Micro Exam 1
healthcare
issue: -rapid expansion of healthcare costs -under provision of healthcare services -quality of healthcare services
a
producer surplus is the difference between the: a. market price and the minimum price the seller is willing to accept b. maximum price the buyer is willing to accept and the market price c. maximum price the seller is willing to accept and the market price d. minimum price the buyer is willing to accept and the market price
b
electricity is essential in the production of aluminum. if electricity prices increase: a. aluminum is turned into an inferior good b. the supply curve for aluminum shifts to the left c. the supply curve for aluminum shifts rightward d. aluminum becomes cheaper because it is a substitute good for electricity
d
a point on a nation's production possibilities frontier indicates: a. an undesirable combination of goods and services b. combinations of output that are unattainable, given the current stock of resources and technology c. levels of production that will cause both unemployment and inflation d. that resources are fully utilized in producing the given combination of goods and services
model/theory
a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation
nash equilibrium
a stable state of a system that involves several interacting participants in which no participant can gain by a change of strategy as long as all the other participants remain unchanged
demand schedule
a table that shows a range of prices for a certain good or service and the quantity demanded at each price
labor market
the market in which households sell their labor as workers to business firms or other employers
equilibrium quantity
the quantity at which quantity demanded and quantity supplied are equal for a certain price level
demand
the relationship between price and the quantity demanded of a certain good or service
supply
the relationship between price and the quantity supplied of a certain good or service
social surplus
the sum of consumer surplus and producer surplus
d
the supply curve slopes up and right because: a. due to constant opportunity costs, producers feel that people will buy more if they charge a higher price b. the supply curve actually slopes down and to the right c. due to efficiencies, producers feel that people will buy more if they charge a higher price d. due to increasing opportunity costs, producers must charge more to produce additional units in order to cover their costs
quantity demanded
the total number of units of a good or service consumers are willing to purchase at a given price
quantity supplied
the total number of units of a good or service producers are willing to sell at a given price
globalization
the trend in which buying and selling in markets have increasingly crossed national borders
division of labor
the way in which different workers divide required tasks to produce a good or service
common resources
-nonexcludable -rivalrous -ex. shell collecting -tend to be overharvested
a
"price gouging" laws are types of ____________ and often result in ___________ a. price ceilings; shortages of a scarce good b. price floors; surpluses of a scarce good c. price ceilings; a sufficient supply of a scarce good d. price floors; a sufficient supply of a scarce good
false
(true or false) 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, consumer surplus is $5
false
(true/false) the deadweight loss is found by subtracting producer surplus from consumer surplus
false
(true/false) the gap between the supply curve and the market price is called "consumer surplus"
tragedy of the commons
-abused shared resources
contestable market
-number of firms is not critical but rather there are not barriers to entry -barriers to entry determine the company's pricing and output decisions -critical issue on pricing is based on barriers to entry -mutual interdependence tied to contestability in market -as the market becomes more contestable it becomes more competitive -price their products closer to cost because they dont want entrants coming in
market oriented environmental policies
-pollution charges -marketable permits -better-defined property rights
a
An effective or binding price floor occurs at a price _____ the equilibrium price and causes a _____. a. above; surplus b. above; shortage c. below; surplus d. below; shortage
c
As described in the article entitled "Millennial Home Buyers Send a Chill Through the Rental Markets," late 2017 residential apartment rents were a. falling as Millennials' incomes were rising, Millennials were moving out of their parents homes and into apartments and the supply of apartments fell b. rising because of an increase in supply of apartments c.falling as Millennials' incomes were rising, Millennials were forming new households and purchasing homes while the supply of apartments increased. d. rising because of a decrease in the demand for apartments
a
As reflected in the article entitled"What Happened When the U.S. Got Rid of Guest Workers? Farms Used Less Labor," the demand for unskilled labor in the 1960's is best described as: a.elastic, with the elimination of the U.S. guest worker program lowering total income paid to domestic workers b. inelastic, with the elimination of the U.S. guest worker program raising total income paid to domestic workers c. unitary elastic, with the elimination of the U.S. guest worker program raising total income paid to domestic workers d.inelastic, with the elimination of the U.S. guest worker program lowering total income paid to domestic workers
b
Due to a drought in Georgia, the market price for peanuts rises by 20% nationwide. If the price elasticity of demand for peanuts is 0.8, what would happen to total revenue for peanut farmers who were not affected by the drought? a. total revenue would fall as quantity demanded falls by 16% b. total revenue would rise as quantity demanded falls by 16% c. total revenue would rise as quantity demanded falls by 25% d. total revenue would fall as quantity demanded falls by 25%
