Texas State Economics Chapter 6-12 – Flashcards

Unlock all answers in this set

Unlock answers
question
How is the price elasticity of demand measured? The price elasticity of demand is measured as
answer
the percentage change in the quantity demanded divided by the percentage change in price
question
Compare the demand for sugar with demand for clothes. The demand for sugar is likely
answer
more inelastic because sugar tends to represent a smaller fraction of a consumers budget
question
Suppose Wendy's hamburgers have many close substitutes available. If so, then an increase in the price of Wendy's hamburgers will likely
answer
decrease the quantity of Wendy's hamburgers demanded by a relatively small amount
question
Compare the demand for water with the demand for wine. The demand for water is likely
answer
relatively more inelastic because water is a necessity
question
Consider the demand for cigarettes. Suppose the government increases the price of cigarettes by raising cigarette taxes. How will this affect the demand for cigarettes over time?
answer
If the price of cigarettes increases, then the quantity of cigarettes demanded will decrease, and this effect will likely become larger (in absolute value) over time
question
What information must economists have to estimate the price elasticity of demand? To estimate the price elasticity of demand, economists need to know
answer
the demand curve for a product
question
Which of the following is a primary determinant of the price elasticity of supply? The price elasticity of supply is affected by
answer
the passage of time
question
The supply curve for a particular product will increasingly more inelastic
answer
over a shorter period of time
question
One of the most important differences among health care systems in different countries is how people pay for the health care they receive. Which of the following countries has a single-payer health care system?
answer
Canada
question
Health care spending in the United States is forecasted to be as much as $4.6 trillion in 202, accounting for about $1 for every $5 in the economy. Currently, health care spending is roughly $2.7 trillion. How is this cost paid for most Americans?
answer
In the United States, the majority of people have private health insurance.
question
Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with asymmetric information are adverse selection and moral hazard. Which of the following is an example of moral hazard?
answer
An example of moral hazard is those with health insurance failing to exercise
question
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (ACA).
answer
The ACA provides tax credits to low-income individuals and small businesses with 25 or fewer employees
question
Although only 20 percent of all firms are corporations
answer
Corporations account for the majority of revenue and profits earned by all firms
question
A partnership is
answer
a firm owned jointly by two or more persons and not organized as a corporation
question
The owners of corporations have
answer
limited liability
question
The principal-agent problem occurs when
answer
an agent pursues his own interests rather than the interests of the principal who hired him.
question
All flow of funds from savers to borrowers through financial intermediates such as banks is indirect finance,
answer
while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is direct finance.
question
Changes in the values of a firms stocks and bonds offer important information for a firm's managers.
answer
If the price is decreasing investors are more pessimistic and are providing information that indicates the firm's managers might want to contract the business.
question
An _______ is a financial security that represents partial ownership of a firm, while a ______ is a financial security that represents a promise to repay a fixed amount of funds.
answer
stock, bond
question
Subtracting the value of a firm's liabilities from the value of its assets leaves its
answer
net worth
question
Economic profit is equal to a firm's revenues minus its cost,
answer
both explicit and implicit.
question
Accounting profit is
answer
larger than economic profit.
question
An income statement shows a firm's
answer
profits, revenues, & costs
question
Goods and services produced domestically but sold to other countries?
answer
Exports
question
Goods and services bought domestically but produced in other countries?
answer
Imports
question
Taxes imposed by a government on imports of a good into a country?
answer
Tariffs
question
A negative externality exist if
answer
the marginal social cost of producing a good or service exceeds the private cost
question
How do property rights affect externalities and market failure?
answer
Externalities and market failure will result from incomplete property rights
question
The U.S. Government has frequently used a "command-and-control" Approach in dealing with pollution. Which of the following describes this approach?
answer
The government imposes quantitative limits on the amount of pollution firms are allowed to generate.
question
In England during the middle ages, each village had an area of pasture, known as a commons, on which any family in the village was allowed to graze its cows or sheep without charge. Was the common land sed optimally?
answer
Grazing created a negative externality, resulting in the commons being overused.
question
Suppose Wendy's hamburgers have many clsoe subsitututes available. If so, then an increase in the price of Wendy's hamburgers will likely
answer
decrease the quantity of Wendy's hamburgers demanded by a relatively large amount.
question
Suppose the value of the price elasticity of demand is -3. What does this mean?
answer
1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent
question
When demand is elastic, a fall in price causes total revenue to rise because
answer
the increase in quantity sold is large enough to offset the lower price
question
Perfectly inelastic demand is represented by a demand cureve which is ______, and relatively inelastic demand is represented by a demand curve which is_____.
answer
Vertical; downward sloping
question
The price elasticity of supply is equal to
answer
the percentage change in quantity supplied divided by the percentage change in price.
question
Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with assymmetric information are adverse selection and moral hazard. Which of the following is an example of adverse selection?
answer
sick people being more likely to purchase health insurance than healthy people
question
A(n) _____ is a financial security that represents partial ownership of a firm, while a ____ is a financial security that represents a promise to repay a fixed amount of funds.
answer
stock, bond
question
Who is harmed when individual nations move from autarky to free trade?
answer
The owners of the firms that went out of business
question
What role does utility play in the economic model of consumer behavior? When modeling consumer behavior, utility
answer
reflects the satisfaction a consumer receives from consuming a particular set of goods and services.
question
The economic model of consumer behavor predicts that
answer
consumers will chose to buy the combination of goods and services that make them as well of as possible from those combinations that their budgets allow them to buy.
question
Suppose a consumer is trying to decide how much to spend on transportation and how much to spend on all other (non-transportation) cconsumption. The ecnomic model of consumer behavior predicts that the consumer will
answer
choose the combination of transportation and non-transportation consumption that makes her as well off as possible from among the combinations of transportation and non-transportation items she can afford.
question
Suppose ham is an inferiror good. How will consumers adjust their buying decisions if the price of ham changes. If the price of ham increases, then consumers will demand
answer
more ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.
question
Is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
answer
Comparative Advantage (may change as time passes and circumstances change)
question
Among the main sources of comparative adavantage are the following
answer
climate and natural resources, relative abundance of labor and capital, technology, external economies
question
We do not see complete specialization in the real world because
answer
not all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products differ
question
A situation in which a country does not trade with other countries
answer
Autarky
question
Is the ratio at which a country can trade its ecports for imports from other countries
answer
terms of trade
question
By trading, countries are able to consume more than they ould without trade. This outcome is possible because
answer
world production of both goods increases after trade, inefficiencies in resources allocation are reduced, shifting production to the more efficient country-the one with the comparative advantage-increases total production
question
Who is harmed when individual nations move from autakry to free trade
answer
The owners of the firms that went out of business
question
One effect of tariffs and quotas
answer
is to cost jobs outside the industries immediately affected
question
The primary difference between a quota and a voluntary export restraint (VER) is that
answer
the quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations
question
Some politicians argue that eliminating U.S. tariffs and quotas would help the U.S. economy only if other countries eliminated their tariffs and quotas in exchange.
answer
This statement is false; the U.S. economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas
question
Is selling a product for a price below its cost of production
answer
Dumping
question
Protectionism is the use of trade barriers to shield domestic firms from foreign competititon. Protectionism is usually justified on the basis of several arguments which include:
answer
saving jobs, protecting industries, and protecting national security
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New