Economics 200 Final Exam

Professor Sunita Hines Econ 200 Final Exam Review

Economics is the study of how society manages its…

unlimited wants and limited resources.

Coal is considered to be a nonrenewable energy source and a ________.

scarce resource.

A rational decision maker…

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. However, redistributing income from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between _____.

efficiency and equity.

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.

The production possibilities frontier illustrates …

the combinations of output that an economy can produce.

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good…

has an absolute advantage in the production of that good.

An example of a perfectly competitive market would be the ________.

soybean market.

A competitive market is a market in which …

no individual buyer or seller has any significant impact on the market price.

A monopoly is a market with one …

seller, and that seller sets the price.

A demand schedule is a table that shows the relationship between ________.

price and quantity demanded.

Demand is said to be inelastic if …

the quantity demanded changes only slightly when the price of the good changes.

Which of the following is likely to have the most price elastic demand?

Tommy Hilfiger jeans

Demand is said to be price elastic if …

buyers respond substantially to changes in the price of the good.

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The good is a luxury.

A legal minimum on the price at which a good can be sold is called a _______.

price floor.

Minimum-wage laws dictate …

only a minimum wage that firms may pay workers.

Rent-control laws dictate …

only a maximum rent that landlords may charge tenants.

A shortage results when a …

binding price ceiling is imposed on a market.

The government's benefit from a tax can be measured by ________.

tax revenue.

To fully understand how taxes affect economic well-being, we must …

compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.

What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases.

When a good is taxed, …

both buyers and sellers of the good are made
worse off.

A difference between explicit and implicit costs is that …

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

A firm's opportunity costs of production are equal to its _________.

explicit costs + implicit costs.

A firm that produces and sells furniture gets to choose …

how many workers to hire in both the short run and the long run.

Graph question: As the number of workers increases, …

marginal product decreases.

When negative externalities are present in a market …

social costs will be greater than private costs.

An externality is the uncompensated impact of …

one person's actions on the well-being of a bystander.

Graph question: What is the socially optimal quantity of output in this market?

10 units

Graph question: Without government intervention, the equilibrium quantity would be ____.

Q3.

A lighthouse is typically considered to be a public good because …

all passing ships are able to enjoy the benefits of the lighthouse without paying.

A television broadcast is an example of a good that is …

not rival in consumption.

Both public goods and common resources are ______.

nonexcludable.

Emma's use of good x does not affect anyone else's use of good x. Neither Emma nor anyone else can be prevented from using the good. Good x is an example of the type of good that belongs in …

Box D, which represents public goods.

For an economy as a whole, …

income must equal expenditure.

Gross domestic product measures …

income and expenditures.

According to the circular-flow diagram, GDP can be computed as …

either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.

A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called _______.

intermediate goods.