b
If a binding price floor is reduced toward equilibrium but not below it, do the surplus and dead-weight loss in this market increase or decrease? a. a decrease in the price floor will increase the surplus of the good or service b. a decrease in the price floor will decrease the surplus of the good or service c. a decrease in the price floor will decrease the shortage of the good or service d. a decrease in the price floor will increase the shortage of the good or service
a
If the price of a commodity increases by 5%, the total revenue spent on which of these commodities would probably decrease? a. air travel to Barcelona b. salt c. gasoline d. prescription medication for diabetes
c
In cities around the country, the government provides assistance to families with low incomes to rent apartments at prices capped by the U.S. Department of Housing and Urban Development (HUD), essentially setting a price ceiling on apartments. These designated apartments tend to rent quickly, and tenants are less likely to move once they find an apartment. How are incentives by landlords affected in terms of maintaining rent controlled and non-rent-controlled apartments? a.Rent controls will cause a surplus of apartments and drive the prices of non-rent controlled apartments up. b. Rent controls will cause a surplus of apartments and drive the prices of non-rent controlled apartments down. c. Rent controls will cause a shortage of apartments and drive the prices of non-rent controlled apartments up. d. Rent controls will cause a shortage of apartments and drive the prices of non-rent controlled apartments down.
c
The demand for gasoline is relatively inelastic, while the demand for Exxon gasoline is elastic because: a. there are close substitutes available for gasoline; however, there are no close substitutes for Exxon. b. there are no close substitutes for gasoline or Exxon. c. there are no close substitutes available for gasoline; however, there are close substitutes for Exxon. d. there are close substitutes for both gasoline and exxon
d
The general manager of the local hockey team hires you to help maximize the team's total revenue. She explains that most costs are constant because the entire staff must always be available in case the arena reaches its maximum capacity. If your task were to maximize total revenue from ticket sales, then your advice to the manager would be to set the ticket price: a. in the elastic region of ticket demand in order to increase total revenue b. very low to make sure that the arena is always full c. as close as possible to the points where the price elasticity of demand equals 1 d. in the inelastic region of ticket demand in order to increase total revenue
c
When a large factory closed in the town of Greenville, income fell for many residents. As a result, demand for normal goods would _____ and demand for inferior goods would _____. a. increase; decrease b. increase; increase c. decrease; increase d. decrease; decrease
production possibilities frontier
a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available
circular flow diagram
a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market
normal good
a good in which the quantity demanded as income rises, and in which quantity demanded falls as income falls
inferior good
a good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls
price ceiling
a legal maximum price
minimum wage
a price floor that makes it illegal for an employer to pay employees less that a certain hourly rate
elasticity
an economics concept that measures responsiveness of one variable to changes in another variable
invisible hand
adam smith's concept that individuals' self-interested behavior can lead to positive social outcomes
market economy
an economy where economic decisions are decentralized, private individuals own resources, and business supply goods and services based on demand
command economy
an economy where economic decisions are passed down from government authority and where the government owns the resources
c
an inferior good is a good that: a. lasts a good length of time b. is demanded by the average customer c. has an income elasticity that is negative d. is reliable
competitve
as the market becomes more contestable, it becomes more _____________________
law of diminishing returns
as we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline
d
china produces many products at the lowest cost possible, even though chinese consumers do not desire many of these products. China is achieving a. both production and allocative efficiency b. neither production or allocative efficiecy c. allocative efficiency only d. production efficiency only
b
does your going to college have anything to do with expanding choices or reducing scarcity? a. no, scarcity exists, however, since it is dealing with college, no opportunity costs exist. b. yes, scarcity exists; therefore, it is important for the student to examine the tradeoffs of obtaining a college degree c. yes, scarcity does exist, but it cannot be reduced d. no, opportunity costs do not exist when it comes to going to college
fiscal policy
economic policies that involve government spending and taxes
c
every point on a production possibilities frontier represents: a. x-efficiency b. production and allocative efficiency c. production efficiency d. allocative efficiency
property rights
ex. policy that provides private landowners w/ an incentive to protect endangered species on their land
marginal analysis
examination of decisions on the margin, meaning a little more or a little less from the status quo
public goods
example: national defense, a lot of gov't services (police protection)
coase
externality issue cannot be solved until property rights are closely defined -if either property has well defined legal responsibility, then that party will seek out and pay for the least costly method of reducing the risk -property right determines who pays teh bills
