Economics Final Exam Flashcards

Questions and Answers

Which of the following could be the cross-price elasticity of demand for two goods that are complements?

1.4

0.2

-1.3 (correct)

What is the fundamental basis for trade among nations?

Absolute advantage

Shortages or surpluses in nations that do not trade

Comparative advantage (correct)

Misguided economic policies

A tax imposed on the sellers of a good will raise the:

Price paid by buyers and raise the equilibrium quantity

Price paid by buyers and lower the equilibrium quantity (correct)

Effective price received by sellers and raise the equilibrium quantity

Effective price received by sellers and lower the equilibrium quantity

The presence of a price control in a market for a good or service usually is an indication that:

Policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers Signup and view all the answers

A firm is more willing and able to increase quantity supplied in response to a price change when:

The relevant time period is long rather than short Signup and view all the answers

A tax levied on the sellers of a good shifts the:

Supply curve upward (or to the left) Signup and view all the answers

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his:

Cost of building fences Signup and view all the answers

Because public goods are:

Not excludable, people have an incentive to be free riders Signup and view all the answers

When a good is rival in consumption:

One person's use of the good diminishes another person's ability to use it Signup and view all the answers

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?

Slow replacement of old rental cars with newer ones Signup and view all the answers

'Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run'. This observation helps to explain why many economists are skeptical about the:

Infant industry argument Signup and view all the answers

Price elasticity of demand measures:

Buyers' responsiveness to a change in the price of a good Signup and view all the answers

A tax on the sellers of coffee mugs:

Decreases the size of the coffee mug market Signup and view all the answers

Total surplus:

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

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would:

Decrease by less than $500 Signup and view all the answers

The price elasticity of demand for bread:

All of the above Signup and view all the answers

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because:

Buyers tend to be much more sensitive to a change in price when given more time to react Signup and view all the answers

Total surplus is represented by the area:

Between the demand and supply curves up to the point of equilibrium Signup and view all the answers

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the:

Demand for the product is more elastic than the supply of the product Signup and view all the answers

A good is excludable if:

People can be prevented from using it Signup and view all the answers

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of:

The availability of close substitutes in determining the price elasticity of demand Signup and view all the answers

Danita rescues dogs from her local animal shelter. When Danita's income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is:

Positive, and dog biscuits are a normal good Signup and view all the answers

Externalities tend to cause markets to be:

Inefficient Signup and view all the answers

When a country allows trade and becomes an importer of a good:

Domestic producers become worse off, and domestic consumers become better off Signup and view all the answers

When a tax is levied on a good, the buyers and sellers of the good share the burden:

Regardless of how the tax is levied Signup and view all the answers

Producer surplus is:

The amount a seller is paid minus the cost of production Signup and view all the answers

A tariff is a:

Tax on an imported good Signup and view all the answers

Consumer surplus is:

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it Signup and view all the answers

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price:

The country will be an exporter of the good Signup and view all the answers

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a:

40% decrease Signup and view all the answers

When a tax is placed on a product, the price paid by buyers:

Rises, and the price received by sellers falls Signup and view all the answers

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic:

Buyers of the good will bear most of the burden of the tax Signup and view all the answers

The amount of money that a firm receives from the sale of its output is called:

Total revenue Signup and view all the answers

Average total cost equals:

(Fixed costs + variable costs) divided by quantity produced Signup and view all the answers

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then:

Decreasing output would increase the firm's profit Signup and view all the answers

Economic profit:

Will never exceed accounting profit Signup and view all the answers

A certain firm manufactures and sells computer chips. Last year it sold 2 million chips at a price of $10 per chip. For last year, the firm's:

Total revenue was $20 million Signup and view all the answers

Which of the following costs do not vary with the amount of output a firm produces?

Fixed costs Signup and view all the answers

In the short run, a firm operating in a competitive industry will shut down if price is:

Less than average variable cost Signup and view all the answers

Which of the following is a characteristic of a competitive market?

Buyers and sellers are price takers Signup and view all the answers

An example of an explicit cost of production would be the:

Lease payments for the land on which a firm's factory stands Signup and view all the answers

Which of the following is an example of an implicit cost?

