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How is the price elasticity of demand measured? The price elasticity of demand is measured as

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the percentage change in the quantity demanded divided by the percentage change in price

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Compare the demand for sugar with demand for clothes. The demand for sugar is likely

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more inelastic because sugar tends to represent a smaller fraction of a consumers budget

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Suppose Wendy's hamburgers have many close substitutes available. If so, then an increase in the price of Wendy's hamburgers will likely

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decrease the quantity of Wendy's hamburgers demanded by a relatively small amount

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Compare the demand for water with the demand for wine. The demand for water is likely

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relatively more inelastic because water is a necessity

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Consider the demand for cigarettes. Suppose the government increases the price of cigarettes by raising cigarette taxes. How will this affect the demand for cigarettes over time?

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If the price of cigarettes increases, then the quantity of cigarettes demanded will decrease, and this effect will likely become larger (in absolute value) over time

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What information must economists have to estimate the price elasticity of demand? To estimate the price elasticity of demand, economists need to know

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the demand curve for a product

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Which of the following is a primary determinant of the price elasticity of supply? The price elasticity of supply is affected by

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the passage of time

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The supply curve for a particular product will increasingly more inelastic

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over a shorter period of time

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One of the most important differences among health care systems in different countries is how people pay for the health care they receive. Which of the following countries has a single-payer health care system?

answer

Canada

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Health care spending in the United States is forecasted to be as much as $4.6 trillion in 202, accounting for about $1 for every $5 in the economy. Currently, health care spending is roughly $2.7 trillion. How is this cost paid for most Americans?

answer

In the United States, the majority of people have private health insurance.

question

Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with asymmetric information are adverse selection and moral hazard. Which of the following is an example of moral hazard?

answer

An example of moral hazard is those with health insurance failing to exercise

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In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (ACA).

answer

The ACA provides tax credits to low-income individuals and small businesses with 25 or fewer employees

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Although only 20 percent of all firms are corporations

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Corporations account for the majority of revenue and profits earned by all firms

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A partnership is

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a firm owned jointly by two or more persons and not organized as a corporation

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The owners of corporations have

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limited liability

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The principal-agent problem occurs when

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an agent pursues his own interests rather than the interests of the principal who hired him.

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All flow of funds from savers to borrowers through financial intermediates such as banks is indirect finance,

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while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is direct finance.

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Changes in the values of a firms stocks and bonds offer important information for a firm's managers.

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If the price is decreasing investors are more pessimistic and are providing information that indicates the firm's managers might want to contract the business.

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An _______ is a financial security that represents partial ownership of a firm, while a ______ is a financial security that represents a promise to repay a fixed amount of funds.

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stock, bond

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Subtracting the value of a firm's liabilities from the value of its assets leaves its

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net worth

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Economic profit is equal to a firm's revenues minus its cost,

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both explicit and implicit.

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Accounting profit is

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larger than economic profit.

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An income statement shows a firm's

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profits, revenues, & costs

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Goods and services produced domestically but sold to other countries?

answer

Exports

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Goods and services bought domestically but produced in other countries?

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Imports

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Taxes imposed by a government on imports of a good into a country?

answer

Tariffs

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A negative externality exist if

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the marginal social cost of producing a good or service exceeds the private cost

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How do property rights affect externalities and market failure?

answer

Externalities and market failure will result from incomplete property rights

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The U.S. Government has frequently used a "command-and-control" Approach in dealing with pollution. Which of the following describes this approach?

answer

The government imposes quantitative limits on the amount of pollution firms are allowed to generate.

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In England during the middle ages, each village had an area of pasture, known as a commons, on which any family in the village was allowed to graze its cows or sheep without charge. Was the common land sed optimally?

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Grazing created a negative externality, resulting in the commons being overused.

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Suppose Wendy's hamburgers have many clsoe subsitututes available. If so, then an increase in the price of Wendy's hamburgers will likely

answer

decrease the quantity of Wendy's hamburgers demanded by a relatively large amount.

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Suppose the value of the price elasticity of demand is -3. What does this mean?

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1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent

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When demand is elastic, a fall in price causes total revenue to rise because

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the increase in quantity sold is large enough to offset the lower price

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Perfectly inelastic demand is represented by a demand cureve which is ______, and relatively inelastic demand is represented by a demand curve which is_____.

answer

Vertical; downward sloping

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The price elasticity of supply is equal to

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the percentage change in quantity supplied divided by the percentage change in price.

question

Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with assymmetric information are adverse selection and moral hazard. Which of the following is an example of adverse selection?

answer

sick people being more likely to purchase health insurance than healthy people

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A(n) _____ is a financial security that represents partial ownership of a firm, while a ____ is a financial security that represents a promise to repay a fixed amount of funds.

answer

stock, bond

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Who is harmed when individual nations move from autarky to free trade?

answer

The owners of the firms that went out of business

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What role does utility play in the economic model of consumer behavior? When modeling consumer behavior, utility

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reflects the satisfaction a consumer receives from consuming a particular set of goods and services.

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The economic model of consumer behavor predicts that

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consumers will chose to buy the combination of goods and services that make them as well of as possible from those combinations that their budgets allow them to buy.

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Suppose a consumer is trying to decide how much to spend on transportation and how much to spend on all other (non-transportation) cconsumption. The ecnomic model of consumer behavior predicts that the consumer will

answer

choose the combination of transportation and non-transportation consumption that makes her as well off as possible from among the combinations of transportation and non-transportation items she can afford.

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Suppose ham is an inferiror good. How will consumers adjust their buying decisions if the price of ham changes. If the price of ham increases, then consumers will demand

answer

more ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.

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Is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

answer

Comparative Advantage (may change as time passes and circumstances change)

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Among the main sources of comparative adavantage are the following

answer

climate and natural resources, relative abundance of labor and capital, technology, external economies

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We do not see complete specialization in the real world because

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not all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products differ

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A situation in which a country does not trade with other countries

answer

Autarky

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Is the ratio at which a country can trade its ecports for imports from other countries

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terms of trade

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By trading, countries are able to consume more than they ould without trade. This outcome is possible because

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world production of both goods increases after trade, inefficiencies in resources allocation are reduced, shifting production to the more efficient country-the one with the comparative advantage-increases total production

question

Who is harmed when individual nations move from autakry to free trade

answer

The owners of the firms that went out of business

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One effect of tariffs and quotas

answer

is to cost jobs outside the industries immediately affected

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The primary difference between a quota and a voluntary export restraint (VER) is that

answer

the quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations

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Some politicians argue that eliminating U.S. tariffs and quotas would help the U.S. economy only if other countries eliminated their tariffs and quotas in exchange.

answer

This statement is false; the U.S. economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas

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Is selling a product for a price below its cost of production

answer

Dumping

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Protectionism is the use of trade barriers to shield domestic firms from foreign competititon. Protectionism is usually justified on the basis of several arguments which include:

answer

saving jobs, protecting industries, and protecting national security

Texas State Economics Chapter 6-12 – Flashcards

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