complements
goods that are often used together so that consumption of one good tends to enhance consumption of the other
price control
government laws to regulate prices instead of letting market forces determine prices
decreases
horizontal merge _____________________ competition in the market
c
human capital is a. included in the land resource b. included in entrepreneurial ability c. the improvement of labor capabilities from training, education, and apprenticeship programs d. the equipment that companies use in the production process
free rider
if many people act like a _________________ ________________, the public good may never be provided
b
if the average price of new homes rose by 15% last year, as a result, home builders increased the supply of new homes by 10%, the price elasticity of supply is ___________ , and the supply of new homes is ________________ a. 1.5; inelastci b. 0.67; inelastic c. 0.67; elastic d. 1.5; elastic
d
if the cross elasticity of demand between chicken and fish is 0.8, then chicken and fish are a. not related b. complements c. normal goods d. substitutes
d
if the cross elasticity of demand for good A with respect to good B is 2.3, then good A is a a. normal good b. inferior good c. complement for good B d. substitute for good B
c
increasing opportunity costs occur along the production possibilities frontier because: a. resources lack specialization b. of unemployment in the economy c. not all resources are equally well suited to produce all goods d. of inequities in the distribution of income
a
inelastic demand has an elasticity that is a. less than 1 b. equal to 1 c. greater than or equal to 1 d. greater than 1
market
interaction between potential buyers and sellers; a combination of demand and supply
a
it's $12 for unlimited rounds of mini golf and each go-kart session is $8. if you played 3 rounds of both, what is the marginal cost of the 3rd round of mini gold and the 3rd marginal cost of go-kart? a. $0 for mini golf and $8 for go-kart b. $12 for mini golf and $24 for go-karts c. $35 for mini golf, $24 for go-kart d. $0 for mini golf, $24 for go-kart
tax incidence
manner in which the tax burden is divided between buyers and sellers
opportunity cost
measures cost by what we give up/forfeit in exchange; measures the value of the forgone alternative
gross domestic product
measures the size of total production in an economy
horizontal merge
merge between 2 firms that are selling similar products in the same market -decreases competition in the market
vertical merger
merger between companies in the same industry , but at different stages of the production process -where one company buys or sells something from or to the other -ex. pepsi merge with restrauraunt chains
diseconomies of scope
multi-product production by a single firm that is less efficient than having separate firms each specializing in the production of a single product
undercoverage issue
not enough younger generation in the risk pool (healthy) to subsidize those that need health insurance -americans look at the choice of health insurance or opt for the tax
externality
occurs when an exchange between a buyer and seller has an impact on a third party
a
one of the most important ingredients in bubble tea is the tapioca pearls that are added to the tea. if the price of tapioca flour increases, what will happen to the supply of bubble tea, all else being equal? a. the supply of bubble tea will decrease b. the supply of bubble tea will not change c. the supply of bubble tea will increase dramatically d. the supply of bubble tea will increase modestly
adverse selection
one party to a transaction takes advantage of knowing more than the other party in a transaction
ceteris paribus
other things being equal
price takers
perfect competition
imports
products (goods and services) made abroad and then sold domestically
exports
products (goods or services) made domestically and sold abroad
economies of scope
proportionate saving gained by producing two or more distinct goods when the cost of doing so is less than that of producing each separately
command and control
regulation of a set of specific limits for pollution emissions and/or mandates that specific pollution-control technologies that must be used
utility
satisfaction, usefulness, or value one obtains from consuming goods and services
command and control
short comings: 1. provide no incentive for going beyond set limits 2. offer limited flexibility on where and how to reduce pollution 3. often have politically motivated loopholes
tragedy of the commons
solution: -make it private land -gov't sell permits to the land -limitations
free rider
solution: gov't actions, social pressures, collecting payments
free rider
someone who wants others to pay for a public good but plans to use the good themselves
normative statement
statement which describes how the world should be
c
supply is defined as: a. the minimum amount of a product that buyers are willing and able to purchase over a particular time period at various prices, holding all other relevant factors constant b. the maximimum amount of a product that buyers are willing and able to purchase over a particular time period at various prices, holding all other relevant factors constant c. the maximum amount of a product that sellers are willing and able to provide for sales over a particular time period at various prices, holding all other relevant factors constant d. the minimum amount of a product that sellers are willing and able to provide for sale over a particular time period at various prices, holding all other relevant factors constant
private enterprise
system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)
b
the development of solar panels for home installation has improved due to technological advances and subsidies. these factors shift the supply curve to the ___________ and result in the equilibrium price of solar panel installations to ___________ a. left; rise b. right; fall c. right; rise d. left; fall
