Printed from www.StudyDroid.com

Econ Exam 1
cjones163

Front Back

Anything that gives a person satisfaction


Good


Something that gives a person dissatisfaction


Bad


Satisfaction


Utility


Dissatisfaction


Disutility


What are the 4 categories of resources?


Land, labor, capital, entrepreneurship


Consists of produced goods thata can be used as inputs for further production


Capital


Consists of the physical and mental talents that people contribute to the production process


Labor


Includes natural resources, such as minerals, forests, water, and unimproved land


Land


Refers to the talent that some peple have for organizing the resources of land, labor, and capital to produce goods, seek new business opportunities, and develop new ways of doing things


Entrepreneurship


What is the key concept in economics?


Scarcity


Condition in which our wants are greater than the limited resources available to satisfy those wants


Scarcity


The science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants


Economics


What are the effects of scarcity?


the need to make choices, the need for a rationing device, competition


Means of deciding who gets what of available resources and goods


Rationing Device


Dollar price is a


Rationing Device


The most highly valued opportunity or alternative forfeited when we make a choice


Opportunity Cost


Additional benefits; the benefits connected with consuming an additional unit of a good or undertaking one more unit of an activity


Marginal Benefits


Additional costs; the costs connected with consuming an additional unit of a good or undertaking one more unit of an activity


Marginal Cost


When individuals make decisions by comparing marginal benefits to marginal costs, they are making


Decisions at the margin


Exists when marginal benefits equal marginal costs


Efficiency


Something that encourages or motivates a person to undertake an action


Incentive


The giving up of one thing for something else.


Exchange (trade)


The term ceteris paribus means


"all over things constant" or "nothing else changes"


Why is using the ceteris paribus assumption important?


With it, we can clearly designate what we believe is the correct relationship between two variables


An abstract representation of the world


Theory


To omit certain variables or factors when trying to explain or understand something


Abstract


What does a theory emphasize?


only the variables that the theorist believes are the main or critical ones that explain an activity or event


What are 4 common ecnomic categories?


positive economics, normative economics, microeconomics, macroeconomics



Attempts to determine what is


Positive Economics


Addresses what should be


Normative Economics


Deals with cause-effect relationships that can be tested


Normative Economics


What are the tools of microecnomics and macroeconomics?


Microeconomics - Microscopes
Macroeconmics - Telescopes


Branch of economics that deals with human behavior and choices as they relate to relatively small units: an individual, a firm, an industry, a single market


Microeconomics


Branch of economics that deals with human behavior and choices as they relate to an entire community


Macroeconomics


What does microeconomics deal with? Macroeconomics?


The demand for a particular good or service
An aggregate, or total, demand for goods and services


The condition in an economy that makes a "rationing device" a necessity is the fact that


Scarcity exists


Which of the following statements is true?



 
a. Oil is considered to be the resource land.
 


 
b. A person working for a company is considered to be the resource capital.
 


 
c. A machine in a factory is considered to be the resource land.
 


 
d. A person with the particular talent for organizing the resources of land, labor, and capital to produce goods, seek new business opportunities, and develop new ways of doing things is considered to be the resource labor.
 


 
e. a and d
 



 


A


What is likely to be an unintended effect of a rise in the minimum wage?


Some people lose their jobs


Which of the following is a positive statement?



 
a. The temperature is too high today.
 


 
b. The temperature is 105 degrees today.
 


 
c. It is too hot to jog today.
 


 
d. I enjoy summer evenings when it cools off.





B


Positive economics is concerned with


Cause-effect relationships


Which of the following is a possible rationing device?



 
a. price
 


 
b. first-come-first-served
 


 
c. brute force
 


 
d. a and b
 


 
e. a, b, and c





E


Which of the following issues is most unlikely to be addressed by an economist practicing positive economics?




 
a. the relationship between the minimum wage and the number of unemployed unskilled workers
 


 
b. the effect of a minimum wage increase on inner-city crime rates
 


 
c. the desirability of a minimum wage increase
 


 
d. the consequences of implementing a minimum wage law in China
 






C


The synonym economists commonly use for "additional" is


Marginal



Which of the following is a positive macroeconomics statement?




 
a. The central bank should increase the nations money supply.
 


 
b. The increase in the nations money supply helped push the nations unemployment rate down in the short run.
 


 
c. Ford Motor Companys new advertising campaign ended up hurting General Motors sales.
 


 
d. The local government ought to spend more on recreational facilities.
 




 



B


Saying "the marginal costs are greater than the marginal benefits" is the same as saying


The additional costs are greater than the additional benefits.


When economists speak of scarcity, they are referring to the


condition in which peoples wants outstrip the limited resources available to satisfy those wants.


If a “patient’s bill of rights,” which requires all insurance companies to cover a government-determined list of services, is one day enacted



 
a. This will benefit everyone.
 


 
b. All patients will benefit at the expense of insurance companies.
 


 
c. Some patients are likely to end up getting less medical care.
 


 
d. Some people who currently have insurance will likely drop their policies.
 


 
e. This will not have a significant effect on insurance companies since they should already be providing these services.
 


 
f. The intention of this legislation is to help patients so anyone who wants to help patients should be in favor of this legislation.
 


 
g. Insurance premiums are likely to fall.





C, D


Which of the following is not one of the categories of resources?



 
a. labor
 


 
b. government
 


 
c. capital
 


 
d. entrepreneurship





B


Which of the following would NOT be considered a macroeconomic topic?
Choose one answer.



 
a. the reasons for a decline in the price of crude oil
 


 
b. the cause of a downturn in the economy
 


 
c. the effect of the government budget deficit on inflation
 


 
d. the causes of inflation and unemployment





A


Variable X rises as a result of variable Y rising. Variables X and Y are


Directly related


Which of the following is an example of a positive statement?
Choose one answer.



 
a. The U.S. public should devote more resources to education.
 


 
b. The poor should pay lower taxes and the rich should pay higher taxes.
 


 
c. Soap operas should be taken off television.
 


 
d. If you drop a ball from the top of a building, it will fall to the ground.





