MICRO Midterm Ch 1-5
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An economic situation is in equilibrium when... A. there are no incentives involved. B. no individual could be made better off by doing something different. C. it arises from individual choices that don't interact with one another. D. the outcome is fair.
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No individual could be made better off by doing something different. (We assume that equilibrium outcomes will arise from everyone looking out for his or her best interest.)
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An efficient economy is one that... A. has eliminated scarcity. B. has produced the maximum gains from trade made possible by its resources. C. relies on a sense of civic duty, rather than incentives, to motivate its citizens. D. does not face any trade-offs.
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Has produced the maximum gains from trade made possible by its resources. ( During periods of high unemployment, the economy is not using all of its labor resources efficiently.)
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Marginal decisions are choices about... A. making incremental changes. B. how to spend the rest of your life. C. how to use resources when no opportunity cost is involved. D. personal values and opinions.
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Making incremental changes. (Marginal decisions arise when we make a decision about \"how much\"?) -comparison of the costs and the benefits of doing something (EX. Each bite of the candy bar has a costs and benefit) -whether to do a bit more or a bit less of that activity
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Economic theory predicts that people are most likely to change their behavior when... A. they realize that they have been imposing harm on others. B. they are given incentives to do so. C. they ignore opportunity costs. D. they don't think about trade-offs.
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They are given incentives to do so. --> Price of gasoline rises; people buy more fuel-efficient cars -->There are more well-paid jobs available for college graduates with economics degrees; more students major in economics
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Incentives serve to... A. eliminate the problem of scarcity. B. make decisions more complicated. C. provide a reward for a change in behavior. D. eliminate opportunity cost.
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Provide a reward for a change in behavior.
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When economic interactions lead to inefficient outcomes, we call this... A. opportunity failure. B. market disequilibrium. C. market failure. D. marginal economics.
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Market failure. (An example of an inefficient outcome would be pollution caused by the production process.)
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A resource is... A. anything that can be used to produce something else. B. a physical attribute of land. C. an intangible aspect of a society, such as its culture. D. a sum of money used to start a business.
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Anything that can be used to produce something else. (Resources are the inputs for the economy's production process.) -Choices are necessary because resources are scarce
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Recessions occur when... A. inflation is present. B. overall spending exceeds the nation's capacity for production. C. overall spending falls short of the amount of goods and services that the economy is capable of producing. D. there is an increase in overall prices.
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Overall spending falls short of the amount of goods and services that the economy is capable of producing. (This highlights the connection between spending and income.)
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The tools of macroeconomic policy include... A. regulating prices charged by public utilities. B. government spending, taxes, and control of the money supply. C. helping new firms find investors. D. setting the minimum wage.
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Government spending, taxes, and control of the money supply.
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We can predict market outcomes with reasonable accuracy by relying on the idea that A. decisions are made without regard to incentives. B. markets move toward equilibrium. C. gains from trade are rarely observed. D. decisions are rarely made at the margin.
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Markets move toward equilibrium. (This is a key component of the economic method.) -Market usually leads to efficiency (people normally take opportunities for mutual gains) -One person's spending is another person's income (Government policies can change spending)
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In 1776, Adam Smith illustrated the advantages of specialization with the example of... A. a steam engine. B. a pin factory. C. candle makers. D. a blacksmith.
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A pin factory.
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The opportunity cost of an item is... A. whatever is given up to obtain it. B. the monetary price paid, plus any taxes. C. the monetary price paid, plus any interest. D. the monetary price paid.
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Whatever is given up to obtain it. (An opportunity cost arises whenever a choice is made among alternatives.) -True cost of something is its opportunity cost
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If there are gains from trade, then.... A. market outcomes will not exhibit the effects of interaction. B. we all have more to consume by trading with one another. C. any one individual will end up consuming whatever he or she has produced. D. in each transaction, someone gains and someone loses.
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We all have more to consume by trading with one another. -specialization (increase in output) - each person specializes in the task that he or she is good at performing -economy, as a whole, can produce more when each person specializes in a task and trades with others
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If you choose to go to a baseball game, rather than to a movie.... A. there is no opportunity cost of going to the baseball game. B. then the admission price for the baseball game must be more than admission to the movie. C. then part of the opportunity cost of going to the baseball game is the enjoyment you would have received from going to the movie. D. then the admission price for the baseball game must be less than admission to the movie.
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Then part of the opportunity cost of going to the baseball game is the enjoyment you would have received from going to the movie. (In choosing among alternatives, we often think about what we are missing by not choosing something else.)
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The goals of equity and efficiency A. tend to conflict with one another. B. are the same. C. are both automatically achieved through market interactions. D. can be achieved with the same policies.
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Tend to conflict with one another. -Resources should be used efficiently to achieve society's goals.
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Which one of the following goods would NOT be efficiently provided by markets? A. Computers B. Air traffic control C. Clocks D. Textbooks
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Air traffic control
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For which of these groups of people is the opportunity cost of attending college especially high? A. People interested in chemistry B. People who enjoy reading C. People interested in politics D. People who are star athletes
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People who are star athletes (For star athletes, a college degree would cost millions of dollars.)
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Efficient
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Taking all opportunities to make some people better off without making other people worse off -Markets are (ususally) efficient: we can measure their benefit to sicety by measuring: --consumer surplus & producer suprlus
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Equity
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A condition in which everyone gets his or her \"fair share\"
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What happens when a new checkout line opens at a busy supermarket?
