Econ Final 201

Which of the following involve a trade off?


1. buying a car
2. going to college
3. watching a football game on a saturday afternoon
4. taking a nap

1. buying a car
2. going to college
3. \

Trade-offs are required because wants are unlimited and resources are

scarce

Economics is the study of how

society manages its scarce resources

Which of the following is NOT a factor of production

money

Points on the production possibilities frontier are

effcient

Which of the following will NOT shift a country's production possibilities frontier outward?

a reduction in unemployment

Economic growth is depicted by

shift in PPF outward

Which of the following issues is related to microeconomics

impact of OIL prices on auto production

Which of the following statements is NORMATIVE

The state SHOULD...

Positive statements are

Statements of description that can be tested

absolute advantage

ability to produce with less in resources

comparative advantage

ability to produce at lower opportunity cost

If a nation has an absolute advantage in the production of a good

it can produce that good using less resources than its trading partner

if a nation has a comparative advantage in the production of a good

it can produce that good at a lower opportunity cost than its trading partner

What is true about trade

trade can benefit everyone in society because it allows people to specialize in their comparative advantage

According to the principle of comparative advantage

countries should specialize in the production of goods for which they have lower opportunity cost of production than their trading partners

true or false

A self-sufficient country at best can consume on its PPF

true

If an increase in the price of blue jeans leads to an increase in demand for tennis shoes, then blue jeans and tennis shoes are

substitutes

Normal goods

demand goes up when income does

inferior goods

demand goes down when income goes up

complements

when price of a good goes down demand for all its complements goes up

substitutes

when price of a good goes down, demand for its substitutes goes down

Taste

Demand shifts with taste

Buyer expected prices are higher

higher prices in the future, increase demand now

If Seller expected prices are higher...

higher expected price, decrease supply now.

if an increase in consumer incomes leads to a decrease in demand

its an inferior good

Which shifts the demand for watches to the right

a decrease in price of watch batteries if watches and watch batteries are compliments

True or False

An increase in the price of watches shifts the supply curve to the right

False

if the price of a good is above the EQ price

there is a surplus and the price will fall

If the price of a good is below the EQ price

there is a shortage, and the price will rise

If the price of a good \= the EQ price

price remains unchanged

An increase in the demand for a good will tend to cause

an increase in the EQ price and Q

A decrease in the supply curve for a good will tend to cause

an increase in the P and a decrease in the Q

Suppose there is an increase in both supply and demand

the Q will rise and the price change is very little (ambiguous)

suppose buyers and sellers expect higher prices in the future, what happens to the P and Q of the product

price will increase and Q is ambiguous

An inferior good is one for which an increase in income causes

a decrease in demand

If a small % increase in the price of a good greatly reduces the Q demanded for that good, the demand for that good is

Price elastic

the price elasticity of demand is defined as

the % change in Q over % change of P (dq/dp)

In general, the steeper the demand curve

the more price inelastic it is

in general, the steeper the supply curve

the more price inelastic it is

Which would cause the demand curve for a good to be price inelastic?

the good is a necessity

demand for which good will be price inelastic

transportation

If the cost-price elasticity between two good is negative, the two goods are likely to be

complements

if a supply curve for a good is price elastic, then

the Q supplied is sensitive to changes in the price of that good

If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, the fisherman's price elasticity of supply for fresh fish is

zero

A decrease in supply will increase the total revenue in that market if

demand is price inelastic

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

reduce total revenue to farmers as a whole because the demand for food is inelastic

If supply is price inelastic, the value of the price elasticity of supply must be

less than 1

If there is excess capacity in a production facility, it is likely that the firms supply curve is

price elastic

If demand is linear, then price elasticity of demand is

elastic in the upper portion and inelastic in the lower portion

If the INCOME ELASTICITY of demand for a good is negative (-), it must be

an inferior good

if consumers think that there are very few substitutes for a good, then demand...

demand would tend to be price inelastic

Binding

1. prevent you form doing something you would do

2. price ceiling below EQ are binding

3. price floors above EQ are binding

for a price ceiling to be a binding constraint on the market, the government must set it

below the EQ price

A binding price ceiling creates

a shortage

suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls?

