Principles of Economics: Scarcity, Trade, Supply and Demand

Fundamentally, economics deals with

scarcity.

The phenomenon of scarcity stems from the fact that

resources are limited.

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

people face tradeoffs.

The opportunity cost of an item is

what you give up to get that item.

Liyam considers going to college. Currently, the costs of tuition is $21,000, room and board $11,000, and books cost $1,800. Not going to college, Liyam will earn $16,000 working in a store and spend $7,200 on room and board. Liyam's cost of going to college is

$42,600

Making rational decisions at the margin means that people

compare the marginal costs and marginal benefits of each decision.

Which is the most accurate statement about trade?

Trade can make every nation better off.

In a market economy, economic activity is guided by

self-interest and prices.

Which of the following statements about models is correct?

Models assume away irrelevant details.

A circular-flow diagram is a model that

helps to explain how the economy is organized.

In the simple circular-flow diagram, the participants in the economy are

households and firms.

Where can an economy not produce?

Outside its production possibilities frontier

The production possibilities frontier provides an illustration of the principle that

people face trade-offs.

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?

The marginal cost of the 25th house, if it is built, will equal $250,000.

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3-off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?

The amount you value the first movie + $9

Which of the following is not an example of a group responding to an incentive?

Universities offer fewer online classes when they generate more revenue at the same cost than traditional classes.

Which of the following areas of study typifies macroeconomics as opposed to microeconomics?

The effect on the economy of changes in the nation's unemployment rate

When economists point out that you and millions of other people are interdependent, they are referring to the fact that we all

rely upon one another for the goods and services we consume.

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn.

Total output in an economy increases when each person specializes because

each person spends more time producing that product in which they have a comparative advantage.

When a country has a comparative advantage in producing a certain good,

then specializing in the production of that good and trading for other goods could allow that country to consume at a point beyond its production possibilities frontier.

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

in order to consume beyond its PPF, the United States should produce more pork than what it requires and export some of it to Mexico.

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

a market.

The law of demand states that, other things equal, when the price of a good

falls, the quantity demanded of the good rises.

Which of the following events would cause a movement upward and to the left along the demand curve for olives?

The price of olives rise.

You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider iTunes music downloads to be

a normal good.

Which of the following would shift the demand curve for gasoline to the right?

An increase in consumer income, assuming gasoline is a normal good

Currently you purchase ten frozen pizzas per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are

an inferior good.

If muffins and bagels are substitutes, a higher price for bagels would result in

an increase in the demand for muffins.

Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would

decrease.

Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see

a decrease in the demand for energy drinks.

What will happen in the market for shotgun-shell ammunition now if buyers expect higher shotgun-shell prices in the near future?

The demand for shotgun-shell ammunition will increase.

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg

increases.

A decrease in the price of a good will

decrease quantity supplied.

Which of the following demonstrates the law of supply?

When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.

Which of the following changes would not shift the supply curve for a good or service?

A change in the price of the good or service

Which of the following would shift the supply of Green Bay Packers football jerseys to the left?

The cost of the fabric used to make the jerseys increases.

A baker recently has come to expect higher prices for bread in the near future. We would expect

the baker to supply less bread now than they were supplying previously.

At the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell.

If the demand for a product increases, then we would expect equilibrium price

and equilibrium quantity both to increase.

If the supply of a product increases, then we would expect equilibrium price

to decrease and equilibrium quantity to increase.

Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a

surplus to exist and the market price of roses to decrease.

The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair. As a result, which of the following statements is not true?

There is a shortage of blue jeans at the $30 price.