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People will move to the new checkout line changing the equilibrium (any time there is a change, the economy will move to a new equilibrium)
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Market failure
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Individual pursuit of self-interest found in market makes society worse off --> market outcomes is inefficient
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Which of the following is a statement of positive economics? A. We need to reduce our dependence on foreign oil. B. Higher energy prices will increase incomes in mineral-rich nations. C. Teachers earn too little. D. Star athletes earn too much.
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Higher energy prices will increase incomes in mineral-rich nations.
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To determine whether you have a comparative advantage creating smart-phone apps, we would have to know.. A. what you would charge for selling the app. B. how many people would purchase your app. C. whether you can create an app at a lower opportunity cost than anyone else. D. how long it takes you to create an app.
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Whether you can create an app at a lower opportunity cost than anyone else. (Opportunity cost is the key to comparative advantage.)
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Factor markets determine A. the slope of the production possibilities frontier. B. the variety and quality of products that will be produced. C. the income distribution. D. the amount of money that will be collected in taxes.
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The income distribution.
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When countries specialize according to their comparative advantage, and then trade with one another, A. they both will be worse off than if they were self-sufficient. B. one country will gain and the other will lose. C. there can be mutual gains from trade. D. one country will become richer and the other will become poorer.
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There can be mutual gains from trade.
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In one day, Kessy can bake 10 cookies or mix 15 glasses of lemonade. Hint: Assume constant opportunity costs. (means that the PPF will be a straight line NOT a parabola) -draw a production possibility frontier for Kessy. - Plot a point to identify a production combination of cookies and lemonade that is feasible but not efficient. - Then identify a production combination that is feasible and efficient. -identify a production combination that is not feasible in production.
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The production possibility frontier (PPF) for Kessy has one endpoint on the vertical axis at 10 cookies and one endpoint on the horizontal axis at 15 glasses of lemonade. A production combination of cookies and lemonade that is feasible (meaning could be produced) but not efficient (meaning does not make the best use of resources) would be any point to the left of the PPF. A production combination of cookies and lemonade that is feasible and efficient would be any point on the PPF. A production combination of cookies and lemonade that is not feasible would be any point to the right of the PPF.
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An economy is efficient if A. it produces things that have no opportunity cost. B. there are no missed opportunities. C. there is a way to make someone better off without making anyone else worse off. D. it produces only one type of good.
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There are no missed opportunities. (Specifically, we say that an economy is efficient if it has not missed any opportunities to make someone better off without making anyone else worse off.)
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Economic growth can arise from.... A. resources becoming relatively more scarce. B. ignoring opportunity cost. C. producing more of one thing and less of another. D. an increase in an economy's factors of production.
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An increase in an economy's factors of production. (This could include the discovery of more natural resources, a growth in the labor force, or the acquisition of more skills by members of the labor force.)
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In moving from point to point along a production possibilities frontier, the economy.... A. is becoming more efficient. B. is becoming less efficient. C. is producing more of one thing at no opportunity cost. D. is producing more of one thing at the opportunity cost of giving up some production of the other.
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Is producing more of one thing at the opportunity cost of giving up some production of the other. (The slope of the curve reflects the opportunity cost.)
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The production possibilities frontier is a depiction of.... A. the amount of inputs needed to produce a given amount of output. B. the maximum quantities of two goods an economy may produce. C. the amount of money it takes to keep an economy functioning. D. the prices and quantities of goods available for trade.
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The maximum quantities of two goods an economy may produce. (This model represents possible outcomes for an economy with a given level of resources and technology.)
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Within the circular-flow diagram, the factor market is the place where.... A. households buy the products they want. B. firms buy the resources they need for the production of goods and services. C. firms make transactions between one another. D. firms sell the products they have manufactured.
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Firms buy the resources they need for the production of goods and services.
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The bowed-out shape of the production possibilities frontier reflects.... A. increasing opportunity cost. B. the nature of economic growth. C. the fact that all resources are scarce. D. the increase in resources that will result from more production.
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Increasing opportunity cost. (As we produce more of one thing, the resources devoted to that activity might be better suited for other activities.)
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The form of trade in which goods and services are traded directly for other goods and services is known as.... A. possibilities trading. B. productivity trading. C. barter. D. advantage trading.
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Barter.
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What increases Economic Growth? (Two Possibilities)
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-An increase in factors of production: resources used to produce goods and services -Better technology: The technical means for producing goods and services
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Starbucks is the largest coffeehouse company Part 1: Recently, fast food companies, such as McDonald's, have started offering premium coffee drinks. show how the model would change due to this change in the market. Label this new curve D2. Part 2: Starbucks introduces a Frequent Latte Card in its stores. With the card customers get free coffees after buying a certain number of drinks. show how the original demand curve would change after this new policy is introduced. Label this new curve D3.
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Original D will be in between the new Demand Curves of D2(left/bottom) & D3 (right/top)
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Assuming that pretzels are a substitute for popcorn, which of the following would cause a decrease in the demand for pretzels? A. An increase in the number of people shopping for snack foods B. A lower price of popcorn C. A lower price of pretzels D. A higher price of popcorn
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A lower price of popcorn (People will buy more popcorn and fewer pretzels.)