The quality of aparments will improve

a price floor

sets a legal minimum on the price at which a good can be sold

Which about price ceiling is true

The shortage created by the ceiling is greater in the long run than in the short run

Which side of the market is more likely to lobby government for a price floor?

the sellers

the surplus created by a binding price floor will be greatest if

both supply and demand are elastic

Which of the following is an example of a price floor?

the minimum wage

which of the following is true if the government places a price ceiling on gasoline at $4 per gallon and the EQ price is $3 per gallon

A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint

consumer surplus is the area

below the demand curve and above the price

A Buyers willingness to pay is

buyer's maximum amount he/she is willing to pay

If a buyers willingness to pay for a new Honda is 20K and she is able to buy to for 18K...what is the consumer surplus

2k

an increase in the price of a good along a stationary demand curve

decreases consumer surplus

producer surplus is the area...

Above the supply curve and below the price

if a benevolent social planner chooses to produce less than the equilibrium quantity of good, then

the value placed on the last unit of production by buyer's exceeds the cost of production

if a benevolent social planner chooses to produce more than the equilibrium quantity of good, then

the cost of production on the last unit produced exceeds the value placed on it by buyer's

The sellers cost of production is

min amount amount a seller is willing to accept for a good

Total surplus is the area...

below the demand curve and above the supply curve

an increase along a stationary supply curve

increases producer surplus

within the supply and demand model, a tax collected from the buyers of a good shift the

demand curve downward by the size of the tax per unit

Within the supply and demand model, a tax collected from the sellers of a good shifts the

supply curve upward by the size of the tax per unit

Which of the following takes place when a tax is is placed on a good

increase in the price buyers pay and decrease in the price sellers receive and a decrease in quantity sold

when a tax is collected from the buyers in a market

the sellers bear the burden of the tax

A tax of $1 per gallon on gasoline

places a tax wedge of $1 between the price the buyers pay and the price the buyers receive

the burden of a tax falls more heavily on the sellers in a market when

demand is elastic and supply is inelastic

A tax placed on a good that is a necessity for consumers will likely generate a tax burden that

falls more heavily on buyers

The burden of tax falls more heavily on the buyers in a market when

demand is inelastic and supply is elastic

Which of the following statements about burden of a tax is correct?

The distribution of the burden on tax is determined by the relative elasticities of supply and demand and is not determined by legislation

For which of the following products would the burden of a tax liekly fall more heavily on the sellers?

Entertainment

Adams Smith's concept of "the invisible hand" suggest that a competitive market outcome

maximizes total surplus

in general, if a benevolent socialplanner wanted to maximize the total benefit received by buyer's and sellers in a market, the planner should

allow the market to seek Eq. on its own

if buyers are rational and there is no market failure,

1. free market solutions are efficient

2. free market solutions maximize total surplus

If a producer has market power(can influence the price of a product in the market) then free market solutions...

are inefficient

If a market is efficient, then

1. the market allocates output to buyers who value

it the most

2. the market allocates buyers to the sellers who

can produce the the good at least cost

3. the quantity produced in the market maximizes the sum of consumer and producer surplus

If a market generates a side effect or externality, the free market solutions

are inefficient

medical care clearly enhances peoples lives. Therefore, we should consume medical care until

the benefit buyers place on medical care is equal to the cost of producing it

Joe has ten baseball gloves and sue had none. A baseball glove costs $50 to produce. If joe values an additional baseball glove at $100 and sue at $40, then to maximize

efficiency, joe should receive the glove

Suppose that the price of a new bike is $300. Sue values a new bike at $400. It cost $200 for the seller to produce the new bike. What is the value of total surplus if sue buys a new bike.

$200