Economics 2301

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Sherwood Bishop Texas State University

The problem of scarcity:

exists because resources are limited to relative to wants

The real core of most economic problem is to:

allocate limited resources among competing uses

Human capital is:

the skill or knowledge of individuals

Which of the following is an example of a capital resource?

an oil rig

The function of an entrepreneur is to:

do all of the tasks listed

Every time an individual decides to try out new equipment, or finds better ways to manage exhibiting traits of:

entrepreneurship

Economic goods are:

scarce products that are created from scarce resources

An economy's resources:

consist of land, labor, capital and entrepreneurial skills

which of the following would reflect self-interested behavior?

(All of the above)
-a worker pursuing a higher paying job and better working conditions
-a consumer seeking a higher level of satisfaction with her current income
-donating a cell phone to a woman's shelter
-Mother Teresa using her Nobel Prize money to care for the poor

Negative incentives:

decrease benefits or increase costs

A market economy depends on market mechanisms to:

determine the most efficient way of using resources

In a market economy, the amount of a good that is produced is primarily decided by the interaction of:

buyers and sellers

Which of the following is not a resource exchanged in the factor markets?

(All of the above)
-land
-capital
-labor
-entrepreneurship

A good economic theory:

relies on simplifying assumptions in order to explain economic behavior

Which of the following is correct?

A theory may result from a tested and confirmed hypothesis

The term "ceteris paribus" means that:

all variables except those specified are constant

an economic hypothesis is tested:

by comparing the hypothesis's predictions to real-world data

Which of the following is most likely a topic of discussion in a microeconomics course?

an increase in the price of lumber used to construct houses

The branch of economics that focuses on outcomes in highly aggregated markets, such as the markets for labor or consumer products, is called:

macroeconomics

Which of the following is most likely an example of correlation but not an example of causation?

Usually, if I eat chili dog and drink a beer before a game, my team wins

The fallacy of composition is:

the erroneous view that what is true for the individual will also be true for the group

Your mother tells you, "Watching ten hours of TV per day will make you stupid." This is a positive statement because:

it is a proposition that can be tested

"Mandating longer sentences for any criminal's third arrest will lead to a reduction in crime. Less crime will reduce the number of police officers cities will hire." This quotation:

contains positive statements only

Bill says: "The imposition of a tax on tequila will increase its price." Bob says, "Taxes should be imposed on tequila because college students drink too much."

Bill's statement is positive, and Bob's statement is normative

Which of the following represents a normative statement?

The study of economics is more important than the study of history

The opportunity cost of an action is equal to:

the highest valued opportunity that must be sacrificed in order to take the action

A student has a chance to see Green Day in concert. The student also has a major economics exam the next morning. If the student goes to the concert:

(All of the above)
-she may receive a lower grade on the economics exam
-the opportunity cost of the concert is the value of the time spent studying
-the decision involves a trade-off

Lance's boss offers him twice his usual wage rate to work tonight instead of taking his girlfriend on a date. This offer will likely:

increase the opportunity cost of going on the date.

Marginal thinking is best demonstrated by:

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time

Marginal analysis involves:

comparing the additional benefit from an action to the additional cost

If a student enrolls in an additional course at the university, an economist would conclude that:

the expected marginal benefit of an additional course must exceed the expected marginal cost of the course

The expected marginal benefit to you from purchasing a new sport utility vehicle is $20,000. The price of the new sport utility vehicle is $22,000.

You will not purchase the new sport utility vehicle at this time if you are acting rationally

The marginal benefit to you of drinking bottled iced tea is $1.50. The price of a bottle of iced tea is $1.25.

If you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents.

Gallons of milk at a local grocery store are priced at one for $4.00, or two for $6.00. The marginal cost of buying a second gallon of milk:

equals $2.00

You lose $20 from your wallet and decide to miss an hour from work in order to search for it. To an economist, this means that:

in your estimation the expected value of searching for the lost $20 for an hour exceeds your hourly wage

Some political leaders have proposed that parents be granted a substantially larger reduction in their annual personal income taxes for each child that they parent. The economic way of thinking indicates that legislation of this type of would:

reduce the after-tax cost of raising children and therefore increase the birth rate

Which of the following policies would be most effective in promoting monthly water conservation?

A per gallon fee that escales from $1.00 to $2.00 per 25 gallons once household consumption exceeds 1,000 gallons

Which of the following statements is most consistent with the rule of rational choice?

"When evaluating new prescription drugs, the Food and Drug administration should weigh each drug's potential health benefits against the potential health risks posed by known side effects."

An individual has a comparative advantage in production if that individual:

can produce at the lowest opportunity cost

When a person possess a comparative advantage in the production of one good or service, it:

permits gains from trade to be realized due to a more efficient use of resources

Resources and goods are free to move across state lines. If Oregon producers choose to specialize in producing honey and California producers choose to specialize in growing almonds, then we could reasonablly conclude that:

(All of the above)
-California has a comparative advantage in producing almonds
-Oregon has a comparative advantage in producing honey
-the opportunity cost of growing almonds is lower in California than in Oregon
-the opportunity cost of producing honey is lower in Oregon than in California

To obtain the greatest gains from trade, a country should specialize in and _____ those goods for which it has a comparative advantage and ______ those goods for which other countries have a comparative advantage

export; import

A downward sloping straight-line production possibilities curve implies:

a constant opportunity cost

Which of the following is true?