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Assuming that ice cream is a normal good, which of the following could cause an increase in the demand for ice cream? A. A decrease in incomes B. An increase in the price of complements for ice cream, such as cherries and flavored toppings C. An increase in the price of substitutes for ice cream, such as frozen yogurt D. A sudden spell of unexpectedly cold weather
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An increase in the price of substitutes for ice cream, such as frozen yogurt (An increase in the price of a substitute good will cause an increase in demand.)
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A rightward shift of the demand curve shows that A. the price of the product has decreased. B. something has happened to cause a lower quantity demanded at every given price. C. something has happened to cause a higher quantity demanded at every given price. D. the price of the product has increased.
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Something has happened to cause a higher quantity demanded at every given price. (We call this an increase in demand.)
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A movement along the supply curve is caused by A. a change in input prices. B. a change in the number of producers. C. a change in technology. D. a change in the price of the good or service.
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A change in the price of the good or service. (This shows that the quantity supplied is changing in response to price.)
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Assuming that hardcover books are a normal good, which of the following could cause a decrease in demand for hardcover books? A. A decrease in incomes B. A higher price for e-books C. An increase in incomes D. A higher price for paperback books
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A decrease in incomes (This would be reflected in a leftward shift of demand.) a shift in demand curve - is a change in quantity demanded at any given price a shift of demand to the right (increase) - at same price people are buying more than before a shift of demand to the left (decrease) - at same price people are buying less than before
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As the population of your city grows, this will cause a(n) _____ in the demand for pizza, and the demand for pizza will shift to the _____ . A. increase; left B. decrease; left C. increase; right D. decrease; right
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Increase; right The quantity demanded at every given price will increase.
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When demand and supply decrease simultaneously, A. the equilibrium price rises but the change in equilibrium quantity is ambiguous. B. the equilibrium quantity rises but the change in equilibrium price is ambiguous. C. the equilibrium price falls but the change in equilibrium quantity is ambiguous. D. the equilibrium quantity falls but the change in equilibrium price is ambiguous.
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The equilibrium quantity falls but the change in equilibrium price is ambiguous. (The equilibrium quantity falls because there is now less of a need for something that is relatively more difficult to bring to market.)
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Higher wages paid to construction workers would A. increase the supply of newly constructed homes. B. increase the demand for newly constructed homes. C. decrease the supply of newly constructed homes. D. decrease the demand for newly constructed homes.
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Decrease the supply of newly constructed homes. (This leftward shift of supply would lead to higher prices for new homes.)
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Along a given demand curve, an increase in price of the product will A. increase the quantity demanded. B. decrease the quantity demanded. C. decrease the demand. D. increase the demand.
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Decrease the quantity demanded. (This relationship is known as the law of demand.) -Demand Curve is a downward slope -as price goes decrease quantity demand increases -as price increase quantity demand decrease
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Which of the following would cause a decrease in the supply of wool sweaters? A. Higher prices of wool B. Improved technology in knitting wool sweaters C. Lower prices for wool blankets, a substitute in production D. Lower prices of wool
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Higher prices of wool (This would mean that a smaller quantity of wool sweaters would be supplied at every possible price.)
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When the demand for a product decreases, A. the equilibrium price will decrease and equilibrium quantity will increase. B. both the equilibrium price and quantity will decrease. C. the equilibrium price will increase and equilibrium quantity will decrease. D. both the equilibrium price and quantity will increase.
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Both the equilibrium price and quantity will decrease. (This is shown as a leftward shift of demand.)
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If there is a widely held expectation that prices of cotton will be higher next year, then A. the demand for cotton will shift to the left today. B. the demand for cotton will increase today. C. there will be no change in the current demand. D. the demand for cotton will decrease today.
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The demand for cotton will increase today. (Expectations of a future price increase will serve to increase demand today.)
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When the supply of a product decreases, A. both the equilibrium price and quantity will decrease. B. the equilibrium price will increase and equilibrium quantity will decrease. C. the equilibrium price will decrease and equilibrium quantity will increase. D. both the equilibrium price and quantity will increase.
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the equilibrium price will increase and equilibrium quantity will decrease. (This is shown as a leftward shift of supply.)
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A competitive market is... A. a market in which everyone negotiates his or her own price. B. a market that is supplied by local producers. C. a market that is supplied by foreign producers. D. a market in which there are many buyers and sellers of the same good or service.
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A market in which there are many buyers and sellers of the same good or service. (This means that no individual market participant can influence the price of the product.)
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A surplus arises when A. quantity demanded exceeds quantity supplied. B. price is held below the equilibrium price. C. quantity supplied exceeds quantity demanded. D. quantity supplied equals quantity demanded.
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Quantity supplied exceeds quantity demanded. (This would happen when price is held above the equilibrium level.)
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If there is a surplus of wheat on the market, A. then some potential consumers looking to buy wheat will not be able to find any to purchase. B. the price of wheat will rise. C. the price of wheat will fall. D. then we know that the price is below equilibrium.
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The price of wheat will fall. (This shows the tendency of price to adjust toward equilibrium.)
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What Causes a Demand Curve to Shift?
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-Changes in the price of related goods (substitutes; complements) -Change in income (normal goods; inferior goods) -Changes in tastes -Changes in expectations
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A movement along demand curve.....
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A change in the quantity demanded of a good that is the result of a change in the good's price
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A supply curve shows...