consumer surplus
the extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid
price elasticity
the relationship between the percent change in price resulting in a corresponding percentage change in the quantity demanded or supplied
inputs
the resources such as labor, materials, and machinery that are used to produce goods and services; also called factors of production
factors of production
the resources such as labor, materials, and machinery that are used to produce goods and services; also called inputs
equilibrium
the situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change
economics
the study of how humans make choices under conditions of scarcity
traditional economy
typically an agricultural economy where things are done the same as they have always been done
d
walmart is thinking about offering a 25% discount on a brand of shoes. if the elasticity of demand is 2, then the discount would increase sales by: a. 200% b. 25% c. 2% d. 50%
price
what a buyer pays for a unit of the specific good or service
shift in demand
when a change in some economic factor (other than price) causes a different quantity to be demanded at every price
flase
(true/false)total social or economic surplus is the sum of consumer surplus, producer surplus, and the dead-weight loss
asymmetric information
-affects other markets, but really pronounced in insurance and healthcare -one party to an economic transaction has more information than the other party
over expenditure issue
-continuous health care expenditure expansion -PPA created further distortions/perverse adverse effects which have allowed private health care insurers to provide medicare advantage pans to "game the system"
nonexcludable
-costly or impossible for one user to exclude others from using a good
social costs
-costs that include private costs incurred by firms and additional external costs incurred by third parties outside the production process
law of diminishing returns
-drives the short run costs -as you add more laborers, assuming each has equal pay, to an existing stock of fixed input, the additional output you get from each additional workers is going to fall -as additional output falls, for any given additional input hired, the additional cost must increase
patient protection act of 2010
-individual mandate and employer requirements -mandatory coverage of pre-existing condition and other service -healthcare exchanges -medicaid expansion -premium subsidies
minimum efficient scale
-level at which economies of scale are exhausted -average costs will no fall further as company gets bigger -where internal economies of scale have been fully exploted
perfect competition
-many businesses -no one business has the ability to set price, they don't have any market or pricing power because there are so many of them relative to the market demand -identical, standardized products -many firms -no barriers to entry -agricultural industries
monopolistic competition
-many number of firms -demand schedule facing this industry is not the market demand, but the demand for the specific good -differentiated product -low barriers to entry -clothing retailers -price searcher
d
Home heating gas tends to have _____ demand because _____. a. inelastic; people spend a large share of their incomes on heat b. elastic; it has many close substitutes c. elastic; it is a necessity d. inelastic; people do not have time to adjust their consumption patterns
c
If the price of used plug-in electric cars is expected to rise in six months, the reaction in the supply of those cars in the market today would likely be a(n): a. upward movement along the supply curve b. shift of the supply curve to the right c. shift of the supply curve to the left d. downward movement along the supply curve
a
In August 2015, Turing Pharmaceuticals decided to increase the price of the drug Daraprim, which is used to treat a life-threatening parasitic infection. Unlike typical price increases that never make the evening news, Turing raised the price from $13.50 per dose to $750 per dose, representing an increase of over 50 times the price. Turing's CEO, Martin Shkreli, argued that the extreme price increase is justified based on market demand and the fact that the drug does save lives. How would you describe the elasticity of Daraprim? a. highly price inelastic b. elastic c. perfectly elastic d. unitary elastic
d
Over the last 10 years, laptop computer prices have moved down while their quantity has increased. This indicates that: a. demand and supply have increased proportionately b. demand has increased more than supply c. increased demand has created a market incentive to reduce the price d. supply has increased more than demand
b
Over the past decade, cruise lines have dramatically increased their number of megaships (those that carry 3,000 passengers or more), increasing the supply of cruises. At the same time, the popularity of cruising has increased among consumers, increasing demand. What must happen for the average price to rise? a. Nothing; average price will decrease with the implied changes in supply and demand. b. increase in demand greater than supply c. increase supply greater than demand d. supply and demand should increase at the same rate
b
Why would the demand for business airline travel be less elastic than the demand for vacation airline travel by retirees? a.The elasticity of demand cannot be determined for retirees or business travelers. b.Business travelers must determine their flying arrangements in a short time period and have little choice in their destinations whereas retirees have the flexibility of determining when and where they fly c.Business travelers can determine their flying needs in a longer time period than retirees. d. The elasticity would actually be the same for both retirees and business travelers because their flying needs are the same.
