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.
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A likely example of complementary goods for most people would be
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Which of the following does not affect an individual's demand curve?
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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
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If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the
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If a good is inferior, then an increase in income will result in a(n)
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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
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If the price elasticity of supply is 1.2 and the price increased by 5%, quantity supplied would
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If the price elasticity of supply is 0, then
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If the price elasticity of supply for a window manufacturer is 1.5,
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If sellers do not adjust their quantities supplied at all in response to a change in price,
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A drug interdiction program that successfully reduced the supply of illegal drugs in the U.S. likely will
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As the price elasticity of supply approaches infinity, very small changes in price lead to
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Why was OPEC unable to maintain high oil prices in the long run?
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A form of government spending that is not made in exchange for a currently produced good or service is called
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GDP is not a perfect measure of well-being; for example,
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If net exports is a negative number for a particular year, then
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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?
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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
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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
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When the consumer price index rises, the typical family
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The term inflation is used to describe a situation in which
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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
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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
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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?
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If the CPI was 95 in 1955 and 475 today, then $100 today purchases the same amount of goods and services as
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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
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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
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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?
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UA's home games are always sold out, and students who wait in line for hours may be turned away. This indicates
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The demand for Godiva mint chocolate is likely quite elastic because
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Which of the following statements helps to explain why government drug interdiction increases drug-related crime?
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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?
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In 2016, prostitution was illegal in the state of Alabama. In 2017, prostitution is now legal. Then, all things equal, GDP
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If the CPI was 127 in 1972 and 324 today, then $10 in 1972 purchased the same amount of goods and services as
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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
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Economists use the term inflation to describe a situation in which
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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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Description
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!