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Graphically how much of a good or service people are willing to sell at any given price (As price rises, quantity supplied rises)
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Shifts of the supply curve...
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-A shift of the supply curve is a change in the quantity supplied of a good at any given price -A shift to the right for the supply curve - is an increase in supply @ any given price -A shift to the left for the supply curve - a decrease in supply @ any given price
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What causes a supply curve to shift?
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-Changes in input price -Changes in the prices of related goods and services -Change in technology -Change in expectations (future) -Change in the number of producers (more producers = supply increase)
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A shortage is.....
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When quantity demanded exceeds the quantity supplied (occurs when price is below its equilibrium level)
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Equilibrium and shifts of the demand curve will..
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-Demand curve (shifting to the right) will lead to -increase in demand -increase in price -increase in quantity -a movement along the supply curve due to higher equilibrium price and higher equilibrium quantity
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Equilibrium and shifts of the supply curve will...
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-Supply curve (shifting to the left) will lead to -decrease in supply -increase in price -decrease in quantity -a movement along the demand curve due to higher equilibrium price and lower equilibrium quantity
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Technology shifts the supply curve will..
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-Supply curve (shifts to the right) will lead to -increase in supply -decrease in price -increase in quantity -a movement along the demand curve to a lower equilibrium price and higher equilibrium quantity
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Simultaneous shifts of supply and demand will..
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Demand & Supply increases = Price: ambiguous; Quantity: increase Demand decrease & Supply increase = Price: decrease; Quantity: ambiguous Demand increase & Supply decrease = Price: increase; Quantity: ambiguous Demand decrease & Supply decrease = Price: ambiguous; Quantity: decrease
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Total surplus in the market is equal to.. A. the number of consumers. B. the sum of consumer surplus and producer surplus. C. the difference between consumer surplus and producer surplus. D. the number of producers.
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The sum of consumer surplus and producer surplus. (This is a measure of the gains from trade.) -helps up understand why markets are an effective wy to organize economic activity
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When there are many buyers in the market for backpacks, A. they all receive the same amount of consumer surplus. B. consumer surplus will be zero. C. the total consumer surplus will be the area above the demand curve to the left of the equilibrium quantity. D. the total consumer surplus will be the area beneath the demand curve but above the current price of backpacks.
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The total consumer surplus will be the area beneath the demand curve but above the current price of backpacks. (In this instance, the amount of consumer surplus received by each buyer depends on the maximum price he or she is willing to pay.)
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If the price of a good rises while demand remains unchanged, then A. total consumer surplus will remain unchanged. B. total consumer surplus will increase. C. total consumer surplus will decrease. D. each individual will receive a larger amount of consumer surplus.
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Total consumer surplus will decrease. (This will make the consumer surplus triangle smaller.)
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The fact that there is a positive amount of total surplus in a market shows that A. it is impossible for both parties to a transaction to benefit from it. B. the cost of producing most goods is zero. C. there are gains from trade. D. consumers overpay for most products.
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There are gains from trade. (In other words, there is a benefit for both the consumers and producers.)
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The amount of net gain that a producer receives from a transaction depends directly on A. the cost incurred to supply the product and the price at which it can be sold. B. the amount of consumer surplus generated by the transaction. C. the number of other firms supplying the same product. D. the amount of time that consumers spend searching for the good.
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The cost incurred to supply the product and the price at which it can be sold. (The difference between the selling price and the firm's cost is the amount of producer surplus generated.)
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Wilhelm operates a courier service, and he can complete a standard delivery at a cost of $11. When the market price of a standard delivery rises from $13 to $14, what is the outcome for Wilhelm? A. His producer surplus on each standard delivery will fall from $3 to $2. B. His producer surplus on each standard delivery will rise from $2 to $3. C. His producer surplus on each standard delivery will rise from $1 to $2. D. His producer surplus on each standard delivery will remain unchanged.
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His producer surplus on each standard delivery will rise from $2 to $3. (The higher selling price will result in a larger net gain.)
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An efficient market will allocate consumption of goods to A. the wealthiest consumers. B. the potential buyers who are the most well-liked. C. the potential buyers who value these goods most highly. D. the poorest consumers.
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The potential buyers who value these goods most highly. (We assume that those who value a good the most also have the highest willingness to pay.)
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If you have a used bicycle to sell, and the minimum price for which you would sell it is $75, then we can say that A. no one will offer you more than $75. B. your cost is $75. C. if you are offered $100, you will refuse to sell it. D. even if you are only offered $50, you will still sell it.
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Your cost is $75. (This suggests that you could receive $75 value from having the bicycle.)
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Your willingness to pay for a backpack is A. the minimum price you would offer to purchase the backpack. B. the equilibrium price of the backpack. C. the maximum price at which you would still purchase the backpack. D. the amount that the seller of the backpack expects to receive.
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The maximum price at which you would still purchase the backpack ( We assume that this price indicates your position on the demand curve.)
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Natasha, Nelson, and Nikolai all are looking to buy flashlights for a camping trip. Natasha is willing to pay $11, Nelson is willing to pay $12, and Nikolai is willing to pay $15. If the actual price of a flashlight turns out to be $10, and if each of the three buys one flashlight, what is the total consumer surplus for these three shoppers? A. $12 B. $8 C. $15 D. $11
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$8 (Natasha will receive $1 of consumer surplus, Nelson will receive $2, and Nikolai will receive $5.)
