Exam One – Macro – Flashcards

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involves comparing the additional costs and additional benefits of an activity before deciding
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When economic choice involves an adjustment to an existing situation, marginal analysis
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A good or service is scarce
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If the amount people desire exceeds the amount available at a zero price, then
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True
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Most real economic choices involve small (or marginal) changes, rather than all-or-nothing decisions. True or False?
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individuals decide to use scarce resources in an attempt to satisfy their unlimited wants
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Economics is best defined as the study of how
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water is limited relative to people's unlimited wants
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Michigan has an abundant supply of fresh water. However, an economist would consider it a scarce resource because
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Entrepreneurs
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They benefit from what's left over after paying other resource suppliers, They are rewarded by profits, They sometimes suffer losses, They have the talent required to dream up a new product or find a better way to produce an existing one.
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people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile
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The assumption that individuals act rationally implies that
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Economic theory
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predicts the average behavior of a group of similar economic decision makers after an economic change
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what is good for the individual is necessarily good for the group
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One might commit the fallacy of composition by concluding that
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True.
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A good economic theory brings clarity to chaos. True or False?
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True.
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Secondary effects are consequences of economic actions that develop slowly over time as people react to events. True or False?
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mistake of ignoring secondary effects
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Environmentalists continually argue for the use of alternatives to fossil fuels for generating energy. For example, harnessing wind by creating wind farms has been one alternative proposed and implemented. When it is found that these wind farms lead to the slicing and dicing of migratory birds and the decimation of local bat populations, we could say that environmentalists have committed the
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False.
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The association-causation fallacy is the error of assuming that what is true for one member of a group must be true for the group. True or False?
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Economics
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provides the only reasonable explanation of how people make decisions
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Whether Jacob should drive or walk to the local convenience store
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Which of the following decisions lends itself to marginal analysis
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the overall performance of the economy as a whole
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In macroeconomics, we analyze
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True
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Profit is the payment made for land resources. True or False?
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what is true for the individual is also true for the group
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Someone who commits the fallacy of composition is likely to assume that
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price of the product minus the cost of the resources used to produce the product
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If a business produces and sells only one unit of a good, its profit would be the
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Scarcity
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exists because people have wants that are unlimited relative to the availability of resources to satisfy those wants.
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politicians do not consider its secondary effects
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One of the difficulties with an economic policy such as rent control is that
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False.
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As a scientist, an economist's main professional objective is to become wealthy. True or False?
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Goods and services.
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In a circular-flow model, households supply all of the following except
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product markets
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Goods and services are exchanged in
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a good is tangible; a service is not
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The difference between a good and a service is that
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people must make choices among alternatives
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Because resources are scarce,
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are the primary focus of economics
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Choices made by economic decision makers
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False
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A rational individual would make charitable contributions only if such contributions receive favorable tax treatment. True or False?
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Scarcity
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Insufficient resources to satisfy unlimited wants
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Macroeconomics
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The study of the behavior of the economy as a whole
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Economics
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The study of how individuals and nations deal with the problem of scarcity.
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Capital
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machines, buildings, tools, and knowledge
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makes accurate predictions
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An economic model is useful if it
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Capital
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pizza ovens, a college education, carpentry skills, and bulldozers are all examples of what?
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making decisions aimed at achieving some predetermined goal
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Rational choice by an individual implies
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True
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The opportunity cost of going to college consists of more than just the tuition that will be paid. True or False?
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impossible to determine because the most preferred alternative is not known
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Suppose you have an hour before your next class starts. You can either read a book, get something to eat, or take a nap. The opportunity cost of getting something to eat is
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workers are more productive when they are being paid
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Fast food is faster and cheaper than a similar meal you could prepare for yourself. Which of the following does not explain that fact?
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varies, depending on time and circumstances
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Your opportunity cost of choosing a particular activity
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An economic system
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is a set of social institutions and mechanisms organized to answer the three economic questions
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Opportunity costs are constant
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On a straight-line production possibilities frontier, which of the following is true?
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we can conclude nothing about comparative advantage
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If Evan has an absolute advantage in cleaning and bookkeeping when compared to Gloria, then
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Comparative advantage
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the ability of an individual to produce a good at a lower opportunity cost than some other individual can
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enable the economy to produce outside its original production possibilities frontier
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An improvement in technology would
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larger and larger amounts of good A must be sacrificed
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The concave shape of a production possibilities frontier showing possible output levels of good A and good B indicates that if the economy produces more and more of good B,
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Tetah knitted and Mohammed baked
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In one week, Mohammed can knit 5 sweaters or bake 240 cookies. In one week, Tetah can knit 15 sweaters or bake 480 cookies. Mohammed and Tetah would produce the maximum quantities of cookies and sweaters if
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For whom to produce?
