Chapter 3 Econ

I'm gonna crashout

In economics, the concept of demand is defined as the desire to own something

combined with the ability to pay for it.

According to the law of demand, when the price of pizza goes up,

consumers will buy less pizza.

Juanita has noticed that the price of bagels has gone up. Because of this, she has decided to buy a less expensive yogurt every morning for her breakfast. This is an example of the

substitution effect.

Marty just finished creating a market demand schedule for his hardware store. Which of the following is he most likely trying to determine?

How many tools are sold to all consumers in the market at various prices.

If Tino responds to a sharp increase in his transportation costs by buying fewer clothes, he is demonstrating

the income effect.

"Ceteris paribus" means demand will change when price changes

if other market factors remain constant.

In general, a decrease in consumer income will have what effect on demand for normal goods?

It will cause demand to fall.

The increasing age of the American population is an example of how

changing demographics can cause demand shifts.

Which of the following is the best example of substitute for movie tickets?

Rentals of on-demand programming

A change in demand for one good will have what effect on its complement?

The same effect

Shana continues to buy a necessary medicine even though prices for the medicine rise sharply. Shana's behavior shows how

demand for necessities is inelastic.

Suppose demand for a product is highly elastic. What will likely happen to a company's total revenue if it raises the price of that product?

Total revenue will fall.

Suppose the price of a good rises. In general, how does the percentage of your budget you spend on that good affect the elasticity of your demand for goods overall?

The higher the percentage of your budget a good represents, the more elastic your overall demand.

Why does demand generally become more elastic over time?

People have time to find substitutes and change behaviors.

Do higher prices lead to increased revenues for a company?

Sometimes

The law of supply declares which of the following?

Supply falls as price falls.

What does a firm's supply schedule show?

How price changes affect supply for a market

Which of the following typically happens as prices for a good or service rises?

More suppliers enter the market.

What does it mean to say that supply is unitary elastic?

The percentage change in price and in supply are the same.

Consider each of these business activities. For which do you think supply would be most elastic in the short term?

Baking cupcakes

Which of the following would be an example of a fixed cost on a farm?

Mortgage on the land

To increase marginal return, a company might consider

purchasing more machinery.

In general, it is a bad move for a company to produce more of a good or service if, by doing so,

marginal cost exceeds marginal revenue.

In determining the optimal level of output, a firm should aim for the

point of maximum profitability for the company.

In which of the following situations would a business be wise to shut its factory?

When fixed costs exceed revenue.

What is the effect of lower input costs?

Decreased marginal cost

How do subsidies help producers?

They increase revenues.

Which of the following government actions would increase the supply of cars in the United States?

The removal of car mileage regulations

Which factor would shift the supply curve for ethanol in the United States to the right?

A trade agreement with Brazil opening U.S. markets to imported ethanol

A new film company's decision to locate its operations in the film-production center of Southern California is most similar to which of the following?

A firm locating close to the inputs of its product

At the point of equilibrium shown in the graph, how many slices of pizza will the pizzeria supply, and at what price?

200 slices at $3.00 apiece

If a business owner becomes aware of a shortage in the market for the good or service he or she produces, he or she is likely to

increase supply more and raise the price.

What role does the profit incentive play when there is a surplus of a good?

It encourages producers to lower their prices.

Which of the following describes a way that the minimum wage and rent control are similar?

Both involve government intervention in the marketplace.

Which of the following explains why agricultural price supports are inconsistent with free-market principles?

They allow government to influence farmers' decisions about what and how much to produce.

Which of the following explains what typically happens when a market is thrown into disequilibrium?

It moves toward a new equilibrium point as a result of the laws of supply and demand.

What action by the government would most likely increase the supply of gasoline in the short term?

Reduced taxes on the refining of gasoline

How has the Internet dramatically reduced search costs?

By eliminating the need to travel to stores to shop.

How would a bicycle producer likely react to a shortage of its product?

By raising prices and increasing supply.

If the cost of gasoline increases sharply and continues to rise, how does this development affect the demand curve for cars?

The demand curve for gas-guzzlers shifts to the left, and the demand curve for fuel-efficient cars shifts to the right

In the aftermath of a hurricane, clean water became scarce, and the price of bottled water skyrocketed. This is an example of the role of price in

distributing scarce resources efficiently.

A shift in the demand curve has led to a shortage of rice. How can this problem be resolved most quickly?

By increasing the price of rice

Which of the following is the best argument against the rationing system used in the United States during World War II?

Some people could still get as much as they wanted through the black market.

In the free market, firms meet consumer demand through a price-based system that ensures that land, labor, and capital go to the uses consumers value most highly. This explains why in a free market resources

are allocated efficiently.

Which of the following is an example of imperfect information?

A firm receives faulty data from stores on consumer demand for its product.