D


The study of an economys price level is explicitly a part of


Macroeconomics


The reason people can't have everything they want is because


Scarcity exists


In most societies, dollar price acts as the main rationing device. If dollar price weren't the main rationing device, would there still be a need for some rationing device to take its place?


Yes, because there is a need for a rationing device as long as scarcity exists.


Variables A and B are inversely related. If we plot A on the horizontal axis and B on the vertical axis, the line that connects combinations of A and B in a two-dimensional space is


downward sloping (left to right)


Suppose the federal government steps up its program of highway repair and renovation. Millions of people see tangible benefits from this. Economists remind us that those same people eventually must pay higher taxes to fund the highway project, which points out the ____ the project.


opportunity cost of


Which of the following statements is correct?
Choose at least one answer.



 
a. Per-capita income is higher today in India than in Hong Kong.
 


 
b. Between 1947 and 1997 India had  a highly market-oriented economic system.
 


 
c. Between 1947 and 1997 Hong Kong had  a highly market-oriented economic system.
 


 
d. Between 1947 and 1997 both Hong Kong and India had a highly socialistic economic system.
 


 
e. Countries that use market-oriented economic systems tend to have higher living standards than do countries with highly-socialistic systems.
 


 
f. People in India have a higher standard of living than do people in Hong Kong, primarily because India’s socialistic government uses the country’s resources more efficiently.







C, E


Which of the following are scarce goods?
Choose at least one answer.



 
a. gasoline
 


 
b. diamonds
 


 
c. water
 


 
d. air
 


 
e. low-quality paper used to print newspapers on
 


 
f. coffee filters
 


 
g. scantrons
 


 
h. all of the other options are scarce goods







A, B, C, E, F, G


Choice implies


opportunity cost


Produced goods used as inputs for the production of other goods comprise the resource known as


capital


There would be no subject of economics if


wants were infinite and resources were infinite


How is scarcity related to competition?


Competition is an effect of scarcity.


In economics, scarcity implies


choice


According to economists, why does a highly talented young person, such as basketball player LeBron James, often choose not to attend college?
Choose one answer.



 
a. The opportunity cost of attending college would be very high for such a person because he has the opportunity to earn a very high salary in his field of expertise.
 


 
b. The costs of attending college are likely to exceed the benefits for such a talented person, so he decides not to attend college.
 


 
c. The benefits of attending college are unlikely to exceed the costs for such a talented person so he is making an irrational decision.
 


 
d. a and b





D


At the optimal level of an activity, the activity’s marginal benefit must


equal the marginal cost of the activity


A person goes into a store and buys a computer for $2,210. In this case, price is acting as a


rationing device


The absence of value judgments is the essence of


positive economics


Amy's opportunity cost of going to the movies is
Choose one answer.



 
a. the price of the ticket.
 


 
b. zero, if she has a free pass.
 


 
c. the price of the ticket plus the value to Amy of what she would have chosen to do with her time had she not chosen to go to the movies.
 


 
d. both b and c





C


Choice is fundamentally a consequence of


scarcity


It usually takes less time to buy a six-pack of 7-Up, a loaf of bread, and a half-gallon of ice cream at a small convenience store (such as a 7-Eleven) than at a large, full-service grocery store. Which of the following persons is most likely to buy these items at a convenience store?
Choose one answer.



 
a. a person with high opportunity cost of time
 


 
b. a person with low opportunity cost of time
 


 
c. a person who is out of work
 


 
d. There is not enough information to answer the question.





A


Opportunity cost is the ____ alternative forfeited when a choice is made.


Most highly-valued


The possible combinations of two goods that can be produced in a certain period of time under the conditions of a given state of technology and fully employed resources


Production possibilities frontier (PPF)


straight-line PPF =


constant opportunity costs


bowed-outward PPF =


increasing opportunity costs (concave down)


The PPF separates the production possiblities of an economy into two regions:


1. an attainable region, which consists of the points on the PPF itself and all points below it
2. an unattainable region, which consists of the points above and beyond the PPF


The condition where the maximum output is produced with the given resources and technology


Productive efficient


The condition where less than the maximum output is produced with the given resources and technology


Productive inefficient


Implies that more of one good can be produced without any less of another being produced


Productive inefficient


What does economic growth refer to?


the increased productive capabilities of an economy


Two factors that affect economic growth:


1. an increase in the quantity of resources
2. an advance in technology


True/False. An increase in the quantity of resources makes a greater quantity of input possible.


False. An increase in teh quantity of resources makes a greater quantity of OUTPUT possible.


The body of skills and knowledge involved in teh use of resources and production


Technology


An advance in technology commonly increases the ability to produce _____ output with a fixed amount of resources or the ability t produce the same output with _____ resources.


More; fewer


The situation where someone can produce a good at lower opportunity cost than someone else can.


Comparative advantage


What does a bowed-outward PPF represent?


the law of increasing opportunity costs.



In a market economy prices

Choose one answer.



 
a. are useful in helping to ration goods and services.
 


 
b. convey information to the buyer.
 


 
c. provide incentives.
 


 
d. are necessary only when producers operate inefficiently
 


 
e. a, b and c
 




 



E


Country X has a high unemployment rate. It follows that country X is operating


below it's PPF


A movement from a point below the PPF  to a point on the PPF is


a movement from an inefficient point to an efficient point.


Points inside (or below) the PPF are


attainable but inefficient


Economists see a great similarity between nations: they all


face scarcity


Points below the production possibilities frontier (PPF) are


attainable


An increase in resources


shifts the PPF outward


The point where the PPF intersects the vertical axis is


attainable and efficient


Suppose the economy goes from a point on its PPF to a point directly "south" of it. This could be due to


a significant increase in the amount of unemployed resources in the economy.  