Forgone rent on office space owned and used by the firm Signup and view all the answers

The firm will make the most profits if it produces the quantity of output at which:

Marginal revenue equals marginal cost Signup and view all the answers

The entry of new firms into a perfectly competitive market will:

Increase market supply and decrease market price Signup and view all the answers

In a perfectly competitive market, the process of entry and exit will end when:

Economic profits are zero Signup and view all the answers

In the long run, a firm that produces and sells electronic book readers gets to choose:

All of the above Signup and view all the answers

Which of the following statements regarding a competitive market is not correct?

Price exceeds marginal revenue Signup and view all the answers

Pizza is a normal good if the demand ___ for pizza rises when income rises.

for pizza rises when income falls Signup and view all the answers

The law of supply states that when the price of a good ___, the quantity supplied of the good rises.

rises Signup and view all the answers

The overriding reason why households and societies face many decisions is that ___

resources are scarce Signup and view all the answers

Economists view normative statements as ___

prescriptive Signup and view all the answers

When an economist is asked a question like "why is unemployment higher for teenagers than for older workers?" the economist ___

is asked to explain the cause of an economic event Signup and view all the answers

Kelly and David are both capable of repairing cars and cooking meals. Which of the following scenarios is not possible?

Kelly has a comparative advantage in both activities. Signup and view all the answers

The most obvious benefit of specialization and trade is that they allow us to ___

consume more goods than we otherwise would 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

The income of a typical worker in a country is most closely linked to which of the following?

productivity Signup and view all the answers

An increase in supply is represented by a ___

rightward shift Signup and view all the answers

Efficiency refers to how much ___

a society can produce with its resources Signup and view all the answers

An increase in the price of a good will ___

increase quantity supplied Signup and view all the answers

An increase in the price of a good will ___

decrease quantity demanded Signup and view all the answers

Which of the following events must cause equilibrium price to fall?

demand decreases and supply increases Signup and view all the answers

Market economies are distinguished from other types of economies largely on the basis of ___

the ways in which scarce resources are allocated Signup and view all the answers

The quantity demanded of a good is the amount that buyers are ___

willing and able to purchase Signup and view all the answers

Trade makes costs ___

lower and raise the variety of goods Signup and view all the answers

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers, has ___

an absolute advantage Signup and view all the answers

Which of the following events must cause equilibrium quantity to fall?

demand and supply both decrease Signup and view all the answers

If the demand for a product increases, then we would expect equilibrium price and equilibrium quantity ___

and equilibrium quantity both to increase Signup and view all the answers

Normative statements are ___

prescriptive Signup and view all the answers

When the government redistributes income from the wealthy to the poor, it is likely that ___

people work less and produce fewer goods and services Signup and view all the answers

The supply of a good or service is determined by ___

those who sell the good or service Signup and view all the answers

Senator Bright is trying to convince workers that trade is beneficial. She should argue that trade can be beneficial ___

because it allows specialization Signup and view all the answers

The forces that make market economies work are ___

supply and demand Signup and view all the answers

An increase in quantity demanded results in ___

a movement downward and to the right along a demand curve Signup and view all the answers

Suppose that Amanda receives a pay increase. We would expect ___

Amanda's demand for inferior goods to decrease Signup and view all the answers

At the equilibrium price, the quantity of the good that buyers are willing and able to buy ___

exactly equals the quantity that sellers are willing to sell Signup and view all the answers

Suppose the demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market?

equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous Signup and view all the answers

The production possibilities frontier illustrates ___

the combinations of output that an economy can produce Signup and view all the answers

For economists, statements about the world are of two types: ___

positive statements and normative statements Signup and view all the answers

While pollution regulations yield benefits, they also reduce the incomes of those affected. This statement illustrates the principle that ___

people face trade-offs Signup and view all the answers

Which of the following statements best represents the principle represented by the adage, "there is no such thing as a free lunch"?

