utility concepts can be applied to a decision of what to purchase given utility patterns for two goods as listed in the figure below. If you assume that good R and good S both cost $2 each, how many of each would you purchase if you have an income of $8? 4R and 0S 3R and 1S 3S and 1R 2S and 2R

3S and 1R

10) Suppose that the equilibrium price and quantity of new houses both increase. Which of the following could be a cause of this change? A) The demand for new houses increased and the supply did not change. B) The supply of new houses decreased and the demand for new houses did not change. C) The supply of new houses increased and the demand for new houses did not change. D) Both the supply and demand for new houses decreased. E) Both the supply and the demand for new houses increased and the supply increased by more than the demand.

14) The initial equilibrium price in the market for Web pages is $200 per page and 1000 Web pages are created in a month. Many new Web design firms now enter the market. As a result, A) the supply of Web pages increases and the price falls. B) the supply of web pages increase and the price falls, which then increases the demand for Web pages and the demand curve shifts rightward. C) the supply curve of Web pages shifts leftward and the price falls. D) the demand for Web pages increases and the price rises. E) the demand for Web pages increases and the price falls.

15) A construction boom occurs and many of the new buildings need plywood for their framing. Which of the figures above best illustrates this change? A) Figure A B) Figure B C) Figure C D) Figure D E) Figure A or Figure C

16) Contractors can use plywood or brick to construct walls. Suppose the price of bricks increases. Which of the figures above best illustrates the effect of this change on the market for plywood? A) Figure A B) Figure B C) Figure C D) Figure D E) Figure A or Figure C depending on how contractors react to the higher price of bricks.

20) Both the demand for and supply of cars changes in France. You observe that the quantity of cars does not change but the price rises. Thus, which of the following occurred? A) Demand increased and supply decreased by an equal amount. B) Demand increased by a larger magnitude than supply decreased. C) Demand and supply decreased by an equal amount. D) Demand and supply increased by an equal amount. E) Demand decreased and supply increased by an equal amount.

21) Suppose that the demand curve for desktop computers shifts rightward and at the same time the supply curve shifts leftward. Which of the following could have caused these shifts? A) Desktop computers are a normal good and incomes increased, while the labor costs of producing personal computers increased. B) The price of a laptop computer, a substitute for desktop computers, fell and the cost of producing desktop computers decreased. C) Desktop computers are a normal good and incomes decreased, while the labor costs of producing personal computers increased. D) Consumers purchased more computers because of the Christmas season and the labor costs of producing desktop computers decreased. E) Desktop computers are a normal good and incomes increased, while more firms entered the market.

An externality is:

A cost or benefit arising from an activity that falls on a third party.

Outsourcing is best defined as:

A firm hiring an outside specialist to take over a particular function of a business.

Which of the following is the best example of capital?

A gravel truck

Industry decline

A new product appears that satisfies the customers' wants better than the product in an existing industry -Sales fall off for the existing product -Economic losses occur. -Industry shrinks.

It has been said that the initiation of protection of private property rights was instrumental in the creation of:

A prosperous middle class.

The phase of the business cycle where real domestic output declines is called:

A recession

A tariff is:

A tax imposed on imports

Decision Matrix

A tool for systematically ranking options using a set of criteria. If MB >gt MC, taking the next step is worthwhile. do it! and your net worth goes up. If MB <lt MC, taking the next step is not worthwhile. don't do it! because, if you do, your net worth goes down.

The dry cleaning industry is a monopolistic competition because most firms have _____ market share.

A very small.

Car insurance and cars are complements. If the price of car insurance increases, the: A. Demand for cars decreases. B. Demand for cars increases. C. Quantity of cars demanded increases. D. Quantity of cars demanded does not change.

A. Demand for cars decreases

Who suggested that the economy is guided by an "invisible hand" as people are motivated by their self-interests?

Adam Smith

The multiplier effect exists because:

Added spending is new income to the sellers/producers, who will spend part of it

Marginal Revenue (MR)

Additional revenue received when the firm sells one more unit of the product. MR = (change in revenue)/(change in output) In most markets, MR slopes downward twice as fast as the demand curve

An increase in net spending will cause a movement on the macro model of:

AD upward and to the right

In the figure below, the difference between the ATC and the AVC is the ________. MC MR AVC AFC

AFC

Average fixed costs (AFC)

AFC = FC/Q At low Q, AFC is high As Q increases, AFC continuously decreases

A decrease in production costs or an increase in productivity will increase the capacity or the incentive to produce and cause a movement on the macro model of:

AS downward and to the right

An increase in production costs or a decrease in productivity will decrease the capacity or the incentive to produce and cause a movement on the macro model of:

AS upward and to the left

MC = ATC at the minimum of the ______ curve . ABC AVC AFC ATC

ATC

_____ = Total Cost (TC) / Quantity Produced (Q) TC MC ATC none of these choices are correct

ATC

Average total costs (ATC)

ATC = TC/Q = AFC + AVC At low Q, ATC is high As Q increases, ATC falls to a minimum, then rises rapidly as the firm approaches maximum capacity. ATC is always higher than AVC

Average variable costs (AVC)

AVC = VC/Q At low Q, AVC is high As Q increases, AVC falls to a minimum, then rises rapidly as the firm approaches maximum capacity

The United States' economy is considered to be at "full employment" when:

About 5.5% of the labor force in unemployed

Profits

Accounting profit = TR - explicit costs Economic profit = TR - both explicit costs and implicit costs Normal profit (implicit costs) is the minimum return on investment necessary for the owner to continue to operate the business.

At the beginning of a recession, as inventories rise, retailers:

All of the above except option A

Basic Economic Questions

All societies must answer the following: What to produce? How to produce? For whom to produce?

The problem of scarcity occurs in:

All societies.

There would be no need to study economics if:

All wants and needs could be satisfied at all times

The United States has a very high tariff place on sugar, As a result:

American candy manufactures have moved their plants to Canada.

A standard of value is defined as:

An agreed upon measure fro stating the prices of goods and services.

A decrease in the price of a good will result in:

An increase in quantity demanded

The law of demand is illustrated when:

An increase in the number of laptop computers purchased results from falling prices.

In the market for cell phones, which of the following shifts the demand curve to the right?

An increase in the price of land-line phone service

A decrease in the price of eggs will result in:

An increase in the quantity of eggs demanded.

Oil companies can refine a barrel of petroleum so that it yields either more home heating oil or more gasoline. If the price of gasoline falls, there is:

An increase in the supply of home heating oil

Inefficient, Efficient, and Unattainable Points

Any point inside the PPC is inefficient. -Produce more by moving out to the PPC. Any point on the PPC is efficient. -All resources and technology are being used. Any point outside the PPC is unattainable. -Not enough resources and technology exist to make these combinations of goods

Modeling the Production Process

Any production process can be modeled using: Average fixed costs (AFC) Average variable costs (AVC) Average total costs (ATC) Marginal costs (MC)

Money is:

Anything that is generally accepted as payment for goods and services

A medium of exchange is defined as:

Anything that is readily accepted in return for goods and services.

Interest payments on debt owed by the Federal government

Are paid by the US Treasury using tax revenues

Diminishing Marginal Utility

As you consume more and more of a good, your marginal utility decreases. As your marginal utility decreases, you become less interested in consuming another unit of the good. When MU falls below MC, you will decide to stop consuming more units of this good

Which of the following is true concerning the market for bottled water? Check all that apply.

At a price of $2, there is a shortage of 50 bottles there is no surplus or shortage at a price of $3 there is no surplus or shortage at a quantity of 70 bottles

A combination of goods represented by a point lying outside the PPC is:

Attainable only if economic growth occurs

A combination of goods represented by a point lying outside the PPC is:

Attainable only if economic growth occurs.

The marginal cost curve will pass upward through the minimum point of the:

Average fixed cost curve

23) Suppose that people decide riding scooters is no longer fun. The equilibrium price of a scooter ________, and the equilibrium quantity of scooters ________. A) rises; decreases B) falls; decreases C) does not change; decreases D) rises; increases E) falls; increases

The goal of socialist economies is to:

Create equal outcomes through the redistribution of income/wealth

When the Fed conducts Open market operations, it is:

Buying and selling government securities by the Fed

The opportunity cost of attending college: A. Is the same for all persons. B. Is higher for people with greater current earnings potential. C. Depends only on the amount of tuition charged at the college. D. Includes only direct costs the student will incur at the college.

B. Is higher for people with greater current earnings potential.

Joe chooses to watch a 2-hour movie on local TV instead of taking a 2-hour walk in the park. Opportunity cost of this decision to Joe: A. Is zero because taking a walk is free. B. Is the foregone exercise and enjoyment of taking the walk. C. Is zero because watching a movie on local D. TV is free. Does not exist in this situation.

B. Is the foregone exercise and enjoyment of taking the walk.

The next step is considered to be worthwhile taking if: A. MB=MC. B. MB>MC. C. MB<MC. D. None of the above.

B. MB>MC.

Which of the following shifts the supply curve for oranges?

Bad weather destroys half of this years orange crop.

Regarding the money supply, money is "created" when:

Banks make loans

If the Fed increases the discount rate:

Banks will borrow fewer reserves, make fewer loans, and the money supply will grow slower or decrease.

To finance any budget, the US Treasury Department must:

Borrow by offering government securities to the public.

Mutually Agreeable Trade

Both buyer and seller perceive that they will be better off after the trade is made than they were before Both trade a good that has lower value (to them) for a good that has higher value (to them)

When there is a surplus:

Both options A and C are correct

Equilibrium prices change when:

Both options C and D are correct

Joan quit her job as an accountant, where she was paid $45,000 per year. She started her own business. She rents tools and machines for $50,000 per year and pays a helper $10,000 per year in wages. These are her only cost. Her total revenue was $100,000 per year.

Both options a and b are correct.

A firm usually finances the acquisition of capital by:

Both options a. and c. are correct.

A change in nominal GDP from year to year includes changes in :

Both prices and quantities

International trade benefits:

Both the exporter and the importer

Ideal sized plant

Build a facility that: -is big enough to achieve all economies of scale -operates at lowest cost (minimum efficient scale) -does not get big enough to experience -diseconomies of scale

In the basic circular flow:

Business expenses become household income

In the basic circular flow:

Business expenses become household income.

Which of the following would not be part of the Fed's "tight" money policy?