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Which economic question does the decision to give all of the butter the economy produces to the homeless answer?
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a mixed capitalist economy
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The U.S. economy is best characterized as
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False.
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The opportunity cost of college is the same for all students who are receiving full-tuition scholarships. True or False?
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True.
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A rational decision maker engages in an activity if that activity is more attractive than the best alternative. True or False?
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the greatest achievable output levels are illustrated
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At various points along the production possibilities frontier,
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True
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Specialization often leads to gains in productivity for society as a whole. True or False?
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benefit, exceeds, cost
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When faced with a choice, a person assesses alternatives as long as the expected marginal __________ of gathering more information about the person's opinions __________ the expected marginal _________
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Society's production possibilities frontier
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is based on simplifying assumptions, but is still useful for illustrating scarcity, opportunity cost, and economic growth
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Robin and Robert may benefit from trading, but there is insufficient information to determine who should specialize in what
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If Robin has an absolute advantage in both gardening and baking when compared to Robert, then
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an increase in the size of the labor force
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Which of the following would shift the production possibilities frontier outward?
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48 cookies
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In one week, Mohammed can knit 5 sweaters or bake 240 cookies. The opportunity cost per sweater for Mohammed is
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True
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It is possible for one person to have an absolute advantage in two tasks and a comparative advantage in only one. True or False?
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inefficiency or unemployment (or both)
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Points inside the production possibilities frontier represent
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currently unattainable combinations of outputs
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Points outside the production possibilities frontier represent
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An improvement in technology
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will shift the production possibilities frontier outward but not necessarily to a parallel position
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painting 1/40 of a room
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Helen gives up the opportunity to bake 40 cakes for each room she paints; Josh can paint one room in the time it takes him to bake 60 cakes. The opportunity cost of a cake for Helen is
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False.
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Opportunity cost is objective; therefore, its value does not change as circumstances change. True or False?
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central planning
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Which of the following is not a characteristic of pure capitalism?
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How to produce
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If dairy farmers use automatic milking machines instead of milking by hand, which economic question does their decision answer?
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buyers are willing and able to purchase at alternative prices
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The demand for a product is the amount that
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True.
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Tax preparation services and IRS tax publications can be considered substitutes. True or False?
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the behavior of buyers and sellers will automatically guide the market toward the equilibrium price and quantity
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Economists emphasize the importance of equilibrium in markets because
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clears the market, leaving neither a surplus nor a shortage
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The most important characteristic of the equilibrium price is that it
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production is characterized by increasing costs
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The basic reason that supply curves slope upward is that
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False.
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An improvement in technology shifts the supply curve rightward. True or False?
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equilibrium price will fall
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Two events occur simultaneously in the market for automobiles: (1) an improvement in assembly line technology and (2) the economy enters a recession (which decreases consumers' income). An economist would predict with certainty that
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exactly matches the independent plans of buyers and sellers
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The equilibrium point represents the only price-quantity combination in a market that
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shift the demand curve for candy
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A change in income will
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an increase in the number of new apartment complexes being built
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If the government imposes a ceiling price on apartment rents, we would expect to observe all of the following except one. Which is the exception?
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an increase in the cost of an important resource used to make that good
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Which of the following would shift the supply curve for a good to the left?
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increase only if supply decreases less than demand increases
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If demand increases and supply decreases, quantity will
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True.
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Rent controls mean that tenants end up with the best possible housing choices over the long run. True or False?
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Surplus
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Occurs when quantity supplied exceeds quantity demanded at the equilibrium price
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All markets provide the same amounts of information.
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Which of the following statements about markets is not true?
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a decrease in the price of corn
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Which of the following would cause an increase in the supply of wheat?
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the price of aspartame will increase
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Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer,
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Demand takes into account the ability to pay.
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n what way is consumer demand different from consumer wants?
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a change in the price of corn
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Which of the following will not shift the market supply curve for corn?
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increase the quantity supplied of labor while decreasing the quantity demanded of labor
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Many people argue against increasing the minimum wage because they believe the result would be increased unemployment. Which of the following best summarizes this argument? A higher minimum wage would
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The supply curve of CD players will shift rightward.
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As the use of DVDs becomes more widespread, we would expect all of the following except one. Which is the exception?
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Opportunity cost of production increases as quantity supplied increases.
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Which of the following is the reason supply curves typically slope upward?
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increased price and increased quantity
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If the tea harvest is bad in a particular year, what will happen in the market for coffee?
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If the price of black beans rose and the consumption of rice increased, they would be substitutes.
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Assume that black beans and rice are staples in the diet of one particular family. How could you tell if these goods were complements, substitutes, or unrelated goods?
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Economists
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recognize that tastes have an important impact on demand
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decrease in the price of bread
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An increase in the demand for peanut butter could be caused by a(n)
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The law of demand
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States that price and quantity are inversely related
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