Macro/Micro Exam 1 Practice Cards

Flashcards for Chapters 1, 2, 4, and 5

Flashcard 1

Question:
What is scarcity, and why is it a fundamental concept in economics?

Answer:
Scarcity means that resources are limited while human wants are unlimited. Because of this, choices must be made about how to allocate resources efficiently. This leads to trade-offs and opportunity costs.

Flashcard 2

Question:
What happens if demand for a product increases while supply remains constant?

Answer:
The equilibrium price and quantity both increase. Since more people want the good, competition among buyers drives prices up, and suppliers sell more.

Flashcard 3

Question:
What does the law of supply state?

Answer:
As the price of a good increases, the quantity supplied increases because producers are willing to supply more at higher prices to increase profit.

Flashcard 4

Question:
If the government sets a price below equilibrium (price ceiling), what happens?

Answer:
A shortage occurs because the quantity demanded exceeds the quantity supplied. Sellers are not willing to produce enough at the lower price.

Flashcard 5

Question:
When a tax is imposed on a product, how does it affect the quantity sold?

Answer:
The quantity sold decreases because the tax raises the price for buyers and lowers the revenue received by sellers, discouraging transactions.

Flashcard 6

Question:
How do supply and demand shift when a hurricane damages the cotton crop?

Answer:
The supply of cotton decreases, shifting the supply curve left. This causes the price of sweatshirts (which use cotton) to increase while quantity decreases.

Flashcard 7

Question:
What happens to the equilibrium price when demand increases and supply decreases at the same time?

Answer:
The price increases. Demand shifts right, and supply shifts left, both of which push the price higher.

Flashcard 8

Question:
If two goods have a cross-price elasticity of -1.5, what does this mean?

Answer:
The goods are complements. A negative cross-price elasticity means that when the price of one good rises, demand for the other falls.

Flashcard 9

Question:
What does it mean if demand is elastic?

Answer:
Elastic demand means that a small price change causes a large change in quantity demanded. If a firm raises prices and total revenue decreases, demand is elastic.

Flashcard 10

Question:
Why is the supply curve for wheat more elastic in the long run than in the short run?

Answer:
In the short run, farmers cannot immediately adjust production. In the long run, they can plant more wheat, acquire more land, or use better technology.

Flashcard 11

Question:
Why do vacationers typically have more elastic demand for airline tickets than business travelers?

Answer:
Vacationers can adjust travel plans or find alternative destinations, making them more sensitive to price changes, while business travelers often must travel regardless of price.

Flashcard 12

Question:
What is the midpoint formula, and how is it used?

Answer:
The midpoint formula calculates elasticity:

Ed=(Q2−Q1)/average Q(P2−P1)/average PE_d = \frac{(Q_2 - Q_1) / \text{average Q}}{(P_2 - P_1) / \text{average P}}Ed​=(P2​−P1​)/average P(Q2​−Q1​)/average Q​

It is used to measure the percentage change in quantity demanded relative to the percentage change in price.

Flashcard 13

Question:
What happens when the government imposes a price floor above equilibrium?

Answer:
A surplus occurs because sellers want to supply more than consumers are willing to buy at the higher price. Example: A minimum wage set above equilibrium leads to unemployment.

Flashcard 14

Question:
What effect does a tax have on a market?

Answer:
A tax shifts the supply curve left, increasing prices and reducing quantity sold. Buyers pay more, and sellers receive less per unit.

Flashcard 15

Question:
If the price elasticity of demand for gasoline is 0.5, and the government wants to reduce gasoline consumption by 20%, by how much should the price increase?

Answer:
By 40%. Using the elasticity formula:

Percentage Change in Quantity=Elasticity×Percentage Change in Price\text{Percentage Change in Quantity} = \text{Elasticity} \times \text{Percentage Change in Price}Percentage Change in Quantity=Elasticity×Percentage Change in Price 20%=0.5×X20\% = 0.5 \times X20%=0.5×X X=40%X = 40\%X=40%

Flashcard 16

Question:
What happens when the price of used SUVs rises due to an increase in gasoline prices?