Buy securities in the open market.

Buyers' Demand Behavior

Buyers are sensitive to changes in the price. Law of demand: If price rises, buyers will buy less. If price falls, buyers will buy more. ... assuming nothing else changes. As price rises, quantity demanded falls As price falls, quantity demanded rises Income effect: -if price rises and your income does not, you can not buy as much as you could before -if price falls and your income does not, you can buy more than you could before Substitution effect: -if price of good X rises, you switch to lower price substitute good Y. -if price of good X falls, you switch from higher priced substitute good Z.

12) Computer chips are a normal good. Suppose the economy slips into a recession so that income falls. As a result, the demand for computer chips ________ so that the price of a computer chip ________. A) decreases; rises B) increases; falls C) decreases; falls D) increases; rises E) decreases; does not change

18) In an effort to protect endangered species from the effects of logging in America's national forests, the federal government passes a law prohibiting logging in most of the state of Washington. Which of the figures above best illustrates the effect of this new law? A) Figure A B) Figure B C) Figure C D) Figure D E) None of the above because a prohibition cannot be illustrated using demand and supply figures.

3) As a falling price eliminates a surplus in the jersey market, A) producers decrease the quantity of jerseys they supply, and buyers decrease the quantity of jerseys they demand. B) producers increase the quantity of jerseys they supply. C) consumers increase the quantity of jerseys they demand. D) the demand curve for jerseys shifts leftward, and the supply curve of jerseys shifts rightward. E) the demand curve for jerseys shifts rightward, and the supply curve of jerseys shifts leftward.

5) When there is a shortage of parking spaces at your college, the A) demand for parking spaces is greater than the supply. B) supply of parking spaces is greater than the demand. C) quantity of parking spaces demanded is greater than the quantity of parking spaces supplied. D) quantity of parking spaces supplied is greater than the quantity of parking spaces demanded. E) Both answers A and D are correct.

6) The table above shows the situation in the gasoline market in Tulsa, Oklahoma. If the price of a gallon of gasoline is $3.65, then A) there is a shortage of gasoline in Tulsa. B) there is a surplus of gasoline in Tulsa. C) the gasoline market in Tulsa is in equilibrium. D) without more information we cannot determine if there is a surplus, a shortage, or an equilibrium in the gasoline market in Tulsa. E) there is neither a surplus nor a shortage but the market is NOT in equilibrium.

7) The table above shows the situation in the gasoline market in Tulsa, Oklahoma. If the price of a gallon of gasoline is $3.62, then A) the gasoline market in Tulsa is in equilibrium. B) there is a surplus of gasoline in Tulsa. C) there is a shortage of gasoline in Tulsa. D) without more information we cannot determine if there is a surplus, a shortage, or an equilibrium in the gasoline market in Tulsa. E) there is neither a surplus nor a shortage but the market is NOT in equilibrium.

8) Which of the following raises the equilibrium price of cement? A) an increase in the supply of cement B) a decrease in the quantity of cement supplied C) an increase in the demand for cement D) a decrease in the demand for cement E) an increase in the quantity of cement demanded

9) Because of a sharp increase in the price of gasoline, the demand for Sports Utility vehicles (SUVs) has decreased. So, the high price of gasoline leads to a A) leftward shift of the demand curve for SUVs and the supply curve of SUVs. B) leftward shift of the supply curve of SUVs and no shift in the demand curve for SUVs. C) leftward shift of the demand curve for SUVs and no shift in the supply curve of SUVs. D) leftward shift of the demand curve for SUVs and a rightward shift of the supply curve of SUVs. E) rightward shift of the supply curve of SUVs and no shift in the demand curve for SUVs.

Which of the following is the correct way to calculate GDP?

C+I+G+X-M=GDP

8. In the market for cell phones, which of the following shifts the demand curve to the right? A. An increase in the price of cell phones. B. A decrease in the price of cell phones. C. An increase in the price of regular phone service. D. A decrease in the price of regular phone service. E. A decrease in the number of cell phone buyers.

C. An increase in the price of regular phone service.

Economic growth can be measured by:

Calculating the year-to-year change in Real GDP

The United State's biggest trading partner is:

Canada

In the dollar-euro market, an increase in demand for euros will:

Cause the dollar to depreciate in value relative to the euro.

Of the following assets, which is the most liquid?

Checking accounts

Which of the following is most likely to have an inelastic demand?

Cigarettes

Which of the following is most likely to have an inelastic demand? iTunes Cigarettes T-Bone Steaks Washing Machines

Cigarettes

Which of the following is a determining factor in the amount of American exports?

Comparative advantage of American-made goods over foreign-made goods.

The largest component of national income is:

Compensation of employees

The largest component of total expenditures is:

Consumption

The average fixed cost curve __________________ as quantity produced increases.

Continuously decreases.

1) A surplus of cardboard boxes means that A) at the current price of a cardboard box, the quantity demanded exceeds the quantity supplied. B) the current price of a cardboard box is less than the equilibrium price. C) at the current price of a cardboard box, the quantity demanded equals the quantity supplied and the price will fall to restore the equilibrium.. D) at the current price of a cardboard box, the quantity demanded is less than the quantity supplied. E) More information is needed to determine if the price of cardboard boxes is higher than, lower than, or equal to the equilibrium price.

2) Suppose the equilibrium price of oranges is $2.00 per pound. If the actual price is above the equilibrium price a A) surplus exists but nothing happens until either the demand or the supply changes. B) surplus exists and the price rises to restore equilibrium. C) shortage exists and the price rises to restore equilibrium. D) surplus exists and the price falls to restore equilibrium. E) shortage exists and the price falls to restore equilibrium.

In a market society, producers will decide how to produce by: A. Selecting the most profitable way to produce. B. Insuring the product produced is customer satisfying and salable. C. Keeping resource use as low as possible. D. All of the above. E. Options a. and b. are correct; option c. is not.

D. All of the above.

Most monopolies today are:

Found in government-regulated industries.

Sony and Toshiba are competitors. If the prices of Sony TVs decreases, then:

Demand for Toshiba TVs decreases.

Car insurance and cars are complements. If the price of car insurance increases, the:

Demand for cars decreases

Car insurance and cars are complements. If the price of car insurance increases, then the:

Demand for cars decreases.

Determinants of Demand

Demand increases: -income increases -tastes and preferences increase -number of buyers increase -expectations of higher prices rise -price of substitutes rises -price of a complement falls Demand decreases: -income decreases -tastes and preferences decrease -number of buyers decrease -expectations of lower prices rise -price of substitutes falls -price of a complement rises

A "double coincidence of wants" is:

Eliminated with the use of money

The labor force includes:

Employed workers and persons who are officially unemployed

If the price of an elastic good increases, total revenue will ____ Decrease Increase Not change change in a way that only Steven Manley can understand

Decrease

A correct policy in an underperforming economy would be to:

Decrease T

A trade _____ exists when _____ exceed _____.

Deficit, imports, exports

A trade ______ exist when _______ exceed _______.

Deficit; Imports; Exports

A trade _____ exists when _____ exceed _____.

Deficit; imports; exports

Computers from Dell and from Acer are substitutes. If the price of a Dell computer decreases, then:

Demand for Acer computers decreases

Price ceilings were last implemented in the US during the 1990s.

False

The interest rate charged b the Fed when a bank borrows reserves from the Fed is called the:

Discount Rate

The three policy tools that the Fed can use to carry out monetary policy are setting the:

Discount rate; open market operations; and setting the required reserve ratio

Which of the following sequence of events occur when a tariff is imposed on a good?

Domestic price rises, decreasing the quantity demanded and increasing the domestic quantity supplied.

19) If good weather conditions result in a larger than normal crop of peaches, then the A) increase in the supply of peaches induces a greater demand for peaches, so that the equilibrium price rises and the equilibrium quantity increases. B) demand curve for peaches shifts leftward. C) equilibrium price of peaches rises, and the equilibrium quantity of peaches increases. D) equilibrium price of peaches falls, and the equilibrium quantity of peaches decreases. E) equilibrium price of peaches falls, and the equilibrium quantity of peaches increases.

4) If the price is below the equilibrium price, A) the demand curve will shift leftward. B) the supply curve will shift leftward. C) the supply curve will shift rightward. D) there is a surplus. E) there is a shortage.

Price floors on apartments (rent controls) have been implemented in some large and crowded cities such as New York and San Francisco.

False

Decision making

Economic profit > zero: -return on investment is larger than normal profit -customers like the product -owner may consider expanding -rivals may expand into this market -either way, the industry will expand Economic profit < zero: -return on investment is less than normal profit -customers no longer like the product as much -owner may consider cutting back production -owner may exit this market -either way, the industry will shrink Economic profit = zero: -return on investment is exactly equal to normal profit -customers like the product enough to cover costs -owner will continue to operate at the current output -the industry will neither expand nor shrink

Summary

Economic profits > zero: -high consumer demand -firms in the industry expand -new firms enter the industry -supply shifts right -prices fall -economic profits move to zero -industry expansion stops Economic profits = zero: -firms in the industry earn normal profit -industry will neither expand or shrink -supply does not shift -price does not change Economic profits = zero: -firms in the industry earn normal profit -industry will neither expand or shrink -supply does not shift -price does not change

Producing a combination of goods represented by a point on the PPC is:

Efficient and attainable

Producing a combination of goods represented by a point on the PPC is:

Efficient and attainable.

Normal goods have a positive _____. Ed Ei Exy Es

If a 10 percent increase in the price of a good generates a 25 percent decrease in the quantity demanded, the good has an _________ demand. Elastic Inelastic Unit-elastic Insufficient

Elastic

If a small percent increase in price generates a big percent decrease in quantity demanded, we can say that demand is:

Elastic

Elasticity of demand measures can be: (multiple answers possible) Elastic Inelastic Unit-elastic Excessive

Elastic Inelastic Unit-elastic

Uses of Elasticity

Elastic demand? Lower the price, and sales grow rapidly. -New customer base -Sales revenue increases Keep any price increase as quiet as possible. Inelastic demand? Raise the price and sales fall off insignificantly. Sales revenues rise -Costs decrease and profits rise -Offer a lower price only as a "loss leader". Lure more customers into the store

If a small percent increase in price generates a big percent decrease in quantity demanded, we can say that demand is:

Elastic.

