REVIEW econ mid
The market system's answer to the fundamental question "how will the system accommodate change?" is essentially:
"Through the guiding function of prices and the incentive function of profits"
The market system's answer to the fundamental question "How will the system promote progress?" is essentially:
"Through the profit potential that encourages development of new technology."
Abell was talking about the shortcomings of the Soviet Union, one of the issues was the bottlenecking of certain goods...what was the product that was in shortage to the point there was a black market for it?
16 penny nails
Refer to the data. How many units of the two products will the rational consumer purchase?
2 of l 3 of m
Which of the following would not shift the demand curve for beef?
a reduction in the price of cattle feed
Markets, viewed from the perspective of the supply and demand model:
assume many buyers and many sellers of a standardized product.
The invisible-hand concept suggests that:
assuming competition, private and public interest will coincide.
owners of a detective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of
asymmetric information
The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.
direct;inverse
In a competitive economy prices:
do all of the above
In a market economy a significant change in consumers' desire for product X will:
do all of the above
If a competitive industry is neither expanding nor contracting, we would expect:
economic profits to be zero
Which of the following is NOT an economic cost?
economic profits.
The market system:
effectively harnesses the incentives of workers and entrepreneurs.
refer to the diagram. if actual production and consumption occurs at q2
efficiency is achieved
Refer to the diagram. If actual production and consumption occur at Q2:
efficiency will be achieved
Well-defined property rights:
encourage owners to maintain or improve their property
The competitive market system:
encourages innovation because successful innovators are rewarded with economic profits
Barter
entails the exchange of goods for goods.
Innovation lagged in the centrally planned economies because:
enterprises resisted innovation in fear that their production targets would be raised.
The diamond-water paradox arises because
essential goods may be cheap while nonessential goods may be expensive
If competitive industry Z is making substantial economic profit, output will:
expand in industry Z, as more resources will move to that industry.
The coincidence-of-wants problem associated with barter refers to the fact that:
for exchange to occur each seller must have a product that some buyer wants.
An increase in consumer desire for strawberries is most likely to:
increase the number of strawberry pickers needed by farmers
Assume product A is an input in the production of product B. In turn, product B is a complement to product C. We can expect a decrease in the price of A to:
increase the supply of B and increase the demand for C
Broadly defined, competition involves:
independently acting buyers and sellers and freedom to enter or leave markets
Sellers will opt out of markets in which:
information about buyers is inadequate, and some buyers can impose high costs on the sellers
An economic system
is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem
In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, do you want to try a triple jump?
moral hazard problem
From society's point of view the economic function of profits and losses is to:
reallocate resources from less desired to more desired uses.
Specialization in production is important primarily because it:
results in greater total output.
Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and potatoes are a consumer substitute for bread, we would expect the price of wheat to:
rise, the supply of bread to decrease, and the demand for potatoes to increase
Which of the following best describes the invisible-hand concept?
the desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
The income and substitution effects account for:
the downward sloping demand curve.
The data indicate that:
the marginal cost and marginal benefit of Program A are $2 and $9 respectively
the data indicate that
the marginal cost and the marginal benefit of program a are 2 and 9 respectively
because of the free rider problem
the market demand for a public good is nonexistent or understated
At the output level defining allocative efficiency:
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates:
the moral hazard problem.
A change in the slope of a budget line is solely the result of a change in:
the price of one good relative to the other.
In a market economy the distribution of output will be determined primarily by:
the quantities and prices of the resources that households supply.
because of the federal govt typically provides disaster relief to farmers, many farmers do not buy crop insurance even though..
the special interest effect
Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that:
the third unit should be produced.
Competition means that:
there are independently-acting buyers and sellers in each market
If you recieve a gift whose market price is $20, but you consider it to be worth only $10, then:
there is a $10 or 50% value loss
In a competitive market economy firms will select the least-cost production technique because:
to do so will maximize the firms profits
The invisible-hand concept suggests that:
when firms maximize their profits, society's output will also be maximized.
Increasing marginal cost of production explains:
why the supply curve is up-sloping
Which of the following is a distinguishing feature of a market system
wide-spread ownership of capital
The division of labor means that:
workers specialize in various production tasks
The incentive problem under communist central planning refers to the idea that:
workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.
