Exam 1 Flashcards
A point outside a production possibilities frontier indicates
an output combination that society cannot attain given its current level of resources and technology.
opportunity cost is best defined as
the highest-valued alternative that is forgone when choosing among various alternatives
a bowed outward production possibilities frontier occurs when
as more of a good is produced, producing additional units of it require greater reductions in the other good.
As an economy’s capital stock increases, the economy
experiences economic growth.
Comparative advantage is
the ability to perform an activity at a lower opportunity cost than anyone else.
the law of demand most directly means that consumers buy
less of a good the higher its price, all else held constant.
what happens to the demand for CDs if the price of CD player falls?
the demand for CDs increases because the price of a complement falls.
Which of the following increases the demand for a normal good?
the price of the good is expected to increase in the future.
which of the following shifts the supply curve for oranges?
disastrous weather that destroys about half of this year’s orange crop.
which of the following would increase the equilibrium price and increase the equilibrium quantity of used cars?
a fall in income if used cars are an inferior good
doctors find that one aspirin per day reduces the risk of heart attacks. demand for aspirin will
increase, so that equilibrium price and equilibrium quantity will increase.
there is a technological advance in the production of ice cream. AS a result, the supply curve of ice cream shifts ____ and ____.
rightward; the equilibrium price and equilibrium quantity fall.
an economy produces only food and shelter. there are two individuals in the economy: Bill and Mary. Mary’s opportunity cost of producing 1 unit of shelter is 4 units of food.
Mary has a comparative advantage over Bill in the production of shelter.
Suppose that in an hour Joe can prepare 10 sandwiches or 5 pizzas. the opportunity cost of joe producing one sandwich is
1/2 pizza.
During the last decade, the price of a computer fell every year and the quantity sold increased every year. This experience suggests that the
supply curve shifted rightward.
the short run effect of a decrease in the supply of housing is a _____ in the rent and _____ in the quantity of housing units.
rise; a decrease
Price ceilings
- should be below equilibrium price.
2. cause shortages.
a legal minimum on the price at which a good can be sold is called a
- price floor
- cause surpluses?
- set higher than eq. price
the government raises the sales tax on shirts. the tax is imposed on sellers. as a result, the
supply curve of shirts shifts leftward.
suppose equilibrium wage is $10 an hour. a minimum wage is a ______ and affects employment if it is set at _____.
price floor; $12 an hour
if a subsidy paid to producers of $1 per gallon of milk is introduced, how will that affect the market?
supply will increase.
if a subsidy paid to producers of $1 per gallon of milk is introduced, what happens to quantity sold?
it increases above 300 million gallons.
the price elasticity of demand is defined as the magnitude of the
percentage change in quantity demanded divided by the percentage change in price.
elasticity generally measures the
responsiveness of a variable to a change in another variable.
when the price of a movie ticket increases from $5 to $7, the quantity of tickets demanded decreases from 600 to 400 a day. What is the price elasticity of demand for movie tickets?
1.20
the price elasticity of demand for new cars is 1.2 Hence, a 10 percent price increase will
decrease the quantity of new cars demanded by 12 percent.
If a consumer is relatively insensitive to changes in the price of a good, then the consumer’s demand for the good is
inelastic
demand is price elastic if a
relatively small price increase leads to a relatively large decrease in the quantity demanded.
if the price elasticity of demand for gasoline is 0.8 and the price elasticity of demand for plane tickets is 2.2 then the demand for gasoline is _____ and the demand for plane tickets is _____.
inelastic; elastic
If the demand for a electricity is perfectly inelastic over the price range of $.10 and $.20 per kilowatt hour, then the elasticity of demand for electricity over this price range is equal to
0
Demand is inelastic when a price _____ results in total revenue ______.
rise, increasing
if sam wants to increase her total revenue from her sales of flowers and she knows that the demand for flowers is price elastic, she should
lower her price because she knows that the percentage increase in the quantity demanded will be greater than the percentage decrease in price.
if a product has very few substitutes, demand elasticity is likely to be
inelastic
which of the following makes demand less elastic?
a short time elapsing since the product’s price changed
which of the following statements is FALSE?
a narrowly defined good or service generally has a less elastic demand; its more elastic because it has more substitutes
a determinant of the price elasticity of demand is
the proportion of the consumer’s total budget spent on the good.
total revenue for skis is at a maximum when the price elasticity of demand is
1
if a price floor is set in a market, then
sellers cannot sell all they want at the price floor.
