Exam 1

Question 1

When society requires that firms reduce pollution, there is

Answer 1

A tradeoff because of redued incomes o the firms’ owners and workers

Question 2

Resources are

Answer 2

Scarce for households and scarce for economies

Question 3

Efficiency means

Answer 3

Society is getting the maximum benefits from its scarce resources

Question 4

When the government redistrubutes income from the wealthy to the poor

Answer 4

People work less and produce fewer goods and services

Question 5

What you give up to get an item

Answer 5

Opportunity Cost

Question 6

There is no such thing as a free lunch means

Answer 6

people face tradeoffs

Question 7

If the cross price elasticity of two goods is positve, the two goods are

Answer 7

substitutes

Question 8

Price elasticity is computed as

Answer 8

The percentage change in quantity demanded of bread divided by the percentage change in the price of bread

Question 9

Increase in income results in a decrease in the quantity demanded of a good, then for that good, the

Answer 9

income elasticity of demand is negative

Question 10

Cross price elasticity of demand measures how

Answer 10

the quantity demanded of one good changes in response to a change in the price of another good

Question 11

Key determinant of the price elasticity of supply is the

Answer 11

Time Horizon

Question 12

In general, elasticity measures

Answer 12

How much buyers and sellers respond to changes in market conditions

Question 13

Necessitites such as food and clothing tend to have

Answer 13

Low price elasticites of demand and low income elasticities of demand

Question 14

Willingness to pay

Answer 14

measures the value that a buyer places on a good

Question 15

Consumer surplus equals the

Answer 15

the value to buyers minus the amount paid by buyers

Question 16

Welfare Economics is the study of how

Answer 16

Allocation of resources affects economic well being

Question 17

Total surplus is represented by the area

Answer 17

Between the demand and supply curves up to the equilibrium

Question 18

When tax is imposed on buyers of good, demand curve shifts

Answer 18

Downward by the amount of the tax

Question 19

Efficiency in a market is achieved when

Answer 19

the sum of producer surplus and consumer surplus is maximized

Question 20

In market economy, supply and deand determine

Answer 20

Both quantity of each good produced and the price at which it is sold

Question 21

A table that shows the relationship between the price of a good and the quantity demanded of that good is called

Answer 21

a demand schedule

Question 22

what causes the equilibrium price to fall

Answer 22

Demand decreases and supply increases

Question 23

In a mrket economy, supply and demand determine

Answer 23

Both the quantity of each good produced and the price at which it is sold

Question 24

A group of buyers and sellers of a particular good or service is called

Answer 24

Market

Question 25

An increase in the price of a good will

Answer 25

Increases quantity supplied

Question 26

In a given market, how are the equilibrium price and the market clearing price related

Answer 26

They are the same price

Question 27

There is no shortage of scarce resources in a market economy because

Answer 27

Prices adjust to eliminate shortages

Question 28

Elasticity is

Answer 28

a measure of how much buyers and sellers respond to changes in market condiditons

Question 29

The price elasticity of demand measures

Answer 29

Buyers’ responsiveness to a change in the price of a good

Question 30

A key determinant of the price elasticity of supply is

Answer 30

The ability of sellers to change the amount of the good they produce

Question 31

A decrease in supply will cause the smallest increase in price when

Answer 31

Both supply and demand are elastic

Question 32

A price ceiling is

Answer 32

A legal maximum of the price a which a good can be sold

Question 33

What can be used to measure a market’s efficiency, the sum of consumer and producer surplus, and value to buyers minus the cost to sellers

Answer 33

Total surplus

Question 34

Market failure is the inability of

Answer 34

Some unregulated markets to allocate resources efficiently