question

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing,

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scarcity

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Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that

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people face trade-offs.

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Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth

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is more equal but less efficient for society.

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Consider Mandy's decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Mandy's cost of going to college is

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42,000

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Barb's aunt gave her $100 for her birthday with the condition that Barb buy herself something. In deciding how to spend the money, Barb narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally she decides on Option B. The opportunity cost of this decision is

answer

the value to Barb of the option she would have chosen had Option B not been available.

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Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $6200. Bill discovers that he needs to do an additional $2400 of work to make the car worth $6200 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do?

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It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way.

question

Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. Then the average cost per seat is $500. There is one passenger on the standby list. You would be willing to take this passanger on the plane only if he is willing to pay more than

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This cannot be determined from the information given.

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You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational consumer you should make your choice by comparing

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the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.

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Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

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People respond to incentives.

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England can benefit from trade

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with any nation.

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A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect

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both the value of a good to society and the cost of making it.

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According to Adam Smith, the success of decentralized market economies is primarily due to

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individuals' pursuit of self-interest.

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Water pollution from pulp and paper mills harms plants, animals, and humans. This is an example of

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a market failure caused by an externality.

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The phenomenon of scarcity stems from the fact that

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resources are limited.

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Guns and butter are used to represent the classic tradeoff between spending on

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national defense and consumer goods

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Juanita is deciding whether to buy a suit that she wants, as well as where to buy it. Three stores carry the same suit, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $114 for the suit. Store Travel Time Each Way (Minutes) Price of a Suit (Dollars per suit) Local Department Store 15 114 Across Town 30 86 Neighboring City 60 60

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129

question

Consider Paul's decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul's cost of going to college is (ignore any other possible cost that is not mentioned here)

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$123,000.

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Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

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can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.

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A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

answer

People respond to incentives.

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If the United States decides to trade with Yemen, we know that

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Yemen and the United States can both benefit.

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A rationale for government involvement in a market economy is

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markets sometimes fail to produce a fair distribution of economic well-being, markets sometimes fail to produce an efficient allocation of resources, property rights have to be enforced. (All of the above are correct)

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Water pollution from pulp and paper mills harms plants, animals, and humans. This is an example of

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a market failure caused by an externality.

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In a market economy, who makes the decisions that guide most economic activity?

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firms and households

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Economics is best defined as the study of

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how society manages its scarce resources.

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For a market for a good or service to exist, there must be a

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group of buyers and sellers.

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A competitive market is one in which there

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are so many buyers and so many sellers that each has a negligible impact on the price of the product.

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Amy's happiness from chocolate bars Number of Chocolate bars consumed 1 2 3 4 Benefit (Happiness in $) 4 7 9 10 Marginal Benefit

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What is the marginal benefit of the first chocolate bar? 4 What is the marginal benefit of the second chocolate bar? 3

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Amy's happiness from chocolate bars Number of Chocolate bars consumed 1 2 3 4 Benefit (Happiness in $) 4 7 9 10 Marginal Benefit 4 3 2 1

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Find the range of prices that the first chocolate bar will be consumed. [0,4] Find the range of prices that the second chocolate bar will be consumed. [0,3] Find the range of prices that excactly two chocolate bars will be consumed. (2,3]

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A market demand curve shows how the total quantity demanded of a good varies as

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price varies.

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A decrease in the price of a good will

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increase quantity demanded.

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A downward-sloping demand curve illustrates

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the law of demand.

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A rightward shift of a demand curve is called a(n)

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increase in demand.

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Soup is an inferior good if the demand

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for soup falls when income rises.

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If muffins and bagels are substitutes, a higher price for bagels would result in a(n)

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increase in the demand for muffins.

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A very hot summer in Atlanta will cause

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the demand for jackets to decrease.

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When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the mid point method,

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the price elasticity of demand of good A is 0.67.

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A perfectly inelastic demand implies that buyers

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purchase the same amount as before when the price rises or falls.

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A linear, downward-sloping demand curve has a constant elasticity but a changing slope. True or False

answer

False

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According to a recent article in the Wall Street Journal, the president of Delta Airlines stated "Although by lowering our airline fares (prices) we increased the number of passengers (quantity) by 17 percent, our total revenue fell by 10 percent." On this basis of this statement assuming no other factors affecting demand or supply changed, one could conclude that Delta Airlines was:

answer

a good with an inelastic demand

question

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic. (Here, we are assuming that drug-related crime is proportional to the total amount spent on drugs.) True or False

answer

False

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Good news for farming can be bad news for farmers because the

answer

demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers.

question

Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar. What would we expect to observe in the caviar market?

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Total revenues to caviar firms will increase if the demand for caviar is inelastic.

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Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

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lower both price and total revenues.

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Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is

answer

-1.0, and X and Y are complements.

question

East Lansing is a small college town in Michigan. At the end of August each year, the market demand for fast food in East Lansing

answer

Increases

question

Which of the following will not shift the demand curve for hotdogs sold at LSU football games?

answer

decrease in the price of hotdogs sold at LSU football games

question

Which of the following does not affect an individual's demand curve?

answer

the number of buyers

question

A decrease in the price of pizza will shift the supply curve for pizza to the left. True or False

answer

False

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