Exam 1

In economics, the term ____ means “additional” or “extra”

Marginal

If the price of automobiles was to increase, then

The demand for gasoline would increase

An externality is

A benefit or cost experienced by someone who is not a producer or consumer of a good or service

In response to rising food prices, the government of Hungary has enacted price controls on essential products to keep the prices lower than market equilibrium prices. The controls the Hungarian government has enacted are known as _____ and the result is a quantity supplied which is ____ the market equilibrium quantity

Price ceilings; less than

The supply of watches

Shows the relationship between the price of watches and the quantity of watches supplied

Statements that demonstrates economic agents respond to incentives

1. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area

2. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment

3. Firms produce more of a particular energy drink when its selling prices rises

4. Consumers buy more wireless earbuds from an electronics store that sells wireless earbuds at a lower price than other rival electronics stores in the area

5. Schools take steps to increase security since they believe it is more costly to allow vandalism than to hire additional security guards

The law of demand implies, holding everything else constant, that as the price of gelato

decreases, the quantity of gelato demanded will increase

When a negative externality exists, the private market produces

More than the economically efficient output level

Vineyards can grow either red wine grapes or white wine grapes on their land. Which of the following would cause the supply of red wine grapes to decrease?

An increase in the price of white wine grapes

In the market for tablet computers, the producer surplus will decrease if

The price of a tablet decreases

If you expect the economy is going to experience a boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is

one that sells a luxury good

Suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed, then

Buyers bear the entire burden

When production reflects consumer preferences, ____ occurs

Allocative Efficiency

Mr. Peabody chooses to invest in companies that produce goods and services at the lowest possible cost. Mr. Peabody is investing in companies that are

Productively Efficient

The three fundamental questions that any economy must address are

What goods and services to produce; How will these goods and services be produced; Who receives them?

Economists reason that the optimal decision is to continue any activity up to the point where the

Marginal Benefit = Marginal Cost

Rent control is an example of

A Price Ceiling

Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon?

An increase in supply

Suppose an excise tax of $1 is imposed on every case of beer sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?

The supply curve for cases of beer shift up by $1

An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in

An increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

An inferior good