If Sean can bake bread at a lower cost than Jason, and Jason can produce paintings at a lower cost than Sean, it follows that


Sean has a comparative advantage in baking bread and Jason has a comparative advantage in producing paintings


A society which uses its resources efficiently
Choose one answer.



 
a. produces at a point on its PPF.
 


 
b. can produce more of one good only by giving up some of an other good.
 


 
c. cannot produce unlimited amounts of a good.
 


 
d. still has to make choices.
 


 
e. all of the above





E


Scarcity exists in


all countries of the world


The economy was at point A producing 100X and 200Y. It moved to point B where it produces 200X and 300Y. It follows that Choose one answer.   a. point A was a point below the economy's PPF.     b. the economy's PPF could have shifted outward and point A was a point on the economys old PPF.     c. the economy has moved from one point on its PPF to another point on the same PPF.     d. a or b     e. a or c


C


If an economy can produce a maximum of 100 units of good X and the opportunity cost of 1X is always 5Y, then what is the maximum units of good Y the economy can produce?


500


What is the reason for the law of increasing opportunity cost?


People have varying abilities and those with lower opportunity costs of producing a good produce it before people with higher opportunity costs produce it


Consider two points on the PPF: point A, at which there are 10 apples and 20 pears, and point B, at which there are 7 apples and 21 pears. If the economy is currently at point A, the opportunity cost of moving to point B is


3 apples


In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight-hour day, John can produce either 8 loaves of bread or 8 pounds of butter. The opportunity cost of producing 1 pound of butter is


3 loaves of bread for Andy and 1 loaf of bread for John.


Efficiency implies that


it is impossible to obtain gains in one area without losses in another.


In the production possibilities framework, economic growth is depicted by


a shift outward of the frontier or to the right.


Transaction costs are



the costs associated with the time and effort needed to search out, negotiate, and consummate an exchange.


Which of the following (1) best defines an advance in technology and (2) most accurately describes the effect of an advance in technology?
Choose one answer.



 
a. An advance in technology commonly refers to the ability to produce more output with more resources; an advance in technology shifts the production possibilities frontier (PPF) outward.
 


 
b. An advance in technology commonly refers to the ability to produce more output with a fixed quantity of resources or the ability to produce the same output with a smaller quantity of resources; an advance in technology shifts the PPF inward.
 


 
c. An advance in technology commonly refers to the ability to produce more output with a fixed quantity of resources or the ability to produce the same output with a smaller quantity of resources; an advance in technology shifts the PPF outward.
 


 
d. none of the other options are correct





C


If consumers surplus is $40 and the price paid for the good is $50, then the maximum price a buyer is willing and able to pay for the good is


$90


A PPF is more likely to be a downward-sloping curve that is bowed outward (concave from below) than a downward-sloping straight line because most resources are


better suited for the production of some goods than others


Points outside (or beyond) the PPF are


unattainable


Through war, many of the factories in country 1 are destroyed and many of its people are killed. As a result, the countrys


PPF after the war is probably closer to the origin than its PPF before the war.


Which of the following statements is false?
Choose one answer.



 
a. If there are only two goods, guns and butter, over time it is possible to get more of both goods through economic growth.
 


 
b. If there are only two goods, guns and butter, it is possible to get more of both goods if the economy is currently operating at an inefficient point.
 


 
c. If there are only two goods, guns and butter, it is possible to get more of both goods if the economy is currently operating at an efficient point.
 


 
d. If there are only two goods, guns and butter, and the economy is currently operating at an efficient point, producing more of one means that less of the other will be produced.





C


An advance in technology can refer to the ability to produce
Choose one answer.



 
a. the same output with a smaller quantity of resources.
 


 
b. more output with a fixed quantity of resources.
 


 
c. more output with a greater quantity of resources.
 


 
d. both a and b
 


 
e. both b and c





D


A PPF can


shift inward or outward


If it is impossible to produce more of one good without getting less of another, then the economy is operating


efficiently


If the economy is operating on the production possibilities frontier (PPF), the economy is operating
Choose one answer.



 
a. inefficiently.
 


 
b. at full employment.
 


 
c. efficiently.
 


 
d. b and c
 


 
e. none of the above





D


nar001-1.jpg
Refer to Exhibit 2-2. If PPF2 is the relevant production possibilities frontier, then point __________ is unattainable.



I


nar001-1.jpg
Refer to Exhibit 2-2. If PPF2 is the relevant production possibilities frontier, a significant loss of resources may



move this society to PPF1


Which of the following statements is correct?
Choose at least one answer.



 
a. resources are scarce because people compete for them
 


 
b. if the government would make better decisions concerning the economy many goods would no longer be scarce
 


 
c. the price of oil is high because it is a scarce resource
 


 
d. we have to compete for resources because they are scarce
 


 
e. if the government required gas stations  to charge “reasonable” prices (lower than what they otherwise would charge) gas would no longer be a scarce good
 


 
f. oil is a scarce resource because its price is high





C, D


Some health insurance companies offer policies which  do not pay for services related to pregnancy, mental health care, substance abuse, etc. Some people believe that the government should require all policies to cover many of these services. Such a requirement
Choose at least one answer.



 
a. could end up hurting the people it was intended to help
 


 
b. would lead to lower insurance premiums
 


 
c. would likely benefit consumers and hurt insurance companies
 


 
d. would likely lead to more people being without insurance
 


 
e. would provide a benefit to these people but would also cause them to bear a cost
 


 
f. would lead to higher insurance premiums
 


 
g. would help people who purchase these policies





A, D, E, F



You have to pay a price to acquire most things, such as milk, because

Choose at least one answer.



 
a. the price acts as a rationing device
 


 
b. markets aren’t competitive enough
 


 
c. the resources used to produce those goods are scarce
 


 
d. consumers are selfish
 


 
e. producers are greedy
 


 
f. the government doesn’t do enough to help producers
 


 
g. producers compete with each other too much
 




 



A, C


nar002-1.jpg
Refer to Exhibit 2-3. If PPF1 is the relevant production possibilities frontier, society can choose points that lie only



below or on PPF1.


nar001-1.jpg
Refer to Exhibit 2-2. If PPF2 is the relevant production possibilities frontier, then point __________ illustrates efficiency.