c
________ occurs when goods and services are produced with as few resources as possible, while ___________ occurs when the mix of goods and services produced is the most desired by society. a. allocative efficiency; production efficiency b. allocative efficiency; social efficiency c. production efficiency; allocative efficiency d. production efficiency; social efficiency
substitute
a good that can replace another to some extent, so that greater consumption of one good can mean less of the other
demand curve
a graphic representation of the relationship between price and quantity demanded for a certain good or service, with quantity on the horizontal axis and the price on the vertical axis
a
a laissez-faire approach to the question of "how to produce" would be found in a: a. market economy b. planned economy c. communist economy d. socialist economy
price floor
a legal minimum price
supply curve
a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and the price on the vertical axis
opportunity set
all possible combinations of consumption that someone can afford given the prices of goods and the individual's income
budget constraint
all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set
law of diminishing marginal utility
as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units
a
at any price below the equilibrium price a. the quantity demanded exceeds the quantity supplied in the market b. the quantity demanded equals the quantity supplied in the market c. the quantity demanded is less than the quantity supplied in the market d. demand exceeds supply in the market
excess demand
at the existing price, quantity demanded exceeds the quantity supplied; also called a shortage
excess supply
at the existing price, quantity supplied exceeds the quantity demanded; also called a surplus
surplus
at the existing price, quantity supplied exceeds the quantity demanded; also called excess supply
shortage
at the existing price, the quantity demanded exceeds the quantity supplied; also called excess demand
marketable permit program
city or state gov. issues permit allowing only a certain quantity of pollution -firm that find it least expensive to do so will reduce pollution the most
cartel model
combination of firms that act as if they were a single firm -goal to act as a monopoly -reduce output, raise price -assigns output to each member and set price -no all oligopolies are this because of cheating (game theory) -entry -difficulty allocating ouput -antitrust laws
diseconomies of scale
cost disadvantages that firms and governments accure due to increased firm size or output, resulting in production of goods and services at increased per unit costs
sunk costs
costs that we make in the past that we cannot recover
insurance
elimites adverse side effects of bad things happening -financial effects -pay premiums to cover events -subject to imperfect information -assymetric information particularly severs these markets
a
if a pizza parlor uses an oven in its production process, the oven is an example of which factor of production a. capital b. labor c. entrepreneurial abiity d. land
b
if demand is inelastic, an increase in price: a. reduces total revenue b. increases total revenue c. increases the quantity demanded d. leaves total revenue unaffected
c
if a market is NOT at equilibrium a. demand will shift until the market reaches equilibrium b. supply will shift until the market reaches equilibrium c. the price will change and, in response, market participants will move along the existing supply and demand curves until the market reaches equilibrium d. both supply and demand will shift until the market reaches equilibrium
d
if demand is unitary elastic, then the : a. percentage change in quantity is greater than the percentage change in price b. demand curve is a straight line c. percentage change in quantity demanded is less than the percentage change in price d. price elasticity equals one
externalities
if no ____________________ existed, private costs would be the same as the costs to society as a whole, and private benefits would be the same as the benefits to society as a whole
c
if price increases by 100% and quantity demanded decreases by 50%, then the price elasticity of demand will equal ____________ a. 0.4 b. 22 c. 0.5 d. 2.0
d
if the demand curve is inelastic and the price decreases, then a. revenue remains constant b. revenue increases c. the change in revenue cannot be determined with the information provided above d. revenue decreases
a
if the income elasticity of demand for tea is 0.5 tea is a : a. normal good b. luxury good c. substitute for coffee d. complement of coffee
a
if the price elasticity of supply is less than 1, then the good is said to be: a. inelastic b. unitary elastic c. elastic d. monetary elastic
a.