If a 20 percent rise in price leads to a 40 percent decrease in quantity demanded, then demand is ________ and total revenue __________. Elastic; increases Elastic; decreases Inelastic; increases Inelastic; decreases

Elastic; decreases

Any increase in G, regardless of intention by Congress and the President, can:

Expand the budget deficit

The amount of paper was one of the limiting factors in the airplane activity. True False

False

The long-run is the time period that is long enough to change at least one of the inputs. True False

False

Total product is maximized when marginal utility is maximized. True False

False

Total utility can never decrease as Q increases. True False

False

Whenever the government implements price ceilings or price floors, everyone benefits.

False

Explicit and Implicit Costs

Explicit costs - actual out-of-pocket payments by the firm, plus depreciation. Implicit costs - the opportunity costs of the owner's assets, time and effort. Also called normal profit Total costs = explicit costs + implicit costs

Goods and services that the United States sells to other nations are called:

Exports

All of the following are barriers to entry except:

Extraordinarily high price of the product.

Bowed-out PPCs obtain their shape due to constant opportunity costs.

False

Economists do not see any difficulty in measuring pleasure and believe that consumer behavior can be measured perfectly using of marginal values. True False

False

Housing and food are opportunity costs of attending college. True False

False

If TP is increasing at an increasing rate, the MP must be decreasing. True False

False

If the price and total revenue change in the same direction, then demand is elastic. True False

False

In a voluntary transaction between a buyer and a seller, either the buyer or the seller benefits but not both.

False

In the Indifference Diagram above, Points G, H and K represent combinations of consumption for A and B that will yield the same amount of total pleasure. True False

False

In the Indifference Diagram above, Points H, I and J represent combinations of consumption for A and B that will yield the same amount of additional pleasure. True False

False

Minimum wage laws are a price ceiling in the labor market.

False

The rationing mechanism in a command economy is:

Favoritism.

The interest rate charged by one bank when another bank borrows reserves from that bank is called the:

Federal Funds Rate

The most important body of the Federal Reserve System to carry out monetary policy is the:

Federal Open Market Committee

The most important body of the Federal Reserve System to carry out monetary policy is the :

Federal Open Market Committee.

The average variable cost curve _____ as quantity produced increases.

First falls to a minimum and then rises.

Actual out-of-pocket payments by the firm are called:

Fixed cost.

In the short run, the firm cannot change the amount of capital it uses. Therefore, the cost of capital is a:

Fixed cost.

The mathematical difference between total costs and variable costs is called:

Fixed costs

Costs

Fixed costs (FC) - payment for the fixed inputs Variable costs (VC) - payment for the variable inputs Total costs (TC) = FC + VC As output (Q) increases: Fixed Costs (FC) do not change. Variable Costs (VC) increase at an irregular rate. Total Costs (TC) = FC + VC.

Which of the following is most likely to have an elastic demand? Furniture Diapers Insulin Telephone service

Furniture

The term "real GDP" refers to:

GDP data which have been adjusted for changes in the price level

The term "final goods and services" refers to:

Goods and services purchased by ultimate users, as opposed to resale or further processing

Which of the following is true about government borrowing to fund the budget deficit?

Government borrowing taps into the same pool of funds as private sector borrowing and could lead to "crowding out"

The government lowers the income tax rate and, as a result, consumers increase their spending on goods and services

Government policies can change spending

Price Ceiling

Government sets a maximum legal price -Purpose: to help the buyers -P < Pe -Persistent shortage

Price Floor

Government sets a minimum legal price -Purpose: to help the sellers -P > Pe -Persistent surplus

Monopolies Today

Government-regulated Industries. -high fixed costs (utilities) -only one firm can attain economies of scale in a ---geographically distinct market -regulating agency sets the rate -insures economic profits are zero -normal profit is the maximum allowed to -----------shareholders -customers get lowest rate possible

Her accounting profit is $40,000; She has an economic loss (both options a. and b. are correct)

The primary driving factor that leads to industry expansion is:

High customer demand

In a progressive tax system, _______ income earners pay a ______ of their income in taxes as their income rises.

High; higher percentage.

Unemployment is usually ______ for low-skilled jobs and ________ for high-skilled jobs.

High; low

When choosing between two products, we would select the one with a MU/P ratio that is _____

Higher

All of the following are part of self-correction in an overheated economy except:

Hiring increases rapidly

When two firms that serve the same set of customers merge it is called a _________ merger.

Horizontal

Which of the following apply to the market for bottled water? Check all that apply.

If a price ceiling were to be imposed by the government, if would occur at a price below $3 A price of $1 will lead to a shortage of 90 bottles

Economics an be defined as a study of:

How individuals and society try to make the best use of scarce resources

Economics can be defined as a study of:

How individuals and society try to make the best use of scarce resources

Economics can be defined as a study of:

How individuals and society try to make the best use of scarce resources.

In the short-run, a firm must decide _________, while in the long run, it can decide _________.

How many to produce this week, How big a facility to build.

Elasticity of Demand

If price falls, we buy more, and vice versa. How much more? How intense is our response to a price change? Elastic demand: A small price decrease generates a big increase in quantity demanded. A small price increase generates a big decrease in quantity demanded. Inelastic demand: A big price decrease generates only a small increase in quantity demanded. A big price increase generates only a small decrease in quantity demanded.

Demand and Diminishing MU

If the sales person wants us to buy more of his goods, he must offer it to us at a lower price. -the added units are less valuable to us due to diminishing MU, so we will buy them only if they come at a lower price (MC is decreased).

The opportunity cost of the owner's assets, time , and effort are:

Implicit cost

The opportunity costs of the owner's assets, time, and effort are:

Implicit costs.

Goods and services that the United States buys from other nations are called:

Imports

How Do Prices Change?

In an equilibrium market, price will not change. If order to get price to change, a market must go into disequilibrium. -Either demand behavior changes, or -Supply behavior changes, or both.

A decrease in the price of eggs will result in:

In increase in the quantity of eggs demanded

The primary determining factor that drives consumption spending is:

Income

The demand curve slopes downward due to: (may have multiple answers) Income effect substitution effect diminishing marginal returns effect elasticity of demand Steven Manley effect

Income effect substitution effect diminishing marginal returns effect

Variable costs are costs that _________ . decrease with increasing output remain constant regardless of changes in output increase with increasing output none of these choices are correct

Incorrect Answer (Do Not Pick) for Steven Manley's Quizzes, Test Reviews, and Exams: remain constant regardless of changes in output

The idea that restricting international trade saves jobs is:

Incorrect because more jobs are created due to international than are eliminated.

The idea that restricting international trade saves jobs is:

Incorrect because more jobs are created due to international trade than are eliminated

If the price of a good with an inelastic demand increases, total revenue will ___. Decrease Increase Not change Change in a way that only Steven Manley can predict.

Increase

A correct policy in an underperforming economy would be to:

Increase G

In order to decrease the budget deficit using fiscal policy:

Increase G by a smaller amount than T increases

Producing a combination of goods is represented by a point inside the PPC is:

Inefficient and attainable

Producing a combination of goods represented by a point inside the PPC is:

Inefficient and attainable.

If a 50 percent increase in the price of a good generates a 25 percent decrease in the quantity demanded, the good has an _____ demand.

Inelastic

If a 50 percent increase in the price of a good generates a 25 percent decrease in the quantity demanded, the good has an _________ demand. Elastic Inelastic Unit-elastic Insufficient

Inelastic

If a large percent INCREASE in price generates a small percent INCREASE in quantity supplied, we can say that supply is: Elastic Unit-elastic Inelastic Good enough for Steven Manley

Inelastic

If a large percent decrease in price generates a small percent increase in quantity demanded, we can say that demand is: Elastic Inelastic Unit-elastic Excessive

Inelastic

When the percent change in quantity demanded is less than the percent change in price for a good, then that good's demand is:

Inelastic

If a 50 percent decrease in the price of a good generates a 10 percent increase in the quantity demanded, the good has an _________ demand.

Inelastic.

Last summer, the price of gasoline increased by 20 percent and the quantity demanded of gasoline decreased by 5 percent. This indicates that the demand gasoline is:

Inelastic.

If the consumer price index falls from 150 to 100 during a particular period:

Inflation of about 33 percent has occurred

The Production Process

Inputs are processed into outputs. Inputs = resources Outputs = goods and services Process = how the transformation is done

Resources

Inputs into a production process. Land Labor Capital Entrepreneurship

Society's Institutional PPC is _________ it physical PPC because ________.

Inside, society does not desire to make all out use of its resources and technology

The discount rate is the:

Interest rate the bank must pay when it borrows reserves from the Fed

Scarcity:

Is caused by having an unlimited amount of wants and needs and a limited amount of resources available to satisfy them.

The opportunity cost of attending college:

Is higher for people with greater current earnings potential.

Which of the following is true? Marginal revenue:

Is the additional revenue received when the firm sells one more unit of the product

Technology:

Is the application of knowledge to improve the process; is the application of knowledge to improve the capital output (only b. and c. above are correct)

Joe chooses to watch a 2-hour movie on local TV instead of taking a 2-hour walk in the park. Opportunity cost of this decision to Joe:

Is the forgone exercise and enjoyment of the walk

A price ceiling: a.Is an illegal price. b.Is the price that exists in a black market. c.Is the maximum price that can legally be charged. d.Generates a surplus.

Is the maximum price that can legally be charged.

When a society goes into recession:

It moves to a point inside its Institutional PPC

When a society goes into an overheated economy:

It moves to a point outside it's institutional PPC

Technology is ______ and an entrepreneur is _____

Knowledge; a profit seeker

Technology is _____________ and an entrepreneur is __________.

Knowledge; a profit seeker.

If wages rise with no increase in productivity or product demand, the firm will:

Lay off some workers.

As the minimum wage rises, firms will _____ low-skilled workers and _____

Lay off; automate or outsource that work

Congress imposes a price ceiling in the market for gasoline. It is below the equilibrium price. This will:

Lead to a shortage of gasoline.

Scarcity

Limited quantities of resources to meet unlimited wants Unlimited wants and needs Limited resources -which leads to limited amount of satisfying goods and services Anything is scarce if it is useful and there is a limited amount of it.

One of the major reasons the United States exports jet aircraft is because Boeing faces a _____ opportunity cost than aircraft manufacturers in other nations.

