EC 111 Practice Exam #1

Questions and Answers

An increase in the price of a good will

increase demand

increase quantity demanded

decrease quantity demanded (correct)

decrease demand

If a good is normal, then an increase in income will result in a(n)

increase in the demand for the good (correct)

movement down and to the right along the demand curve for the good

decrease in the demand for the good

movement up and to the left along the demand curve for the good

Two goods are substitutes when a decrease in the price of one good

increases the demand for the other good

decreases the quantity demanded for the other good

increases the quantity demanded of the other good

decreases the demand for the other good (correct)

We could expect the current demand for razors to increase.

razors to increase Signup and view all the answers

A likely example of complementary goods for most people would be

canoes and paddles Signup and view all the answers

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

the number of buyers Signup and view all the answers

Recent forest fires in the western states are expected to cause the price of lumber to rise in the next 6 months. As a result, we can expect the supply of lumber to

fall now Signup and view all the answers

If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the

supply of bicycles will shift to the left Signup and view all the answers

If a good is inferior, then an increase in income will result in a(n)

decrease in demand for the good Signup and view all the answers

Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know the doctor's visits are

normal goods Signup and view all the answers

If the price elasticity of supply is 1.2 and the price increased by 5%, quantity supplied would

increase by 6% Signup and view all the answers

If the price elasticity of supply is 0, then

the quantity supplied is the same, regardless of price Signup and view all the answers

If the price elasticity of supply for a window manufacturer is 1.5,

a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied Signup and view all the answers

If sellers do not adjust their quantities supplied at all in response to a change in price,

supply is perfectly inelastic Signup and view all the answers

A drug interdiction program that successfully reduced the supply of illegal drugs in the U.S. likely will

raise the price, reduce the quantity, increase total revenues, and increase crime Signup and view all the answers

As the price elasticity of supply approaches infinity, very small changes in price lead to

very large changes in quantity supplied Signup and view all the answers

Why was OPEC unable to maintain high oil prices in the long run?

demand and supply are both elastic in the long run compared to the short run Signup and view all the answers

A form of government spending that is not made in exchange for a currently produced good or service is called

a transfer payment Signup and view all the answers

GDP is not a perfect measure of well-being; for example,

all of the above are correct Signup and view all the answers

If net exports is a negative number for a particular year, then

the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year Signup and view all the answers

What word do economists use to refer to the purchase of goods that will be used in the future to produce more goods and services?

investment Signup and view all the answers

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

raises GDP Signup and view all the answers

A stove is produced by a firm in 2014, added to the firm's investors in 2014, and sold to a household in 2015. It follows that

the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP Signup and view all the answers

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living Signup and view all the answers

The term inflation is used to describe a situation in which

the overall level of prices in the economy is increasing Signup and view all the answers

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

substitution bias Signup and view all the answers

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

when a new good is introduced, it gives consumers greater choice thus reducing the amount they must spend to maintain their standard of living Signup and view all the answers

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

unmeasured quality change Signup and view all the answers

If the CPI was 95 in 1955 and 475 today, then $100 today purchases the same amount of goods and services as

$20 purchased in 1955 Signup and view all the answers

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

$39,097.74 Signup and view all the answers

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

$264 Signup and view all the answers

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' income rises?

both the equilibrium price and quantity would decrease Signup and view all the answers

UA's home games are always sold out, and students who wait in line for hours may be turned away. This indicates

the ticket price is below the equilibrium price Signup and view all the answers

The demand for Godiva mint chocolate is likely quite elastic because

all of the above are correct Signup and view all the answers

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

drug addicts will have an even greater need for quick cash to support their habits Signup and view all the answers

Fuji Motors is a Japanese owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010, Fuji Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Fuji Motor's inventory. The transaction just described contributes how much to U.S. GDP for 2010?

$30 million Signup and view all the answers

In 2016, prostitution was illegal in the state of Alabama. In 2017, prostitution is now legal. Then, all things equal, GDP

increases Signup and view all the answers

If the CPI was 127 in 1972 and 324 today, then $10 in 1972 purchased the same amount of goods and services as

$25.51 purchases today Signup and view all the answers

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living Signup and view all the answers

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising Signup and view all the answers

Study Notes

Demand and Supply Concepts

An increase in the price of a good leads to a decrease in quantity demanded.
For normal goods, rising income increases demand, while for inferior goods, it decreases demand.
Substitutes are goods where a price decrease in one leads to a decrease in demand for the other.
Complementary goods, like canoes and paddles, see their demand increase together.

