economics test 1
An economy produces capital goods and consumer goods. This economy is operating at a point on its production possibility frontier associated with a small amount of capital goods and a large amount of consumer goods. This is most likely to be a
"poor" country because such a nation has difficulty devoting many resources to the production of capital goods.
If income decreases by 20% and, in response, the quantity of housing demanded decreases by 14%, then the income elasticity of demand for housing is
.7
If you eat at a Las Vegas casino that charges $12 for its all you can eat buffet, then the marginal cost of your third trip to the buffet line is
0
The price elasticity of demand for heart transplants is perfectly inelastic. Thus, the price elasticity demand for heart transplants is
0.0
If the supply of oranges is unit elastic, the price elasticity of supply of oranges is
1.0
Inferior good
Good in which we buy less of when we get more income
normal good
Good in which we buy more of when we get more income
the cross-price elasticity of demand between good X and good Y is -3. Given this information, which of the following statements is true?
Goods X and Y are complements.
The cross-price elasticity of demand between good X and good Y is 2.75. Given this information, which of the following statements is true?
Goods X and Y are substitutes.
Substitutes
Goods that can be used in place of each other
Consider two countries, Japan and Malaysia. Japan devotes a smaller portion of its production to capital. All other things equal, which of the following statements is most likely true?
Malaysia's production possibility frontier will shift up and out farther and faster than Japan's.
Statement of opinion; cannot be tested to be true or false
Normative statement
Inefficient points
Points INSIDE the PPF -Workers goofing off, unused buildings
Efficient points
Points ON the PPF
Unattainable points
Points OUTSIDE the PPF
A claim that can be tested to be true or false
Positive statement
If you observe that Event A happens before Event B happens, and you erroneously conclude that Event A caused Event B, you would be guilty of an error called the
Post hoc ergo propter hoc ( post hoc fallacy)
Which of the following is an example of a normative question? How will an increase in the minimum wage affect migrant workers? Should the government provide free prescription drugs to lower-income citizens? What fraction of an income-tax rebate check will be spent on consumer goods? How will an increase in the price of diesel fuel affect truck drivers?
Should the government provide free prescription drugs to lower-income citizens?
Complements
Two goods used together
Which of the following would be most likely to cause the demand for Dr. Pepper to shift from D0 to D1 (shift to the left)
a decrease in income, assuming that Dr. Pepper is a normal good
will shift the supply curve of cotton to the left, the equilibrium price of cotton will increase, and the quantity demanded of cotton will decrease.
a decrease in the demand for relish.
to Figure 3.3. As your income decreased, the demand for X shifted from D1 to D2 (to the left) . Good X is
a normal good.
The production possibility frontier is a graph that shows
all the combinations of goods and services that can be produced if all of society's resources are used efficiently.
According to the theory of comparative advantage, specialization and free trade will benefit
all trading parties, even when some are absolutely more efficient producers than others.
. You correctly deduce that all resources are fully employed and there are no production inefficiencies if this economy is currently operating at a point
along the production possibility frontier
Refer to Figure 2.6. Which of the following is most likely to shift the production possibility frontier from ppf1 to ppf2?
an increase in the general educational level of the population
A decrease in demand for cameras would likely be caused by
an increase in the price of a complementary good.
The price of circuit boards used in the manufacturing of LCD televisions has fallen. This will lead to ________ LCD televisions.
an increase in the supply of
The "law of demand" implies that
as prices fall, quantity demanded increases.
An entrepreneur is a person who
assumes the risk of a firm. organizes and manages a firm. turns a new idea or product into a business.
This commonly-used phrase stands for 'all other things being unchanged or constant'. It is used in economics to rule out the possibility of 'other' factors changing, i.e. the specific causal relation between two variables is focused. "
ceteris paribus.
To isolate the impact of one single factor, economists invoke the assumption of
ceteris paribus.
If two products are complements, the ________ elasticity of demand is ________.
cross-price, negative
Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If a store reduces the price of a milkshake from P3 to P4, its total revenue will
decrease
Related to the Economics in Practice on page 51: The Amazon Kindle and the electronic textbooks available for the Kindle are complementary goods. Electronic textbooks and traditional, hard-copy textbooks are substitute products. If the price of electronic textbooks for the Kindle decreases,
demand for the Kindle increases, the quantity of electronic textbooks demanded increases, and demand for traditional, hard-copy textbooks decreases.
When there are more substitutes for a product, the ________ for the product is ________.
demand; more price elastic
When the price of coffee increases 5%, quantity demanded decreases 10%. The price elasticity of demand for coffee is ________ and total revenue from coffee sales will ________.
elastic; decrease
Mary Kay Ash was one of the first individuals who sold cosmetics directly to customers via independent sales representatives. The company founded by Mary Kay is now one of the largest and most successful cosmetics companies in the world. Mary Kay Ash would be classified as a(n)
entrepreneur.
The price elasticity of demand for tickets line vertical on the graph is
equal to zero
In factor, or input, markets
firms demand resources.