Where total utility is at a maximum, marginal utility is:
zero
The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:
"Those willing and able to pay for them."
The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:
"At least-cost production."
The market system's answer to the fundamental question "What will be produced?" is essentially:
"Goods and services that are profitable."
If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium:
105 and 140
Refer to the data. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively?
276 utils
refer to the data. For plan d marginal costs and marginal benefits are
28,000 and 12,000 respectively
Refer to the diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. If the marginal cost of the optimal quantity of this public good is $10, the optimal quantity must be:
3 units
Refer to the data. If this good were a private good instead of a public one, the total quantity demanded at a $3 market price would be:
4 units
if this good were a private good instead of a public one,
4 units
Refer to the data. The value for Y is
45
Some sellers of used cars provide warranties to buyers, with the aim of reassuring buyers that the car is of good quality. These warranties help reduce the chance of what occurring?
Adverse selection.
Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the:
Assuming demand is the same, supply has been altered by a tough winter. The supply curve would shift to the left, so prices, at any given quantity, will go up.
Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially
MUcpc > MUdPd
Marginal utility may be determined by
B. summing the marginal utilities of each unit consumed.
Of the following countries, the one that best exhibits the characteristics of a market economy is:
Canada
Examples of command economies are
Cuba and North Korea
(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for:
Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
Suppose industry A is realizing substantial economic profit. Which of the following best describes what will happen in this competitive market?
Firms will enter the industry and output will rise
Which of the following is NOT a characteristic of the market system?
Government ownership of the major industries
Copyrights and Trademarks are examples of:
Property Rights
Which of the following is a fundamental characteristic of the market system?
Property rights
Refer to the diagram. From society's perspective, if MB1 and MC2 are relevant:
Q2 represents too little pollution abatement.
When talking about the Cold War, there were two countries that were competing for the air-speed record, what was the name of the plane that actually won that battle?
SR-71
If consumer desire for product X increases, all of the following will occur except:
a decrease in the quantity of resources employed in industry X.
Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:
The income effect
Which of the following conditions does not need to occur for a market to achieve allocative efficiency?
The total revenue received by producers equals the total cost of production
Which of the following conditions does not need to occur for a market to achieve allocative efficiency?
The total revenue received by producers equals the total cost of production.
In reference to the Cold War, Abell compared the two countries engaged to what?
Two bullies on a playground
In Class Abell was talking about some of the problems with the Command System, he went on to compare two countries...who were they?
United States, Soviet Union
Which of the following is one of the Five Fundamental Questions?
What goods and services will be produced?
Economic systems differ according to what two main characteristics
Who owns the factors of production, and the methods used to coordinate economic activity
Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:
a consumer surplus of $9 and Nathan experiences a producer surplus of $3.
Assume the demand curve for product X shifts to the right. This might be caused by:
a decline in income if X is an inferior good.
Economic profits and losses:
are essential to the reallocation of resources from less desired goods to more desired goods.
Specialization--the division of labor--enhances productivity and efficiency by:
all of the above means
The failure of Soviet central planning was reflected in:
all of the above.
Which of the following is an example of market failure?
all of these
Two major virtues of the market system are that it:
allocates resources efficiently and allows economic freedom.
A budget line shows the:
alternative combinations of two goods that a consumer can purchase with a given money income
Refer to the data. Plan C entails:
an overallocation of resources to flood control.
Economic Scarcity
applies to all economies
Assume the price of product Y (the quantity of which is plotted on the vertical axis) is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis) is initially $3. Assume money income is initially $60. If the prices of Y and X now increase to $30 and $6 respectively and money income increases to $120, then the budget line will:
be unchanged
A recent study found that an increase in the federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:
beer and marijuana are complementary goods
A firm's supply curve is upsloping because:
beyond some point the production costs of additional units of output will rise
Increases in product prices shift the consumer's
budget line to the left.
refer to the diagram. assuming equillbrium price p1, producer surplus is represented by areas
c +d
The advent of DVDs threatens to eventually demolish the market for videocassettes. This is an example of:
creative destruction
The most efficient combination of resources in producing any output is the combination that:
can be obtained for the smallest money outlay
Which of the following is a distinguishing feature of a command system
central planning
Cost-benefit analysis attempts to:
compare the benefits and costs associated with any economic project or activity
cost-benefit analysis attempts to
compare the benefits and costs associated with any economic project or activity
The regulatory mechanism of the market system is:
competition
In 1975 McDonald's introduced its Egg McMuffin breakfast sandwich, which remains popular and profitable today. This longevity illustrates the idea of:
consumer sovereignty
In 1996 McDonald's introduced its Arch Deluxe hamburger, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of:
consumer sovereignty
The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of:
consumer sovereignty
the theory of consumer behavior assumes that
consumers behave rationally, attempting to maximize their satisfaction
If competitive industry Y is incurring substantial losses, output will:
contract as resources move away from industry Y.
"Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfill the output qualities specified in the central plan caused a chain-reaction of adverse repercussions on production." This quotation best identifies the:
coordination problem under Central planning.
"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:
coordination problem under central planning
From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically
costs more to produce than it provides in benefits
From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:
costs more to produce than it provides in benefits.
decrease the demands for both complementary good Y and substitute product Z.
decrease the demand for complementary good Y and increase the demand for substitute product Z.
If products A and B are complements and the price of B decreases, the:
demand for A will increase and the amount of B demanded will increase.
The pursuit of self-interest:
gives direction to the market system
The term laissez-faire suggests that:
government should not interfere with the operation of the economy
In the circular flow model
households sell resources to firms
Consumer sovereignty refers to the
idea that the decisions of producers and resource suppliers with respect to the kinds and amounts of good produced must be appropriate to consumer demands.
Suppose that at prices of $1, $2, $3, $4, and $5 for product Z, the corresponding quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these prices?
improved technology for producing Z
Shortages and unmet demand provide opportunities for individuals and firms to profit under capitalism, but they present no such opportunities under central planning. This reality represents central planning's:
incentive problem
When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n):
increase in the supply of gasoline.
Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to:
increase the demand for Z
The utility of a good or service:
is the satisfaction or pleasure one gets from consuming it
The use of money contributes to economic efficiency because:
it promotes specialization by overcoming the problems with barter.
The French term laissez-faire means
let it be
One reason that the quantity demanded of a good increases when its price falls is that the:
lower price increases the real incomes of buyers, enabling them to buy more.
refer to the diagram. which one of the following might shift the marginal benefit curve from mb1 to mb2
major new studies strongly linking cancer to pollution
To maximize utility a consumer should allocate money income so that the:
marginal utility obtained from the last dollar spent on each product is the same
The two general types of economic systems that exist today are:
market systems and command systems
an efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which
maximum willingness to pay exceeds minimum acceptable price
An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:
maximum willingness to pay exceeds minimum acceptable price.
Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:
more of b less of a
Suppose that an individual sees a tremendous opportunity to produce and sell a new product, but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the:
ncentive problem under communist central planning.
The two main characteristics of a public good are:
nonrivalry and nonexcludability.
The invisible hand refers to the:
notion that, under competition, decisions motivated by self-interest promote the social interest.
Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?
once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero
Specialization in production is economically beneficial primarily because it:
permits the production of a larger output with fixed amounts of resources.
The coordination problem in the centrally planned economies refers to the idea that:
planners had to direct required inputs to each enterprise
marginal utility can be:
positive, negative, or zero
The law of demand states that, other things equal:
price and quantity demanded are inversely related.
A decrease in the demand for recreational fishing boats might be caused by an increase in the:
price of outboard motors
the market system does not produce public goods because
private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them
if products were in short or surplus supply in the Soviet Union:
producers would not react because no price or profit signals occurred.
The fact that the major indicator of enterprise success in the Soviet Union and pre-reform China was the quantity of output implied that:
product quality was neglected.
In terms of circular flow diagram, businesses obtain revenue through the____market and make expenditures in the____market.
product; resource
Enterprise managers and workers in the Soviet Union often resisted innovations in production methods because:
production targets were often increased when innovation occurred.
Households and businesses are:
sellers in the resource and product markets respectively.
Economic profits in an industry suggest the industry:
should be larger to better satisfy consumers' desire for the product.
Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson:
should buy less of be and more of a
The economic function of profits and losses is to:
signal that resources should be reallocated
A demand curve for a public good is determined by:
summing vertically the individual demand curves for the public good.
refer to the diagrams for two seperate product markets. assume that society's optimal level of output..
tax on the buyers of this product
