Terms in this set (91)
What do economists mean when they state that a good is scarce?
The amount of the good that people would like to have exceeds the supply that is freely available.
The expression "there is no such thing as free lunch" implies what?
The costs are incurred when resources are used to produce goods and services.
The best example of decision making at the margin would be what?
Observing the effect that a small change in income has on the amount of income tax owed and therefore upon after-tax income.
The ______ the opportunity cost of doing something, the _______ likely it will be done.
Customarily, economists classify resources into these major groups:
Land, labor, capital, and entrepreneurship.
Country C has an economic system that can be described as one with government ownership of non-labor factors of production, government allocation of resources, centralized decision making, and a major role for the government in economic activities. What kind of economy is Country C?
A command economy.
Which of the following might be considered to be a characteristic of a planned economy?
There is no incentive for people that work hard.
The basic difference between macroeconomics and micro is that....
Macro looks at the forest (aggregate markets) while micro is concerned with the individual trees (subcomponents).
Which of the following sayings best reflects the concept of opportunity cost?
"Time is money"
If an economy is operating at a point inside the production possibilities curve,
It's resources are being wasted.
Does voluntary exchange create wealth (value)?
Yes, trade generally permits the trading partners to gain more of what they value; this is why they agree to the terms of the exchange.
What will most likely occur under a system of clearly defined and enforced private property rights?
Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
Market pricing as a kind of automatic signaling system that responds to changes in relative scarcities and rapidly redirects economic activity is part of....
The capitalistic vision.
Increasing opportunity cost while moving along a production possibility frontier is due to what?
The fact that resources are not equally productive in alternative uses.
Entrepreneurship refers to...
Persons who are risk-taking and who develop new ways of doing things.
The "coincidence of wants" problem associated with barter refers to the fact that...
For exchange to occur each transactor must have a product which the other transactor wants.
Economic capital refers to...
Buildings, machinery, and equipment.
When a market is in equilibrium it is,
at a price where quantity supplied is equal to quantity demanded.
Why do nations often impose trade barriers that make it difficult for their own citizens to trade with people in another country?
Trade restrictions often provide benefits to highly visible special interest groups while imposing a less visible cost on the general populace.
Which of the following best describes the relationship between economic freedom and real per capita Gross Domestic Production?
As economic freedom increases, real per capita GDP increases.
A country's level of economic freedom is influenced by what?
1) Freedom to trade internationally,
2) The relative size of government expenditures, taxes and enterprises
3) The even-handedness of the court system and security of property rights.
If two countries are producing the same two products, it is mutually beneficial if the countries specialize then trade. How is it determined who specializes in the production of which product?
By the lowest opportunity cost of production, comparative advantage.
The quantity demanded of a product increases as...
the price of the product falls.
The law of demand states that an increase in the price of a good...
decreases the quantity demanded for that good.
The law of supply indicates that...
producers will offer more of a product at high prices than they will at low prices.
According to the law of increasing opportunity costs,
the slope of the supply curve is positive.
A response to a price change would be described as a:
movement along an existing demand curve.
The market demand curve does what?
Shows the relationship between the price of a good and the quantity that all consumers together are willing to buy.
In order to achieve a high economic freedom rating, a country must
1) Protect property rights
2) Enforce contracts even handedly
3) Rely extensively on markets to allocate goods and services
International trade is advantageous because trade makes it possible for people in each country to do what?
Acquire goods from foreigners more economically than they could be produced domestically.
The law of comparative advantage shows what?
Potential gains in efficiency available through specialization and trade.
While intuitively it makes sense that a demand curve is downward sloping, the technical rationale for the consumer's inverse relationship between price quantity demand is:
The law of decreasing marginal benefits.
One can say with certainty that equilibrium price declines when supply...
increases and demand decreases.
Assume that land suitable for growing corn is also suitable for growing soybeans... A decrease in the price of corn will therefore:
reduce the opportunity cost of growing soybeans.
If the demand curve is a vertical line, it means that:
regardless of price, the quantity demanded is a constant amount.
The price elasticity of demand for a good is relatively elastic if:
1) The good is less of a necessity
2) There are a large number of substitutes
3) The consumer has more time to make decisions about purchasing the good
An important determinant of the amount of grains harvested next year by Ethiopian farmers is the amount of seeds planted this year. Given that Western nations have guaranteed to donate five hundred tons of grain next year, this year the Ethiopian farmers will:
plant less seeds as the price of grain will be lower with the food aid.
If the supply of bottled water decreases, the equilibrium price ________ and the equilibrium quantity________.
A decrease in supply would result from:
an increase in the prices of input resources.
What are the adjustments that eliminate shortage?
As the price rises, the quantity demanded decreases while the quantity supplied increases.
The difference between the maximum amount that a consumer is willing to pay for a product and the price that is paid for the product describes what?
On the NY Stock Exchange, the current price per share for stock of the Boston Celtics, a NBA basketball team, is $8.25. At that price the total quantity of shares demanded is 2500, while the total quantity supplied for trade is 2000. It follows that:
there is a shortage of shares and upward pressure on the price.
This year the demand for new homes increases while at the same time supply also increases. As a result of these changes in the market for new homes you can conclude that:
the equilibrium number of new homes will increase.
