Exam 6 Flashcards
In economics, the pleasure, happiness, or satisfaction received from a product is called
utility
Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, at least I didn’t lose any money on my financial investment. His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist’s analysis in this case incorporates the idea of
opportunity costs
Macroeconomics is mostly focused on
the economy as a whole
Which of the following most closely relates to the idea of opportunity costs?
trade-offs
One reason some manufacturing companies have moved production from overseas locations back to the United States is an increasing preference by U.S. consumers for products made in the United States. If buyers have increased their preference for domestically produced goods and manufacturers believe they can increase revenues by supplying more of these goods, firms are following which key economic idea when they return production to the United States?
people respond to economic incentives
Economics is the study of the ________ people make to attain their goals, given their ________ resources.
choices; scarce
Which of the following best describes an assumption economists make about human behavior?
They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time
An office supply store sells a ream of printer paper at a fixed price of $4.50. Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?
marginal revenue
The town of Harmonia gives away all 500 tickets to its annual Founder’s Day Free Concert-in-the-Park to local residents. Each year, more than 500 people wish to attend the concert, so some of the residents who receive the free tickets sell them for as much as $75 each. Is a transaction where someone pays a resident $75 for a “free ticket” economically efficient?
Yes, it was a voluntary exchange that benefited both parties
How are the fundamental economic decisions determined in Canada?
Individuals, firms, and the government interact in a market to make these economic decisions
Which of the following statements is true about profit?
Profit is the difference between revenue and cost
In economics, the accumulated skills and training that workers have is known as
human capital
Which of the following is a microeconomic statement?
the price of smartphones declines 2.8 percent last year
Technology is defined as
the processes used to produce goods and services
Households ________ factors of production and ________ goods and services
supply; demand
Which of the following statements is true about revenue?
Revenue is the total amount received for selling a good or service
The simple circular flow model shows that
Households are on the selling side of the resource market and on the buying side of the product market
Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand?
diminishing marginal utility
Which of the following is a fundamental characteristic of the market system?
property rights
The production possibilities frontier model shows that
if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good
The points outside the production possibilities frontier are
unattainable
You have an absolute advantage whenever you
can produce more of something than others with the same resources
Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses?
25 silk leaves
Comparative advantage means the ability to produce a good or service
at a lower opportunity cost than any other producer
Competition means that
there are independetly acting buyers and sellers in each market
The law of demand states that, other things equal
price and quantity demanded are inversely relate
Which of the following statements is correct?
An increase in the price of C will decrease the demand for complementary product D
Suppose that tacos and pizzas are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to
increase the demand for tacos and decrease the demand for soda
If the amount of carbonated sodas consumed continues to decline as consumers continue to choose to buy healthier products, this will likely
increase the demand for premium water, because premium water and carbonated sodas are considered substitutes
What is the difference between an “increase in demand” and an “increase in quantity demanded”?
An “increase in demand” is represented by a rightward shift of the demand curve while an “increase in quantity demanded” is represented by a movement along a given demand curve
The income effect of a price change refers to the impact of a change in
the price of a good on a consumer’s purchasing power
The internet has created a new category in the book selling market, namely, the “barely used” book. How does the availability of barely used books affect the market for new books?
the demand curve for new books shift to the left
A(n) _________ is represented by a leftward shift of the demand curve while a(n) _______ is represented by a movement along a given demand curve.
decrease in demand; increase in quantity demanded
If the price of beef jerky rises, then the substitution effect due to the price change will cause
a decrease in the quantity of beef jerky demanded
In September, buyers of silver expect that the price of silver will rise in October. What happens in the silver market in September, holding all else constant?
The demand curve shifts to the right
A firm has an incentive to decrease supply now and increase supply in the future if it expects that
The price of its product will be higher in the future than it is today
Which of the following would shift the supply curve for smartphones to the right?
a decrease in the price of an input used to produce smartphones
Let D=demand, S=supply, P=equilibrium price, and Q=equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?