Answer:
Demand for SUVs decreases because they are expensive to operate. The demand curve shifts left, reducing equilibrium price and quantity.

Flashcard 17

Question:
What is the difference between a movement along a demand curve and a shift of the demand curve?

Answer:

• Movement along the curve happens when price changes, affecting quantity demanded.

• A shift of the demand curve occurs when a non-price factor (e.g., income, consumer preference) changes demand.

Flashcard 18

Question:
Why is demand for airline tickets more elastic in the long run than in the short run?

Answer:
In the short run, travelers have limited alternatives. In the long run, they can adjust travel habits, switch to alternative transport, or avoid travel altogether.

Flashcard 19

Question:
What happens to demand for public transportation when gas prices increase significantly?

Answer:
Demand for public transportation increases because people seek alternatives to driving. The demand curve shifts right, increasing price and quantity.

Flashcard 20

Question:
How does technological advancement in sweater production affect the market?

Answer:
It increases supply, shifting the supply curve right. This lowers equilibrium price and increases quantity available.

This set of 20 flashcards covers Chapters 1, 2, 4, and 5 and includes key concepts like elasticity, supply & demand, government intervention, and production possibilities. Would you like additional practice with different question formats? 🚀

You said:

try again and make the questions more like the multiple choice ones, just do not give multiple choices

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Flashcards for Chapters 1, 2, 4, and 5

Flashcard 1

Question:
What happens to equilibrium price and quantity if demand for a product increases while supply remains constant?

Answer:
Equilibrium price and quantity both increase. Higher demand shifts the demand curve to the right, leading to a higher price and greater quantity sold.

Flashcard 2

Question:
What does the law of supply state?

Answer:
As the price of a good increases, the quantity supplied increases because sellers are more willing to produce and sell at higher prices.

Flashcard 3

Question:
What is the likely result when the government sets a price below equilibrium (a price ceiling)?

Answer:
A shortage occurs because at the lower price, demand exceeds supply, and producers are not willing to provide enough of the good.

Flashcard 4

Question:
When a tax is imposed on a product, how does it affect the quantity sold in the market?

Answer:
The quantity sold decreases because the tax raises the price buyers pay and reduces the amount sellers receive, discouraging both parties.

Flashcard 5

Question:
If the price elasticity of demand for gasoline is 0.5 and the government wants to reduce gasoline consumption by 20%, by how much should the price increase?

Answer:
The price should increase by 40%. Using the elasticity formula:

\text{% Change in Quantity} = \text{Elasticity} \times \text{% Change in Price} 20%=0.5×X20\% = 0.5 \times X20%=0.5×X X=40%X = 40\%X=40%

Flashcard 6

Question:
What happens to equilibrium price when demand for a product increases and supply decreases at the same time?

Answer:
The equilibrium price increases because both shifts push prices higher. The change in quantity depends on the magnitude of shifts.

Flashcard 7

Question:
If two goods have a cross-price elasticity of -1.5, what does this indicate about their relationship?

Answer:
They are complementary goods because a negative cross-price elasticity means that when the price of one good rises, the demand for the other decreases.

Flashcard 8

Question:
If a firm increases the price of its product and total revenue decreases, what does this indicate about the price elasticity of demand?

Answer:
Demand is elastic because consumers are highly responsive to price changes, leading to a drop in total revenue when prices rise.

Flashcard 9

Question:
Why is the supply curve for wheat more elastic in the long run than in the short run?

Answer:
In the short run, farmers cannot quickly change production. In the long run, they can plant more crops, adjust land use, or adopt new technologies.

Flashcard 10

Question:
Who is more likely to have elastic demand for airline tickets: a business traveler or a vacationer? Why?

Answer:
A vacationer has more elastic demand because they can plan trips flexibly, change destinations, or delay travel, making them more sensitive to price changes.

