Exam 1 Flashcards
What is opportunity cost?
Best defined as the value of the next best alternative forgone when a choice is made.
How is unemployment described using the production possibilities frontier model?
Producing at a point inside a production possibilities frontier.
Why does the production possibilities frontier bow outward?
Because of increasing opportunity costs.
How is economic growth shown on the production possibilities frontier?
As an outward shift of the frontier.
What does the tradeoff between current consumption and the production of capital goods reflect?
A tradeoff between present and future consumption.
When the price of a donut increases, what happens to the demand for coffee?
The demand for coffee decreases.
The cross elasticity of demand for coffee with respect to the price of a donut is ________.
Negative.
If the income elasticity of demand for vacations is 5 and incomes increase by 3 percent, by how much will the quantity of vacations demanded increase?
15 percent.
What is the price elasticity of demand if a 10 percent increase in price results in a ________ decrease in quantity demanded?
50 percent.
According to a study, if the price elasticity of demand for cigarettes is 0.25, how much must the price increase to decrease consumption by 8 percent?
32 percent.
What is the elasticity of demand for oranges when the price changes from $200 to $160 per bushel and quantity changes from 1000 to 1400 bushels?
1.33.
If the demand for a good is perfectly elastic, what is the price elasticity of demand?
Infinite.
What does a decrease in total revenue despite a larger quantity of lobster caught indicate about the demand for lobster?
The demand for lobster is elastic.
The ________ the portion of your income spent on a good, the ________ is your demand for the good.
Larger; more elastic.
If the price of ham rises, what happens to the demand for eggs?
The demand for eggs will decrease.
If macaroni and cheese is an inferior good, what happens when income increases?
The demand will decrease.
Which of the following is NOT one of the factors that influences the supply of a product?
Consumer preferences.
How does a wage increase for auto workers affect the supply of cars?
It decreases the supply of cars.
If the demand for good A increases and good B is a substitute in production, what happens to the price of good B?
The price of good B rises.
If the elasticity of supply is 4, what does a 10 percent increase in price lead to?
A 40 percent increase in quantity supplied.
When does a surplus occur?
When the price is above equilibrium.
If demand for beef decreases, what will happen in the market for leather belts?
The supply of leather belts will decrease.
When both the demand and supply curves for bottled water shift rightward, what happens to the equilibrium?
It remains indeterminate without knowing the magnitudes of shifts.