Lower

In the benefit-cost decision for the acquisition of capital:

Lower interest rates will cause more investment projects to qualify

The benefit-cost decision for the acquisition of capital:

Lower interest rates will cause more investment projects to qualify.

A nation, a business firm or a person has a comparative advantage in a good when it has a _____ cost of producing the good

Lower opportunity

A nation, a business firm, or a person has a comparative advantage in a good when it has a _______ cost of producing the good.

Lower opportunity

You would not buy the next unit of a good when you determine that, if you do buy it:

MB < MC

The next step is considered to be worthwhile taking if:

MB > MC

The next step is considered to be worthwhile taking if:

MB > MC.

The next step is considered to worthwhile taking if:

MB>MC

You should continue to engage in an activity if:

MB>MC

The profit-maximizing quantity to produce can be found where:

MR=MC

Assume we start out in consumer equilibrium for products A and B. We would change our mind and buy more of product B if:

MU for good B rises

The amount of time the supplier has to respond to a price change.

MU for good B rises.

Market power is defined as a firm's ability to:

Manipulate the market price.

Fiscal policy is accomplished by:

Manipulating Federal government spending and tax laws

Monetary policy is accomplished by:

Manipulating interest rates and the size and growth of the money supply

The Federal Reserve conducts monetary policy, which is best defined as:

Manipulating the size and growth of the money supply to improve economic performance.

The added cost of obtaining one more unit of a good is called:

Marginal cost

The added expense of obtaining one more unit of a good is called:

Marginal cost.

The added satisfaction obtained from consuming one more unit of a good is called:

Marginal utility

We can quantify the term "value for money spent" by the ratio:

Marginal utility/price.

Market or Command?

Market -each individual: -decides for himself -owns and controls resources and property Command - the ruler: -makes all decisions -controls the use of resources and property, no matter who owns them

Individuals decide for themselves in a:

Market capitalist economy.

Oligopoly

Market share becomes significant. -Losing market share means a rival gains market share. Maintaining market share sometimes trumps profit maximization as a goal. The "What if" game: if we raise prices, what will our competitors do in retaliation? if we modify our product, what will our competitors do in retaliation? This leads to a loss of independence in decision making Advertising becomes highly important. -Instills brand loyalty in current customers. -Draws customers from a rival firm.

Which of the following is a characteristic of oligopoly?

Market share is sometimes more important than profit maximization.

Why is there an economic role for government?

Modern society becomes impatient with the slow progress of the private sector's self-correction to "fix" the economy.

The GDP may be defined as the:

Monetary value of all final domestic goods and services produced within a nation in a given year

Which of the following has the most market power?

Monopoly

The Trade Off Gets Worse PPC EXAMPLE

More and more cake must be given up to get another increase in cookies. -Resources are usually specialized to do one job better than another. -Shifting them between jobs causes the trade off to get worse. -The PPC gets bowed outward because of this.

You note that the equilibrium price and the equilibrium quantity of new houses both increase. Which of the following could cause this?

More buyers have moved into the area

The economy will grow faster if:

More capital goods are produced because capital goods are resources

The economy will grow faster if:

More capital goods are produced because capital goods are resources.

Rational decision-making implies that you will elect to use your resources to acquire a product that is:

More valuable to you than its alternatives.

Society says that goods with ________ externalities are _________.

Negative, over-produced

Characteristics of Goods with Inelastic Demand

No substitutes available Small price tag compared to our income We need to buy it right now

A public good is _______ in consumption and ________.

Non-rival, non-exclusionary.

In a voluntary trade:

None of the above

The minimum return on investment necessary for the owner to continue to operate the business is called:

Normal profit

The minimum payment the landowner will accept to put his land into use is called:

Normal rent

In calculating GDP, governmental transfer payments, such as social security or unemployment compensation are:

Not counted

Rationing: distribution method

Not everyone can have a good (scarcity) -The market society uses PURCHASING POWER to ration out available goods -The command society uses POLITICAL FAVOR to ration out available goods Whatever the rationing device, people will compete to obtain it.

PPC - Applications

Not just mom in the kitchen -Student: allocating hours to study and fun -Business: choosing what combination of two goods to produce, say, cars or trucks -Government: choosing how to use tax dollars for, say. military goods or health care

Monopoly

Only one firm produces the product. -They control the supply curve. There is a total barrier to other firms entering the industry. Monopolist will choose to produce its profit-maximizing Q. -The demand curve will then identify the market price

The macroeconomic goal consists of all the following except:

Operate with an equal distribution of income

Society's PPC will push outward if:

Options A and B are both correct, option C is not.

A market is:

Options A and B are correct (C is not)

Assume the equilibrium price for an apartment in Plano is $1000 a month. City council imposes a price ceiling of $755 a month on the Plano apartment market to help low income people. This leads to:

Options C and D are both correct

Assume the equilibrium price for an apartment in Plano is $1000 a month. City council imposes a price ceiling of $775 a month on the Plano apartment market to help low income people. This leads to:

Options c and d are both correct.

Monopolistic competition

Other firms "clone" the innovative feature of the preferred product -Originator of the innovation is no longer a monopolist -Economic profits go to zero -Another firm innovates and this cycle starts again -Innovation improves the product -Economic profits cause the industry to expand -Prices fall -Firms that can lower costs and keep up with the innovations expand -Firms that do not, get left behind. Ultimately they make losses and exit

Inflation is the problem when the economy is:

Overheated

The capital account deals mainly with:

Overseas investments made by Americans and foreigners.

In just about every situation, ___________ carry the burden of a tax on a good. Corporations Retailers Wholesalers People

People

Principal Assumption

Plan ahead. Think things through. Gather information. Recall past experiences.

A good example of a negative externality is ________.

Pollution

The long-run trend in real GDP is:

Positive-about 3 to 3.5 percent per year

When an industry shrinks:

Prices rise as the supply curve shifts left

Adam Smith, The Wealth of Nations

Promoted laissez-faire, free-market economy, and supply-and-demand economics. Wrote "The Wealth of Nations" in 1776 -The Wealth of a Nation is "not in the king's treasury, but in the capability of its people to create and produce." -"Invisible hand" causes us to operate for the betterment of society (even when we do not intentionally intend to do so).

Long-run economic decline can occur in a society when

Resource availability is decreased

Long-run economic decline can occur in a society when:

Resource availability is decreased

A production possibilities curve for two goods is usually bowed outward because

Resources are not equally suited to produce each of the two products being analyzed

A production possibilities curve for two goods is usually bowed outward because:

Resources are not equally suited to produce each of the two products being analyzed.

Decision Making

Since everyone's wants and needs cannot be satisfied, decisions have to be made to determine which will be satisfied now ... and which will be put off until later ... or never satisfied.

Income Statement

Revenues - costs = profits Revenues - money coming into the firm Costs - money and nonmoney costs, also called expenses Profits - the positive difference between revenues and costs Losses - the negative difference between revenues and costs

In a free market, we can expect the price to:

Rise when there is a shortage and fall when there is a surplus

In a free market, we can expect the price to:

Rise when there is a shortage and fall when there is a surplus.

Imposing a tariff on a good leads to a ______ in the price of the good and ________ in imports.

Rise; decrease.

An increase in the tax on gasoline has increased the costs of supplying gasoline. As a result, the equilibrium price of gasoline _____ and the equilibrium quantity of gasoline _____

Rises; falls

Bagels and cream cheese are complementary goods. The price of flour, used to make bagels, has fallen. As a result, the equilibrium price of cream cheese ______ and the equilibrium quantity of cream cheese ______.

Rises; rises

A private good is ______ in consumption and _______.

Rival, exclusionary.

You sell a good with an inelastic demand. If you raise your prices: Sales revenue will fall Sales fall in huge quantities Sales fall off insignificantly You will lure more customers into your store

Sales fall off insignificantly

Total Revenue (TR)

Sales revenue received by the firm TR = P x Q

You sell a good with an elastic demand. Which of the following will not happen if you hold a big sale?

Sales revenue will decrease insignificantly

Which of the following is an example of monopolistic competition?

San Francisco's Chinese restaurants.

When we are forced to make choices we are facing the concept of:

Scarcity

Which of the types of unemployment is the most predictable and of the least concern?

Seasonal

Recipe For Success

Select the option that is best in your own self interest. -Make a good that satisfies the customer. -Pay enough to cover the seller's costs. -Both become better off. Self interest (both become better off) is not selfish (just the selfish person becomes better off)

All of the following are government policy options to "fix" the economy except:

Self-correction

Sellers' Supply Behavior

Sellers are sensitive to changes in the price. Law of supply: -If price rises, sellers will produce and want to sell more. -If price falls, sellers will produce and want to sell less. ... assuming nothing else changes. As price rises, quantity supplied rises As price falls, quantity supplied falls Sellers are in business to be profitable: -if price rises and sellers' costs do not, profit per unit rises, and they want to produce and sell more -if price falls and sellers' costs do not, profit per unit falls, and they want to produce and sell less Limited Capacity to Expand Production: As output increases, so do costs Thus, sellers will only produce more if prices rises (to cover the added costs)

Fractional reserve banking requires

Set aside fixed portion of each deposit and not loan that amount out.

The result of a fiscal policy implementation is to:

Shift AD toward full-employment

Any increase in G or decrease in T will:

Shift AD upward and to the right

Time lines in decision making

Short run: -cannot change the fixed input -can change the variable inputs -operational decision: what Q to make? Long run: -can change both fixed and variable inputs -investment decision: how big a facility?

If the benefit of hiring a worker exceeds the cost of hiring that worker, the firm:

Should increase hiring in order to increase profit.

If the benefit of hiring a worker exceeds the cost of hiring that worker, the firm:

Should increase hiring in order to increase profits.

If the benefit of hiring a worker is exactly equal to the cost of hiring that worker, the firm:

Should not hire any more since they have maximized profits.

In order to increase their sales revenue, vendors of street drugs _____ put their products on sale and vendors of furniture _____ put their products on sale.

Should not; should

The demand curve:

Shows how much of a good will be bought at different prices

Types of Trade

Simple trade -barter Modern trade -use money as a medium of exchange

Upsetting Consumer Equilibrium

Start: MU/P for Good A equals MU/P for Good B Let MU for good A rise and the consumer will prefer more of good A. Let MU for good A fall and the consumer will prefer more of good B. Let P for good A rise and the consumer will prefer more of good B. Let P for good A fall and the consumer will prefer more of good A. Advertising: tries to get us to increase our MU for its good. notifies us when P of its good is lower. both will upset consumer equilibrium. and we will buy more of the advertised good.