jack owns a pumpkin patch and has been selling pumpkins for $10. as halloween approaches, he worries about having too many unsold pumpkins, so he lowers the price by 20%. if the price elasticity for pumpkins is 1.5, how many pumpkins will jack sell a. 30% more b. 10% more c. 25% more d. 13.3% moree
usury laws
laws that impose an upper limit on the interest rate that lenders can charge
asymmetric information
leads to: -adverse selection (hidden characteristics) -moral hazard (hidden actions
coase theorem
legal and economic theory that affirms that where there are complete competitive markets with no transaction costs, an efficient set of inputs and outputs to and from production - optimal distribution are selected, regardless of how property rights are divided
d
other factors held constant, as the price of an iPad rises, the a. demand for iPad falls b. demand for iPad rises c. quantity demanded for iPad rises d. quantity demanded for iPad falls
d
other factors held constant, as the price of iPad rises, the: a. quantity demanded for iPad rises b. demand for iPad rises c. demand for iPad falls d. quantity demanded for iPad falls
a
other things held constant, when demand is price inelastic, an increase in a. price leads to greater total revenue b. total revenue leads to a reduction in price c. total revenue means that quality will improve d. the price leads to lower total revenue
price elasticity of demand
percentage change in the quantity demanded of a good or service divided by the percentage change in price
price elasticity of supply
percentage change in the quantity supplied divided by the percentage change in price
d
physical capital includes all of these except: a. drilling equipment at a tool-and-die company b. tractor loaders of a construction firm c. copy machines in an insurance company d. dollar bills in a bank vault
d
planned economies rely heavily on ___________ to make most economic decisions a. consumers b. producers c. corporations d. the government
monetary policy
policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrwing
positive statement
statement which describes the world as it is
b
suppose that a major drought causes a 30% reduction in the peanut harvest. if there is no change in demand, this event would cause a ____________ at the original equilibrium price, and the equilibrium price will therefore _____________ and the equilibrium quantity will _____________ a. surplus; fall; fall b. shortage; rise; fall c. surplus; fall; rise d. shortage; rise; rise
b
suppose that the price of vacation packages to paris increased from $3200 to $4000 per person, and, as a result, the quantity demanded of the tour packages fell by 25%. using the midpoint method, the price elasticity of demand for the Paris vacation packages is _____________ a. 0.8 b. 1.13 c. 0.89 d. 1.52
c
suppose the price of a monthly data plan required for access to the Internet using a tablet falls in price. the data plan and tablets are compliments. how would this affect the market for tablets a. a decrease in supply with a decrease in equilibrium quantity and an increase in equilibrium price b. an increase in supply with an increase in equilibrium quantity and a decrease in equilibrium price c. an increase in demand with an increase in equilibrium price and quantity d. a decrease in demand with a decrease in equilibrium price and quantity
pollution charge
tax imposed on the quantity of pollution that a firm emits -gives profit maximizing firm incentive to figure out ways to reduce emissions as long as MC of reducing emissions is less than tax
interest rate
the "price" of borrowing in the financial market; a rate of return on an investment
microeconomics
the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms
macroeconomics
the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance
law of supply
the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant
law of demand
the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constnat
a
the market supply curve a. is a horizontal summation of the supply curves of individual sellers b. is a vertical summation of the supply curves of individual sellers c. cannot be deprived d. is always downward sloping
wage elasticity of labor supply
the percentage change in hours worked divided by the percentage change in wages
cross-price elasticity of demand
the percentage change in the quantity of good A that is demanded as a result of a percentage change in good B
elasticity of savings
the percentage change in the quantity of savings divided by the percentage change in interest rates
b
the price elasticity of supply is calculated by the percentage change in a. income/percentage change in quantity supplied b. quantity supplied/percentage change in price c. quantity demanded/percentage change in price d. quantity supplied
equilibrium price
the price where quantity demanded is equal to quantity supplied
allocative efficiency
when the mix of good produced represents the mix that society most desires
economic/social surplus
the sum of consumer surplus and producer surplus
perfect competition
-many number of firms -many sellers -identical goods -no transaction or information costs -no barriers to entry -ex.
conglomerate merger
-merge between companies in different industries
price searcher
-monopoly -oligopoly -monopolistic competition
imperfect information
-neither party has a crystal ball as to the quality of goods, outcomes, etc. -makes buyers cautious -impacts markets, not as much buying and selling -> thin markets
public goods
-nonexcludable -nonrivalrous -difficult for market producers to sell good to individual consumers
insurance market meltdown
-pool is getting smaller and smaller, premiums are rising -drop in insurers
oligopoly
-relatively few sellers -identical or differentiated products -dont have economies of scale over entire region -minimum efficient scale is large relative to the market demand -wireless carriers -businesses have market powers and can regulate prices -substantial economies of scale -medium to high barriers of entry, there are no significant costs to entry
monopoly
-single seller -unique, standardized products -high barriers to entry -result of economies of scale -producers can prevent competition by expanding output, lowering costs -utility companies
nonrivalrous
-when one person uses a good, does not prevent others from using it
economies of scope
-why apple produces more than one thing -nike: shoes and clothing
diseconomies of scale
-why we have rising long term average cost -greater monitoring and supervision costs -when companies get bigger it's more difficult to manage -how do you supervise all of your employees?