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Pilar and Penelope both go to the supermarket, looking for banana ice cream. Pilar is willing to pay $4.00 per half-gallon; Penelope is willing to pay $3.00. If the actual price of a half-gallon of banana ice cream is $3.50, what will be the outcome? A. Both Pilar and Penelope will buy a half gallon of ice cream, and they each will receive $0.50 of consumer surplus. B. Neither Pilar nor Penelope will buy the ice cream. C. Penelope will not buy the ice cream, but Pilar will, and she will receive $0.50 of consumer surplus. D. Both Pilar and Penelope will buy a half gallon of ice cream, but neither will receive any consumer surplus.
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Penelope will not buy the ice cream, but Pilar will, and she will receive $0.50 of consumer surplus. (In this instance, Penelope will not receive any consumer surplus.)
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Ahmed is willing to mow lawns for $20 each, Boris is willing to mow lawns for $25 each, and Chelsea is willing to mow lawns for $30 each. If the going rate for lawn mowing is $35, and if Ahmed, Boris, and Chelsea each mow one lawn, what is the total producer surplus received by the three of them? A. $100 B. $75 C. $30 D. $35
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$30 (Ahmed would receive producer surplus of $15, Boris would receive $10, and Chelsea would receive $5.)
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Which of the following would increase your individual consumer surplus from pizza? A. More consumers want to buy pizza B. Lower prices of pizza C. A change in your preferences that makes pizza less appealing to you D. Higher prices of pizza
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Lower prices of pizza (This would increase your net gain from the transactions of buying pizza.)
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As concerns about climate change have become more prevalent over the past three years, there has been an increase in the demand for environmentally-friendly construction materials. Part 1: Illustrate the market for construction materials before the prevalence of environmental concerns (representing market conditions 3 years ago). draw the initial supply and demand curves for these construction materials. Part 2: Indicate the original equilibrium price and quantity in the market three years ago. Label this point E. Part 3: identify the new demand curve (D2) for these construction materials (after the impact of environmental concerns). Part 4: identify the new equilibrium price and quantity in the market. Label this point E2.
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-Begin by drawing a downward sloping demand curve and an upward sloping supply curve -label their intersection as point E. -draw a new demand curve that lies above and to the right of the original demand curve; this shows an increase in demand. -The new equilibrium point (E2) will be where the new demand curve intersects the original supply curve.
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Leonardo is a sidewalk artist who paints portraits. His cost of painting a portrait is €120. If Leonardo can sell each portrait for € 200, A. then he earns an individual producer surplus of €200 on each one. B. then his customers will not receive any consumer surplus. C. then he earns an individual producer surplus of €80 on each one. D. then he earns an individual producer surplus of €100 on each one.
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Then he earns an individual producer surplus of €80 on each one. (Leonardo will view this as his net gain from each transaction.)
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The values given on the supply curve indicate A. seller's cost. B. consumer surplus. C. producer surplus. D. seller's profit.
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Seller's cost. (This indicates a type of opportunity cost.)
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Ezra is willing to pay $6,000 for a motorcycle, but he is able to purchase one for $5,500. Which of the following statements is true? A. Ezra receives $6,000 consumer surplus from this transaction. B. Ezra receives no consumer surplus from this transaction. C. Ezra receives $5,500 consumer surplus from this transaction. D. Ezra receives $500 consumer surplus from this transaction.
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Ezra receives $500 consumer surplus from this transaction. (This is a measure of Ezra's net benefit.)
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Because prices convey information, we say that they are A. market codes. B. market billboards. C. economic signals. D. property signs.
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Economic signals. (This information leads to better decisions about the use of resources.)
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An efficient market ensures that A. all consumers will agree that the equilibrium price is a fair price. B. all transactions are mutually beneficial. C. all firms will be profitable. D. outcomes will be equitable.
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All transactions are mutually beneficial. (This means that all goods produced will yield a benefit greater than the cost of producing them.)
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Describes the apartment market in Newark. Part 1: Suppose that the government decides to impose rent control in the amount of $600. Draw the price ceiling. Label it Price ceiling. Part 2: indicate the quantity demanded (Qd) and the quantity supplied (Qs) after the imposition of the rent control. Part 3: Illustrate the deadweight loss (DL) due to the imposition of the rent control.
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-draw a horizontal line at the level of 600, a price below the market equilibrium price. -The quantity supplied at this government-imposed price will be at the point where the price ceiling line crosses the supply curve; label this point Qs. -The quantity demanded will be at the point where the price ceiling line crosses the demand curve; label this point Qd. (Notice that the quantity supplied is less than the quantity demanded because the price ceiling is below the equilibrium price; this inefficiently low level of transactions results in a deadweight loss.) To illustrate the deadweight loss; the triangular area between the demand curve and the supply curve from the quantity transacted at the price ceiling
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Who benefits from a system of rent control? A. Tenants in apartments that are not subject to rent control B. Tenants in rent-controlled apartments C. All tenants D. Landlords of rent-controlled apartments
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Tenants in rent-controlled apartments (Those tenants who have access to a rent-controlled apartment will benefit.)