Demand Curve Elasticity

Steep demand curves are inelastic --Small change in Q in response to a big change in P Shallow (nearly flat) demand curves are elastic --Large change in Q in response to a small change in P

Which of the following describes unemployment that occurs because an employer, reacting to changes in technology or in the market, reorganizes the firm and eliminates jobs?

Structural

Which of the following describes unemployment when a skilled worker finds himself or herself out of work because the job needing that skill is eliminated?

Structural

In the market for cell phones, which of the following causes a shift of the demand curve to the left?

Studies show that cell phone use causes brain cancer

In the market for cell phones, which of the following causes a shift of the demand curve to the left?

Studies show that cell phone use causes brain cancer.

One reason why the demand for gasoline is inelastic is because:

Substitutes for gasoline are hard to find

One reason why the demand for gasoline is inelastic is because: There are many substitutes for gasoline Substitutes for gasoline are hard to find Gasoline is a luxury item Gasoline's price is high compared to one's income

Substitutes for gasoline are hard to find

Characteristics of Goods with Elastic Demand

Substitutes readily available Big price tag compared to our income We don't need to buy it right now

Elasticity of Supply

Suppliers want to sell more if price rises. Time is the determinant: -Zero time to respond? Zero increase in quantity supplied (extremely inelastic) -A short time to respond? Small increase in quantity supplied (inelastic) -A long time to respond? Large increase in quantity supplied (elastic)

Auto workers receive a wage increase. How does that affect the supply curve for automobiles?

Supply curve shifts left

Determinants of Supply

Supply increases: -business costs fall -number of sellers increases -a cost-lowering change in technology is implemented Supply decreases: -business costs rise -number of sellers decrease -obsolete, high-cost technology is retained

Which of the following is consistent with the concept of a full employment goal?

The Institutional PPC

In most industries, the relationship between the demand curve and the marginal revenue curve is:

The MR curve slopes downward twice as fast as the demand curve

The equilibrium price of oranges is $2.00 a pound. If the current price is above $2.00, a _____ exists and the price of oranges will _____

Surplus; fall

The equilibrium price of oranges is $2.00 a pound. If the current price is above $2.00, a __________ exists and the price of oranges will

Surplus; fall

Accounting profit is calculated by:

TR - explicit costs.

Which of the following is not a determinant of demand?

Technological improvements in production

Who are the principle participants in self-correction?

The 300 million members of the U.S. society

Fiscal policy is accomplished by:

The Congress and the President

In most industries, the relationship between the demand curve and the marginal revenue curve is:

The MR curve slopes downward twice as fast as the demand curve.

Purchasing power is defined as:

The ability to let you buy things you want to buy.

The principle determinant for the elasticity of supply is: How desperate the customers are to buy the product The price of the product The advertising The amount of time the supplier has to respond to a price change

The amount of time the supplier has to respond to a price change

The principle determinant for the elasticity of supply is:

The amount of time the supplier has to respond to a price change.

When a bank approves a loan:

The borrower has more money to spend because the money supply has increased.

A change in the short run, an increase in total spending can cause all of the following except:

The capability or the incentive of the economy to produce

When the current account has a negative balance:

The capital account has a positive balance.

A small special interest group can obtain a benefit from the government because:

The cost associated with that benefit will spread out over a large number of taxpayers.

The ultimate result of industry expansion in monopolistic competition is:

The creation of an oligopoly.

A firm's demand for workers is derived from:

The demand for the firm's products

A firms demand for workers is derived from:

The demand for the firms product.

A firm should hire more workers if:

The demand for their product increases

As it pertains to money, liquidity can be defined as:

The ease with which an asset can be spent

During the Great Depression:

The economy was seriously underperforming

The benefit of capital is:

The expected added earnings that will occur when the new equipment is operational

The production model

The four cost curves fit together. MC rises through the minimum points of both the AVC and the ATC. This model applies equally to small businesses and gigantic firms.

Price elasticity of demand measures: How many more we would buy if the price falls or rises by 1 cent How many less we would buy if the price falls by 1 cent The intensity of consumers' response compared to a price change The degree to which the government is involved in a market

The intensity of consumers' response compared to a price change

The demand for a good is more likely to be elastic if: The good is a necessity The good has few substitutes The good carries a small price tag The good is a luxury item

The good is a luxury item

In the 1980's and 1990's both unemployment and inflation decreased primarily because of:

The implementation of technological innovation and productivity gains

In most societies, a prosperous "middle class" was developed when:

The individual's right to own and keep private property was honored.

In the short run, a decrease in total spending can cause all of the following except:

The inflation rate to increase

Elasticity of demand measures: How many more we would buy if the price falls How many less we would buy if the price rises The intensity of consumers' response to a price change The degree to which the government is involved in a market

The intensity of consumers' response to a price change

Elasticity of demand measures:

The intensity of consumers' response to a price change.

In a modern free market, the price of a good or service is determined by:

The interaction of the behaviors of buyers and sellers

The cost of capital is:

The interest rate that has to be paid to borrow funds.

Which System is Best?

The market system! -individual wants and needs more fully satisfied -participants compete to acquire purchasing power rather than political favor -scarce resources are directed to produce the most valued goods and services -individuals' behavior changes are immediately accommodated

If economic profit is greater than zero:

The owner may consider expanding

Transformation Process

The process that converts resources into finished goods and services INPUTS--------->PROCESS------->OUTPUTS ^ ^ I I I I I I v RESOURCES Technology Goods and can improve services the process that or the capital satisfy wants goods and needs

The production model, consisting of the AFC, AVC, ATC, and MC curves, applies:

Adam Smith, in his book "The Wealth of Nations", identified this wealth to be:

The productive capacity of the nation's people

Adam Smith, in his book "The Wealth of Nations", identified this wealth to be:

The productive capacity of the nation's people.

Which of the following is not considered to be investments?

The purchase of 100 shares of AT&T by a retired business executive

A harmful effect of inflation is:

The purchasing power of one's income falls.

In a modern market, price is:

The rate of exchange for a trade

Price

The rate of exchange in a trade. Buyer pays the price (buyer's MC) -it must be less than buyer's valuation (buyer's MB) Seller receives the price (seller's MB) -it must be more than seller's cost of acquiring or producing the good (seller's MC)

Assume that Texas decides to place a tariff on every product produced outside the state in order to increase the state's revenue and to increase employment in Texas. Which of the following would occur?

The standard of living in Texas would decrease.

The phase of the business cycle where real domestic output is at a minimum is called:

The trough

If you take the babysitting job on Friday night, then you will be unable to go to the party with your friends. Identify the principle here:

The true cost of something is opportunity cost

The opportunity cost of increasing one's work hours is:

The value the worker places on the foregone leisure time.

Jack and Jane are roommates. Jack makes breakfast for both of them each day, and Jane makes dinner for both of them each day. Identify the principle illustrated in this statement

There are gains from trade

When the capital account has a positive balance this means that:

There is a dollar inflow into the U.S. due to foreign investment in American assets.

Society's PPC will push outward if:

There is increased resource availability; There is technological advancement(Options a. and b. are both correct; option c. is not)

Society's PPC will push outward if:

There is increased resource availability; there is technological advancement(options a. and b. are both correct; option c. is not)

People act rationally when:

They think before they act.

People act rationally when?

They think before they act.

Market Power

This is a firm's ability to manipulate the market price. -perfect competition - no market power -monopoly - complete market power -monopolistic competition - some market power at times -oligopoly - considerable market power at times

utility

This is the amount of satisfaction, usefulness or pleasure we get from consuming a specific item at one particular time. -subjective; intensely personal and situational -we use our value system to assign utility Marginal utility - the added utility we will get out of consuming one more of a good. Marginal cost - the added cost of obtaining one more of a good. Total utility - the sum of all the utility we obtain when we consume a series of a good.

Buyers

Those willing and able to exchange money for goods -they will buy if they perceive themselves to be better off after the sale

Sellers

Those willing and able to produce goods and exchange them for money -they will sell if they perceive themselves to be better off after the sale

Consider the example of an individual in a grocery store examining two cans of peaches, Alpha Peaches and Beta Peaches. If Alpha is thought to provide 10 units of pleasure per dollar and Beta is thought to provide 8 units per dollar, then Alpha should be chosen. True False

True

Even Bill Gates, the richest man in the world, faces the problem of scarcity.

True

Governments often experience diseconomies of scale. True False

True

If the TP is increasing at a decreasing rate, the MP must be decreasing. True False

True

In reality, the true minimum wage is $0/hour.

True

Labor costs are usually the highest resource costs for firms. True False

True

Minimum wages laws tend to reduce the labor-hours of young, low-skilled people, the very people the law is meant to help.

True

The diminishing marginal utility effect states that as more of an item is consumed and the amount of additional satisfaction decreases, the seller must lower price to induce the consumer to buy more. True False

True

The top 1% of income-earners in the US make over $420,000 per year (approximately).

True

Total product is maximized when marginal product is zero. True False

True

Total utility increases at a decreasing rate due to the law of diminishing marginal returns. True False

True

Total utility increases at a decreasing rate. True False

True

When it comes to paying for international trade:

Two currencies are usually involved

Unemployment is the problem when the economy is:

Under performing

In the US, income is distributed

Unequally based primarily on the demand for the income earner's resources.

In your bakery, the price of rye bread increases by 10 percent and the quantity demanded decreases by 10 percent. The demand for rye bread is _________ and total revenue will ________. Unit-elastic; stay the same Inelastic; increase Elastic; decrease Unit-elastic;increase

Unit-elastic; stay the same

In your bakery, the price of rye bread increases by 10 percent and the quantity demanded decreases by 10 percent. The demand for rye bread is _________ and total revenue will ________.

Unitary; stay the same.

Maximizing profits

Use cost-benefit analysis to choose the profit-maximizing quantity. For each increase in Q, compare MC (the added cost) to MR (the added revenue): -If MR > MC, increase Q and profit rises -If MR < MC, decrease Q and profit rises -If MR = MC, this is the profit-maximizing Q

The amount of satisfaction obtained from consuming a specific item at one particular time is

Utility

Because the number of workers a firm employs can be changed in the short run, the cost of labor is a:

Variable cost

Scarcity in economics means

We do not have sufficient resources to produce all the goods and services we want.