contesability
1. fixed costs, relative to revenue -higher the less contestable 2. legal barriers to entry -if yes, market is not contestable 3. hard to replicate? 4. brand loyalties -are customers open to new competitors? ex. apple -greater the brand loyalty, the higher the prices
d
If the price of electricity falls by 10% per kilowatt hour, and the quantity demanded for electricity subsequently increases by 8%, the price elasticity of demand for electricity is _____ and would be classified as an _____ good. a. 0.8; elastic b. 1.25; elastic c. 1.25; inelastic d. 0.8; inelastic
goods and services market
a market in which firms are sellers of what they produce and households are buyers
underground economy
a market where the buyers and sellers make transactions in violation of one or more government regulations
b
a product's price changes from $2 to $6 and its quantity demanded changes from 10 units to 4 units. this is an example of price a. elastic demand b. inelastic demand c. inelastic supply d. unitary elastic demand
d
a production possibilities frontier that is a straight line is the result of: a. underemployment of resources b. increasing opportunity costs c. scarcity d. constant opportunity costs
economies of scale
a proportionate saving in costs gained by an increased level of production
supply schedule
a table that shows a range of prices for a good or service and the quantity supplied at each price
b
assume initially that the demand and supply for preimum coffees are in equilibrium. now assume starbucks instroduces the world to premium blends, which causes demand to rise substantially. also assume that a significant freeze eliminates brazil's premium coffee crop. what will happen to the equilibrium price and quantity for premium coffee be with these changes a. equilibrium quantity increasesl the effect on equilibrium price is indeterminate b. equilibrium price increases; the effct on equilibrium quantity is indeterminate c. equilibrium quantity decreases; the effect on equilibrium price is indeterminate d. equilbrium price decreases; the effect on equilibrium quantity is indeterminate
c
if the price of electricity falls by 10% per kilowatt hour, and the quantity demanded for electricity subsequently increases by 8%, the price elasticity of demand for electricity is _____________ and would be classified as an _______________ good a. 1.25; elastic b. 0.8; elastic c. 0.8; inelastic d. 1.25; inelastic
a
if the price of used plug-in electric cars is expected to rise next month, the reaction in the supply of those cars in the market today would most likely be a a. shift of the supply curve to the left b. upward movement along the supply curve c. shift of the supply curve to the right d. downward movement along the supply curve
b
if the producers of cotton shirts face higher cotton prices, which scenario is likely to occur? a. the supply of cotton shirts increases, the equilibrium price of cotton shirts rises, and the equilibrium quantity falls b. the supply of cotton shirts decreases, the equilibrium price of cotton shirts rises, and the equilibrium quantity falls c. the supply of cotton shirts increases, the equilibrium price of cotton shirts falls, and the equilibrium quantity rises d. the supply of cotton shirts decreases, the equilibrium price of cotton shirts rises, and the equilibrium quantity rises.
coase theorem
if transaction costs are low and property rights clearly defined, private bargaining will ensure that the market equilibrium is efficient even if there are externalities
b
in the market for online tutoring, there is an increase in the supply of online tutors during finals week, but there is an even larger increase in the demand for online tutors. These events will cause the equilibrium price of online tutoring to ______________ and the equilibrium quantity to _____________ a. fall; fall b. rise; rise c. fall; rise d. rise; fall
market oriented environmental policies
incentive + flexibility to achieve any desired reduction in pollution @ lower costs to society than command and control
d
income elasticity of demand: a. examines how the quantity supplied of a good changes in response to a change in the price of a substitute. b. examines how the quantity demanded of a good changes in response to a change in the price of a substitute c. examines how the quantity supplied of a good changes in response to a change in consumer income. d. examines how the quantity demanded of a good changes in response to a change in consumer income.
