MICRO TEST 1
A tax imposed on the sellers of a good will
Lower the effective price received by sellers and lower the equilibrium quantity
You know how an economist has crossed the line from scientist to policy adviser when he or she
Makes normative statements
In a competitive market, the price of a product
None of the above is correct.
If an increase in income results in a decrease in the quantity demanded of a good then for that good the
income elasticity of demand is negative
If Francis experiences a decrease in his income, we would expect that Francis's demand for:
normal goods will decrease
Frequently, in the short run, the quantity supplied of a good is
not very responsive to price changes
The forces that make market economies work are
supply and demand
If sellers do not adjust their quantities supplied at all in response to a change in price,
supply is perfectly inelastic
Marginal thinking involves:
weighing the small incremental benefits against the small incremental cost of a decision.
In economics, we measure the cost of something as
what you give up to get it
The opportunity cost of an item is
what you give up to get that item
The demand curve for textbook shifts
when a determinant of the demand for textbooks other than the price of textbooks changes
If a tax is levied on the sellers of a product, then the demand curve
will not shift
One of the reasons people tend to eat more in an "all you can eat" Buffett is because
Marginal benefit from an extra plate of food is greater than the marginal cost of the additional food
The concept of guns vs. butter represent the classics societal trade-off between spending on
Military goods vs consumer goods
A marginal change is best described as
a small, incremental change from the present situation.
The opportunity cost of obtaining 20 additional dryers by moving from point D to A is
0 washers
If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is about
0.63, and supply is inelastic
If the price elasticity is 1.5 and a price increase led to a 3% increase in quantity supplied then the price increase amounted to
2%
Which arrow represents the flow of spending by households?
A
Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth,
Alice's demand for banana splits is perfectly inelastic.
Which of the following statements is NOT valid when the market supply curve is vertical?
An increase in market demand will increase the equilibrium quantity.
Annie is an excellent Baker and Sam has a plentiful farm. If Sam trades eggs and butter to Annie for some of Annie's bread and pastries
Both Sam and Annie are made better off by trade
If scientist discover that steamed milk which is used to make lattes prevents heart attacks what would happen to the equilibrium price and quantity of lattes
Both the equilibrium price and quantity would increase
Price usually reflects
Both the value of a good to society and the cost to society of making the good
Which of the following is true?
Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
Holding all other forces constant, if decreasing the price of a good leads to an increase in total revenue then the demand for the good must be
Elastic
When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40 the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is
Elastic
Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
Efficiency means our economic pie is divided into equal slices
False
Incentives are not important in economics.
False
Normal cost of living expenses, such as room and board, are included in the opportunity cost of attending college.
False
Suppose you have already spent 45 minutes grocery shopping but upon arriving at the checkout line you realize it's going to be another 15 minutes just to purchase your groceries. Marginal thinking tells you that the decision of whether or not to wait in line depends on the cost of an hour of your time
False
Which of the following is an example of a normative as opposed to positive statement?
Income taxes should be reduced.
The business cycle is the
Irregular changes in economic activity
If the government removes a tax on buyers of a good and imposes the same tax on sellers of a good, then the price paid by buyers
Not change and the price received by sellers will not change
In economics the phrase "no such thing as free lunch" means
People face trade offs
Adam has $200 to spend and wants to buy either a new amplifier for his guitar or a new cell phone. Both the amplifier and the cell phone cost $200, so he can only buy one. This illustrates the basic concept that:
People face trade-offs
Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that
People face trade-offs
Monica has $500 to spend and wants to buy either a new snowboard or a new laptop. Both the snowboard and the laptop cost around $500, so she can only buy one. This illustrates the basic concept that:
People face trade-offs
Suppose the state of Ohio increases the tax on a pack of cigarettes and, in response to the policy change, Ohio smokers decide to buy cigarettes in neighboring states. Which principle of economics does this illustrate?
People respond to incentives
Which on the following is something an economist might study
Phil decides to work overtime to earn extra income for his upcoming family vacation. Roger reads a newspaper article about the decline of the unemployment rate in the United States over the past few years. Claire sells her physics textbook from last semester to her roommate for half the price she paid for it. ALL CORRECT
One was to characterize the difference between positive statements and normative statement is as follows
Positive statements offer descriptions of the way things are whereas normative statements offer opinions on how things ought to be
A fundamental concept in economics is the idea of
Scarcity
Suppose you are in charge of setting prices at a local sandwhich shop. The business needs to increase its total revenue and your jobs on the line if the demand for sandwiches is elastic you
Should decrease the price of sandwhiches
When economist make positive statements, they are
Speaking as a scientist
Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes?