E


nar002-1.jpg
Refer to Exhibit 2-3. If PPF1 is the relevant production possibilities frontier, PPF2may depict
Choose one answer.



 
a. an increase in living standards for the society
 


 
b. an increase in productivity.
 


 
c. all of the other options are correct
 


 
d. economic growth.
 


 
e. an increase in resources.







C


nar002-1.jpg
Refer to Exhibit 2-3. If PPF1 is the relevant production possibilities frontier, which of the following is the most complete statement of events which could cause a society to move to PPF2?



An increase in resources or an increase in productivity


nar001-1.jpg
Refer to Exhibit 2-2. If PPF2 is the relevant production possibilities frontier, then point __________ illustrates inefficiency.



B


What are the 4 ways to represent the law of demand?


in words, in symbols, in a demand schedule, as a demand curve


The numeral representation of the law of demand


Demand schedule


The graphical representation of the inverse relationship between price and quantity demanded specified by the law of demand


Demand curve


Why quantity demanded moves in the opposite direction of price


1. People subsitute lower priced goods for higher priced goods. 2. The law of diminishing marginal utility


For a given time period, the marginal utility of satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases


law of diminishing marginal utility


According to the __________, individuals obtain less utility from additional units of a good; they will buy larger quantities of a good only at lower prices, and this is the law of demand


law of diminishing marginal utility


What does an individual demand curve represent?


the price quantity combinations of a particular good for a single buyer.


A market demand curve is derived by "______" individual demand curves


adding up


What do economists talk about?


1. a change in quantity demanded 2. a change in demand


the number of units of a good that individuals are willing and able to buy at a particular price


quantity demanded


shift in demand curve


change in demand


Demand can change in what 2 ways?


increase and decrease


increase in demand =


rightward shift in demand curve


decrease in demand =


leftward shift in the demand curve


Any place people come together to trade


Market


The word _____ has a precise meaning in economics.


Demand


1. The willingness and ability of buyers to purchase different quanitites of a good
2. at different prices
3. duringa  specific time period


Demand


Book by Adam Smith


"Wealth of Nations"



-dealt with "what is wealth?" -argued against mercantilism (Wealth = Gold)


Adam Smith


What was Adam Smith's opinion of "true wealth?"


"True wealth is measured by teh ability of the country to produce the things that people want"


Let people trade freely


Unregulated free trade


As the price of a good rises, the quantity demanded of the good falls, and as the price of a good falls, the quantity demanded of the good rises, ceteris paribus


Law of Demand


______ speaks to the willingess and ability of buyers to buy different quantities of a good at different prices. ______ speaks to the willingness and ability of buyers to buy a specific quantity at a specific price.


Demand; quantity demanded


What factors or variables can increase or decrease demand?


1. income 2. preferences 3. prices of related gods 4. the number of buyers 5. expectatins of future prices


A good for which demand rises as income rises


Normal good


A god for which demand falls as income rises


Inferior good


Demand does nt change as income rises or falls


Neutral good


A change in preferences...
in favor of a good - demand shifts ______
away from a good - demand shifts ______


right; left


What are two types of related goods?


Subsititutes and complements


Two goods that satisfy similar needs or desires


substitute


If two goods are substitutes, the demand for one _____ as the price of the other _____.


rises; rises


Two goods that are used jointly in consumption


Complements


If two goods are complements, the demand for one _____ as the price of the other ______.


rises; falls


What do economics often distinguish between?


1. factors that cna bring about movement along curves (movement factors) 2. factors that cna shift curves (shift factors)


1. the willingness and ability of sellers to produce and offer to sell different quantities of a good 2. at different prices 3. during a specific time period


Supply


As the price of agood rises, the quantity supplied of the good rises, as the price of a good falls, the quantity suppled of the good falls, ceteris paribus


Law of Supply


The graphical representation of the law of supply


(upward sloping) supply curve


Most supply curves are ______ sloping.  The fundamental reason for this involves the _______.


upward; law of diminishing marginal returns


The numerical tabulation of the quantity supplied of a good at different prices.


Supply schedule


A _______ is the numerical representatin of the law of supply.



Supply schedule


What factors cause the supply curve to shift? (7)


1. the prices of relevant sources 2. technology 3. the prices of other goods 4. the number of sellers 5. expectations of future price 6. taxes and subsides 7. government restrictions


A monetary payment by government to a producer of a good or service


Subsidy


A condition in which the quantity supplied is greater than the quantity demanded


Surplus


_____ occur only at prices abve equilibrium price


Surplus


A condition in which the quantity demanded is greater than the quantity supplied


Shortage


_______ occur only at prices below equilibrium prices


Shortages


The price at which the quantity dmenaded of the good equals the quantity supplied


Equilibrium price


The quantity that corresponds to equilibrium price


Equilibrium quantity


A price other than equilibrium price


Disequilibrium price


"at rest"


Equilibrium


_______ in a market is the price-quantity combination from which buyers or sellers do not tend to move away.


Equilibrium


Graphically, ________is the intersection point of the supply and demand curves.


