Econ Midterm

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For economists, the word "utility" means

pleasure or satisfaction

In economics, the pleasure, happiness, or satisfaction received from a product is called:

In economics, the pleasure, happiness, or satisfaction received from a product is called:

utility

When economists say that people act rationally in their self interest, they mean that individuals:

look for and pursue opportunities to increase their utility

According to Emerson: "Want is a growing giant whom the coat of Have was never large enough to cover." According to economists, "Want" exceeds "Have" because:

productive resources are limited.

According to economists, economic self-interest:

is a reality that underlies economic behavior

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:

opportunity costs.

A person should consume more of something when its marginal:

benefit exceeds its marginal cost.

Economics may best be defined as the:

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

The study of economics is primarily concerned with:

choices that are made in seeking the best use of resources.

The economic perspective entails:

a comparison of marginal benefits and marginal costs in decision making.

Purposeful behavior suggests that:

people weigh costs and benefits to make decisions.

Purposeful behavior means that:

people weigh costs and benefits to make decisions.

Economics involves marginal analysis because:

most decisions involve changes from the present situation.

You should decide to go to a movie:

if the marginal benefit of the movie exceeds its marginal cost.

Marginal costs exist because:

the decision to engage in one activity means forgoing some other activity.

The assertion that "There is no free lunch" means that:

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:

purposeful behavior

If someone produced too much of a good, this would suggest that:

the good was produced to the point where its marginal cost exceeded its marginal benefit.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

scarcity and opportunity costs.

Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30, how many pounds of potatoes will she purchase? What if she only had $2 to spend?

Janice will purchase 3 with her original $5.00 of income.

Janice will purchase 2 when her income is $2.00.

Potatoes cost Janice $1.25 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30, how many pounds of potatoes will she purchase? What if she only had $3.00 to spend?

Janice will purchase 1 with her original $5.00 of income.

Janice will purchase 1 when her income is $3.00.

Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

4 hours

Refer to the figure below. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases.

Will the MC curve shift up or down? MC will shift down.

Will the optimal amount of pizza increase or decrease? The optimal amount of pizza will increase.

On average, households in China save 40 percent of their annual income each year, whereas households in the United States save less than 5 percent. Production possibilities are growing at roughly 9 percent annually in China and 3.5 percent in the United States. Use graphical analysis of "present goods" versus "future goods" to explain the differences in growth rates.

Instructions: Refer to the diagram on the left.

Which point best represents the combination of present and future goods in the U.S.? A

Which dashed production possibilities curve best represents future growth in the U.S.? PPC2

Instructions: Refer to the diagram on the right.

Which point best represents the combination of present and future goods in China? B

Which dashed production possibilities curve best represents future growth in China? PPC3

Which of the following is a distinguishing feature of a command system?

central planning

Which of the following is a distinguishing feature of a market system?

wide-spread private ownership of capital.

Examples of command economies are:

Cuba and North Korea.

Of the following countries, which one best exhibits the characteristics of a market economy?

Canada

The French term "laissez-faire" means:

"let it be."

An economic system:

is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

The term laissez-faire suggests that:

government should not interfere with the operation of the economy.

Economic systems differ according to which two main characteristics?

Who owns the factors of production, and the methods used to coordinate economic activity.

Command systems are also known as:

communism.

A fundamental difference between the command system and the market system is that, in command systems:

the division of output is decided by central planning rather than by individuals operating freely through markets.

Which of the following is not a characteristic of the market system?

government ownership of major industries.

Which of the following is a fundamental characteristic of the market system?

property rights.

Property rights are important because they:

encourage cooperation by improving the chances of mutually agreeable transactions.

Private property:

encourages owners to maintain or improve their property, so as to preserve or enhance value.

Copyrights and trademarks are examples of:

property rights.

The regulatory mechanism of the market system is:

competition

Broadly defined, competition involves:

independently acting buyers and sellers and freedom to enter or leave markets.

Competition means that:

there are independently-acting buyers and sellers in each market.

The division of labor means that:

workers specialize in various production tasks.

Specialization in production is important primarily because it:

results in greater total output.

A market:

is an institution that brings together buyers and sellers.

Markets, viewed from the perspective of the supply and demand model:

assume many buyers and many sellers of a standardized product.

The law of demand states that, other things equal:

price and quantity demanded are inversely related.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

A demand curve shows the relationship between:

price and quantity demanded.

Economists use the term "demand" to refer to:

a schedule of various combinations of market prices and amounts demanded.

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is ____.

direct, inverse

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:

income effect.

A demand curve:

indicates the quantity demanded at each price in a series of prices.

In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is:

the price of the product itself.

An increase in the price of a product will reduce the amount of it purchased because:

consumers will substitute other products for the one whose price has risen.

The income and substitution effects account for:

the downward sloping demand curve.

When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes:

the substitution effect.

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes:

the income effect.

(Advanced analysis) The equation for the demand curve in the below diagram:

is P = 35 .5Q.

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is:

price.

One reason that the quantity demanded of a good increases when its price falls is that the:

lower price increases the real incomes of buyers, enabling them to buy more.

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer Adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?

the substitution effect

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:

the income effect.

A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:

beer and marijuana are complementary goods.

The price elasticity of demand coefficient measures:

buyer responsiveness to price changes.

The basic formula for the price elasticity of demand coefficient is:

percentage change in quantity demanded/percentage change in price.

The demand for a product is inelastic with respect to price if:

consumers are largely unresponsive to a per unit price change.

