Economics 1 Flashcards
What are the two characteristics of a perfectly competitive market?
A Many buyers and sellers. Different goods
B Many buyers and sellers. Identical goods
C More buyers than sellers. Different goods
D More sellers than buyers. Identical goods
B Many buyers and sellers. Identical goods
What is the difference between a normal good and an inferior good in terms of relationship to income?
Demand for normal goods goes up as income rises. Demand for inferior goods does not rise with income as buyers shift purchases to better goods.
The law of demand occurs because of which two patterns of behavior? A demand graph and demand curve B substitution effect and income effect C demand schedule and income schedule D All of the above
B substitution effect and income effect
What is demand?
A Consumers buy more of a good when its price decreases and less when the price increases
B Desire to own something and have the ability to pay for it.
C graphic representation of a demand schedule
D Table listing quantity of good all consumers in a market will buy at different price points
A Consumers buy more of a good when its price decreases and less when the price increases
If a consumer is waiting to buy a sweater until after the holiday season, which factor MOST LIKELY is influencing the decision to wait? A Income B population C consumer expectations D advertising
C Consumer expectations
Substitutes are
A goods that consumers demand less of when their income increases
B goods that consumers demand no matter the cost
C two goods that are bought and used together
D goods used in place of one another
D goods used in place of one anothe
A demand curve is an accurate tool for predicting the decisions of consumers as long as
A there are no changes other than price that could affect consumers
B there are no changes other than income that could affect consumers
C price and all other factors remain the same
D none of the above
A there are no changes other than price that could affect consumers
Why might a rise in price of electric razors result in an increase in demand for non-electric razors?
A Electric razors are inferior goods
B Consumers are looking for cheaper substitute goods
C Non-electric razors work better than electric razors
D Supply of non-electric is higher than electric razors
B Consumers are looking for cheaper substitute goods
If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes , then blue jeans and tennis shoes are A substitutes B complementary goods C normal goods D inferior goods
B complementary goods
Which of the following shifts the demand for watches to the right on the demand curve?
A decrease in the price of watches
B decrease in consumer incomes if watches are a normal good
C decrease in the price of watch batteries if watch batteries and watches are complements
D increase in the price of watches
A & C
What is a MARKET demand schedule?
A Curve showing demand quantity for any given price
B Table showing demand quantity for any given price
C Curve showing income for any given demand
D Table showing income for any given demand
B Table showing demand quantity for any given price
What is the income effect?
A Purchase of substitute goods as prices rise
B Demand change for goods as prices rise
C change in consumption resulting from a change in real income
D Rise in income as prices decline
C change in consumption resulting from a change in real income
What are elements of the demand curve? A Price axis (P) B Quanity demanded axis (Q) C A & B D None of the above
C A & B
What causes shifts in the demand curve? A Changes in income B Substitute goods C Changes in price or quantity demanded D None of the above
C Changes in price or quantity demanded
Changes in income would affect demand but not directly affect the demand curve
Which is true for the demand curve?
A Shifts left indicate an increase in demand
B Shifts right indicate an increase in demand
C Shifts left if consumers favor a good
D Shifts left as income increases
B Shifts right indicate an increase in demand
T/F If consumer tastes change in favor of a good, then demand will increase
True
T/F Expectations about the future can affect our demand for goods today
True, i.e. Expected after Christmas sale might decrease demand today. Black Friday sales will increase demand now
Which of the following is NOT true?
A Lower income likely reduces prices on most goods
B Lower income reduces demand for normal goods
C Lower income reduces demand for inferior goods
D Lower income increases demand for inferior goods
D Lower income increases demand for inferior goods
Reduced income will spur demand for generic or goods perceived as inferior i.e. Store brand pop tarts
T/F A growing population would lead to a decrease in demand
False. More consumers, higher demand
T/F If goods are complements, the fall in price of one good, would raise demand for another
True
What is the difference in a change in demand and a change in quantity demanded?
Change in demand is a left/right shift of the entire demand curve.
Change in quantity demanded is just a shift along the demand curve.
What is the law of demand?
A consumers buy more of a good when its price decreases and less when its price increases
B the desire to own something and the ability to pay for it.
C a table that lists the quantity of a good a person will buy at each different price
D a table that lists the quantity of a good all consumers in a market will buy at each different price
A consumers buy more of a good when its price decreases and less when its price increases
As the price of a slice of pizza increases, what happens to the quantity demanded?
A It increases
B It decreases
C Remains the same
D More information is needed on income levels
B It decreases
What does a market demand CURVE predict?
A what the future price of a good will be
B how much sellers can lower prices and still earn a profit
C how much of a good people will buy when the price of a good rises or falls
D what sellers will do to increase demand for a good
C how much of a good people will buy when the price of a good rises or falls
Complements are
A goods consumers demand less of when their income increases
B goods, such as medicines, that consumers must buy no matter how much they cost
C two goods that are bought and used together
D goods that can be used in place of one another
C two goods that are bought and used together
i.e. Peanut butter & jelly, watches & watch batteries
The shift to the right in a demand curve means a(n) A decrease in demand B increase in demand C decrease in income D increase in substitution
B increase in demand
T/F Efficiency means that society is getting the maximum benefits from its scarce resources
True
T/F Equity means that society is getting the maximum benefits from its scarce resources
False
Equity means benefits are distributed fairly among society’s members
Opportunity cost of an item is
A cost to produce that good
B what the market is willing to give up for the item
C net cost after taxes
D a price set by the government allowing fair profits
B what the market is willing to give up for the item
Which of these is NOT an example of marginal decision thinking
A Paying 20% more for a drink twice the size
B Paying twice the airfare to get a first class seat
C Study two extra hours in order to ace a test
D Pay the same price for a Sony TV at Best Buy instead of buying it at Walmart
D Pay the same price for a Sony TV at Best Buy instead of buying it at Walmart
Which of the following is NOT an example of response to incentives
A Donating to Goodwill in December instead of January in order to get a tax write-off sooner
B Buying coffee at Peets rather than Starbucks due to your Frequent buyer card
C Buying a TV on Black Friday
D Buying snow tires in December because you need them for travel to Tahoe
D Buying snow tires in December because you need them for travel to Tahoe
T/F Trade makes everyone better off as it allows for specialization and better efficiency
True
T/F Communism with its central government planning is usually a much better way to have an efficient economy
False.