In a market society, producers will produce products based on:

What customers are willing to buy.

Any economy must answer all of these questions except:

Who shall be in charge?

Market Capitalist Society

What? - what customers have demonstrated they will buy How? - in the most profitable way to make a satisfying, salable product, keeping resource use as low as possible For whom? - for those who are both able and willing to buy the products

Command dictatorship society

What? - what the rulers decide the people should have How? - by operating the production facilities in the way the rulers want them run For whom? - those in favor of the rulers get the product; others do not.

The reason the money multiplier exists is that:

When a borrower spends the money, it becomes someone else's deposit.

If the price of a good rises and your income does not:

You cannot buy as much of the product as you did before.

Which of the following is not a characteristic of a good having an elastic demand? There are readily available substitutes The price tag is big compared to income You can wait until later to buy the good You want to use the product right away

You want to use the product right away

If the price of a product rises, it is likely that:

You will switch to a lower priced substitute good

A university bookstore decreased the price of a sweatshirt from $20 to $18 and discovered that sweatshirt sales increased from 100 per week to 120 per week. Use the midpoint formula to compute the price elasticity of demand for sweatshirts.

[(120 - 100/110] ÷ [(18 - 20)/19] = 1.72

Cost-benefit analysis

a decision-making process in which you compare what you will sacrifice and gain by a specific action Analyze the next step: 1.weigh the value of what will be obtained (the benefit) and -the value of what must be given up (the cost), and -then decide whether or not to take the next step.

An increase in the price of hamburger would probably result in ________ in the demand for hamburger buns.

a decrease

A maximum price legislated by the government is called:

a price ceiling

A simplified representation that is used to study a real situation is called:

a model.

Traditional Society

a society in which the past is thought to be the best guide for the present; tribal, peasant, and feudal societies What? - exactly what our ancestors produced How? - in the time-honored, old-fashioned way For whom? - in the way they always have been distributed

Which of the following is the best example of capital? a. A gravel truck. b. A savings account. c. 100 shares of Texas Instruments stock. d. A cornfield.

a. A gravel truck.

48. The ideal sized facility is one that: a. Achieves all economies of scale. b. Achieves all diseconomies of scale. c. Produces more products than the firm can successfully market. d. Produces fewer products than the firm can successfully market.

a. Achieves all economies of scale.

Oil companies can refine a barrel of petroleum so that it yields either more home heating oil or more gasoline. If the price of gasoline falls, there is: a. An increase in the supply of home heating oil. b.A decrease in the supply of home heating oil. c.An increase in the quantity supplied of home heating oil. d.A decrease in the quantity supplied of home heating oil.

a. An increase in the supply of home heating oil.

13. Which of the following shifts the supply curve for oranges? a. Bad weather destroys half of this year's orange crop. b. Researchers discover that oranges are even more nutritious that was thought before. c. The price of bananas rises and bananas are a substitute for oranges. d. People who buy oranges enjoy an increase in income.

a. Bad weather destroys half of this year's orange crop.

47. All of the following help to achieve economies of scale except: a. Expanding the supervisory work force. b. Switching from batch mode to assembly line. c. Enabling employees to specialize. d. Buying inputs in bulk at lower prices.

a. Expanding the supervisory work force.

32. If a firm's ATC is greater than the price, then the firm: a. Has an economic loss. b. Has an economic profit. c. Earns only a normal profit. d. Earns zero economic profit.

a. Has an economic loss.

10. ATC is always _________ than ________. a. Higher; AVC. b. Lower; AVC. c. Lower; AFC. d. Equal to; AFC.

a. Higher; AVC.

2. When two firms that serve the same set of customers merge it is called a _______ merger. a. Horizontal. b. Vertical. c. Conglomerate. d. Industry.

a. Horizontal.

29. Congress imposes a price ceiling in the market for gasoline. It is below the equilibrium price. This will: a. Lead to a shortage of gasoline. b. Lead to a surplus of gasoline. c. Decrease the demand for gasoline. d. Increase the demand for large cars.

a. Lead to a shortage of gasoline.

46. A firm achieves economies of scale if expanding: a. Lowers per unit costs. b. Raises per unit costs. c. Keeps per unit costs constant. d. Eliminates sunk costs.

a. Lowers per unit costs.

14. Another name for implicit costs is: a. Normal profit. b. Variable costs. c. Total costs. d. Economic profit.

a. Normal profit.

17. The minimum return on investment necessary for the owner to continue to operate the business is called: a. Normal profit. b. Economic profit. c. Accounting profit. d. Total revenue.

a. Normal profit.

A production possibilities curve for two goods is usually bowed outward because: a. Resources are not equally suited to produce each of the two products being analyzed. b. The trade-off going from one combination of goods to another is constant. c. Society prefers one of the goods more than the other. d. Since the goods are different, the incentive to make them must be different, also.

a. Resources are not equally suited to produce each of the two products being analyzed.

30. A firm maximizes its profit by producing the quantity that marginal: a. Revenue equals marginal cost. b. Revenue exceeds marginal costs. c. Revenue is maximized. d. Cost is minimized.

a. Revenue equals marginal cost.

17. Bagels and cream cheese are complementary goods. The price of flour, used to make bagels, has fallen. As a result, the equilibrium price of cream cheese ______ and the equilibrium quantity of cream cheese ______. a. Rises; rises. b. Rises; falls. c. Falls; falls. d. Falls; rises.

a. Rises; rises.

14. Auto workers receive a wage increase. How does that affect the supply curve for automobiles? a. Supply curve shifts left. b. Supply curve shifts right. c. Supply curve does not shift. d. There is not enough information in the question to determine what happens to the supply curve.

a. Supply curve shifts left.

15. Accounting profit is calculated by: a. TR - explicit costs. b. TR - (explicit + implicit costs) c. TR - normal profit. d. TR - implicit costs.

a. TR - explicit costs.

23. Which of the following is not a determinant of supply? a. Tastes and preferences. b. Business costs. c. Technological improvements in production. d. Number of sellers.

a. Tastes and preferences.

2. In a modern free market, the price of a good or service is determined by: a. The interaction of the behaviors of buyers and sellers. b. The manufacturer. c. The retailer. d. The government.

a. The interaction of the behaviors of buyers and sellers.

When demand decreases: a. The old equilibrium is upset and a surplus is created. b.The old equilibrium is upset and a shortage is created. c.The new equilibrium price is higher. d.The new equilibrium quantity is higher.

a. The old equilibrium is upset and a surplus is created

20. When demand decreases: a. The old equilibrium is upset and a surplus is created. b. The old equilibrium is upset and a shortage is created. c. The new equilibrium price is higher. d. The new equilibrium quantity is higher.

a. The old equilibrium is upset and a surplus is created.

22. When supply increases: a. The old equilibrium is upset and a surplus is created. b. The old equilibrium is upset and a shortage is created. c. The new equilibrium price is higher. d. The new equilibrium quantity is lower.

a. The old equilibrium is upset and a surplus is created.

26. Which of the following is incorrect? For a price ceiling: a. There will be a persistent surplus. b. The government established price is lower than the equilibrium price. c. The purpose is to help the buyers. d. The government sets a maximum legal price.

a. There will be a persistent surplus.

When all other factors remain the same, the law of demand tells us that: a.A decrease in the price of gas causes the quantity demanded of gas to increase. b.An increase quantity demanded of bread causes the price of bread to fall. c.An increase in the price of peanut butter causes the quantity demanded of jelly to fall. d.An increase in your income causes you to buy more hamburgers.

a.A decrease in the price of gas causes the quantity demanded of gas to increase.

Purchasing power is defined as:

ability to buy things you want to buy

Producer surplus is represented by the area ________ the supply curve and ________ the price.

above; below

The problem of scarcity occurs in

all societies

Cost-benefit analysis has the following characteristics

all the above are correct

The term "ceteris paribus" means that:

all variables except those specified are constant

We must make decisions in order to:

allocate our scarce resources to fulfill our most valued unmet wants and needs.

The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.

allocative efficiency

After graduation from college, you might have an increase in your income from a new job. If, as a result, you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger would be considered:

an inferior good.

A quota is

an upper limit on the quantity of a good that can be bought or sold.

Marginal Analysis

analysis that involves comparing marginal benefits and marginal costs Marginal means "next step". This cost-benefit analysis takes one step at a time: 1.compare the marginal benefit (MB) to the marginal cost (MC). --use your unique valuation system to do this. --keep the steps small, so a mistake won't hurt too much.

If the cross price elasticity is negative, the good(s) are normal are inferior are complimentary are substitutes

are complimentary

Goods and services:

are designed to satisfy wants and needs

20. If economic profit is less than zero: a. The owner may consider expanding. b. The owner may consider shutting down. c. The owner is making exactly a normal profit. d. The owner is receiving the minimum return necessary to continue to operate.

b. The owner may consider shutting down.

34. A monopoly will arise if: a. Two out of three existing pizzerias go out of business and only one new pizzeria opens. b. Town council passes a law granting Joe's Pizza exclusive right to operate. c. Joe's Pizza is the largest pizzeria in town and Nick's Pizza stays small in size. d. Big pizza chains operating in town force small pizzerias out of business.

b. Town council passes a law granting Joe's Pizza exclusive right to operate.

7. Because the number of workers a firm employs can be changed in the short run, the cost of labor is a: a. Sunk cost. b. Variable cost. c. Total cost. d. Fixed cost.

b. Variable cost.

6. If the price of a product rises, it is likely that: a. You will switch to a higher priced substitute good. b. You will switch to a lower priced substitute good. c. You will continue to purchase the same amount of this product. d. You will discontinue buying any of this product.

b. You will switch to a lower priced substitute good.

Soda and hot dogs are complements for one another. If a shortage of carbonated water leads to an increase in the price of of soda, then the a. demand for hot dogs increases b. demand for hot dogs decreases c. quantity of hot dogs demanded decreases d. quantity of hot dogs demanded increases e. More information is needed to determine if the demand increases or decreases

b. demand for hot dogs decreases

Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As a result of this information, today's demand curve for Mustangs a. shifts to the right b. shifts to the left. c. shifts either to the right or the left, but we cannot determine the direction of the shift from given information d. will no shift; rather, the demand curve for Mustangs will shift to the right next month e. will not shift; rather the quantity demanded for Mustangs will increase.

b. shifts to the left.

