Microecon exam 1

How does a minimum wage affect the labor market?

It can create a surplus of labor if set above the equilibrium wage

Question 2

If the demand for a product is elastic, what happens when the price decreases?

The quantity demanded increases significantly.

Which of the following describes a mixed economy?

An economy that combines elements of both market and command economies.

Question 4

What happens to consumer surplus when the price of a good decreases?

Consumer surplus increases.

Question 5

If a price ceiling is set below the equilibrium price, what is the likely outcome?

A shortage will occur.

Which of the following factors can shift the supply curve for a good?

Changes in production costs.

What does the term 'scarcity' mean in economics?

Human wants exceed the available resources.

What is the result of a price floor being set above the equilibrium price?

A surplus of goods will occur.

If the quantity demanded of a good increases when the price decreases, that shows what type of relationship?

An inverse relationship between price and quantity demanded.

What is price elasticity of demand?

The responsiveness of quantity demanded to a change in price.

Which of the following is NOT a characteristic of a market economy?

All economic decisions are made by the government.

What is the likely effect of an increase in the price of coffee on the demand for tea, which is a substitute good?

The demand for tea will increase.

What does the law of demand state?

As the price of a good decreases, the quantity demanded increases.

Which of the following best describes a 'normal good'?

A product whose demand increases when income increases.

What is an example of a complement good?

Butter and bread.

In which type of economy does the government make most economic decisions?

Command economy.

What does the term 'opportunity cost' refer to?

The value of the next best alternative that is forgone.

What characterizes a perfectly inelastic demand?

Quantity demanded does not change regardless of price changes.

What does a downward-sloping demand curve indicate?

As price decreases, the quantity demanded increases.

Which economic model illustrates how households and firms interact in the market?

The circular flow diagram.

In a perfectly inelastic demand situation, quantity demanded remains ______ regardless of price changes.

constant

The law of demand states that price goes _______, then quantity demanded goes ______.

up, down

Consumer surplus represents the difference between what consumers are _______ to pay and what they actually pay.

willing

Economics is primarily concerned with the fact that human wants exceed available _______ of resources.

scarcity

Economies of scale refer to the average cost of production ________ as the level of output increases.

decreasing

Perfectly elastic supply means that suppliers will produce an infinite quantity at a given price.

True

Opportunity cost measures the value of the next best _________ forgone.

alternative

A price ceiling is a maximum price set by the _______ that can be charged for a good or service.

government

Elastic Demand

Demand that is highly responsive to price changes.

Perfectly Inelastic Demand

Demand that does not change regardless of price changes.

Inelastic Demand

Demand that is less responsive to price changes.

Unitary Elasticity

Demand where a price change results in an equal percentage change in quantity.

A price floor can create a surplus in the market.

True

Elasticity measures the responsiveness of one variable to changes in another variable.

True

Opportunity cost is only related to monetary expenditure.

False

Which of the following best describes the concept of scarcity in economics?

Scarcity refers to the limited availability of resources relative to unlimited wants.

Microeconomics studies the economy as a whole.

False

Market Economy

An economy where decisions are decentralized and private individuals own resources.

Mixed Economy

Combines elements of market and command economies.

Command Economy

An economy where the government makes all economic decisions.

Traditional Economy

An economy based on customs and historical precedence.

The law of demand states that price and quantity demanded are directly related.

False