Kendra must decide between going to Colorado or Cancun for Spring Break Signup and view all the answers

The quantity supplied of a good is the amount that ___

sellers are willing and able to sell Signup and view all the answers

The demand for a good or service is determined by ___

those who buy the good or service Signup and view all the answers

When we move along a given demand curve, ___

all non-price determinants of demand are held constant Signup and view all the answers

Approximately what percentage of the world's economies experience scarcity?

100% Signup and view all the answers

What must be given up to obtain an item is called ___

opportunity cost Signup and view all the answers

Suppose there is a 6 percent increase in the price of good X. The price elasticity of demand for X is ___

1 Signup and view all the answers

A price ceiling will be binding only if it is set ___

below the equilibrium price Signup and view all the answers

Deadweight loss measures the loss ___

in a market to buyers and sellers not offset by government revenue Signup and view all the answers

A tax levied on the sellers of a good shifts the ___

demand curve downward Signup and view all the answers

If the price elasticity is 0.2, and a price increase led to a 3% increase quantity supplied, then the price increase is about ___

15% Signup and view all the answers

The difference between social cost and private cost is a measure of ___

cost of an externality Signup and view all the answers

Which of the following is not a determinant of the price elasticity of demand for a good?

the steepness of the supply curve Signup and view all the answers

A free rider is a person who ___

receives the benefit of a good but avoids paying Signup and view all the answers

When a country allows trade and becomes an importer of a good, ___

domestic producers lose and consumers gain Signup and view all the answers

After a binding price floor becomes effective, ___

a smaller quantity of the good is bought and sold Signup and view all the answers

A consumer's willingness to pay directly measures ___

how much a buyer values a good Signup and view all the answers

Assume the nation of Cropland does not trade with the rest of the world. We can determine whether Cropland has a comparative advantage by comparing ___

comparative advantage in corn production Signup and view all the answers

When the government intervenes in markets with externalities, it does so in order to ___

protect the interests of bystanders Signup and view all the answers

Because of the free-rider problem, ___

private markets tend to undersupply public goods Signup and view all the answers

Study Notes

Normal Goods and Demand

Normal goods see increased demand as consumer income rises.
If demand for pizza increases with income, it is classified as a normal good.

Law of Supply

The law of supply indicates that an increase in price leads to an increase in the quantity supplied.
Higher prices incentivize producers to offer more goods.

Scarcity and Economic Decisions

Scarcity of resources leads to economic decision-making for households and societies.
All resources being finite means choices must be made regarding allocation.

Normative vs Positive Statements

Normative statements express opinions on how the world should be and are prescriptive.
Positive statements describe facts and measurable economic conditions.

Economic Questions and Unemployment

Economists analyze causes behind economic events, such as why teenage unemployment rates differ from those of older workers.

Comparative and Absolute Advantage

Absolute advantage occurs when a producer requires fewer inputs to produce a good than another.
Comparative advantage is when one can produce a good at a lower opportunity cost than others.

Specialization and Trade

Specialization allows for increased total output and consumption of goods beyond individual capabilities.
Trade leads to a broader variety of goods available to consumers.

Price Changes and Economic Effects

A $1 increase in the minimum wage may lead to reduced supply of products like bicycles.
Higher wages can strain employers, potentially leading to less hiring.

Productivity and Worker Income

The average income for workers is closely linked to their productivity levels.
More productive workers contribute to higher economic output.

Shifts in Supply and Demand

An increase in supply shifts the supply curve rightwards.
Changes in consumer demand can affect equilibrium price and quantity in markets.

Market Economy Characteristics

Market economies utilize supply and demand mechanisms to allocate resources efficiently.
Price elasticity of demand indicates how quantity demanded changes in response to price fluctuations.

Tradeoffs and Resource Allocation

Individuals face trade-offs, illustrated by choices such as employment opportunities or consumer goods.
Opportunity cost quantifies what is forgone when making economic choices.

Deadweight Loss and Government Intervention

Deadweight loss occurs in markets with taxes, representing unrecouped losses to buyers and sellers.
Government interventions aim to address market failures like negative externalities.