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If a price floor is imposed above the equilibrium price in a market, it will result in A. an increase in consumer surplus. B. an inefficiently high quantity of the good being consumed. C. an inefficiently low quality for the good. D. an inefficiently low quantity of the good being consumed. Correct! This inefficiently low quantity will result in a deadweight loss. Right Points Earned: 1/1 Correct Answer: D Your Response: D
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An inefficiently low quantity of the good being consumed. (This inefficiently low quantity will result in a deadweight loss.)
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When a quota creates a difference between the demand price and the supply price of a good, the name given to this difference is A. quota rent. B. windfall profit. C. licensed profit. D. deadweight wedge.
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Quota rent. (Producers who are able to sell in a quota-restricted market will tend to earn relatively high profits.)
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If the price of a good is held below the equilibrium price, A. quantity demanded will exceed quantity supplied. B. quantity supplied will exceed quantity demanded. C. demand will increase. D. supply will decrease.
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Quantity demanded will exceed quantity supplied. (Consumers respond to the lower price by demanding more, but producers respond by supplying less.)
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Which of the following statements is true? A. Both price floors and price ceilings create surpluses. B. Both price floors and price ceilings result in wasted resources. C. Both price floors and price ceilings create shortages. D. Both price floors and price ceilings result in inefficiently high quantities.
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Both price floors and price ceilings result in wasted resources. ( Price controls tend to create a deadweight loss.)
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If the price of a good is held above the equilibrium price, A. supply will increase. B. demand will decrease. C. quantity demanded will exceed quantity supplied. D. quantity supplied will exceed quantity demanded.
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Quantity supplied will exceed quantity demanded. (This will result in a surplus.)
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A price floor is A. a maximum price established by government intervention. B. the highest price a consumer will pay for a good. C. a minimum price established by government intervention. D. the lowest price a producer will accept for a good.
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a minimum price buyers are required to pay for a good or service (established by government intervention.) (Price floors typically result in surpluses.)
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A price ceiling is A. the lowest price a producer will accept for a good. B. a minimum price established by government intervention. C. a maximum price established by government intervention. D. the highest price a consumer will pay for a good
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A maximum price sellers are allowed to charge for a good or service (established by government intervention.) (A price ceiling is typically imposed in response to claims that the current price is too high.) --typically imposed during crises--wars, harvest failures, natural disasters..
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An upper quantity limit on the amount of a good that can be traded is known as A. a quota. B. a quantity certificate. C. a supply sanction. D. a quantity boundary.
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A quota.
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Price ceilings typically lead to inefficiencies because A. they misallocate resources. B. they are unfair to consumers. C. they result in inefficiently high quality. D. they cause higher profits for producers.
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They misallocate resources (Price ceilings prevent some potentially beneficial transactions.)
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Price floors generate a deadweight loss because they A. result in an inefficiently high quantity. B. prevent mutually beneficial transactions from occurring. C. result in an inefficiently low quality. D. are unfair to producers.
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Prevent mutually beneficial transactions from occurring. (Price floors typically result in inefficiently low quantities and inefficiently high quality, and some customers are priced out of the market.)
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How price ceilings cause inefficiency...
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-inefficiently low quantity -inefficient allocation to customers -wasted resources -inefficiently low quality -black markets
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How price floor causes inefficiency..
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-deadweight loss from inefficiently low quantity -inefficient allocation of sales among sellers -wasted resources -inefficiently high quality -temptation to break the law by selling below legal price
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Microeconomics deals with: A. the working of the entire economy or large sectors of it. B. economic growth. C. individual decision makers in the economy. D. gross domestic product.
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Individual decision makers in the economy.
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Which of the following would be studied in macroeconomics? A. the change in automobile sales due to a change in the price of automobiles B. the impact of a tax reduction on the profits of an individual business C. recessions D. the unemployment of workers displaced by technological change in the typesetting industry
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Recessions
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The problem of scarcity is confronted by: A) industrialized societies only. B) preindustrialized societies only. C) societies governed by communist philosophies only. D) all societies.
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All societies.
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Scarcity in economics means: A) We do not have sufficient resources to produce all of the goods and services we want. B) The wants of people are limited. C) There must be poor people in rich countries. D) Economists are clearly not doing their jobs.
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We do not have sufficient resources to produce all of the goods and services we want.
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A resource is anything that: A) can be used in production. B) you pay for. C) is in scarce supply. D) can be consumed.
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Can be used in production.
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Which is not an example of a resource? A) land B) labor C) capital D) production
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Production
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You can spend $100 on either a new economics textbook or a new CD player. If you choose to buy the new economics textbook, the opportunity cost is: A) $100. B) your enjoyment of the new CD player. C) both the $100 and the your enjoyment of the new CD player. D) impossible to determine.
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Your enjoyment of the new CD player.
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8. The local Taco Hut charges the same price for everything on its menu: $3 will buy a taco, a burrito, or nachos. You buy the taco and think that if you had not purchased the taco, you would have purchased the burrito. The opportunity cost of the taco is: A) the $3. B) your enjoyment of the burrito. C) the $3 and your enjoyment of the burrito. D) the $3, your enjoyment of the burrito, and your enjoyment of the nachos.
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Your enjoyment of the burrito.