A frozen food manufacturer can produce either pizzas or calzones. As the result of an increase in the price of calzones, the firm produces more calzones and fewer pizzas. An economist would explain this by saying
here has been an increase in the quantity supplied of calzones and a decrease in the supply of pizza.
A perfectly price elastic supply curve will be a(n) ________ line.
horizontal
Demand curves are derived while holding constant
income, tastes, and the prices of other goods.
Refer to Scenario 3.3 below to answer the question(s) that follow.SCENARIO 3.3:-Mustard and mayonnaise are substitutes.-Mustard and relish are complements.-Mustard is a normal good.-During the summer, about 50% of all mustard was recalled by manufacturers and removed from store shelves.Refer to Scenario 3.3. The mustard recall would have caused the equilibrium price of mayonnaise to ________ and the equilibrium quantity of mayonnaise to ________.
increase; increase
As you move down the production possibility frontier, the absolute value of the marginal rate of transformation
increases.
If a firm wants to increase revenue, it should increase the selling price of its product if it is currently producing in the ________ portion of its demand curve.
inelastic
If consumer income falls, the demand for tuna fish sandwiches shifts from D0 to D1. ( shift to the right) This implies that tuna fish sandwiches are a(n)
inferior good.
Normative economics ________ and positive economics ________.
involves judgments; does not involve judgments
At a price of $20, a store can sell 24 picture frames a day. At a price of $18 the store can sell 33 picture frames a day. Since total revenue ________ by the price decrease, demand must be ________.
is increased; elastic
Opportunity cost of ppf
is the slope of the PPF
At a price of $5, quantity demanded is 70; and at a price of $7, quantity demanded is 50. Since total revenue ________ by the price increase, demand must be ________.
is unchanged; unit elastic
Specialization and trade exploit differences in productivity across workers and
make everyone better off.
The value of the slope of a society's production possibility frontier is called its
marginal rate of transformation.
The more time that elapses, the
more price elastic is the demand for the product
If the opportunity costs of producing a good increase as more of that good is produced, the economy's production possibility frontier will be
negatively sloped and "bowed outward" from the origin.
If the demand for coffee decreases as income decreases, coffee is a(n)
normal good
focuses on the value of economic fairness, or what the economy "should be" or "ought to be
normative economics
The government should extend the duration of unemployment benefits to those workers who lost their jobs due to outsourcing. This statement is best described as
normative statement
based on fact and cannot be approved or disapproved
positive economics
Whenever the Democrats gain control of the Congress, spending on social programs increases; whenever Republicans gain control of the Congress, spending on defense increases. Hence, we know what the next party in control will do. This statement is an example of the
post hoc fallacy.
For perfectly price inelastic supply,
price is solely determined by demand.
The determinants of elasticity include
price relative to income. time. availability of substitutes.
Cross-price elasticity of demand measures the response in the
quantity of one good demanded to a change in the price of another good.
When the supply of blueberries increases while the demand for blueberries also increases, the equilibrium ________ of blueberries will definitely ________, ceteris paribus.
quantity; increase
Luxury items tend to have ________ demand, and necessities tend to have ________ demand.
relatively elastic; inelastic
Refer to Figure 2.6. An increase in the economy's capital stock is represented by a
shift from ppf1 to ppf2
marginal cost
the cost added by producing one additional unit of a product or service.
In economics, investment always refers to
the creation of capital.
SCENARIO 3.2: Lettuce and spinach are substitutes. Lettuce and tomatoes are complements. Lettuce is a normal good. During the winter, about 20% of the lettuce crop was destroyed by flooding.Refer to Scenario 3.2. If at the same time that part of the lettuce crop was destroyed, consumer income also decreased, then, ceteris paribus, in the market for lettuce this would have caused
the equilibrium price to either increase, decrease, or remain the same and the equilibrium quantity to decrease.
SCENARIO 3.3:-Mustard and mayonnaise are substitutes.-Mustard and relish are complements.-Mustard is a normal good.-During the summer, about 50% of all mustard was recalled by manufacturers and removed from store shelves.Refer to Scenario 3.3. If at the same time of the mustard recall, consumer income also decreased. Then, ceteris paribus, in the market for mustard this would have caused
the equilibrium price to either increase, decrease, or remain the same and the equilibrium quantity to decrease.
CENARIO 3.2: Lettuce and spinach are substitutes. Lettuce and tomatoes are complements. Lettuce is a normal good. During the winter, about 20% of the lettuce crop was destroyed by flooding.Refer to Scenario 3.2. As a result of the flooding during the winter, you would expect that
the supply of lettuce would decrease, the price of lettuce would increase, and the quantity demanded of lettuce would decrease.
Firms are organizations that
transform resources into products.
When the price of cheddar cheese increases 15%, quantity demanded decreases 15%. The price elasticity of demand for cheddar cheese is ________ and total revenue from cheddar cheese sales will ________.
unit elastic; not change
A factor market is
where resources are exchanged.
An insect that is resistant to currently used pesticides has infested the cotton crop, and this year's crop is only half of what was produced last year. You accurately predict that this
will shift the supply curve of cotton to the left, the equilibrium price of cotton will increase, and the quantity demanded of cotton will decrease.