Flashcard 11

Question:
How does a hurricane that damages the cotton crop affect the sweatshirt market?

Answer:
The supply of cotton decreases, shifting the supply curve for sweatshirts to the left, causing sweatshirt prices to rise while quantity falls.

Flashcard 12

Question:
What happens in a market when the government imposes a price floor above equilibrium?

Answer:
A surplus occurs because at the higher price, more of the product is supplied than consumers are willing to buy.

Flashcard 13

Question:
How does a tax on a product affect the supply curve and equilibrium?

Answer:
The supply curve shifts left (upward), causing the equilibrium price to rise and the equilibrium quantity to fall.

Flashcard 14

Question:
Why do luxury goods typically have a more elastic demand than necessities?

Answer:
Luxury goods are not essential, so when prices rise, consumers can easily reduce their consumption or find alternatives.

Flashcard 15

Question:
What happens to the demand for public transportation when gas prices rise significantly?

Answer:
Demand for public transportation increases because driving becomes more expensive, making alternatives like buses and trains more attractive.

Flashcard 16

Question:
If a new machine improves sweater production efficiency, how does this affect the sweater market?

Answer:
The supply of sweaters increases, shifting the supply curve to the right, lowering prices and increasing quantity sold.

Flashcard 17

Question:
What happens when the price of used SUVs increases due to a rise in gasoline prices?

Answer:
Demand for SUVs decreases because they become more expensive to operate. The demand curve shifts left, leading to a lower equilibrium price and quantity.

Flashcard 18

Question:
What is the difference between a movement along a demand curve and a shift of the demand curve?

Answer:
A movement along the curve occurs when price changes, affecting quantity demanded. A shift occurs when factors like income, preferences, or substitutes change demand.

Flashcard 19

Question:
Why is demand for airline tickets more elastic in the long run than in the short run?

Answer:
In the short run, consumers have fewer alternatives. Over time, they can adjust their behavior by planning travel differently or using other transportation.

Flashcard 20

Question:
If a country introduces a new fertilizer that doubles orange production, how does this affect the market?

Answer:
The supply curve shifts right, increasing the quantity available and lowering the equilibrium price.
Multiple Choice Questions (10 Questions)

1. If demand for a product increases while supply remains constant, what will happen to equilibrium price and quantity?
   a) Price decreases, quantity decreases.
   b) Price increases, quantity decreases.
   c) Price increases, quantity increases.
   d) Price decreases, quantity increases.

2. The law of supply states that:
   a) As the price of a good increases, the quantity supplied decreases.
   b) As the price of a good increases, the quantity supplied increases.
   c) The supply curve always shifts left when demand increases.
   d) The government always controls supply levels.

3. If the government sets a price below equilibrium (price ceiling), what is the likely result?
   a) A surplus of the product.
   b) A shortage of the product.
   c) No effect on the market.
   d) Prices will adjust to equilibrium.

4. When a tax is imposed on a product, what happens to the quantity sold in the market?
   a) It increases.
   b) It decreases.
   c) It stays the same.
   d) It depends on whether demand is elastic or inelastic.

5. If the price elasticity of demand for gasoline is 0.5, and the government wants to reduce gasoline consumption by 20%, by how much should the price increase?
   a) 5%
   b) 10%
   c) 20%
   d) 40%

6. Suppose demand for a product increases and supply decreases at the same time. What happens to equilibrium price?
   a) It increases.
   b) It decreases.
   c) It remains the same.
   d) It becomes zero.

7. Suppose two goods, A and B, have a cross-price elasticity of -1.5. This means:
   a) A and B are substitutes.
   b) A and B are complements.
   c) A and B are normal goods.
   d) A and B are inferior goods.

8. Suppose a firm increases the price of its product, and total revenue decreases. What does this tell you about the price elasticity of demand?
   a) Demand is elastic.
   b) Demand is inelastic.
   c) Demand is unitary elastic.
   d) There is no relationship between price and total revenue.