The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
In which of these cases will the tax burden fall most heavily on sellers of the good
The demand curve is relatively flat and the supply curve is relatively steep
Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true?
The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
A microeconomist would be most likely to study
The effect of new regulations on production in the pulp and paper industry
Which of the following statements is valid when supply is perfectly elastic at a price of $4?
The elasticity of supply approaches infinity.
The two "loops" in the circular flow diagram represent
The flows of inputs and outputs and the flow of dollars
The mainstream view among economists about the trade off between unemployment and inflation is that
The trade off on exist in the short run
For a particular good a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
There are many close substitutes for this good.
Which of the following is NOT correct about most economic models
They contribute very little to economists' understanding of the real world.
Traci is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $3,000 and replacing the roof will cost her $6,000. Traci expects the new carpeting to increase the value of her house by $2,500 and the new roof to increase the value of her house by $7,500.
Traci should replace the roof but not replace the carpeting
An incentive is anything that is designed to change behavior
True
Economics is the study of the choices people make in attempting to manage their scarce resources
True
Which BEST represents law of supply
When the prices of a good decreases, sellers produce less of the good
The minimum wage was instituted to ensure workers
a minimally adequate standard of living.
If a binding price ceiling is imposed on the computer market, then
a shortage of computers will develop.
Suppose you make jewelry. If the price of gold falls, then we would expect you to
be willing and able to produce more jewelry than before at each possible price
In a market economy supply and demand determine
both the quantity of each good produced and the price at which it is sold
A legal maximum on the price at which a good can be sold is called a price
ceiling
The cross-price elasticity of demand can tell us whether goods are
complements or substitutes
A leftward shift of the supply curve is called
decrease in supply
A decrease in the price of a good will
decrease quantity supplied
For which of the following goods is the income elasticity of demand likely highest
diamonds
Among economic models, the circular-flow diagram is unusual in that it
does not involve mathematics.
If the government wants to reduce smoking, it should impose a tax on
either buyers or sellers of cigarettes
When quantity demanded responds strongly to changes in price, demand is said to be
elastic
Which of the following can lead to market failure
externalities and market power
In a circular flow diagram, firms produce
goods and services using factors of production and output using inputs
The invisible hand refers to
how the decisions of households and firms lead to desirable market outcomes
The market demand curve
is the sum of all individual demand curves
If goods A and B are complements, then an increase in the price of good A will result in
less of good B being sold
The supply of a good will be more elastic, the
longer the time period being considered
For which of the following types of goods would the income elasticity of demand be positive and relatively large
luxuries
Economist make assumptions to
make a complex world easier to understand
A group of buyers and sellers of a particular good or service is called a(n)
market
Which markets are represented in the simple circular-flow diagram?
markets for goods and services and markets for factors of production
Public policy such as changes in the amount of taxes and subsidies can alter peoples behavior by
offering an incentive or a disincentive to engage in an activity. changing the benefits and the costs of an activity. changing the opportunity cost of an activity. ALL CORRECT
Every time we choose to do one thing, we give up doing something else. This best describes the economic principle of:
opportunity cost
The price elasticity of demand measures how much
quantity demanded responds to a change in price
A tax imposed on the buyers of a good will
raise the price paid by buyers and lower the equilibrium quantity.
When consumers face rising gasoline prices, they typically
reduce their quantity demanded more in the long run than in the short run
The market supply curve
represents the sum of the quantities supplied by all the sellers at each price of the good
The main reason households and societies must make many decisions is because
resources are scarce
An increase in quantity supplied
results in a movement upward and to the right along a fixed supply curve
For a good that is a luxury, demand
tends to be elastic
A surplus exists in a market if
the current price is above its equilibrium price
There are very few, if any, good substitutes for motor oil. Therefore,
the demand for motor oil would tend to be inelastic.
If a price floor is not binding, then
the equilibrium price is above the price floor
Suppose a publishing company is deciding whether or not to print 50,000 additional copies of an economic textbook. The company should print the textbooks if:
the marginal benefit (additional revenue) from selling the extra books is greater than the marginal cost of printing the books.
If, at the current price, there is a shortage of a good,
the price is below the equilibrium price
Kurt decides to spend 2 hours working rather than hanging out with his friends. He earns $10 per hour for work. His opportunity cost of working is
the utility or enjoyment he would have gotten from hanging out with his friends.
The opportunity cost of going to college is
the value of the best opportunity a student gives up to attend college
When the price of a good or service changes,
there is a movement along a given demand curve
