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Questions and Answers
Which of the following could be the cross-price elasticity of demand for two goods that are complements?
Which of the following could be the cross-price elasticity of demand for two goods that are complements?
What is the fundamental basis for trade among nations?
What is the fundamental basis for trade among nations?
A tax imposed on the sellers of a good will raise the:
A tax imposed on the sellers of a good will raise the:
The presence of a price control in a market for a good or service usually is an indication that:
The presence of a price control in a market for a good or service usually is an indication that:
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A firm is more willing and able to increase quantity supplied in response to a price change when:
A firm is more willing and able to increase quantity supplied in response to a price change when:
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A tax levied on the sellers of a good shifts the:
A tax levied on the sellers of a good shifts the:
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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:
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:
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Because public goods are:
Because public goods are:
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When a good is rival in consumption:
When a good is rival in consumption:
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Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?
Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?
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'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:
'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:
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Price elasticity of demand measures:
Price elasticity of demand measures:
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A tax on the sellers of coffee mugs:
A tax on the sellers of coffee mugs:
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Total surplus:
Total surplus:
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If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would:
If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would:
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The price elasticity of demand for bread:
The price elasticity of demand for bread:
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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:
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:
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Total surplus is represented by the area:
Total surplus is represented by the area:
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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:
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:
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A good is excludable if:
A good is excludable if:
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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:
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:
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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:
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:
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Externalities tend to cause markets to be:
Externalities tend to cause markets to be:
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When a country allows trade and becomes an importer of a good:
When a country allows trade and becomes an importer of a good:
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When a tax is levied on a good, the buyers and sellers of the good share the burden:
When a tax is levied on a good, the buyers and sellers of the good share the burden:
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Producer surplus is:
Producer surplus is:
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A tariff is a:
A tariff is a:
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Consumer surplus is:
Consumer surplus is:
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If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price:
If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price:
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If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a:
If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a:
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When a tax is placed on a product, the price paid by buyers:
When a tax is placed on a product, the price paid by buyers:
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When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic:
When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic:
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The amount of money that a firm receives from the sale of its output is called:
The amount of money that a firm receives from the sale of its output is called:
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Average total cost equals:
Average total cost equals:
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If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then:
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then:
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Economic profit:
Economic profit:
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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:
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:
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Which of the following costs do not vary with the amount of output a firm produces?
Which of the following costs do not vary with the amount of output a firm produces?
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In the short run, a firm operating in a competitive industry will shut down if price is:
In the short run, a firm operating in a competitive industry will shut down if price is:
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Which of the following is a characteristic of a competitive market?
Which of the following is a characteristic of a competitive market?
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An example of an explicit cost of production would be the:
An example of an explicit cost of production would be the:
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Which of the following is an example of an implicit cost?
Which of the following is an example of an implicit cost?
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The firm will make the most profits if it produces the quantity of output at which:
The firm will make the most profits if it produces the quantity of output at which:
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The entry of new firms into a perfectly competitive market will:
The entry of new firms into a perfectly competitive market will:
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In a perfectly competitive market, the process of entry and exit will end when:
In a perfectly competitive market, the process of entry and exit will end when:
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In the long run, a firm that produces and sells electronic book readers gets to choose:
In the long run, a firm that produces and sells electronic book readers gets to choose:
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Which of the following statements regarding a competitive market is not correct?
Which of the following statements regarding a competitive market is not correct?
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Pizza is a normal good if the demand ___ for pizza rises when income rises.
Pizza is a normal good if the demand ___ for pizza rises when income rises.
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The law of supply states that when the price of a good ___, the quantity supplied of the good rises.
The law of supply states that when the price of a good ___, the quantity supplied of the good rises.
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The overriding reason why households and societies face many decisions is that ___
The overriding reason why households and societies face many decisions is that ___
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Economists view normative statements as ___
Economists view normative statements as ___
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When an economist is asked a question like "why is unemployment higher for teenagers than for older workers?" the economist ___
When an economist is asked a question like "why is unemployment higher for teenagers than for older workers?" the economist ___
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Kelly and David are both capable of repairing cars and cooking meals. Which of the following scenarios is not possible?
Kelly and David are both capable of repairing cars and cooking meals. Which of the following scenarios is not possible?
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The most obvious benefit of specialization and trade is that they allow us to ___
The most obvious benefit of specialization and trade is that they allow us to ___
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If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the ___
If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the ___
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The income of a typical worker in a country is most closely linked to which of the following?