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The cost of leaving a championship soccer match before it ends is ________, while the cost of staying for the entire match is ________. A) the opportunity cost of not seeing the winning goal with two minutes to go; zero—the ticket to the match is already paid so there is no cost B) the opportunity cost of not seeing the winning goal with two minutes to go; the opportunity cost of what else you could have done during that time C) zero—you don't have to pay to leave; zero—the ticket to the match is already paid so there is no cost D) the cost of the ticket; also the cost of the ticket
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The opportunity cost of not seeing the winning goal with two minutes to go; the opportunity cost of what else you could have done during that time
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The cost of going to college is: A) tuition and the cost of housing. B) tuition, the cost of housing, and the cost of books. C) tuition, the cost of books, and forgone income. D) forgone income only.
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Tuition, the cost of books, and forgone income.
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11. The student center on campus has burritos, bagels, or burgers for lunch, and they all cost the same. You decide to have a burger today, but if they were out of burgers, you would have bought a bagel. Your opportunity cost is: A) your enjoyment of the burger. B) your enjoyment of the bagel. C) your enjoyment of the burrito. D) your enjoyment of the bagel and burrito.
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Your enjoyment of the bagel.
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The concept of the margin deals with: A) making incremental choices. B) all or none of something. C) engaging in unethical activities. D) making difficult choices.
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Making incremental choices.
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For which of the following decisions would marginal analysis be most relevant? A) Should I go to college or work after graduating from high school? B) Should I eat another doughnut? C) Should I use $20,000 as a down payment on a house or buy a car? D) Should I get married?
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Should I eat another doughnut?
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After eating three slices of pizza, you decide to eat one more piece. Your decision is an example of the economic principle called: A) opportunity-cost decision. B) people responding to incentives. C) equity decision. D) marginal decision making.
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Marginal decision making.
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Some baseball fans leave the game in the seventh or eighth inning to avoid the post-game traffic. The fans are: A) not considering they have already paid the cost of their tickets. B) making marginal decisions by comparing the cost of leaving early to the benefit of leaving early. C) thinking only about the benefits of avoiding traffic. D) underestimating the value of staying for the rest of the game.
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Making marginal decisions by comparing the cost of leaving early to the benefit of leaving early.
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Which of the following demonstrates how people respond to incentives to make themselves better off? A) More students major in economics when they hear that salaries for economists are rising. B) Students are assigned dorm rooms through a lottery system. C) Students are encouraged to donate blood because it is the \"right thing to do.\" D) Students and faculty are encouraged to wear college apparel to support the college athletic teams.
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More students major in economics when they hear that salaries for economists are rising.
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17. Which of the following methods of encouraging recycling is likely to be most effective? A) appealing to the consumers to \"be a good citizen\" B) publicizing the advantages of recycling C) imposing a tax per unit of garbage generated D) All three methods are equally effective.
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Imposing a tax per unit of garbage generated
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To encourage people to retire later, the government could: A) lower Social Security benefits. B) raise the tax rate on older individuals. C) engage in a public service campaign explaining the value of these employees to the economy. D) increase Social Security benefits.
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Lower Social Security benefits
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Corner offices in high-rise office buildings usually cost more to rent than other offices. This best illustrates the economic principle of: A) marginal analysis. B) scarce resources. C) resources being used as efficiently as possible to achieve society's goals. D) opportunity costs.
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Scarce resources.
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In Ventura County, California, strawberry production is limited by the number of acres available for agriculture production. This statement best represents this economic concept: A) Resources are scarce. B) \"How much\" is a decision at the margin. C) There are gains from trade. D) Resources should be used as efficiently as possible to achieve society's goals.
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Resources are scarce.
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Which of the following is not one of the four principles for understanding individual choice? A) Resources are scarce. B) Overall spending sometimes gets out of line with the economy's productive capacity. C) \"How much\" is a decision at the margin. D) People usually take advantage of opportunities to make themselves better off.
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Overall spending sometimes gets out of line with the economy's productive capacity.
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A busy professor can't decide whether to stay in his office to grade papers for another hour or to go home and go to bed. This is an example of: A) equity versus efficiency. B) how one person's spending is another person's income. C) economic incentives. D) marginal analysis.
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Marginal analysis.
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23. Florida schools offered cash bonuses to students who scored high on the state's standardized exams. The cash bonuses are an example of which of the following basic economic principles? A) Resources are scarce. B) The real cost of something is what you must give up to get it. C) There are gains from trade. D) People usually take advantage of opportunities to make themselves better off.
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People usually take advantage of opportunities to make themselves better off.
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24. Who wrote The Wealth of Nations, a book that many credit with establishing economics as a discipline? A) Karl Marx B) David Ricardo C) Adam Smith D) John Maynard Keynes
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Adam Smith
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If every individual were required to be self-sufficient: A) living standards would fall. B) living standards for some individuals would fall, but for others they would rise. C) living standards would rise. D) it's impossible to say how living standards would change.
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Living standards would fall.
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Specialization in production was the starting point for what book in economics that many regard as the beginning of economics? A) The Wealth of Nations, by Adam Smith B) The General Theory, by John Maynard Keynes C) Das Kapital, by Karl Marx D) Free to Choose, by Milton Friedman
answer
The Wealth of Nations, by Adam Smith
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If disequilibrium exists in a market: A) it will continue unless there is government intervention. B) no individual will be better off doing something different. C) there will be opportunities available to people to make themselves better off. D) it must be because the government has intervened in the market, resulting in the market's failure to reach equilibrium.
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There will be opportunities available to people to make themselves better off.