(All of the above)
-By putting unemployed resources to work of by putting already employed resources to better uses, we could expand output in an economy
-To generate increased economic growth, a society would produce fewer consumer goods and more capital goods in the present.
-If the production possibility curve is concave from below (that is bowed outward from the origin), it reflects increasing opportunity costs of producing additional amounts of a good.
-Increases in a society's output do not make scarcity disappear.

Which of the following is true with regard to production possibilities curves?

Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future

The fact that some resources and skills cannot be easily adapted from their current uses to alternative uses is the basic reason for the law of

increasing opportunity cost

The private ownership of property and the use of the market system to direct and coordinate economic activity are the most characteristic of:

a market economy

In a market economy how do we determine who will get the goods and services that have been produced?

whoever can afford them

Which of the following is true?

-An economy in which labor is relatively scarce would tend to use capital intensive production methods
-An increase in the availability of labor relative to capital in the economy would tend to increase how labor intensive the production processes in that economy would be.

Which of the following is true?

(None of the above are true)
-In the product markets, firms are buyers and households are sellers
-In the factor markets, firms are sellsers and households are buyers
-Firms receive money payments from households for labor, land, capital, and entrepreneurship

The law demand illustrates a(n) _____ relationship between price and _____

inverse; quantity demanded

Assume the demand schedule for cookies is downward sloping. If the price of cookies falls from $2.50 to $2.25 per dozen:

a larger quantity of cookies will be demanded

For a given good, the market demand curve is generally ______ than the demand curves for the individual consumers

wider

If the price of ice cream increases and the quantity demanded decreases, economists would describe this as:

a change in quantity demanded

The difference between a change in quantity demanded and a change in demand is that a change in:

quantity demanded is caused by a change in good's own current price, while a change in demand is caused by a change in some other variable, such as income, tastes, or expectations

Buyers who were originally willing to buy 800 units of a good at $4 per unit are now willing to buy 1200 units at $4 per unit, That change would be described as:

an increase in demand

Whenever the price of Good A increases, the demand for Good B increases as well. Good A and B appear to be:

substitutes

Which of the following will not increase the demand for iced tea?

a decrease in the price of iced tea

If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:

Goods X and Y are complements

Which of the following is not likely to be an inferior good for most Americans?

(All of the above are likely to be inferior goods for most americans)
-Thrift store clothing
-Wine in a box
-Intercity bus travel
-Store brand canned vegetables

Along a supply curve:

quantity supplied changes as price changes

As a result of an increase in a product's price:

product supply does not change, but quantity supplied increases

Which of the following is not determinant of supply?

tastes

Sellers who were originally willing to supply 800 units of a good at $4 per unit are now willing to supply 600 units at $4 per unit. That change would be described as:

a decrease in supply

How ill a decrease in price tend to affect supply?

Supply will not change

Which of the following is true?

If input prices fall, this will lower the costs of production, causing the supply curve to shift to the right

Which of the following would be least likely to affect the supply of automobiles?

a successful physical fitness plan encouraging Americans to walk rather than to drive to their destinations

A leftward shift in supply could be caused by:

some firms leaving the industry

Which of the following would shift a supply curve to the right?

Subsides

Whenever there is a surplus at a particular price, the quantity sold at that price will equal:

the quantity demanded at that price

A surplus currently exists in the market for apples. Which of the following statements is correct?

The quantity of apples supplied exceeds the quantity demanded and the market price is above the equilibrium price

A quantity of a good bought and sold in a market will be below the equilibrium quantity if:

the market price is either above or below the equilibrium price

If the price of the ice cream increases substantially (ceteris paribus), the equilibrium quantity of hot fudge sauce, a complement, is likely to

decrease, and the equilibrium price of hot fudge sauce is likely to decrease

A shortage exists in the market for corn at the prevailing price. The shortage can eliminated by a price:

increase, increasing the quantity supplied and decreasing the quantity demanded

An increase in the price of inputs used to produce good A will:

decrease supply, increase price and decrease the quantity exchanged.

A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The demand curve facing this firm is:

inelastic

Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?

3.0

For a given increase in price, a greater elasticity of demand will result in a greater

decrease in quantity demanded

If the elasticity of demand coefficient for a good is one-sixth (in absolute terms), we know:

that for every 1% increase in quantity, there will be a 6% decrease in price.

