ECON 202 - James Carden - Final

Coal is considered to be a non-renewable energy source. Which of the following statements is correct?

Coal is a scarce resource

Economics is the study of

how society manages its scarce resources.

In most societies, resources are allocated by

the combined actions of millions of households and firms.

Economics deals primarily with the concept of

scarcity

Resources are

scarce for households and scarce for economies

In considering how to allocate its scarce resources among its various members, a household considers

each member's abilities, efforts, and desires.

What term refers to the property that society has limited resources and therefore cannot produce all the goods and services people wish to have?

Scarcity

The phenomenon of scarcity stems from the fact that

resources are limited.

Which of the following is a subject that economists study?

- the growth in average income

- the fraction of the population that cannot find work

- the rate at which prices are rising

The word "economy" comes from the Greek word oikonomos, which means

"one who manages a household."

John Maynard Keynes referred to economics as an easy subject,

at which very few excel.

Economists at the Department of Justice

help enforce the nation's antitrust laws

Duties of the Council of Economic Advisers include

advising the president and writing the annual Economic Report of the President.

Analysis of data on workers and those looking for work is conducted by economists at the

Department of Labor.

Almost all economists agree that tariffs and import quotas

reduces general economic welfare.

When two variables move in the same direction, the curve relating them is

upward sloping, and we say the variables are positively related.

A model that shows how dollars flow through markets among households and firms is called the

circular-flow diagram.

Economists at the Department of the Treasury

provide advice on tax policy to the President.

Macroeconomics is the study of

economy-wide phenomena.

A circular-flow diagram is a model that

\-helps to explain how participants in the economy interact with one another.

\-helps to explain how the economy is organized.

A country that currently does not trade with other countries could benefit by

not restricting trade

By definition, exports are

goods produced domestically and sold abroad.

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade,

Belarus should export linen to Russia.

Olivia bakes cakes and Andrew grows corn. Olivia and Andrew both like to eat cake and eat corn. In which of the following cases is it impossible for both Olivia and Andrew to benefit from trade?

Both Olivia and Andrew can benefit from trade in all of the above cases.

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 table is

6 chairs for Ken and 3 chairs for Traci.

If labor in Mexico is less productive than labor in the United States in all areas of production,

then both Mexico and the United States still can benefit from trade.

Comparative advantage is related most closely to which of the following?

opportunity cost

When two countries trade with one another, it is most likely because

the two countries wish to take advantage of the principle of comparative advantage

By definition, imports are

goods produced abroad and sold domestically.

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

If a shortage exists in a market, then we know that the actual price is

below the equilibrium price, and quantity demanded is greater than quantity supplied.

A leftward shift of a demand curve is called a(n)

decrease in demand.

A likely example of substitute goods for most people would be

pencils and pens.

An example of a perfectly competitive market would be the market for

soybeans.

A leftward shift of a supply curve is called a(n)

decrease in supply.

Assume a market is perfectly competitive. When a new producer enters the market, the

price in the market does not change.

A decrease in the number of sellers in the market causes

the supply curve to shift to the left.

A competitive market is one in which there

are so many buyers and so many sellers that each has a negligible impact on the price of the product.

Equilibrium price must decrease when demand

decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

A demand schedule is a table that shows the relationship between

price and quantity demanded.

A good will have a more elastic demand, the

greater the availability of close substitutes.

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

For a good that is a necessity, demand

tends to be inelastic.

If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches

infinity, and the supply curve is horizontal.

A good will have a more inelastic demand, the

broader the definition of the market.

As we move downward and to the right along a linear, downward-sloping demand curve,

slope remains constant but elasticity changes.

For which pairs of goods is the cross-price elasticity most likely to be negative?

peanut butter and jelly

For which of the following goods is the income elasticity of demand likely highest?

boats

For which pairs of goods is the cross-price elasticity most likely to be positive?

pens and pencils

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is

zero, and the supply curve is vertical.

A surplus results when a

binding price floor is imposed on a market

A tax imposed on the buyers of a good will raise the

price paid by buyers and lower the equilibrium quantity

A legal maximum on the price at which a good can be sold is called a price

ceiling

A minimum wage that is set above a market's equilibrium wage will result in an excess

supply of labor, that is, unemployment.

A tax imposed on the buyers of a good will lower the

effective price received by sellers and lower the equilibrium quantity.

A price floor will be binding only if it is set

above the equilibrium price.

A tax on buyers will shift the

demand curve downward by the amount of the tax.

A shortage results when a

binding price ceiling is imposed on a market.

A price ceiling is binding when it is set

below the equilibrium price, causing a shortage.

A price floor is binding when it is set

above the equilibrium price, causing a surplus.

Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Abraham is rational in deciding how many cans to buy. His consumer surplus is

$0.70.

A demand curve reflects each of the following except the

ability of buyers to obtain the quantity they desire.

When a buyer's willingness to pay for a good is equal to the price of the good, the

buyer is indifferent between buying the good and not buying it.

The study of how the allocation of resources affects economic well-being is called

welfare economics.

Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is

$150

If the United States changed its laws to allow for the legal sale of a kidney, which of the following is likely to occur?

* The price of kidneys would rise to balance supply and demand.
* The gains from trade would make both buyers and sellers better off.
* Thousands of lives would be saved.

Producer surplus directly measures

the well-being of sellers

Consumer surplus in a market can be represented by the

area below the demand curve and above the price

If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will

increase producer surplus

A consumer's willingness to pay directly measures

how much a buyer values a good.

Taxes on labor encourage which of the following?

mothers to stay at home rather than work in the labor force

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.

A deadweight loss is a consequence of a tax on a good because the tax

induces buyers to consume less, and sellers to produce less.

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the

demand for the product is more elastic than the supply of the product.

If the labor supply curve is nearly vertical, a tax on labor

has little impact on the amount of work that workers are willing to do.

If the labor supply curve is very elastic, a tax on labor

has a large deadweight loss.

Ronald Reagan believed that reducing income tax rates would

raise economic well-being and perhaps even tax revenue.

When the government imposes taxes on buyers or sellers of a good, society

loses some of the benefits of market efficiency.

One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the

tax reduces the welfare of both buyers and sellers.

Other things equal, the deadweight loss of a tax

increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.

A tariff is a

tax on an imported good.

A tariff on a product makes

domestic sellers better off and domestic buyers worse off.

Japan imposes a $300 per ton tariff on imported steel, raising the price charged in Japan to $1,000. Using only this information, which of the following statements is correct?

The world price for steel is $700.

For any country that allows free trade,

the domestic price is equal to the world price.

Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil

will import almonds.

Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as

confirmation of the virtues of free trade.

Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil if we know that

the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed

An important factor in the decline of the U.S. textile industry over the past 100 or so years is

foreign competitors that can produce quality textile goods at low cost.

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so because

then we can assume that world prices of goods are unaffected by that country's participation in international trade.

Domestic producers of a good become better off, and domestic consumers of a good become worse off, when a country begins allowing international trade in that good and

the world price exceeds the domestic price of the good that prevailed before international trade was allowed.

By allowing an income-tax deduction for charitable contributions, the government

encourages a private solution to a particular positive-externality problem.

Externalities tend to cause markets to be

inefficient

A positive externality will cause a market to produce

less than is socially desirable

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

reduce the transaction costs of finding a private solution to an externality.

Reaching an efficient bargain is difficult when the

number of interested parties is large.

According to the Coase theorem, in the presence of externalities

private parties can bargain to reach an efficient outcome.

With a corrective tax, the supply curve for pollution is

horizontal.

Emission controls on automobiles are an example of a

command-and-control policy to increase social efficiency.