Price Elasticity

Price elasticity of supply indicates how much quantity supplied changes in response to price changes.
A perfectly inelastic supply means quantity supplied remains unchanged regardless of price.
As elasticity approaches infinity, small price changes can significantly increase quantity supplied.

Government and Economic Indicators

Gross Domestic Product (GDP) measures economic performance but fails to capture environmental quality or income distribution.
Transfer payments represent government spending not exchanged for goods or services.
Net exports become negative when the value of imports exceeds exports.

Consumer Price Index (CPI) Insights

CPI may overestimate living costs due to substitution bias, where consumers alter their purchases based on relative prices of goods.
CPI is calculated based on a fixed basket of goods, which can distort the true cost of living when new goods enter the market.
A rise in the CPI indicates that families must spend more to maintain their standard of living.

Market Dynamics

Market equilibrium is influenced by consumer income changes, particularly for inferior goods.
If prices are below market equilibrium, there will be excess demand, evident in sold-out scenarios.
The elasticity of demand for luxury goods, such as Godiva chocolates, tends to be higher due to available substitutes.

Drug Market Implications

Government efforts to reduce drug supplies can inadvertently increase crime as addicts seek cash for needs.
Successful drug interdiction often leads to higher prices and lower equilibrium quantities in the drug market.

GDP Contributions

GDP contributions account for all produced goods sold, including inventory additions.
The legality of economic activities, like prostitution, directly affects GDP calculations when their status changes.

Historical Contexts

CPI and inflation assessments require understanding past and present values, showing how money's purchasing power changes over time based on index values.

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Test your knowledge on economic principles with this practice exam featuring flashcard questions focused on demand theory. Each question challenges your understanding of how price and income affect demand and quantity demanded. Perfect for EC 111 students preparing for exams!

EC 111 Practice Exam #1

Questions and Answers

An increase in the price of a good will

If a good is normal, then an increase in income will result in a(n)

Two goods are substitutes when a decrease in the price of one good

We could expect the current demand for razors to increase.

A likely example of complementary goods for most people would be

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

Recent forest fires in the western states are expected to cause the price of lumber to rise in the next 6 months. As a result, we can expect the supply of lumber to

If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the

If a good is inferior, then an increase in income will result in a(n)

Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know the doctor's visits are

If the price elasticity of supply is 1.2 and the price increased by 5%, quantity supplied would

If the price elasticity of supply is 0, then

If the price elasticity of supply for a window manufacturer is 1.5,

If sellers do not adjust their quantities supplied at all in response to a change in price,

A drug interdiction program that successfully reduced the supply of illegal drugs in the U.S. likely will

As the price elasticity of supply approaches infinity, very small changes in price lead to

Why was OPEC unable to maintain high oil prices in the long run?

A form of government spending that is not made in exchange for a currently produced good or service is called

GDP is not a perfect measure of well-being; for example,

If net exports is a negative number for a particular year, then

What word do economists use to refer to the purchase of goods that will be used in the future to produce more goods and services?

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

A stove is produced by a firm in 2014, added to the firm's investors in 2014, and sold to a household in 2015. It follows that

When the consumer price index rises, the typical family

The term inflation is used to describe a situation in which

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

If the CPI was 95 in 1955 and 475 today, then $100 today purchases the same amount of goods and services as

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' income rises?

UA's home games are always sold out, and students who wait in line for hours may be turned away. This indicates

The demand for Godiva mint chocolate is likely quite elastic because

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

In 2016, prostitution was illegal in the state of Alabama. In 2017, prostitution is now legal. Then, all things equal, GDP

If the CPI was 127 in 1972 and 324 today, then $10 in 1972 purchased the same amount of goods and services as

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

Economists use the term inflation to describe a situation in which

Study Notes

Demand and Supply Concepts

Price Elasticity

Government and Economic Indicators

Consumer Price Index (CPI) Insights

Market Dynamics

Drug Market Implications

GDP Contributions

Historical Contexts

Studying That Suits You

Description

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