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:

increase the quantity demanded by about 25 percent.

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:

1.37

Which of the following is not characteristic of the demand for a commodity that is elastic?

The elasticity coefficient is less than one.

If the demand for product X is inelastic, a 4 percent increase in the price of X will:

decrease the quantity of X demanded by less than 4 percent.

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:

the price elasticity of demand is 2.25.

A perfectly inelastic demand schedule:

can be represented by a line parallel to the vertical axis.

The larger the coefficient of price elasticity of demand for a product, the:

smaller the resulting price change for an increase in supply.

Most demand curves are relatively elastic in the upper-left portion because the original price:

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:

20 percent reduction in price.

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:

demand will become less price elastic.

The price elasticity of demand of a straight-line demand curve is:

elastic in high-price ranges and inelastic in low-price ranges.

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:

more inelastic the demand for the product.

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:

increase the amount demanded by more than 10 percent.

The price elasticity of demand is generally:

negative, but the minus sign is ignored.

For a linear demand curve:

demand is elastic at high prices.

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range:

is elastic.

The above diagram shows two product demand curves. On the basis of this diagram we can say that:

over range P1P2 price elasticity of demand is greater for D1 than for D2.

Market failure is said to occur whenever:

private markets do not allocate resources in the most economically desirable way.

Which of the following is an example of market failure?

negative externalities
positive externalities
public goods

Demand-side market failures occur when:

the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.

People enjoy outdoor holiday lighting displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:

demand-side market failure

Supply-side market failures occur when:

the demand and supply curves don't reflect the full cost of producing a good or service.

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:

costs more to produce than it provides in benefits.

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?

Supply-side market failure

What two conditions must hold for a competitive market to produce efficient outcomes?

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true?

The benefit surpluses shared between consumers and producers will be maximized.

Consumer surplus:

is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

Producer surplus:

is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:

a consumer surplus of $9 and Nathan experiences a producer surplus of $3.

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

a consumer surplus of $10 and Tony experiences a producer surplus of $190.

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle:

under the demand curve and above the actual price.

Refer to the above diagram. Assuming equilibrium price P1, producer surplus is represented by areas:

c + d

Refer to the above diagram. The area that identifies the maximum sum of consumer surplus and producer surplus is:

a + b + c + d.

Refer to the above diagram. If actual production and consumption occur at Q1:

an efficiency loss (or deadweight loss) of b + d occurs.

Refer to the above diagram. If actual production and consumption occur at Q2:

efficiency is achieved.

Refer to the above diagram. If actual production and consumption occur at Q3:

an efficiency loss (or deadweight loss) of e + f occurs.

The utility of a good or service:

is the satisfaction or pleasure one gets from consuming it.

Marginal utility can be:

positive, negative, or zero.

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is:

negative

The ability of a good or service to satisfy wants is called:

utility

Refer to the above data. The value for Y is:

45

A product has utility if it:

satisfies consumer wants.

The law of diminishing marginal utility states that:

beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:

8 units of utility.

If the price of product X rises, then the resulting decline in the amount purchased will:

increase the marginal utility of the last unit consumed of this good.

Marginal utility is the:

change in total utility obtained by consuming one more unit of a good.

Utility refers to the:

satisfaction that a consumer derives from a good or service.

Total utility may be determined by:

summing the marginal utilities of each unit consumed.

Refer to the above diagram. The marginal utility of the third unit of X is:

4

Refer to the above diagram. The total utility yielded by 4 units of X is:

17

Refer to the above diagram. Total utility is at a maximum at _____ units of X.

6

Economic cost can best be defined as:

payments that must be received by resource owners to insure the resources' continued supply.

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

use of savings to pay operating expenses instead of generating interest income

Which of the following is most likely to be an implicit cost for Company X?

forgone rent from the building owned and used by Company X

Production costs to an economist:

reflect opportunity costs.

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

All are opportunity costs.

To the economist, total cost includes:

explicit and implicit costs, including a normal profit.

Implicit and explicit costs are different in that:

the former refer to non-expenditure costs and the latter to monetary payments.

Accounting profits equal total revenue minus:

total explicit costs.

An explicit cost is:

a money payment made for resources not owned by the firm itself.

Accounting profits are typically:

greater than economic profits because the former do not take implicit costs into account.

Economic profits are calculated by subtracting:

explicit and implicit costs from total revenue.

Normal profit is:

the return to the entrepreneur when economic profits are zero.

Refer to the above data. Creamy Crisp's explicit costs are:

$150,000

Refer to the above data. Creamy Crisp's implicit costs, including a normal profit, are:

$136,000.

Refer to the above data. Creamy Crisp's total economic costs are:

$286,000.

Refer to the above data. Creamy Crisp's accounting profit is:

$230,000.

Refer to the above data. Creamy Crisp's economic profit is:

$94,000

Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by:

$94,000

Refer to the above data. Creamy Crisp:

is earning an economic profit.

Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000:

it would earn a normal profit but not an economic profit.

Economists would describe the U.S. automobile industry as:

an oligopoly.

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

oligopoly

Which of the following industries most closely approximates pure competition?

agriculture

Economists use the term imperfect competition to describe:

those markets which are not purely competitive.

In which of the following industry structures is the entry of new firms the most difficult?

pure monopoly

An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of:

monopolistic competition.

An industry comprised of four firms, each with about 25 percent of the total market for a product is an example of:

oligopoly.

An industry comprised of a very large number of sellers producing a standardized product is known as:

pure competition.

An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions is called:

oligopoly.

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