The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 5% increase in price would lead to:

an 8% decrease in the quantity of gourmet coffee demanded

When demand is elastic:

(All of the above are correct)
-price elasticity of demand is greater than one
-consumers are relatively responsive to changes in price
-the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price

If the demand is perfectly elastic, what would happen to the quantity demanded if there is a tiny increase in price?

quantity demanded will fall to zero

Demand is said to be ___ when the quantity demanded changes the same proportion as the price

unit elastic

Total revenue represents the amount that:

sellers receive for a good or service which is computed as PxQ

A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses. The administration is considering a tuition increase to help balance the budget. An economist might advise the school to:

increase tuition in order to increase revenue

If an increase in price causes total expenditure on a product to decrease, then the price elasticity of demand is:

elastic

A 25% decrease in the price of breakfast cereal leads to 20% increase in the quantity of cereal demanded. As a result:

total revenue will decrease

Along a supply curve, a decrease in price will increase total revenue:

under no circumstances

For a given increase in price, the greater is the elasticity of supply, the greater is the resulting

increase in quantity supplied

Supply is said to be ____ when the quantity supplied is not very responsive to changes in price

inelastic

Ceteris paribus, if an 8% increase in price leads to a 6% increase in the quantity supplied, then:

supply is inelastic

The current supply of Rembrandt paintings:

is perfectly inelastic

Unlike its competitors, one glass producer can use its equipment to make either windows for houses or windows for cars. Other things equal, compared to its competitors, its supply curve of windows for cars would be:

more elastic than the supply curves of competitors

Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:

a surplus in the wheat market and an increase the quantity of gasoline traded.

To the extent that a government price control succeeds in affecting price, it can be expected to lead to a corresponding:

decrease in the volume of sales whether the price is forced up or down

A government mandated price increase of doodads will:

increase the quantity of doodads supplied but decrease the quantity of doodads demanded

If the government wanted to reduce the quantity of a good traded, it could do so by:

(doing any of the above)
-setting a price ceiling for the good below the equilibrium price
-setting a price floor for the good above the equilibrium price
-tax the good more heavily
-tax an input used intensively in the industry more heavily

A secondary effect of an action that may occur after the initial effects is known as a(n):

unintended consequence

The difference between the value of a good to consumers and its price is known as:

consumer surplus

If Stephanie buys a laptop for $700 and the maximum she would have paid was $1,000, which of the following is true?

Stephanie received a consumer surplus of $300

Ethics is defined as:

(Can be defined in any of the ways above)
-a branch of philosophy
-moral rules or standards governing human conduct, but not necessarily moral rules
-the moral principals of an individual person

In free market economies,

most market exchanges will result in all parties "winning"

A market economy without any ethics would have:

no value

Effective free market ethical systems must provide for all of the following:

-Clearly defined rules and regulations
-Meaningful punishments for rule breakers
-Adequate market oversight and policing
-Enough freedom for creativity and competition
EXCEPT: a clearly defined moral foundation

Cost-benefit analysis can determine the optimal amount of all the following:

-Regulations
-Market inspectors
-Severity of punishments
-Inspections
EXCEPT: fairness of rules

More efficient positive market ethics will generally help improve all of the following challenges:

-Positive externalities of a market
-Negative externalities of a market
-Consumer surplus of a market
-Producer surplus of a market

In order for a market's ethics to be effective, all of the following must occur:

-The ethics must be clearly defined
-There must be clear penalties for ethics violators
-There must be enough police or inspectors to find most violations
-Police or inspectors must be unbiased
EXCEPT: everyone must agree to take part in the market

Ethical rules based on morals or concepts of fairness are called:

Normative ethics

If we know someone pays all their taxes and gives money to charity, we know that

only that they pay their taxes and give money to charity

Which of the following does not specify positive ethical rules?

Webster's dictionary

Which of the following statements is TRUE?

TRUE: The U.S. government defines and enforces business ethics in order to protect the economy

In free markets which allows a high level of unethical corruption

Suppliers will be forced to be corrupt or to leave the market

Ethics violators like embezzlers, frauds, tax cheats and bank robbers

(All of the above may be true)
-Usually follow most rules and other ethics most of the time
-Not only injure individuals and companies, but also often hurt entire markets
-Often use rational cost-benefit analysis when deciding whether or not to cheat
-May feel ashamed and guilty of their crimes that they are driven to suicide

Which of the following would break a positive ethic?

Driving two miles per hour over the speed limit

Which of the these conditions are most likely to motivate honest people to become corrupt?

seeing your boss and fellow workers get rich by lying and cheating

Plagiarism is unethical because

(All of the above are reasons)
-Plagiarism might result in stealing profits from the original writer
-can decrease the value of honest students' diplomas
-can make it more difficult for instructors to asses the quality of students' writings
-plagiarism is a type of fraud

Which of the following are NOT very important to maintaining effective market ethics?

Whether people understand the reasons for the rules and regulations

Which of the following people are more likely to break ethical rules?

Someone who is ignorant

Which of the following are reasons why most owners of companies want their employees to act ethically?

(All of the above)
-Decrease in market demand
-Decrease in market supply
-Decrease in equilibrium price
-Total market collapse

The market ethics that have been discussed in this section are:

Positive

We can tell if a market has too many ethics rules because:

the marginal cost of the ethics rule is higher than the marginal benefit

If someone regularly acts unethically in a market:

-They will probably hurt consumers
-They will probably hurt suppliers
-They will probably hurt the market itself

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