9. The supply curve for wheat is more elastic in the long run than in the short run because:
   a) Farmers cannot adjust production quickly.
   b) Demand for wheat is perfectly inelastic.
   c) Technology advances make short-run supply more flexible.
   d) The government controls long-run supply.

10. If a business traveler and a vacationer both need to book a flight, who is more likely to have elastic demand, and why?
    a) The vacationer, because they have more flexibility.
    b) The business traveler, because they can wait for lower prices.
    c) Both will have the same elasticity.
    d) Neither, because air travel is a necessity.Multiple-Choice Questions (15 Questions)

    1. Scarcity is a fundamental concept in economics because:
    a) It ensures that all resources are allocated efficiently.
    b) Resources are limited, but human wants are unlimited.
    c) People do not face trade-offs in decision-making.
    d) The government controls all economic decisions.

    2. A factory currently operates at full capacity producing cars and bicycles. If the factory decides to produce more cars, what happens to bicycle production?
    a) It increases because of better efficiency.
    b) It stays the same because the factory has unlimited resources.
    c) It decreases due to opportunity cost.
    d) It has no effect on bicycle production.

    3. If demand for a product increases while supply remains constant, what will happen to equilibrium price and quantity?
    a) Price decreases, quantity decreases.
    b) Price increases, quantity decreases.
    c) Price increases, quantity increases.
    d) Price decreases, quantity increases.

    4. Suppose a new technology reduces the cost of producing televisions. What happens in the TV market?
    a) The supply of televisions decreases.
    b) The demand for televisions decreases.
    c) The supply of televisions increases.
    d) The equilibrium price of televisions rises.

    5. Which of the following would most likely shift the demand curve for oranges to the right?
    a) A decrease in the price of oranges.
    b) A scientific study showing that oranges reduce heart disease.
    c) A decrease in the population.
    d) An increase in the price of apples, a substitute for oranges.

    6. The law of supply states that:
    a) As the price of a good increases, the quantity supplied decreases.
    b) As the price of a good increases, the quantity supplied increases.
    c) The supply curve always shifts left when demand increases.
    d) The government always controls supply levels.

    7. If the price elasticity of demand for a product is greater than 1, the demand is:
    a) Elastic
    b) Inelastic
    c) Unitary elastic
    d) Perfectly inelastic

    8. If the cross-price elasticity between peanut butter and jelly is negative, this means:
    a) They are substitute goods.
    b) They are inferior goods.
    c) They are normal goods.
    d) They are complementary goods.

    9. If a market is experiencing a shortage, what is likely to happen?
    a) Prices will increase.
    b) Prices will decrease.
    c) Supply will decrease.
    d) Demand will decrease.

    10. A product that has an inelastic demand curve is likely:
    a) A luxury good.
    b) A good with many substitutes.
    c) A necessity with few substitutes.
    d) A good with a price elasticity greater than 1.

    11. What happens to the price of used SUVs when the price of gasoline rises significantly?
    a) The demand for SUVs increases.
    b) The demand for SUVs decreases.
    c) The demand for SUVs remains the same.
    d) The supply of SUVs decreases.

    12. If demand is elastic and the price of a product increases, what happens to total revenue?
    a) It increases.
    b) It stays the same.
    c) It decreases.
    d) It becomes zero.

    13. Suppose demand for a product increases and supply decreases at the same time. What happens to equilibrium price?
    a) It increases.
    b) It decreases.
    c) It remains the same.
    d) It becomes zero.

    14. When the government sets a price below equilibrium (price ceiling), what is the likely result?
    a) A surplus of the product.
    b) A shortage of the product.
    c) No effect on the market.
    d) Prices will adjust to equilibrium.

    15. When a tax is imposed on a product, what happens to the quantity sold in the market?
    a) It increases.
    b) It decreases.
    c) It stays the same.
    d) It depends on whether demand is elastic or inelastic.