Equilibrium


The difference between the maximum price a buyer is willing and able to pay for a good or service and the price actually paid


Consumer surplus


Consumer surplus =


maximum buying price - price paid


The difference between the price sellers receive for a good and the minimum or lowest price for which they would have sold the good


Producer's surplus


Producer's surplus =


price received - minimum selling price


The sum of consumers' surplus and producers' surplus


Total surplus


Total surplus =


consumers' surplus + producers' surplus


Which of the following could cause an increase in the demand for a product?
Choose at least one answer.



 
a. a decrease in the price of a complement
 


 
b. an increase in consumer income if it is a normal good
 


 
c. a decrease in consumer income if it is an inferior good
 


 
d. a decrease in the price of a substitute
 


 
e. an increase in the price of a complement
 


 
f. a decrease in consumer income if it is a normal good
 


 
g. an increase in the price of a substitute
 


 
h. an increase in consumer income if it is an inferior good





A, B, C, G


Which of the following would not shift the demand curve for a product? Choose at least one answer.   a. a change in the expected future price of the product     b. a change in consumer income     c. a change in the price of a substitute     d. a change in expected future income     e. a change in population     f. a change in the price of the product     g. a change in the price of a complement     h. a change in the price of an input used to produce the product    


F, H


Which of the following could cause a decrease in the demand curve for a product? Choose at least one answer.   a. a decrease in expected future income if it is an inferior good     b. an increase in expected future income if it is an inferior good     c. an increase in the expected future price of the product     d. a decrease in the expected future price of the product     e. an increase in expected future income if it is a normal good     f. a decrease in population     g. an increase in population     h. an decrease in expected future income if it is a normal good  


B, D, F, H


Which of the following statements is correct?
Choose at least one answer.



 
a. a decrease in the price of oil will decrease the demand for gasoline
 


 
b. an increase in the price of hamburgers will decrease the quantity demanded of hamburgers
 


 
c. an increase in the price of mp3 players will increase the demand for mp3 players
 


 
d. a decrease in the price of oil will increase the demand for gasoline
 


 
e. an increase in the price of pencils will not change the demand for pencils
 


 
f. an increase in the price of golf clubs will increase the demand for golf balls
 


 
g. an increase in the price of tennis rackets will decrease the demand for tennis balls
 


 
h. an increase in the price of mp3 players will decrease the demand for mp3 players





B, E, G


Which of the following statements correctly completes the following sentence? If the demand for a product increases Choose at least one answer.   a. this means that at each price producers want to sell more now than before.     b. the demand curve has shifted to the right     c. the price of the product must have increased     d. the demand curve has shifted to the left     e. this means we have moved up an unchanged demand curve     f. the price of the product must have decreased     g. this means we have moved down an unchanged demand curve     h. this means that at each price consumers want to purchase more now than before


B, H


Which of the following could cause a decrease in the demand for a product? Choose at least one answer.   a. an increase in consumer income if it is a normal good     b. an increase in the price of a complement     c. a decrease in consumer income if it is an inferior good     d. an increase in the price of a substitute     e. a decrease in the price of a complement     f. a decrease in consumer income if it is a normal good     g. a decrease in the price of a substitute     h. an increase in consumer income if it is an inferior good


B, G, H


Which of the following could cause a rightward shift of the demand curve for a product? Choose at least one answer.   a. an increase in the expected future price of the product     b. a decrease in the expected future price of the product     c. an increase in expected future income if it is an inferior good     d. an increase in population     e. a decrease in population     f. an increase in expected future income if it is a normal good     g. a decrease in expected future income if it is an inferior good     h. an decrease in expected future income if it is a normal good


A, D, F, G


If the technology used to produce product D improves and this reduces the cost of producing D this will lead to Choose at least one answer.   a. a shortage of D at the initial price     b. a decrease in the quantity demanded of D     c. a decrease in the quantity supplied of D     d. an increase in the demand for D     e. an increase in the supply of D     f. an increase in the price of D     g. a surplus of D at the initial price     h. a decrease in the price of D


E, G, H


If there is a surplus in a market

Choose at least one answer.



 
a. this is also called excess supply
 


 
b. quantity demanded is less than quantity supplied
 


 
c. the price of the product will increase if the government does not intervene
 


 
d. quantity supplied is less than quantity demanded
 


 
e. this may be the result of a price floor
 


 
f. this is also called excess demand
 


 
g. this may be the result of a price ceiling
 


 
h. the price of the product will fall if the government does not intervene
 






A, B, E, H


If there is a shortage in a market

Choose at least one answer.



 
a. this is also called excess supply
 


 
b. this is also called excess demand
 


 
c. the price of the product will increase if the government does not intervene
 


 
d. this may be the result of a price ceiling
 


 
e. the price of the product will fall if the government does not intervene
 


 
f. this may be the result of a price floor
 


 
g. quantity supplied is less than quantity demanded
 


 
h. quantity demanded is less than quantity supplied
 






B, C, D, G


Which of the following could cause an increase in the supply of a product? Choose at least one answer.   a. an decrease in the expected future price of the product     b. a technological change which reduces the cost of producing the product     c. a decrease in the price of an input used to produce the product     d. a decrease in the price of the product     e. an increase in the number of producers     f. an increase in the demand for the product     g. an increase in the price of the product     h. an increase in the price of an input used to produce the product


A, B, C, E



If the price of a complement to product B increases this will lead to

Choose at least one answer.



 
a. a surplus of B at the initial price
 


 
b. a decrease in the supply of B
 


 
c. an increase in the price of B
 


 
d. a decrease in the price of B
 


 
e. a decrease in the demand for B
 


 
f. a shortage of B at the initial price
 


 
g. a decrease in the quantity demanded of B
 


 
h. a decrease in the quantity supplied of B
 




 



A, D, E, G, H


Which of the following would not shift the supply curve for a product? Choose at least one answer.   a. a change in the price of an input used to produce the product     b. a change in the expected future price of the product     c. a change in the price of the product     d. an increase in consumer income     e. an increase in the price of a substitute for the good     f. a change in the demand for the product     g. a change in the technology used to produce the product     h. a change in the number of firms that produce the product