Decision made by few inputs instead of millions of firms and households
Which of the following is NOT an example of how government might improve market outcomes
A Enforcement of basic laws such as property rights
B Protection against market failure such as stock market safeguards
C Public policies for equity such as welfare and a progressive income tax
D Government setting of prices and quantities to be produced
D Government setting of prices and quantities to be produced
T/F A country’s standard of living depends on its ability to produce goods and services
True
Usually a direct relationship between productivity and standard of living
T/F Prices fall when the government prints too much money
False
They rise due to inflation. More people have money and bid prices of goods up.
Inferior goods are
A have less demand when incomes increase
B have more demand when incomes increase
C two goods that are bought and used together
D goods used in place of one another
A have less demand when incomes increase
After a producer determines that demand for its product is inelastic, why would this firm probably raise the price of this product?
A Increases firm’s total revenues
B Consumer demand would probably increase
C Cost of production would probably decrease
D Competition would decrease
A Increases firm’s total revenues
Often done with drugs, snake venom, and other products that have a captive market
The term “inelastic” describes
A Demand that is very sensitive to price changes
B Demand that is not very sensitive to price changes
C Demand whose elasticity is exactly equal to 1
D
B Demand that is not very sensitive to price changes
PED of < 1
Price elasticity of demand
What is the definition of elasticity of demand?
Measure showing responsiveness of quantity demanded (Q) to changes in price (P) when nothing else changes.
Usually negative -Q when +P -Q/+P = -X
The key factor that determines whether the supply of a good will be elastic or inelastic is A time B consumption C price D output level
C price If not worth it, no increase in supply
time also determines how quickly producers can respond to higher demand. May be limited by output capacity or raw materials available
A market supply curve shows
A quantity supplied by producers at different prices
B supply for any set of conditions
C how prices affect the cost of raw materials
D how the supply of goods is kept in balance
A quantity supplied by producers at different prices
Which of the following leads to an increase in supply (increase in profit margin)? A increase in cost of raw materials B decrease in cost of raw materials C diminishing marginal returns D change in the law of supply
B decrease in cost of raw materials ????
According to the law of supply
A the lower the price, the greater the quantity consumed
B the higher the price, the greater the quantity produced
C if the price of a good rises, some firms will produce less
D if the price of a good falls, new firms may enter the market
B the higher the price, the greater the quantity produced
The supply curve A rises from left to right B is always a horizontal line C always rises from right to left D is always a vertical line
A rises from left to right
The law of supply describes the relationship between A price and demand B demand and supply schedule C price and quantity supplied D market supply schedule and demand
C price and quantity supplied
The \_\_\_\_\_\_\_ is a measure of the way suppliers respond to a change in price A Marginal product of labor B Ceteris paribus C Elasticity of supply D Market supply curve
D Market supply curve
A raise in the price of a product A causes firms to decrease production B causes a decrease in supply C increases competition D decreases competition
C increases competition
The measure of the way quantity supplied reacts to a change in price is A quantity supplied B supply C consumer demand D elasticity of supply
D elasticity of supply
New advances in technology usually A cause input costs to drop B increase supply at all price levels C cause the supply curve to shift to the right D all of the above
D all of the above
Which of the following is a way entrepreneurs influence supply? A subsidies B technology C regulation D taxes
B technology
All the others come from government intervention
If the market equilibrium wage for low-skilled labor is $4.50/hr and it is set at $5.15, the result is A market in equilibrium B excess supply of labor C employers ready to hire more workers D excess demand for labor
B excess supply of labor
A market in equilibrium when
A quantity demanded is greater than quantity supplied
B quantity supplied is greater than quantity demanded
C quantity supplied and quantity demanded are equal
D quantity supplied and quantity demanded are set by the government
C quantity supplied and quantity demanded are equal
Which of the following is an example of a shortage?
A Stores cannot sell all the new popular toys they have on hand
B Manufacturers make too many units of a popular toy
C Consumers cannot find enough of a popular toy
D Consumers cannot afford to buy a popular toy
C Consumers cannot find enough of a popular toy
When there is excess supply A prices tend to rise B prices tend to fall C demand rises D the government imposes price ceilings
B prices tend to fall
Which of the following is NOT an advantage of a free market price-based system?
A prices act as an incentive for buyers and sellers
B prices are flexible
C prices act as signals for buyers and sellers
D prices can easily be set by the government
D prices can easily be set by the government
In a \_\_\_\_\_\_\_\_\_, one organization decides the goods to be produced and sets prices that cannot be changed (communism) A free market economy B command economy C surplus D market based economy
B command economy
When the actual price in a market is set below the equilibrium price, you have A equilibrium B a price floor C a price ceiling D excess supply
C a price ceiling