Free Rider Problem

A free rider benefits from goods or services without contributing to the cost, which can lead to underproduction.
Public goods are often undersupplied due to this phenomenon.

Cross-Price Elasticity

Cross-price elasticity for complementary goods is negative, indicating that when the price of one rises, the demand for the other decreases.

Key Economic Theories

Comparative advantage forms the basis of international trade, allowing countries to benefit from producing goods they can create efficiently.
Effective price control measures indicate government belief that market prices are unfair to buyers or sellers.

Time Period and Supply Response

Supply responsiveness to price changes is higher in the long run, allowing firms to adjust their operations fully.
Shorter periods may limit firms' abilities to respond effectively to market conditions.

Price Control Implications

Price ceilings and floors are government measures implemented to address perceived market inequities.
Binding price controls can result in shortages or surpluses, altering market dynamics.

This concise overview encapsulates essential economic principles and scenarios relevant to your studies.### Supply and Demand

A supply curve generally slopes upwards, indicating that as prices increase, quantity supplied also increases.
A demand curve slopes downwards, showing that as prices fall, quantity demanded typically increases.

Cost of Production

The cost of building fences includes all out-of-pocket expenses and the opportunity cost of the builder's time.

Public Goods

Public goods are non-excludable, which incentivizes free-rider behavior among consumers, as they cannot be prevented from using these goods without paying.

Rival in Consumption

A good is considered rival in consumption if one person's use decreases another's ability to use it, demonstrating competition for the good.

Price Ceilings

An imposed binding price ceiling on rental cars leads to a reduction in the replacement of old cars, as lower prices discourage investment.

Price Floors

A binding price floor is set above the equilibrium price resulting in a surplus in the market; producers supply more than consumers are willing to buy.

Infant Industry Argument

Temporary losses are acceptable for new firms if there is a belief that they will become profitable in the long term, challenging skepticism toward the infant industry argument.

Price Elasticity of Demand

Price elasticity of demand reflects the responsiveness of consumers to price changes; a higher elasticity indicates a larger change in quantity demanded with a price change.

Tax Impact on Markets

Taxes on sellers, such as coffee mugs, lead to reduced market size by increasing costs, which may discourage production.

Total Surplus

Total surplus encompasses the sum of consumer surplus and producer surplus, measuring market efficiency.

Tax Burden on Sellers

A tax levied on sellers results in a decrease in the price they receive compared to the tax amount, reflecting less than a dollar-for-dollar decrease for sellers.

Necessity vs. Luxury

The difference in responses to price changes between necessities and luxuries can often determine market demand elasticity based on available substitutes.

Producer Surplus

Producer surplus is defined as the excess amount received by sellers over their production costs.

Tariff Implications

A tariff imposes a tax on imported goods, affecting trade dynamics and domestic pricing.

Consumer Surplus

Consumer surplus measures the difference between the price consumers are willing to pay and the actual price they pay, indicating economic benefit.

International Trade Dynamics

When a country has a higher domestic price than the world price for a good, it will likely import that good to take advantage of lower prices abroad.

Economic Profit vs. Accounting Profit

Economic profit typically does not exceed accounting profit due to inclusion of opportunity costs in the former's measurement.

Competitive Market Characteristics

In a competitive market, buyers and sellers are both price takers, meaning they accept the market price and cannot influence it.

Implicit vs. Explicit Costs

Implicit costs, such as foregone rent, reflect opportunity costs, while explicit costs involve direct payments made during production.

Optimal Production Levels

Firms maximize profit when marginal revenue equals marginal cost, ensuring that the benefits of producing an additional unit match the costs.

Market Entry and Exit

The entry of new firms in a competitive market generally increases supply, resulting in lower prices over time until economic profits equal zero.

Long-Run Decisions for Firms

In the long run, firms have the flexibility to adjust all aspects of production, including labor, factory size, and production strategies based on average total costs.

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Prepare for your Economics final exam with these flashcards. The quiz covers definitions and key concepts, such as normal goods and the law of supply. Test your knowledge and enhance your understanding of economic principles!