C, D, E, F


Which of the following statements is correct? Choose at least one answer.   a. a decrease in the price of oil will increase the supply of gasoline     b. an increase in the price of pencils will not change the supply of pencils     c. an increase in the price of mp3 players will decrease the supply of mp3 players     d. an increase in the price of mp3 players will increase the supply of mp3 players     e. an increase in the wage paid to automobile workers will increase the supply of automobiles     f. an increase in the wage paid to automobile workers will decrease the supply of automobiles     g. a decrease in the price of oil will decrease the supply of gasoline     h. a decrease in the price of hamburgers will decrease the quantity supplied of hamburgers


A, B, F, H



If the price of a substitute for product A decreases this will lead to

Choose at least one answer.



 
a. a decrease in the quantity demanded of A
 


 
b. a surplus of A at the initial price
 


 
c. a decrease in the price of A
 


 
d. a decrease in the demand for A
 


 
e. a decrease in the quantity supplied of A
 


 
f. a shortage of A at the initial price
 


 
g. a decrease in the supply of A
 


 
h. an increase in the price of A
 




 



A, B, C, D, E


If a market is in equilibrium which of the following will definitely be true?
Choose at least one answer.



 
a. the price will increase
 


 
b. producers are able to sell as much as they want to sell at the current market price
 


 
c. the quantity supplied equals the quantity demanded
 


 
d. the price will fall
 


 
e. the price will remain at its current level unless something happens to shift the supply or the demand curve
 


 
f. consumers are able to buy as much as they want to buy at the current market price
 


 
g. the price is at a level which producers believe is reasonable
 


 
h. the price is at a level that consumers feel is fair





B, C, E, F


Which of the following statements correctly completes the following sentence? If the supply of a product increases Choose at least one answer.   a. this means that at each price producers want to produce and sell more now than before.     b. this means that at each price consumers want to buy more now than before.     c. the supply curve has shifted to the right     d. this means we have moved up an unchanged supply curve     e. the supply curve has shifted to the left     f. the price of the product must have increased     g. the price of the product must have decreased     h. this means we have moved down an unchanged supply curve


A, C


Which of the following could cause a rightward shift of the supply curve for a product? Choose at least one answer.   a. giving the producers of the product a subsidy     b. imposing additional regulations which the producers must adhere to     c. the decision by some producers to exit the industry (go out-of-business)     d. a natural disaster     e. a decrease in the price of a resource used to produce the product     f. discovery of a new and cheaper way to produce the product     g. a political disruption     h. imposition of a tax on the production of the product


A, E, F


A shortage could be caused by which of the following?
Choose at least one answer.



 
a. a price ceiling set below the equilibrium level
 


 
b. a price floor set above the equilibrium level
 


 
c. a price ceiling set above the equilibrium level
 


 
d. a price floor set below the equilibrium level





A


Which of the following could cause a leftward shift of the supply curve for a product? Choose at least one answer.   a. imposing additional regulations which the producers must adhere to     b. a natural disaster     c. the decision by some producers to exit the industry (go out-of-business)     d. a political disruption     e. discovery of a new and cheaper way to produce the product     f. imposition of a tax on the production of the product     g. giving the producers of the product a subsidy     h. a decrease in the price of a resource used to produce the product


A, B, C, D, F


Which of the following could cause a decrease in the supply of a product? Choose at least one answer.   a. a decrease in the expected future price of the product     b. a decrease in the price of the product     c. a technological change which reduces the cost of producing the product     d. an increase in the demand for the product     e. an increase in the price of an input used to produce the product     f. an increase in the number of producers     g. a decrease in the price of an input used to produce the product     h. an increase in the price of the product


E


If the price of an input used to produce product C  increases this will lead to
Choose at least one answer.



 
a. a shortage of C at the initial price
 


 
b. a decrease in the quantity demanded of C
 


 
c. an increase in the price of C
 


 
d. a surplus of C at the initial price
 


 
e. a decrease in the price of C
 


 
f. a decrease in the quantity supplied of C
 


 
g. a decrease in the supply of C
 


 
h. a decrease in the demand for C





A, B, C, F, G


A surplus could be caused by which of the following? Choose at least one answer.   a. a price ceiling set below the equilibrium level     b. a price floor set above the equilibrium level     c. a price floor set below the equilibrium level     d. a price ceiling set above the equilibrium level


B


nar009-1.jpg
nar009-1.jpg
Refer to Exhibit 3-16. If there are empty seats for a basketball game at the price P*, the situation is best depicted on graph
Choose one answer.



 
a. (1), with P* = P1.
 


 
b. (2), with P* = P3.
 


 
c. (3), with P* = P2.
 


 
d. (3), with P* = P3.
 


 
e. (4), with P* = P1.





C


Price performs two major jobs:


1. as a rationing device
2. as a transmitter of information


As a result of scarcity, a rationing device is needed to determine what?


who gets what of the available limited resources and goods


______ is not always allowed to be a rationing device; it is sometimes controlled.


Price


Government-mandated maximum price above whihc legal trades cannot be made and creates a shortage


Price ceiling


When a shortage exists, price and output tend to rise to equilibrium.  When a ______ exists, they cannot rise because it is unlawful to trade at the equilibrium price.


Price ceiling


Price ceiling prevents mutually adavantaeous trades from being realized.


Fewer exchanges


Price ceilings prevent price from rising to the level sufficient to ration goods fully


Nonprice-Rationing Devices


A sale whereby one good can be purchased only if another good is also purchased


tie-in sale


A governtment-mandated minimum price below which legal trades cannot be made


Price floor


If the price floor is above the equilibrium price, two effects arise:


surpluses and fewer exchanges


The price of a good in money terms


Absoulute (money) price


The price of a good in terms of another good


Relative price


If the ______ of a good rises and nothing else changes, then its relative prices rises too.


absolute price


At one extreme are systems in which most decisions are made by government


Socialist or command economies


At the other extreme are systems in which most decisions are made by private individuals and businesses as they interact in free markets


Capitalist or market economies


the role of government, under __________, is that of rule maker and referee.