The law of demand is illustrated when: a.An increase in tuition causes more students to enroll in college. b.An increase in the number of laptop computers purchased results from falling prices. c.Higher oil prices cause oil companies to drill for new sources of oil. d.Higher fees at golf courses cause golfers to purchase fewer golf balls.

b.An increase in the number of laptop computers purchased results from falling prices.

Researchers have found a hybrid of corn that is cheaper to grow. This technological breakthrough, when adopted, will: a.Increases the demand for corn. b.Increases the supply of corn. c.Decreases the supply of corn. d.Both options a. and c. are correct.

b.Increases the supply of corn.

If the price of a good rises and your income does not: a.Your demand for that product decreases. b.You cannot buy as much of the product as you did before. c.You can continue to buy the same amount of the product. d.You will buy more of the product than you did before.

b.You cannot buy as much of the product as you did before.

Jessica's income increased by 10% this year. In the same year, Jessica's quantity demanded of milk increased by 10% and her quantity demanded for bread increased by

both milk and bread are normal goods.

10. Which of the following increases the supply of gasoline? a. Any situation where the quantity demanded exceeds the quantity supplied. b. An increase in the price of gasoline. c. A decrease in the price of crude oil. d. A decrease in the demand for gas-guzzling sport utility vehicles

c. A decrease in the price of crude oil.

24. If one seller in a competitive market sets his price higher than the equilibrium price: a. Customers will buy only from him because they think his product is of higher quality. b. Most customers will buy from him because he his conveniently located. c. Customers will shun him until goods selling at the lower price are all gone. d. The government will require all other competitors to raise their price to equal his price.

c. Customers will shun him until goods selling at the lower price are all gone.

3. When economists study the behavior of buyers, they study: a. Psychology. b. Supply. c. Demand. d. History.

c. Demand.

28. A price ceiling: a. Is an illegal price. one seller in a competitive market sets his price below the equilibrium price: b. Is the price that exists in a black market. c. Is the maximum price that can legally be charged. d. Generates a surplus.

c. Is the maximum price that can legally be charged.

45. An industry goes into decline when: a. Government intervenes in the industry. b. One firm buys out all the other firms. c. Its product no longer best satisfies the consumers' wants and needs. d. The consumers no longer believe in its advertising.

c. Its product no longer best satisfies the consumers' wants and needs.

36. Compared to perfect competition, a monopolist will produce: a. More output and charge a higher price. b. More output and charge a lower price. c. Less output and charge a higher price. d. Less output and charge a lower price.

c. Less output and charge a higher price.

25. The profit-maximizing quantity to produce can be found where: a. TR=TC. b. MR > MC by the largest possible amount. c. MR=MC. d. P=ATC.

c. MR=MC.

44. Which of the following is a characteristic of oligopoly? a. Market share is important but advertising is rarely used. b. Advertising is often used but market share is relatively unimportant. c. Market share is sometimes more important than profit maximization. d. Advertising is used only to announce sales.

c. Market share is sometimes more important than profit maximization.

28. _______________ arises when a large number of firms compete by making constant variations and improvements to similar products. a. Monopoly. b. Oligopoly. c. Monopolistic competition. d. Perfect competition.

c. Monopolistic competition.

41. Product innovation is more likely to be found in a ______________ industry. a. Monopoly. b. Oligopoly. c. Monopolistic competition. d. Perfect competition.

c. Monopolistic competition.

23. When an industry expands: a. Prices rise as the supply curve shifts right. b. Prices stay the same as the demand curve shifts right. c. Prices fall as the supply curve shifts right. d. Prices fall as the supply curve shifts left.

c. Prices fall as the supply curve shifts right.

19. If economic profit is exactly zero: a. The owner may consider expanding. b. The owner may consider shutting down. c. The owner is making exactly a normal profit. d. Consumers do not like this product.

c. The owner is making exactly a normal profit.

8. If a firm does not produce any output, its: a. Fixed costs must be zero. b. Economic profit must be zero. c. Variable costs must be zero. d. Total costs must be zero.

c. Variable costs must be zero.

Consider the market for cellular phones. Which of the following shifts the demand curve rightward? a. an increase in price of cellular phones b. a decrease in the price of cellular phones c. an increase in the price of regular phone service, a substitute for cellular phones d. a decrease in the number of cellular phone buyers e. an increase in the supply of cellular phones

c. an increase in the price of regular phone service, a substitute for cellular phones

If D is the starting line and the line shifts to the left for pizzas, the result will be a. an increase i income if pizza is a normal good b an increase in the price of a sub sandwich, a substitute for pizza c. an increase in the price of soda, a complement to pizza d. a change in quantity demanded e. a decrease in the supply of pizza that raises the price of pizza

c. an increase in the price of soda, a complement to pizza

An increase in the price of a good will result in: a.A decrease in demand. b.A decrease in supply. c.A decrease in quantity demanded. d.A decrease in quantity supplied.

c.A decrease in quantity demanded.

A resource is anything that

can be used in production.

If resources are "scarce," it means that they:

cannot provide enough goods or services to satisfy all human material wants and needs.

which economic system emphasizes the equal treatment of people?

capitalist

what if One seller sets a higher price than the equilibrium price?

customers will shun him until goods selling at the equilibrium price are all gone

Marginal thinking is best demonstrated by:

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

The rulers make all the decisions in

command dictatorship

Sunk costs

costs that have already been incurred and cannot be recovered These are expenses that have been paid. Do not use sunk costs in decision making. -If decision is Yes, sunk costs are paid. -If decision is No, sunk costs are paid. So sunk costs don't matter to the decision. Use only relevant changes in revenue and in costs that will occur to make the decision.

7. Assume the price of gas increases by 50 percent over the next few months and nothing else changes. As a result, there is: a. An increase in the demand for gasoline. b. A decrease in the demand for gasoline. c. No change in the quantity demanded of gasoline. d. A decrease in the quantity demanded of gasoline.

d. A decrease in the quantity demanded of gasoline.

19. Which of the following is incorrect for a market at equilibrium? a. There is no shortage. b. There is no surplus. c. Quantity supplied equals quantity demanded. d. A shift in demand or supply will not upset equilibrium.

d. A shift in demand or supply will not upset equilibrium.

18. Joan quit her job as an accountant, where she was paid $45,000 per year. She started her own business. She rents tools and machines for $50,000 per year and pays a helper $10,000 per year in wages. These are her only costs. Her total revenue was $100,000 per year. a. Her accounting profit is $40,000. b. She has an economic loss. c. Her explicit cost is $105,000. d. Both options a. and b. are correct.

d. Both options a. and b. are correct.

If one seller in a competitive market sets his price below the equilibrium price: a. He will sell out before his competition. b. He could have sold all his goods at the higher equilibrium price. c. Customers will shun him because they will think his product is of lower quality. d. Both options a. and b. are correct.

d. Both options a. and b. are correct.

1. Which of the following has limited liability? a. Association. b. Sole proprietorship. c. Partnership. d. Corporation.

d. Corporation.

35. Movie theaters often practice price discrimination. This means that movies charge: a. Men higher prices than women. b. Different prices based on race. c. The same high price to everyone. d. Different prices to different customers.

d. Different prices to different customers.

Which of the following is incorrect? a. Economic growth can occur if there is an increase in resources available. b. Economic growth can occur if there is a technological improvement. c. Economic growth enables society to provide for more satisfactions of wants and needs. d. Economic growth can occur only if there is a reduction in the quantity of one good to acquire an increase in the other good.

d. Economic growth can occur only if there is a reduction in the quantity of one good to acquire an increase in the other good.

11. The production model, consisting of the AFC, AVC, ATC, and MC curves, applies: a. To small business only. b. To major corporations only. c. To firms without fixed costs only. d. Equally to small businesses and gigantic firms.

d. Equally to small businesses and gigantic firms.

39. All of the following are barriers to entry except: A. Patents b. Government regulation. c. Franchising requirement. d. Extraordinarily high price of the product. e. All of the above.

d. Extraordinarily high price of the product.

6. In the short run, the firm cannot change the amount of capital it uses. Therefore, the cost of capital is a: a. Marginal cost. b. Variable cost. c. Total cost. d. Fixed cost.

d. Fixed cost.

12. On the production cost curve graph, we see that the: a. MC curve intersects the ATC curve at its maximum. b. MC curve always rises. c. ATC curve always slopes downward as Q increases. d. MC curve intersects the ATC curve and the AVC curve at their minimums.

d. MC curve intersects the ATC curve and the AVC curve at their minimums.

16. You note that the equilibrium price and the equilibrium quantity of new houses both increase. Which of the following could cause this? a. The wages of new house builders rise. b. A technological advance in how to frame a new house has been adopted. c. The rents for nearby apartments are lower than before. d. More buyers have moved into the area.

d. More buyers have moved into the area.

1. A market is: a. A place where potential buyers and potential sellers interact. b. A place where trade occurs. c. Set up and operated by a government agency. d. Options a and b are correct; option c is not. e. Options a, b and c are all correct.

d. Options a and b are correct; option c is not.

37. As a new industry expands: a. High cost firms reach zero economic profits first. b. Low cost firms expand by acquiring assets from exiting firms. c. New firms enter in search of the rapidly rising prices. d. Options a. and b. are both correct.

d. Options a. and b. are both correct.

26. In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit? a. Monopoly. b. Oligopoly. c. Monopolistic competition. d. Perfect competition.

d. Perfect competition.

24. When an industry shrinks: a. Prices rise as the supply curve shifts right. b. Prices stay the same as the demand curve shifts left. c. Prices fall as the supply curve shifts right. d. Prices rise as the supply curve shifts left.

d. Prices rise as the supply curve shifts left.

21. Which of the following is not a determinant of demand? a. Income. b. Tastes and preferences. c. Number of buyers. d. Technological improvements in production.

d. Technological improvements in production.

27. Which of the following is incorrect? For a price floor: a. There will be a persistent surplus. b. The government established price is higher than the equilibrium price. c. The purpose is to help the sellers. d. The government sets a maximum legal price.

d. The government sets a maximum legal price.

A process is efficient if: a.The maximum salable output is produced from the inputs. b.the costs of the inputs are kept to the lowest possible level. c. Waste is minimized. d.All of the above are correct. e.None of the above is correct.

d.All of the above are correct.

