Economics Test Questions – Flashcards
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In the absence of externalities, the "invisible hand" leads a market to maximize
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total benefit to society from that market
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Danita rescues dogs from her local animal shelter. when danitas income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. for danita, the income elasticity of demand for her dog biscuits is
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positive, the dog biscuits are a normal good
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if the price of natural gas rises, when is the price elasticity of demand likelly to be highest
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one year after the price increase
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which of the following statements is correct
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Government should tax goods with negative externalities and subsidize goods with positive externalities
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in a market economy, government intervention
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may improve market outcomes in the presence of externalities
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elasticity is
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a measure of how much buyers and sellers respond to changes in the market conditions
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when a market is characterized by an externality, the government
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can correct the market failure in the case of both positive and negative externalities by including market participants to internalized the externality
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externalities tend to cause markets to be
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inefficent
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a decrease in supply will cause the largest increase in price when
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both supply and demand are elastic
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private contracts between partites with mutual interests
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can solve some inefficiencies associated with positive externalities
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when a good is excludable
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people can be prevented from using the good
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for private goods allocated in markets
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the government guides the decisions of buyers and sellers and these decisions lead to an efficent allocation of resources
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the provision of a public good generate a
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positive externality and the use of a common resource generates a negative externality
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since externalities tend to keep markets from reaching a socially optimal equilibrium, the government action
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is needed when the private soulutions fail to arise
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a view of a spectacular sunset along a private beach is an example of a
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non rival but excludabe
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suppose that two supply curves pass through the same point. one is steep, and the other is flat. which of the following statements is correct
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the steeper supply curve represents a supply that is inelastic represented by the flatter supply curve
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when demand is inelastic, a decrease in price will cause
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a decrease in total revenue
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the tragedy of the commons results when a good is
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rival in consumption and not excludable
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frequently, in the short run, the quantity supplied of a good is
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not very responsive to price changes
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goods that are excludable include both
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private goods and club goods
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economics deals primarily with the concept of
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scarcity
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in most societies, resources are allocated by
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the combined actions of millions of households and firms
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the adage, "There is no such thing as a free lunch," means
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people face trade offs
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guns and butter are used to represent the classic societal tradeoff between spending on
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national defense and consumer goods
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efficiency
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refers to how much a society can produce with resources. equality refers to how evenly the benefits from using resources are distributed among members of society
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which of the following statements about trade is false?
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with trade, one country wins and the other loses
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when the "invisible hand" guides economic activity, prices of products reflect
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only the values that society places on those products
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economist use some familiar terms in specialized ways
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to provide a new and useful way of thinking about the world
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the goal of an economist who formulates new theorist is to
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contribute to an understanding of how the world works
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instead of conducting laboratory experiments to generate data to test their theories, economist often
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gather data from historical episodes of economic change
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when studying the effects of changes in public policy, economist believe that
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it is important to distinguish between the short run and the long run
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economic models
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can be useful, even if they are not particularly realistic
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in the simple circular flow diagram, participants in the economy are
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households and firms
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production is efficient if the economy is production at a point
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on the production possibilities frontier
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in a market economy, supply and demand determine
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both the quantity of each good produced and the price at which it is sold
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which of the following statements is correct
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buyers determine demand and sellers determine supply
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a decrease in demand is represented by
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leftward shift of the demand curve
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the law of supply states that , other things equal, and increase in price causes the quantity supplied to increase
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price causes the quantity supplied to increase
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if there is a shortage of farm laborers, we would expect
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the wage of a farm laborers to increase
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who gets scarce resources in a market economy
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whoever is willing and able to pay the price
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the supply curve for a good is a line that relates
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price and quantity supplied
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if the demand for a product increases, the we would expect equilibrium price
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and equilibrium quantity to both increase
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industrial organization is the study of how
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firms decisions regarding prices and quantities depend on the market conditions they face
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profit is defined as
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total revenue minus total cost
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which of the assumptions is often realistic for a firm in the short run
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the firm can vary the number of workers it employs but not the size of the facory
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total cost curve shows the relationship between the
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quantity of output produced and the total cost of production
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fixed cost can be defined as costs that
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are incurred even if nothing is produced
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when comparing short run average total cost with long run average total cost a give label of output
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short run average total cost is typically above long run average total cost
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a firm has market power if it can
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influence the market price of the good it sells
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which of the following is not a characteristic of a competitive market
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entry is limited
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changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firms
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total revenue
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for an individual firm operating in a competitive mart, marginal revenue equals
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average revenue and the price for all levels of output
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if a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
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a one unit decrease in output will increase the firms profit
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a competitive frim has been selling its output for 10 per unit and has been maximizing its profit. then, the price rises to 14 and the firm makes whatever adjustments are necessary to maximize profit at the now higher price. once the firms adjusted its
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quantity of output is higher than it was previously
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which of the following statements is correct
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a competitive firm is a price taker, whereas a monopolist is a price maker
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because a monopolist does not face competition from other firms, the outcome in a market with a monopoly
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is often not in the best interest of society
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which of the following is not a characteristic of a monopoly
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one buyer
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a benefit of a monopoly is
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profit that can be invested in research and development
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price discrimination is the business practice of
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selling the same good at different prices to different customers