The income of a typical worker in a country is most closely linked to which of the following?
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An increase in supply is represented by a ___
An increase in supply is represented by a ___
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Efficiency refers to how much ___
Efficiency refers to how much ___
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An increase in the price of a good will ___
An increase in the price of a good will ___
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An increase in the price of a good will ___
An increase in the price of a good will ___
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Which of the following events must cause equilibrium price to fall?
Which of the following events must cause equilibrium price to fall?
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Market economies are distinguished from other types of economies largely on the basis of ___
Market economies are distinguished from other types of economies largely on the basis of ___
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The quantity demanded of a good is the amount that buyers are ___
The quantity demanded of a good is the amount that buyers are ___
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Trade makes costs ___
Trade makes costs ___
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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 ___
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 ___
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Which of the following events must cause equilibrium quantity to fall?
Which of the following events must cause equilibrium quantity to fall?
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If the demand for a product increases, then we would expect equilibrium price and equilibrium quantity ___
If the demand for a product increases, then we would expect equilibrium price and equilibrium quantity ___
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Normative statements are ___
Normative statements are ___
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When the government redistributes income from the wealthy to the poor, it is likely that ___
When the government redistributes income from the wealthy to the poor, it is likely that ___
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The supply of a good or service is determined by ___
The supply of a good or service is determined by ___
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Senator Bright is trying to convince workers that trade is beneficial. She should argue that trade can be beneficial ___
Senator Bright is trying to convince workers that trade is beneficial. She should argue that trade can be beneficial ___
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The forces that make market economies work are ___
The forces that make market economies work are ___
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An increase in quantity demanded results in ___
An increase in quantity demanded results in ___
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Suppose that Amanda receives a pay increase. We would expect ___
Suppose that Amanda receives a pay increase. We would expect ___
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At the equilibrium price, the quantity of the good that buyers are willing and able to buy ___
At the equilibrium price, the quantity of the good that buyers are willing and able to buy ___
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Suppose the demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market?
Suppose the demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market?
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The production possibilities frontier illustrates ___
The production possibilities frontier illustrates ___
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For economists, statements about the world are of two types: ___
For economists, statements about the world are of two types: ___
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While pollution regulations yield benefits, they also reduce the incomes of those affected. This statement illustrates the principle that ___
While pollution regulations yield benefits, they also reduce the incomes of those affected. This statement illustrates the principle that ___
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Which of the following statements best represents the principle represented by the adage, "there is no such thing as a free lunch"?
Which of the following statements best represents the principle represented by the adage, "there is no such thing as a free lunch"?
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The quantity supplied of a good is the amount that ___
The quantity supplied of a good is the amount that ___
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The demand for a good or service is determined by ___
The demand for a good or service is determined by ___
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When we move along a given demand curve, ___
When we move along a given demand curve, ___
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Approximately what percentage of the world's economies experience scarcity?
Approximately what percentage of the world's economies experience scarcity?
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What must be given up to obtain an item is called ___
What must be given up to obtain an item is called ___
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Suppose there is a 6 percent increase in the price of good X. The price elasticity of demand for X is ___
Suppose there is a 6 percent increase in the price of good X. The price elasticity of demand for X is ___
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A price ceiling will be binding only if it is set ___
A price ceiling will be binding only if it is set ___
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Deadweight loss measures the loss ___
Deadweight loss measures the loss ___
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A tax levied on the sellers of a good shifts the ___
A tax levied on the sellers of a good shifts the ___
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If the price elasticity is 0.2, and a price increase led to a 3% increase quantity supplied, then the price increase is about ___
If the price elasticity is 0.2, and a price increase led to a 3% increase quantity supplied, then the price increase is about ___
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The difference between social cost and private cost is a measure of ___
The difference between social cost and private cost is a measure of ___
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Which of the following is not a determinant of the price elasticity of demand for a good?
Which of the following is not a determinant of the price elasticity of demand for a good?
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A free rider is a person who ___
A free rider is a person who ___
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When a country allows trade and becomes an importer of a good, ___
When a country allows trade and becomes an importer of a good, ___
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After a binding price floor becomes effective, ___
After a binding price floor becomes effective, ___
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A consumer's willingness to pay directly measures ___
A consumer's willingness to pay directly measures ___
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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 ___
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 ___
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When the government intervenes in markets with externalities, it does so in order to ___
When the government intervenes in markets with externalities, it does so in order to ___
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Because of the free-rider problem, ___
Because of the free-rider problem, ___
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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!
