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Test 1 Questions (Chapters 1-3)

Economics promotes which of the following as the way to make the best decision?

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

What is an economic model?

It is a simplified version of some aspect of economic life used to analyze an economic issue.

Tabitha shares a flea market booth with her sister. Her share of the rent is $150 per month. She is considering moving to her own, larger booth which she will not have to share with anyone. The larger booth rents for $450 per month. Recently, you ran into Tabitha in the grocery store and she tells you that she has rented the larger booth. Tabitha is as rational as any other person. As an economics major, you rightly conclude that (fill in blank)

Tabitha figures that the additional benefit of having her own booth (as opposed to sharing) is at least $300.

5000 t-shirts made a week with a profit of $10,000. "Although the last 400 shirts we produced and sold increased our revenue by $4000 and our costs by $4800, overal profit is $10,000." Had the firm not produced and sold the last 400 shirts, would its profit be higher or lower, and if so by how much?

Its profits would be $800 lower.

Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?

Consumers, producers, and the government

Society faces a trade-off in all of the following situations except (fill in blank)

when some previously unemployed workers find jobs.

How does a market system prevent people from getting as many goods and services as they wish?

The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor.

Which of the following is a positive economic statement?

If the government mandates the production and sell of electric automobiles, it will lead to more electric vehicles being driven.

Which of the following is a normative economic statement?

Municipal park planners should incorporate pet needs into their designs.

Which of the following is a macroeconomics question?

What determines the inflation rate?

Human capital refers to (fill in blank)

the accumulated skills and training workers have.

How can influence of a third variable be shown on a two-dimensional graph?

By allowing the position of the relationship line or curve to shift on the graph

If a straight line passes through the point x=12 and y=4 and also through the point x=4 and y=8, the slope of this line is (fill in blank)

negative one half (rise over run)

The principle of (fill in blank) is that economic cost of using a factor of production is the alternative use of that factor that is given up.

opportunity cost

(fill in blank) shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

The production possibilities frontier model

Managers must decide on the monthly production quantities of their X6 and X5 models. In making this decision, the managers (fill in blank)

face a trade off, because producing more of one model means producing less of the other.

Without an increase in the supplies of factors of production, how can a nation achieve economic growth?

Through technological advancement which enables more output with the same quantity of resources.

An outward shift of a nation's production possibilities can occur due to (fill in blank)

an increase in the labor force

A production possibilities with a bowed outward shape indicates (fill in blank)

increasing opportunity costs as more and more of one good is produced

Which is not a flow in the circular flow model?

The flow of profit and the flow of revenue is not in the model.
The following are part of the model: The flow of goods and services and the flow of resources to produce goods and services. The flow of income earned by households and the flow of expenditures incurred by households. Also the flow of revenue received by producers and the flow of payments to resource owners.

Adam Smith's (fill in blank) refers to the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole.

invisible hand

If, in response to a decrease in the price of coffee, the quantity demanded of coffee increases, economists would describe this as (fill in blank)

an increase in quantity demanded.

A change in which variable will change the market demand for a product?

Expected future prices

The substitution effect of a price change refers to (fill in blank)

the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes. (movement along the demand curve due to a change in relative prices)

The income effect of a price change refers to (fill in blank)

the movement along the demand curve due to a change in purchasing power brought about by the price change.

If a decrease in income leads to a decrease in the demand for a good, then the good is (fill in blank)

a normal good

If the price of propane-fueled gas grills was to decrease, then (fill in blank)

the demand for propane would increase.

Suppose that when the price of hamburgers increases, the Jones family increases their purchases of hot dogs. To the Jones family (fill in blank)

hamburgers and hot dogs are substitutes.

According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decreases the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana?

The two goods are complements in consumption.

Several studies have shown promising links between green tea consumption and cancer prevention. How does this affect the market for green tea?

The green tea demand curve shifts to the right because of a change in tastes in favor of green tea.

In June, silver buyers expect that the price of silver will fall in July. What happens in the silver market in June, holding everything else holds constant?

The demand curve shifts to the left.
(The quantity demanded increases or decreases if there is movement along the curve)

Last month, Cowboy Boots Inc supplied 600 pairs of boots at $200 per pair. This month, the company supplied the same quantity at $180 per pair. Based on this evidence, Cowboy Boots Inc has experienced (fill in blank)

an increase in supply.

Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?

A decrease in the price of corn which if the substitution.

An increase in the price of soybean seeds is a rightward shift. An increase in the price of soybeans is a movement along the curve.

In May, market analysts predict that the price of copper will rise in June. What happens in the copper market in May, holding everything else constant?

The supply curve shifts to the left.

The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services. How does this affect the digital photo printing market?

The supply curve for digital photo printing services shifts to the right.

Assume there is a shortage in the market for vehicle tires. Which of the following statements correctly describes this situation?

Some consumers will be unable to obtain vehicle tires at the market price and will have an incentive to offer to buy the product at a higher price.

Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states. In the market for gasoline,

the supply curve shifted to the left resulting in an increase in the equilibrium price.

Which of the following would cause an increase in the equilibrium price and decrease in the equilibrium quantity of wheat?

a decrease in supply

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