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Economists use the term equilibrium to describe: A) when individuals are equal. B) when no individual would be better off taking a different action. C) when no individual has an incentive to change his or her behavior. D) when no individual would be better off taking a different action or when no individual has an incentive to change his or her behavior.
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when no individual would be better off taking a different action or when no individual has an incentive to change his or her behavior.
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Economists say an economy is efficient when: A) the problem of scarcity is eliminated. B) output is distributed equitably. C) all opportunities to make some people better off without making other people worse off have been taken. D) all opportunities to make some people worse off without making other people better off have been taken.
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All opportunities to make some people better off without making other people worse off have been taken.
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Which of the following is not a reason that markets usually lead to efficiency? A) People are naturally efficient. B) Individuals have incentives to offer what people want. C) Trade encourages efficiency. D) Inefficient firms will lose business.
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People are naturally efficient.
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When individuals act in their own self-interest: A) efficiency is always achieved. B) equity is always achieved. C) society may be worse off in some cases. D) all opportunities have been taken to make some people better off without making other people worse off.
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Society may be worse off in some cases.
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When markets fail: A) government intervention may help. B) the market realizes the maximum possible gains from trade given the available resources. C) there may still be an efficient allocation of resources. D) no goods and services are produced.
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Government intervention may help.
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At various times, the nations that comprise the Organization of Petroleum Exporting Countries (OPEC) have restricted the supply of oil to increase their profits. This is an example of: A) individual actions whose side effects are not properly taken into account by the market. B) one party preventing mutually beneficial trades in an attempt to capture a greater share of resources for itself. C) the unsuitability of some goods for efficient management by markets. D) regulating self-interest.
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One party preventing mutually beneficial trades in an attempt to capture a greater share of resources for itself.
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Which of the following demonstrates one of the three principles of economy-wide interactions? A) A student chooses to rent a movie with friends rather than study for an economics quiz. B) Your roommate offers to pay for the movie tickets if you drive to the theatre. C) A city builds a new public park on the grounds of an abandoned warehouse. D) Fearing a recession, Congress approved a White House proposal to send tax rebates to 2007 taxpayers.
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Fearing a recession, Congress approved a White House proposal to send tax rebates to 2007 taxpayers.
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Owen had a typewriter business but he went out of business because no one buys typewriters anymore. This statement best represents this economic concept: A) Resources are scarce. B) People usually exploit opportunities to make themselves better off. C) Markets move toward equilibrium. D) One person's spending is another person's income.
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One person's spending is another person's income.
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The principle that people will exploit opportunities to do what is best for others is the basis of all predictions by economists about individual behavior. A) True B) False
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True
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Handicapped-designated parking spaces are an example of the market economy achieving efficiency. A) True B) False
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True
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At most airports there are multiple security guards ready to screen passengers, and their luggage, through the X-ray and metal detector checkpoints. The length of the wait for each line is about the same. Why?
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Passengers will always prefer a shorter line to a longer line. If one line begins to shorten significantly, you will see somepassengers switch from a longer line to the shorter line.Passengers will continue to switch lines until there is noperceived advantage to switching. This is the concept ofequilibrium—the situation in which no individual would be better off doing something different
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A popular train station has free parking for commuters who take the train. This often results in many people being unable to find a parking spot and missing their train. Which of the following plans would most likely help to solve this parking problem? A) All commuters are automatically given a parking pass along with their ticket. B) All commuters are required to pay an hourly price for parking. C) All commuters can purchase an annual pass which allows them to park at the train station. D) All commuters are exempt from parking lot fees.
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All commuters are required to pay an hourly price for parking.
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Suppose small business owners decide to spend less. How will this affect an economy? A) It will have no impact, since this group makes up a small portion of any economy. B) It will decrease the level of income of other people, since one person's spending becomes someone else's income. C) It will cause prices for many goods to increase. D) It will increase the level of income in the economy, since other groups will spend more.
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It will decrease the level of income of other people, since one person's spending becomes someone else's income.
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The models that economists construct: A) usually make simplifying assumptions. B) often rely on physical constructs, such as those used by architects. C) rarely use mathematical equations or graphs. D) attempt to replicate the real world.
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Usually make simplifying assumptions.
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Economic models are: A) created and used to duplicate reality. B) useless if they are simple. C) made generally of wood, plastic, and/or metal. D) often useful in forming economic policy.
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Often useful in forming economic policy.
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All points inside the production possibility frontier represent: A) efficient production points. B) inefficient production points. C) infeasible production points. D) economic growth.
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Inefficient production points.
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All points outside the production possibility frontier are: A) efficient production points. B) inefficient production points. C) infeasible production points. D) economic growth.
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Infeasible production points
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An inward shift in the U.S. economy's production possibility frontier could represent which of the following? A) U.S. workers moving to Canada B) U.S. workers moving from New Jersey to Massachusetts C) U.S. economic growth D) U.S. economic growth as workers move to different states
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U.S. workers moving to Canada
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The process observed when an economy's production possibility frontier is shifted outward is: A) comparative advantage. B) economic growth. C) full employment. D) specialization.
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economic growth.
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As long as people have different ________, everyone has a comparative advantage in something. A) direct costs B) benefits C) utility D) opportunity costs
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opportunity costs
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The economy that has the lowest cost for producing a particular good is said to have: A) a technological advantage. B) a comparative advantage. C) a production possibility frontier. D) an increasing opportunity cost.
answer
a comparative advantage.
