Exam 1 Practice

An increase in supply causes the equilibrium price to _______ and the equilibrium quantity to ________.

Fall; rise

Inelastic demand has an elasticity that is:

less than 1.

Suppose that a customer's willingness to pay for a product is $5, and the seller's willingness to sell is $2. If the negotiated price is $3, how much is producer surplus?

$1

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus?

$11

Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of:

$4 and a producer surplus of $2

If a farmer can grow 100 tubs of grapefruit or 250 tubs of oranges per acre of land, what is the opportunity cost of growing one orange?

0.4 of a grapefruit

If sales of apples decrease by 5% because of an increase in the price of apples by 10%, the elasticity of demand for apples is:

0.5.

When a product's price changes from $26 to $10 and its quantity supplied changes from 200 units to 100 units, the price elasticity of supply (using the midpoint method) equals:

0.75.

If the price of a product falls by 15% and the quantity supplied falls by 25%, the elasticity of supply is:

1.67.

Heather has one employee in her sweater shop who can sew six sweaters a day. When she hires a second person, the two employees can make ten sweaters together. Thinking at the margin, the extra benefit received from hiring a second worker is _____ sweaters.

4

Walmart is thinking about offering a 25% discount on a brand of shoes. If the elasticity of demand is two, then the discount would increase sales by:

50%

At an amusement park, Sue achieves an enjoyment value of 10 on her first roller coaster and an enjoyment value of 6 on her second ride. Her marginal benefit from her second ride is:

6

The United States can grow a greater total quantity of wheat than Japan. The United States has a(n) _________ in wheat production.

Absolute advantage

Suppose that the quantity demanded for a product falls by 9% as people's incomes rises by 3%. What type of good is this product?

An inferior good

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is:

Ashanti has absolute advantage in dog-walking; and Paolo has comparative advantage in lawn-mowing.

Which of these would be least likely to increase economic growth? A. An increase in investment in infrastructure such as new roads and rail lines. B. An increase in tariffs to protect domestic industries from foreign competition. C. An expansion of financial aid options to college students. D. Protecting intellectual property rights (such as patents) to provide incentives for innovation.

B. An increase in tariffs to protect domestic industries from foreign competition.

Which statement is a CORRECT description of the law of demand? A. As prices of a good rise, the quantity supplied of that good rises. B. As prices of a good fall, the quantity demanded of that good rises. C. As prices of a good rise, the demand curve shifts to the left. D. There is a positive relationship between the price of a good and the quantity demanded.

B. As prices of a good fall, the quantity demanded of that good rises.

Which circumstance will NOT cause an increase in demand? A. an increase in the price of a substitute god B. a decrease in the price of a complementary good C. a decrease in the product's price D. an increase in the number of buyers in the market

B. a decrease in the price of a complementary good

A decrease in demand causes the equilibrium price to ________ and the equilibrium quantity to ________.

Fall; fall

If a pizza parlor uses an oven in its production process, the oven is an example of which factor of production?

Capital

A market economy is also known as a __________ economy, and decisions are made by ___________.

Capitalist; private individuals

Suppose that a customer's willingness to pay for a product is $1,480, and the seller's willingness to sell is $1,210. If the negotiated price is $1,300, how much is consumer surplus?

Consumer surplus is greater than producer surplus.

Which example represents incentives for decisions? A. tax deductions for individual retirement accounts B. investment tax credits for businesses C. tax deductions for education saving accounts D. All of these are incentives.

D. All of these are incentives.

Suppose that Costa Rica is able to produce 50,000 pounds of coffee or 10,000 medical devices per day; Vietnam is able to produce 40,000 pounds of coffee or 5,000 medical devices per day. Which statement is true? A. Costa Rica has an absolute advantage in medical device production, while Vietnam has an absolute advantage in coffee production. B. Costa Rica has a comparative advantage in the production of both coffee and medical devices. C. Costa Rica has a comparative advantage in coffee production, while Vietnam has a comparative advantage in the production of medical devices. D. Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has comparative advantage in coffee production.

D. Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has comparative advantage in coffee production.

In a communist state, the _________ decide(s) what a society wants, but in a capitalist economy, the _________ decide what products they want.

Government; consumers

Which scenario can occur when specialization in tasks is coupled with trade?

It can lead to gains for all parties.

If income increases by 12% and the quantity demanded of a good increases by 14%, the good is a(n) _______ good.

Luxury

The _________ shows the combination of two goods that are possible for a society to produce at full employment.

Production Possibilites Fronter

The government often provides goods that are nonrivalrous and nonexclusive to overcome which market failure?

Public goods

When quantity demanded exceeds quantity supplied, a _______ occurs and prices are pushed _______ toward equilibrium.

Shortage; up

The price elasticity of supply measures the responsiveness of quantity ________ to changes in _________.