Capitalism


A neutral party who enforces the rules of the game


Referee


The US is often said to have a "________" because it contains elements of both capitalism and socialism.


"mixed economy"


nar006-1.jpg
Exhibit 3-13 represents the orange juice market. The horizontal line represents a price ceiling imposed by the government. Which of the following is true?

Choose one answer.



 
a. At equilibrium, the quantity demanded is 700.
 


 
b. At the price ceiling, there is a surplus.
 


 
c. The quantity supplied at the price ceiling will equal the quantity sold.
 


 
d. The quantity demanded at the price ceiling will equal the quantity supplied.
 


 
e. The quantity demanded at the price ceiling will equal the quantity sold.
 








C


Suppose you live in New York City and the government has imposed rent ceilings on apartments. You want to rent an apartment from Smith, who says that unless you buy the furniture in the apartment for $4,000, he cannot rent the apartment to you. The condition of buying the furniture could be considered


tie-in sale


nar001-1.jpg
Refer to Exhibit 3-1. Which of the following statements is false?
Choose one answer.



 
a. Both demand and supply have an effect on a good’s price.
 


 
b. 350 units of the good will be exchanged at equilibrium.
 


 
c. 250 units of the good will be exchanged at equilibrium.
 


 
d. The surplus at $6 is equal to the shortage at $2, that is, 200 units.







B


If people begin to favor romance novels to a greater degree than previously, the demand curve for romance novels


shifts righward


Which of the following statements is true?
Choose one answer.



 
a. Price ceilings cause shortages.
 


 
b. Shortages cause price ceilings to be imposed.
 


 
c. Neither a price ceiling nor a shortage is the cause of the other.
 


 
d. Price ceilings cannot be imposed for longer than a month.





A


An increase in the price of good B caused an increase in the demand for good C. This indicates that


B and C are substitutes


Which of the following statements is false? Choose one answer.   a. Even at equilibrium in a market, scarcity exists.     b. If there is a shortage of 100 units at a price of $2 per unit, the shortage will be greater than 100 units at a price of $1 per unit.     c. If there is a surplus of 30 units at a price of $3, the surplus will be less than 30 units (or even nonexistent) at a price of $2.     d. If there is a surplus, suppliers will not be able to sell all they had hoped to sell at a particular price.     e. none of the above


E


Which of the following statements is false? Choose one answer.   a. A change in the price of good X will change the quantity supplied of good X, other things being equal.     b. A change in the number of sellers of a good can change the supply of that good.     c. Price and quantity supplied are directly related.     d. A vertical supply curve represents a direct relationship between price and quantity supplied.     e. a and d.  


D


Price floors
Choose one answer.



 
a. cause surpluses when they are effective.
 


 
b. are effective when they are above the equilibrium price.
 


 
c. cause fewer exchanges to be made.
 


 
d. both a and b
 


 
e. all of the above







E


nar003-1.jpg
Refer to Exhibit 3-8. A shortage exists at any price below



$3.00


A decrease in the number of buyers in an area will result in a


leftward shift in demand curve


nar002-1.jpg
Refer to Exhibit 3-2. Suppose equilibrium is at point B. Something then changes and equilibrium becomes point C. Which of the following is consistent with the change in equilibrium from point B to C?



There was a decrease in resource prices, and income stayed constant.


nar004-1.jpg
Refer to Exhibit 3-9. Consumers view X and Y as substitutes. If the price of Y increase, you expect a movement in the market for X from



D1 to D2


In moving along a demand curve, which of the following is NOT held constant? Choose one answer.   a. the prices of substitute goods     b. the prices of complementary goods     c. consumer incomes     d. the price of the good for which the demand curve is relevant


D


nar007-1.jpg
Refer to Exhibit 3-14. If price P2 is a price ceiling, then



the price at which exchange legally takes place is P2.


The equilibrium price in market A is $24. The current price in market A is $21. At this price, there is
Choose one answer.



 
a. a surplus in market A.
 


 
b. a shortage in market A.
 


 
c. excess supply in market A.
 


 
d. excess demand in market A.
 


 
e. b and d





E


Quantity supplied is a


specific amount of a good, such as 50 units of good Y.


nar005-1.jpg
Refer to Exhibit 3-10. $20 is the
Choose one answer.



 
a. equilibrium price.
 


 
b. market-clearing price.
 


 
c. price at which there is neither a surplus nor a shortage.
 


 
d. all of the above







D


During the winter of 1973-74, a general system of wage and price controls (including a price ceiling on gasoline) was in force in the United States. At the beginning of 1974, some oil-producing countries imposed an oil embargo on the West. In the spring of 1974, price controls were abolished.

Refer to Situation 3-1. Because price controls were in effect at the time the embargo occurred, an economist would predict that


long waiting lines and black markets will appear


If demand falls and at the same time supply falls we can predict that the equilibrium quantity __________ and equilibrium price __________.


falls; uncertain


nar005-1.jpg
Refer to Exhibit 3-10. 300 units of X will be exchanged in this market if the price is
Choose one answer.



 
a. $30.
 


 
b. $20.
 


 
c. $10.
 


 
d. any of the above
 


 
e. none of the above







E


An increase in the expected future price of maize would likely


increase the demand but decrease the supply of maize.


nar002-1.jpg
Refer to Exhibit 3-2. Which of the following would result in a movement from point A on D1 to point B on D2?



An increase in the number of buyers


At a price above equilibrium price, there is


surplus


If price is on the vertical axis and quantity demanded is on the horizontal axis, why is a demand curve downward sloping (left to right)?


Because a demand curve is the graphical representation of the law of demand, which specifies an inverse relationship between price and quantity demanded, ceteris paribus.  