producer surplus
the extra benefit producers receive from selling a good or service, measured by the producer actually received minus the price the producer would have been willing to accept
infinite elasticity (perfect elasticity)
the extremely elastic situation of demand or supply where quantity changes by an infinite amount in response to any change in price; horizontal in appearance
c
the following are considered determinants of demand except: a. expected future prices b. prices of related goods c. prices of factors of production d. population
perfect inelasticity (zero inelasticity)
the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance
a
the income elasticity of demand is calculated by dividing the percentage change in a. quantity demanded by the percentage change in income b. quantity demanded by the percentage change in price c. quantity demanded by the change in income d. income by the percentage change in quantity demanded
b
the law of supply states that as prices _________, the quantity ____________ a. fall; demanded rises b. rise; supplied rises c. fall; supplied rises d. rise; demanded falls
deadweight loss
the loss in social surplus that occurs when a market produces an inefficient quantity
efficient
the market can be ____________ even when there are externalities when: - transaction costs are low -property rights clearly defined
c
what is wrong with the statement "economic is everything to do with money"? a. yes, money is the basis of economics. The economy cannot thrive without money b. no, economics involves satisfying limited wants with unlimited resources c. no, economics involves satisfying wants by using resources wisely. We must make choices based on limited resources d. yes, all decisions made in the economy involve money
shift in supply
when a change in some economic factor (other than price) causes a different quantity to be supplied at every price
comparative advantage
when a country can produce a good at a lower cost in terms of other goods; or when a country has a lower opportunity cost of production
constant unitary elastic
when a given percent price change in price leads to an equal percentage change in quantity demanded or supplied
market failure
when a market does not allocate resources on its own efficiently in a way that balances social costs and benefits
d
when an economy is operating efficiently, the production of one more unit of a good will result in some loss of production of another good because: a. consumers will not want more of both goods b. technology can only improve the production of one good c. the production possibilities frontier shifts inward as more of only one good is produced d. resources are limited and efficiency implies that all resources are already in use
a
when demand increases, the demand curve a. shifts to the right b. shifts to the left c. does not change d. shifts counterclockwise
productive efficiency
when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)
b
when moving down along a straight-line demand curve: a. the elasticity of demand changes from inelastic to elastic b. the elasticity of demand changes from elastic to inelastic c. the elasticity of demand stays the same d. total revenue always stays the same
economies of scale
when the average cost of producing each individual unit declines as total output increases
unitary elasticity
when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied
elastic demand
when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price
inelastic demand
when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price change
elastic supply
when the elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price
inelastic supply
when the elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if price drops)
specialization
when workers or firms focus on particular tasks for which they are well-suited within the overall production processes
scarcity
where human wants for goods and services exceed the available supply
c
which factor will not cause the demand curve for green tea to shift to the right a. all of these will shift the demand for green tea to the right b. a decrease in the price of lemons, a complement to green tea c. a decrease in the price of green tea d. new research showing that drinking green tea reduces the risk of illnesses
b
which factor would cause a decrease in the demand for coffee a. a decrease in the price of coffee b. a decrease in the price of tea (a substitute for coffee) c. an increase in the price of tea (a substitute for coffee) d. an increase in the price of coffee
c
which factor would increase demand for a given good? a. an increase in the price of a complementary good b. high unemployment, if it is a normal good c. the expectation that the price will increase in the near future d. a reduction in price, if it is a normal good
c
which factor would increase the price elasticity of demand the most a. a decrease in the proportion of one's income spent on televisions b. a shorter time period to make decisions c. an increase in the number of table brands being offered d. a service such as high-speed internet access that has become a greater necessity
c
which is NOT considered a basic economic question a. how will these goods and services be produced b. what goods and services will be produced? c. how will the system accommodate change? d. who will receive the goods and services
d
which of the following is NOT an example of an improvement to human capital a. students taking a course in economics b. an employee learning to use microsoft access c. an intensive internship program d. increasing the number of machines available to workers
d
which of the following is a possible measurement of inelastic demand a. 1.5 b. 1 c. 2.3 d. 0.7
a
which of the following would be most inelastic? a. a cavity filled at the dentist b. a vacation home in the smoky mountains c. a spring break vacation to cancun d. a pair of casual shoes at a large shoe store at the mall
d
which of these circumstances would not affect the supply of new automobiles a. a labor strike in the steel industry b. an improvement in automobile manufacturing technology c. a subsidy for struggling automobile manufacturers d. higher interest rates for new car financing
b.
which of these is MOST likely to have a perfectly inelastic demand curve a. surgical supplies b. heart transplant surgery c. cosmetic surgery d. preventive medical services