Unit 1

Question 1

Which of the following should be used to determine specialization?

Answer 1

Comparative Advantage

Question 2

How do you determine absolute advantage?

Answer 2

Whoever can produce more of any given product

Question 3

How do you determine opportunity cost given numerical values?

Answer 3

Divide

Question 4

Consider the market demand for peanut butter.

Choose whether each option will cause a movement along the demand curve (change in Quantity Demanded) for peanut butter or a shift of the demand curve for peanut butter, holding all else constant:

A change in the expectations of consumers about prices
A decrease in the price of hazelnut spread (a substitute for peanut butter)
An increase in the price of peanut butter
There is a tax cut that results in consumers having higher take home income

Answer 4

Shift
Shift
Movement Along
Shift

Question 5

If a shortage exists in the car market, then the current price must be _____ than the equilibrium price. For the market to reach equilibrium, you would expect ____

Answer 5

lower; buyers to offer higher prices

Question 6

If a surplus exists in the car market, then the current price must be ______ than the equilibrium price. For the market to reach equilibrium, you would expect _____

Answer 6

higher; sellers to offer lower prices

Question 7

Between 2008 and 2009, the equilibrium price of laptops remained constant, but the equilibrium quantity of laptops increased. From this, you can conclude that between 2008 and 2009, the supply of laptops ________ and the demand for laptops ________

Answer 7

increase; increased

Question 8

Suppose instead that between 2008 and 2009, the equilibrium quantity of laptops remained constant, but the equilibrium price increased. From this, you can conclude that between 2008 and 2009, the supply of laptops _______ and the demand for laptops ________

Answer 8

decreased; increased

Question 9

Law of Demand

Answer 9

The claim that, with other things being held equal, the quantity demanded of a good falls when the price of that good rises

Question 10

Demand Curve

Answer 10

A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices

Question 11

Quantity Demanded

Answer 11

The amount of a good that buyers are willing and able to purchase at a given price

Question 12

Demand Schedule

Answer 12

A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices

Question 13

Law of Supply

Answer 13

The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises

Question 14

Supply Schedule

Answer 14

A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices

Question 15

Supply Curve

Answer 15

A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices

Question 16

Quantity Supplied

Answer 16

The amount of a good that sellers are willing and able to supply at a given price

Question 17

The demand curve travels….

Answer 17

downwards

Question 18

The supply curve travels…

Answer 18

upwards

Question 19

Choose whether each event will cause a movement along the supply curve for peanut butter or a shift of the supply curve for peanut butter, holding all else constant:

A decrease in the number of producers
A decrease in the price of peanut butter
A change in expectations about the future price of peanut butter
An increase in the cost of peanuts to the peanut butter producers

Answer 19

Shift
Movement Along
Shift
Shift

Question 20

Economics

Answer 20

the study of how humans make choices under conditions of scarcity

Question 21

Microeconomics

Answer 21

the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms

Question 22

Scarcity

Answer 22

when human wants for goods and services exceed the available supply

Question 23

Law of diminishing marginal utility

Answer 23

as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units

Question 24

Opportunity cost

Answer 24

measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative

Question 25

Elastic demand

Answer 25

when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

Question 26

Inelastic demand

Answer 26

when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes

Question 27

Price ceilings always create

Answer 27

a shortage

Question 28

Price ceilings always go ___ equilibrium

Answer 28

below

Question 29

Price floors will always go ___ equilibrium

Answer 29

above

Question 30

What determines whether a good is elastic or inelastic?

Answer 30

if the absolute value is >1, it’s elastic
if the absolute value is <1, it’s inelastic
if the absolute value is =1, it is unit elastic

Question 31

Inelastic sections of graphs are

Answer 31

very steep

Question 32

A perfectly inelastic graph will appear

Answer 32

as a vertical line

Question 33

A perfectly elastic graph will appear

Answer 33

as a horizontal line

Question 34

What determines whether a good is normal or inferior?

Answer 34

if e is >0, it’s a normal good
if e<0, it’s an inferior good

Question 35

Belden Good

Answer 35

break the law of demand; demand increases with price

Question 36

Giffen Good

Answer 36

technically inferior, but quantity demand increases with price

Question 37

How do we determine cross-price elasticity?

Answer 37

Q2-Q1/the average of Q / P2-P1/the average of P

Question 38

What determines whether a good is a complement or a substitute?

Answer 38

if the number is negative, it’s a complement
if the number is positive, it’s a substitute

Question 39

How do we determine budget constraints?

Answer 39

Budget equals==

Price of one item times the quantity of said item (as a variable)

Plus

Price of other item times the quantity of said item (as a variable)

Question 40

Binding vs nonbinding price ceiling

Answer 40

Binding price ceilings are set below equilibrium, causing a shortage

Nonbinding price ceilings are set at equilibrium or below and CAN cause a surplus

Question 41

Binding vs nonbinding price floor

Answer 41

A binding price floor is set above equilibrium

A nonbinding price floor is set at or below equilibrium