An effective price floor will


result in a surplus


A rightward shift in the demand curve for tennis balls could be caused by


a fall in the price of tennis rackets


According to the mercantilists in 18th century Great Britain, the path to wealth for a country is Choose at least one answer.   a. socialism     b. unregulated free trade     c. government control of all industries     d. follow the advice of Adam Smith     e. a system in which goverment oversees the economy and makes some of the major decisions about how resources should be used.  


E


Which of the following labels is used to describe economic systems based primarily on collective decision-making?
Choose at least one answer.



 
a. socialist
 


 
b. planned economy
 


 
c. market economy
 


 
d. traditional
 


 
e. command economy
 


 
f. capitalist
 


 
g. private property economy
 


 
h. laissez-faire





A, B, E


Which of the following labels is used to describe economic systems based primarily on a market mechanism? Choose at least one answer.   a. command economy     b. traditional     c. planned economy     d. laissez-faire     e. socialist     f. capitalist     g. market economy     h. private property economy


D, F, G, H


Which of the following is an accurate statement about the role of government in a socialist economic system?
Choose at least one answer.



 
a. it primarily serves as rule maker and referee
 


 
b. it makes plans about how resources will be used and then commands people to carry those plans out
 


 
c. it defines the boundaries within which individuals can use their own resources in any way that they choose
 


 
d. it primarily defines and enforces private property rights
 


 
e. it decides who will get the benefit of the goods that are produced
 


 
f. it decides how goods and services will be produced
 


 
g. it provides a framework of rules within which individuals are free to make their own decisions
 


 
h. it decides which goods will be produced with the economy’s resources





B, E, F, H


Which of the following books was the first good explanation of how a market economy operates?
Choose at least one answer.



 
a. The Institutes of Capitalism
 


 
b. Free to Choose
 


 
c. The Wealth of Nations
 


 
d. How a Market Economy Operates
 


 
e. The Communist Manifesto
 


 
f. Poverty and Wealth: The Great Debate
 


 
g. The Consequences of Scarcity
 


 
h. On the Origin of Economic Systems





C


In class, which of the following was listed as a defining characteristic of a socialist economic system?
Choose at least one answer.



 
a. goods and services are distributed based on what people need
 


 
b. goods and services are distributed equally
 


 
c. how resources will be used is determined by the government through centralized planning
 


 
d. income-producing assets are owned and controlled by the state
 


 
e. government plans are carried out by the use of force
 


 
f. goods and services are distributed equitably
 


 
g. private ownership of productive resources
 


 
h. allocation of goods based on the signals provided by market prices





C, D, E


Which of the following economic systems have rules or mechanisms which determine how goods will be allocated among the people who would like to use them?
Choose at least one answer.



 
a. market economy
 


 
b. planned economy
 


 
c. socialist
 


 
d. capitalist





A, B, C, D


Which of the following economic systems has a role for some type of government?
Choose at least one answer.



 
a. private property economy
 


 
b. socialist
 


 
c. command economy
 


 
d. laissez-faire
 


 
e. mixed economy
 


 
f. capitalist
 


 
g. market economy
 


 
h. planned economy





A, B, C, D, E, F, G, H


Which of the following statements about “planning” are correct?
Choose at least one answer.



 
a. in a socialist economy the plans of the government are the plans that count
 


 
b. in a market economy no single person or agency decides how many cars will be produced - the total is just the sum of the individual decisions made by individual producers
 


 
c. in a market economy individuals make plans about how to use the resources that belong to them
 


 
d. the difference between capitalism and socialism is in whose plans about resource use count
 


 
e. under socialism someone plans how resources will be used but no one makes plans under capitalism
 


 
f. some type of planning occurs under all economic systems
 


 
g. under capitalism someone plans how resources will be used but no one makes plans under socialism
 


 
h. in a socialist economy the government decides how many total cars will be produced





A, B, C, D, F, H



Which of the following would be a correct statement concerning the U.S. economy?

Choose at least one answer.



 
a. it contains elements of capitalism
 


 
b. it is a planned economy
 


 
c. since 2001 it has moved closer to being a purely capitalistic system
 


 
d. it contains elements of socialism
 


 
e. it is a good example of pure socialism
 


 
f. it is a good example of pure capitalism
 


 
g. it is a command economy
 


 
h. it is sometimes called a mixed economy
 




 



A, D, H


In class, which of the following was listed as a defining characteristic of a capitalist economic system?
Choose at least one answer.



 
a. goods and services are distributed equally
 


 
b. goods and services are distributed equitably
 


 
c. how resources will be used is determined by the government through centralized planning
 


 
d. private ownership of productive resources
 


 
e. voluntary exchange in free markets
 


 
f. goods and services are distributed based on what people need
 


 
g. allocation of goods based on the signals provided by market prices
 


 
h. income-producing assets are owned and controlled by the state





D, E, G



Which of the following is considered the father of economics?

Choose at least one answer.



 
a. Karl Marx
 


 
b. Ronald Reagan
 


 
c. Thomas Sowell
 


 
d. Franklin Delano Roosevelt
 


 
e. Milton Friedman
 


 
f. Adam Smith
 


 
g. Adam Sandler
 


 
h. John Maynard Keynes
 




 



F


Which of the following is an accurate statement about the role of government in a market economy?
Choose at least one answer.



 
a. it makes plans about how resources will be used and then commands people to carry those plans out
 


 
b. it decides how goods and services will be produced
 


 
c. it primarily serves as rule maker and referee
 


 
d. it primarily defines and enforces private property rights
 


 
e. it decides who will get the benefit of the goods that are produced
 


 
f. it decides which goods will be produced with the economy’s resources
 


 
g. it provides a framework of rules within which individuals are free to make their own decisions
 


 
h. it defines the boundaries within which individuals can use their own resources in any way that they choose





C, D, G, H