S decreases, D no change, P increases, Q decreases
Let D=demand, S=supply, P=equilibrium price, Q=equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower levels of bad cholesterol?
D increases, S no change, P and Q increase
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
a decrease in the price of flour
Producer surplus is the difference between
the minimum prices producers are willing to accept for a product and the higher equilibrium price
Economic growth can be portrayed as
an outward shift of the production possibilities curve
Marginal cost is
the additional cost to a firm of producing one more unit of a good or service
Refer to Figure 4-1. Arnold’s marginal benefit from consuming the third burrito is
$1.50
Refer to Figure 4-1. If the market price is $1.00, what is the consumer surplus on the third burrito?
$0.50
Refer to Figure 4-1. If the market price is $1.00, what is Arnold’s consumer surplus?
$3.00
Suppliers will be willing to supply a product only if
the price received is at least equal to the additional cost of producing the product
In a competitive market equilibrium
the marginal benefit equals the marginal cost of the last unit sold
________ refers to the reduction in economic surplus resulting from not being in competitive equilibrium
Deadweight loss
Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. What area represents consumer surplus at P2?
A
Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. Refer to Figure 4-6. What area represents producer surplus at P2?
B + D
Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. Refer to Figure 4-6. What area represents the deadweight loss at P2?
C + E
Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. Refer to Table 4-7. What is the equilibrium hourly wage (W) and the equilibrium quantity of labor (Q)?
W* = $10.50; Q* = 590,000
Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. Refer to Table 4-7. If a minimum wage of $11.50 an hour is mandated, what is the quantity of labor demanded?
570,000
Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. Refer to Table 4-7. If a minimum wage of $11.50 an hour is mandated, what is the quantity of labor supplied?
610,000
Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. Refer to Table 4-7. If a minimum wage of $11.50 is mandated, there will be a
surplus of 40,000 units of labor
Rent control is an example of
a price ceiling
To affect the market outcome, a price ceiling
must be set below the equilibrium price
Economists refer to a market where buying and selling take place at prices that violate government price regulations as
a black market
The minimum wage is an example of
a price floor
Many economists support trade agreements, maintaining that the agreements improve economic efficiency because they result in goods being produced
at the lowest opportunity cost
Workers in industries protected by tariffs and quotas are likely to support these trade restrictions because
they believe the restrictions will protect their jobs
A tariff is a tax imposed by a government on
imports
Goods and services bought domestically but produced in other countries are referred to as
imports
Exports are domestically produced goods and services
sold to other countries
An economic principle that explains why countries produce different goods and services is
comparative advantage
If the opportunity costs of production for two goods is different between two countries, then
mutually beneficial trade is possible
Autarky is a situation in which a country
does not trade with other countries
Which of the following is the best example of a tariff?
a $150 fee imposed on all imported residential air conditioners
The main purpose of most tariffs and quotas is to
reduce the foreign competition that domestic firms face
Which of the following is the best example of a quota?
a limit imposed on the number of sport utility vehicles that the United States can import from Japan
Which of the following is the best example of a voluntary export restraint?
a limit set by the Korean government on the number of cell phones that the United States can import from Korea
Dumping refers to
selling a product for a price below its cost of production
It is difficult to determine if foreign companies are selling their products for prices below their costs of production because
the true costs of production are difficult to calculate
Absolute advantage is
the ability to produce more of a good or service than competitors when using the same amount of resources
A numerical limit imposed by a government on the quantity of a good that can be imported into the country is called a
quota
An agreement negotiated by two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is called
a voluntary export restraint
Protectionism
is the use of trade barriers to protect domestic firms from foreign competition
Economists believe that most persuasive argument for protectionism is to protect infant industries. But the argument has a drawback. What is this drawback?
Protection lessens the need for firms to become productive enough to compete with foreign firms; this often results in infant industries never “growing up.”
Suppose that American firms claim that protectionism in Canada is on the rise as the Canadian government attempts to protect its infant industries. This protectionism will cause the greatest harm to
manufacturers who export to Canada