Cost-benefit analysis has the following characteristics: a.Decisions are made on the margin. b.Decisions are made using one's valuation system Tc.he value to be obtained is compared to the value to be given up. d.All of the above are correct. e.None of the above is correct

d.All of the above are correct.

Which of the following is not a determinant of demand? a.Income. b.Tastes and preferences. c.Number of buyers. d.Technological improvements in production.

d.Technological improvements in production.

a decrease in demand results in a(n) __ of price and a(n) __ of quantity

decrease decrease

an increase in supply results in a(n) __ of price and a(n) __ of quantity

decrease increase

an increase in supply and a decrease in demand results in a(n) __ of price and a(n) __ of quantity

decrease indeterminate

which of the following shifts the supply curve of popcorn to the left?

decrease in the number of popcorn providers

Along a given supply curve, a decrease in price will cause producer surplus to:

decrease.

A negative relationship between the quantity demanded and price is called the law of

demand

Consumers regard Dell computers and Apple computers as a substitute As price Dell decreases, the

demand for Apple computers decreases

Computers from Dell and from Acer are substitutes. If the price of a Dell computer decreases, then

demand for acer computers decreases.

The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

diminishing marginal utility

The three policy tools that the Fed can use to carry out monetary policy are setting the:

discount rate; open market operations; and setting the required reserve ratio

4. Total revenue can be found by: a. Adding up all the sales revenue received by the firm. b. Foraoneproductfirm,TR=PxQ. c. Adding up all the profits of the firm. d. Adding up all the profits then subtracting the costs. e. Both options a. and b. are correct.

e. Both options a. and b. are correct.

15. A surplus of candy means that: a. At the current price, the quantity demanded exceeds the quantity supplied. b. At the current price, the quantity demanded is less than the quantity supplied. c. The current price of candy is less than the equilibrium price. d. The current price of candy is greater than the equilibrium price. e. Both options b. and d. are correct.

e. Both options b. and d. are correct.

9. The marginal cost curve will pass upward through the minimum point of the: a. Average variable cost curve. b. Average total cost curve. c. Average fixed cost curve. d. All of the above. e. Only options a. and b; not option c.

e. Only options a. and b; not option c.

30. Assume the equilibrium price for an apartment in Plano is $1000 a month. City council imposes a price ceiling of $755 a month on the Plano apartment market to help low income people. This leads to: a. Empty apartments in Plano. b. All low income people finding apartments in Plano. c. A shortage of apartments in Plano. d. Ultimately, a decrease in the quantity of apartments supplied in Plano. e. Options c. and d. are both correct.

e. Options c. and d. are both correct.

A surplus of candy means that: a.At the current price, the quantity demanded exceeds the quantity supplied. b.At the current price, the quantity demanded is less than the quantity supplied. c.The current price of candy is less than the equilibrium price. d.The current price of candy is greater than the equilibrium price. e.Both options b. and d. are correct.

e.Both options b. and d. are correct.

Producing a combination of goods represented by a point on the PPC is:

efficient and attainable

In the figure above, this product is price ___________ between Point B and Point C. elastic unit-elastic inelastic none of these choices are correct

elastic

The current account deals mainly with:

exports and imports.

Economies of scale

factors that cause a producer's average cost per unit to fall as output rises Increase the capacity to produce and costs are decreased ...achieve economies of scale ...up to a point. How? switch from batch mode to assembly line employees specialize to task buy inputs in bulk at lower prices

people who ride scooters suddenly decide that it is no longer much fun due to their fear of Steven Manley making fun of them for riding a scooter. as a result, the equilibrium price of a scooter ____________ and the equilibrium quantity of scooters ____________.

falls; falls

in the labor market, supply is provided by the employee.

false.

in the labor market, supply is provided by the employer.

false.

The rationing mechanism in a command economy is

favoritism

The rationing mechanism in a command economy is:

favoritism

When markets don't achieve efficiency:

government may intervene to improve society's welfare.

A good that is luxury (such as a weekend trip to an island resort) is not a required purchase and, therefore, tends to have a coefficient of elasticity _________ "1.00". equal to none of these choices are correct less than greater than

greater than

If the percentage change in the quantity demanded of a good is greater than the percentage change in income and in the same direction, then this good will have an income elasticity:

greater than 1 and it is a normal good.

A demand curve

has a downward slope and is a graph of the relationship between quantity demanded of a good and its price

Capital is best considered as

having been produced to make other goods and services

what if One seller sets his price below equilibrium price?

he will sell out first, but he could have sold everything at the higher equilibrium price.

mergers

horizontal - two firms that serve the same set of customers vertical - two firms operating at different stages of the production/distribution process conglomerate - two firms operating in unrelated industries

a decrease in supply results in a(n) __ of price and a(n) __ of quantity

increase decrease

an increase in demand results in a(n) __ of price and a(n) __ of quantity

increase increase

an increase in demand and a decrease in supply results in a(n) __ of price and a(n) __ of quantity

increase indeterminate

A decrease in the price of a good will result in:

increase in quantity demanded

Oil companies can refine a barrel of petroleum so that it yields either more home heating oil or more gasoline. If the price of gasoline falls, there is:

increase in supply of home heating oil

Decreases in input costs and a longer time since a price change will tend to:

increase the price elasticity of supply.

Economies of scale exist because of: (may be multiple answers) increased specialization of resources increased productivity of managers bureaucratic hierarchies increased use of capital resources

increased specialization of resources increased productivity of managers increased use of capital resources

If a step that is considered to be worthwhile is taken, then net worth (betterment):

increases

Your college requires that starting this year, every business student must bring a laptop to school This requirement

increases the demand for laptops

a decrease in supply and demand results in a(n) __ of price and a(n) __ of quantity

indeterminate decrease

an increase both in supply and demand results in a(n) __ of price and a(n) __ of quantity

indeterminate increase

Market failure may occur because

individual actions have side effects that are not properly taken into account by the market.

Market failure occurs when

individual actions have side effects that are not properly taken into account.

Producing a combination of goods represented by a point inside the PPC is

inefficient and attainable

Producing a combination of goods represented by a point inside the PPC is:

inefficient and attainable

If the income elasticity of demand is negative, the good is a(n) ____ good. Manley pants normal inferior substitute

inferior

Scarcity

is caused by having an unlimited amount of wants and needs and a limited amount of resources available to satisfy them

The opportunity cost of attending college:

is higher for people with greater higher earnings potential

A person is considered to be unemployed if he or she:

is not working but is actively seeking work.

Which of the following is true? Marginal revenue:

is the additional revenue received when the firm sells one more unit of the product.

which of the following is the best example of human capital?

knowledge of Microsoft excel.

The four categories of resources are...

labor, land, entrepreneurship and capital

The four categories of resources are:

labor, land, entrepreneurship, and capital

Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

marginal analysis

The change in output per change in input is referred to as ______. total productivity marginal product fixed costs average marginal costs

marginal product

Individuals decide for themselves in a:

market capitalist society

In the ____________ the Elasticity of Supply is perfectly inelastic (supply line is vertical) because no adjustments can be made immediately in the amount produced. market period short-run long-run all of these choices are correct

market period

The ABC Corporation issued $25 million in new common stock in 1995. It used $18 million as the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment:

of $18 million has occurred

Individuals gain from trade because:

of specialization in production

Protection of individual property rights is

one role of an enlightened government

In many cases, it is reasonable to refer to the ________________ as the price.

opportunity cost

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.

When there is a surplus:

price is higher than equilibrium price

Maria wants to get rid of her bookshelf. She is willing to give it away for free but her neighbor offers to pay $30 for it. Maria experiences a:

producer surplus gain.

Which is not an example of a resource?

production

The __________________ is the relationship between the number of inputs (such as units of labor) that a firm uses and the resulting units of output (such as quantity of widgets produced). production function marginal cost curve total cost curve production possibilities curve

production function

Elasticity of demand is unitary when there is a _____________ (but inverse) change in quantity demanded for a given price change. none of these choices are correct smaller percentage proportional larger percentage

proportional

When the price goes down, the quantity demanded goes up. This price elasticity measures how:

responsive the quantity change is in relation to the price change.

what if Government controls quantity, not price?

restricts the amount? Supply shifts left and price rises. forbids all production? No legal amount is available. -black market arises -buyers' and suppliers' costs both rise -product quality decreases

When we are forced to make choices we are facing the concept of:

scarcity

When we are forced to make choices, we are facing the concept of

scarcity

When we are forced to make choices, we are facing the concept of:

scarcity.

The __________ run is a time period too brief to increase capacity, but sufficient to increase operations to the maximum of the existing capacity. all of these choices can be correct depending on conditions long market short

short

Gains from trade arise because of:

specialization in production.

In the market for cell phones, which of the following causes a shift of the demand curve to the left?

studies show that cell phones cause cancer

Goods A and B have a positive cross-price elasticity of demand. This means goods A and B are:

substitutes

Auto workers receive a wage increase. How does that affect the supply curve for automobiles?

supply curve shifts left

Trade-Off

the act of giving up one benefit in order to gain another, greater benefit You must always give up one thing to get another thing. This is the trade-off. -If MB (what you get) >gt MC (what you give up), then the trade-off is worth making. --Included in MC above is the opportunity cost of making the decision.

Joe chooses to watch a 2-hour movie on local TV instead of taking a 2-hour walk in the park. Opportunity cost of this decision to Joe:

the forgone exercise and enjoyment of taking the walk.

Opportunity Cost

the most desirable alternative given up as the result of a decision When you commit a resource to satisfying one want or need, it is no longer available to be used for another want or need. -You satisfy the most valued need first. -The value you place on the foregone alternative need (second best choice) is your opportunity cost of making the decision.

Burden of a Tax

the product does not pay the tax people pay the tax -consumers? -producers/sellers? who carries the burden of a tax?

Adam Smith, in his book "The Wealth of Nations", identified this wealth to be:

the productive capacity of the nation's people.

Adam smith in his book 'the wealth of nations' identified this wealth to be

the productive capacity of the nations people

Diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases Continued increase in production capacity leads, after a point, to rising costs -diseconomies of scale How? -multiple assistant managers needed -create a costly bureaucracy -move decision making authority away from the production line

A demand schedule shows

the quantities that people plan to buy at each different price when all other influences on buying plans remain the same.

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