Health studies claim that consuming a glass of wine with afternoon or evening meals significantly reduces the risk of heart disease. If people believe this information, what is likely to occur to the short-run equilibrium in the wine market?
Equilibrium prices and quantity will both rise due to an increase in the demand for wine.
If the price elasticity of demand is .5, this means that a ___ increase in price causes a ____ decrease in quantity demand.
If a product has only a few acceptable substitutes, demand for the product is most likely to be:
If an excise tax, per unit of production, is levied on a good,
the largest burden of the tax is born by the consumer or the producer with the most inelastic response to price changes.
Suppose that the max price for rent in NYC is set above the equilibrium price. Are these statements correct or not correct?:
It reduces the quantity supplied.
It increases the quantity demanded.
Consumers want to buy more than producers will want to sell.
In part, the solution to the principal-agent problem is to:
devise compensation rules to induce agents to act in the best interest of principals.
Economic profits for firm is defined as the total revenue of the firm minus what?
explicit and implicit costs of production.
Cross elasticity of demand measures the responsiveness of ...
changes in the quantity demanded of one good to changes in the price of another good.
The primary goal of a firm in capitalistic market is to...
The income elasticity of demand is likely to be lowest for which of the following goods?
Cosmetic plastic surgery
What does this:
-is a legal minimum on the price at which a good can be sold
-can result when sellers of a good are successful in their attempts to convince the government that the market outcome without a price floor is unfair to them
-can create inequities in a market
A price floor
TSU raises tuition for the purpose of increasing its revenue so that more faculty can be hired. TSU is assuming that the demand for education at TSU is...
An effective minimum wage law will....
cause unemployment for some affected workers.
A price floor on corn would have the effect of...
creating a surplus when the price floor is set above the equilibrium price.
The primary positive characteristic of the existence of a firm is the...
1) team production
2)reduction of transaction costs
3) economies of scale.
What is a price ceiling?
A legal maximum on the price at which a good can be sold.
When a tax is placed on a product, the price paid by buyers...
rises, and the price received by sellers falls.
A deadweight loss is a consequence of a tax on a good because the tax...
induces buyers to consume less, and sellers to produce less.
A ban on imports will _____ the price domestic consumers pay for the good and ____ the amount of the good consumed by domestic consumers.
In the short run, ____ factors of production are fixed, while in the long run, ___ of them are.
Which of the following is NOT a characteristic of a perfectly competitive market?
-a large number of first in a market
-selling a standardized product
-substantial barriers to entry
-an individual firm having no control over price
-substantial barriers to entry.
If a firm is a price taker, the demand curve faced by the firm is:
If the long-run average total cost curve for a firm is down-sloping, then it indicates that there are....
constant returns of scale.
A firm experiences diminishing marginal returns because...
the fixed fact becomes constraining to the production process
Diminishing marginal returns implies that marginal COSTS ____ and marginal PRODUCTS _____.
The perfectly competitive firm produces at the output level where
price equals marginal cost.
If the LRATC curve is falling, then...
economies of scale are present.
It would be possible to produce the world's present supply of wheat in a single flowerpot if it were not for the...
law of demand
True or false: In the short run, all inputs are variable inputs.
The Zebra Inc., is selling a purely competitive market. Its output is 250 units, which sell for 2$ each. At this level of output, marginal cost is 2$ and average variable cost is 2.25$. The firm should:
produce zero units of output.
Marginal cost and average variable cost are equal at the output at which..
the average variable cost is a minimum.
You are hired by a Jimbo's potato farm to determine when Jimbo should shut down and produce no potatoes in the short run. Jimbo sells his potatoes in a perfectly competitive market. you tell Jimbo to shut down if:
price is less than average variable cost when marginal revenue equals marginal cost.
In general, the quantity of output in an oligopoly market is:
lower than in perfect competition.
A monopolistic maximizes prices by setting the quantity where:
marginal revenue is equal to marginal cost.
Market power is the power to
A benefit to consumers of monopolistically competitive markets is that:
consumers have a variety of products from which to choose.
When oligopolists collude the results are generally...
smaller output and higher price
The perfectly competitive firm charges a price ___ while the monopoly charges a price ___ .
equal to marginal cost, greater than marginal cost.
Which of the following is an assumption of the theory of oligopoly?
-there are no barriers to entry
-there are many sellers and many buyers
-firms must produce and sell differentiated products.
none of them
A group of firms that coordinate their pricing decisions is called what?
A firm switching from a single price to a price discrimination scheme will ________ the price for the group of consumers with relatively elastic demand and ________ the price for the group of consumers with relatively inelastic demand.
Mutual interdependence means what?
Each firm must consider the reactions of its rivals when it determines its price policies.
To be successful, collusion requires that oligopolists be able to do what?
Block or restrict the entry of new producers.
What assumption in the theory of perfect competition assures us that economic profit will be zero in the long-run?
Free entry and exit of firms in the market.
Ownership of a necessary input creates what type of barrier to entry?
Natural barrier to entry.
The monopolist's with a linear downward sloping demand curve has a marginal revenue curve that is...
downward sloping and twice as steep as demand.
Monopolistically competitive firms differentiate their products by...
1) Selling products at different locations
2) Creating an image for the product with advertising
3) Selling their products with slightly different physical characteristics
Which of the following firms are examples of price discrimination?
United Airlines charges customers who book 14 days ahead a lower price than those who don't.