Supplied; the price of the product

An increase in the cost of coffee beans that are used to make coffee will cause the _________ for the coffee to shift ________.

Supply; fall

Tim woke up this morning with a stomachache and decided to skip class in order to get more rest. What is the opportunity cost of Tim's decision to sleep in?

The value of attending the class he decided to miss

Suppose the equilibrium price of carrots is $1. The price floor instituted by the government is $1.50. Based on this information, which of the following would you expect to take place in the market?

We would expect to see a surplus of carrots.

If Ed = 4, then:

a price increase of 1% will reduce quantity demanded by 4%.

Implementing a price floor can cause:

a surplus.

Suppose that the price of pork rises. We would expect that the supply of beef will:

fall because farmers will shift resources from beef production to pork production.

The sign of elasticity of supply is:

always positive.

When the supply curve shifts out (to the right) and the demand curve shifts out (to the right), the equilibrium price will:

be indeterminate.

If the cross elasticity of demand for two goods is negative, that means they are:

complementary goods.

Suppose that the price of a good is $22 and equilibrium price is $18. Compared to market equilibrium:

consumer surplus is decreased and deadweight loss is increased.

Price elasticity of demand measures how:

consumers respond to a change in price.

The main focus of efficiency is for:

consumers to get the goods and services they want at the lowest possible resource cost.

Minimum wage laws:

create a price floor below which workers cannot be legally paid.

Which of these would NOT be considered a factor of production? A. mineral deposits B. a large copy machine at the office C. college graduates seeking a job D. a bank loan used to start a new business

d) a bank loan used to start a new business

If a price ceiling is set below the market price, it is:

effective.

If a product's price rises by 6%, and its quantity demanded falls by 8%, then we can say that demand for this product is:

elastic.

In an eight-hour day, Isabel can produce 15 pounds of taffy or 3 pounds of chocolate chip cookies. In an eight-hour day, Ramona can produce 6 pounds of taffy or 6 pounds of chocolate chip cookies. The opportunity cost of producing 1 pound of chocolate chip cookies is:

five pounds of taffy for Isabel and one pound of taffy for Ramona.

In the study of economics, the goals of efficiency and equity are often:

in conflict with one another.

If the price elasticity of supply is less than 1, then the good is said to be:

inelastic.

The study of economics:

is about people making decisions regarding their use of scarce resources.

The price elasticity of demand for a horizontal demand curve:

is infinite.

The main difference between macroeconomics and microeconomics is that:

macroeconomics focuses on the aggregate company, and microeconomics focuses on the components of the economy.

The situation in which markets fail to provide efficiently is called:

market failure.

When quantity demanded in a market equals quantity supplied, then the:

market is in equilibrium.

Consumer surplus is the difference between the:

maximum price the buyer is willing to pay and the market price.

In general, the longer the period given to producers, the:

more elastic is the supply curve.

The highest value alternative that is forgone when you choose an action is called its:

opportunity cost.

Points that are unattainable for an economy are shown as points:

outside the production possibilities frontier.

Allocative efficiency occurs when:

people who want a product the most get it.

The resource known as "labor" includes:

physical and mental skills and talents.

Knowing a product's price elasticity allows economists to:

predict the amount by which the quantity supplied will change in response to a change in price.

A legal maximum price that can be charged for a product or service is known as a(n):

price ceiling.

Laws used to keep market prices from falling are called:

price floors.

The gab between the supply curve and the market price is called:

producer surplus.

When an economy uses the most efficient means of farming to grow as much corn as possible, this economy has achieved:

production efficiency but not necessarily allocative efficiency.

Cross elasticity of demand is defined as percentage change in:

quantity demanded of one product divided by the percentage change in the price of another product.

Ceteris paribus, an improvement in production technology:

shifts the supply curve to the right, reducing the equilibrium price and increasing equilibrium output.

The supply curve:

shows a positive relationship between price and quantity supplied.

If a price ceiling is set below the equilibrium price in the market, producer surplus will be:

smaller than it would be without the price ceiling.

A positive cross elasticity of demand between two goods suggests that the goods are:

substitutes.

A point on a nation's production possibilities frontier indicates:

that resources are fully utilized in producing the given combination of goods and services.

In a planned economy, most of the productive resources are owned by:

the government.

Market failure means that:

the market has not provided a socially optimal amount of goods and services.

At equilibrium price:

the sum of consumer surplus and producer surplus is maximized.

A good is said to be highly inelastic if:

there is a small change in quantity with a change in price.

If an economy is operating at a point that is inside of its PPF, then it can be assumed that its resources are:

underutilized.

Scarcity is BEST defined as when:

unlimited wants exceed limited resources.

A surplus exists:

when the quantity supplied exceeds the quantity demanded.