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econ 2020 exam 1
Terms in this set (55)
the equilibrium price is
stable because at this price the quantity demanded equals the quantity supplied
in a free market setting where quantity supplied is 40 units and quantity demanded is 50 units, price will
gains from trade are maximized when
the market price is equal to the equilibrium price
vernon smith tested the supply and demand model in the laboratory and found that
buyers and sellers quickly converged on the predicted equilibrium
laboratory experiments by vernon smith support
the supply and demand models usefulness in predicting changed in a free market
The COVID-19 pandemic caused many consumers to be quarantined in their homes. The supply and demand model would predict which of the following events in the market for craft supplies sold by online craft stores?
The demand for craft supplies sold by online retailers would increase, resulting in a higher equilibrium price and a higher equilibrium quantity.
Technological advances have increased the supply of digital cameras. As a result, the:
quantity demanded for digital cameras will increase
when the price of a good decreases
the quantity demanded increases
what is the difference between a shift in the demand curve and a movement along the demand curve
a shift implies a change in the whole demand curve; a movement does not
Since improved technology continually lowers the cost of discovering and producing oil, how can rising oil prices in recent years be explained?
demand has increased more than supply has increased; raising prices.
If scientists discover a new form of energy that cuts the cost of producing electricity to the equivalent of $10 a barrel, what will happen to the market for oil?
demand for oil will decrease over time since no one will pay more than $10 a barrel of oil to produce energy
the price elasticity of demand is
the responsiveness of quanity demanded to changed in the price of the product
why is the demand curve for oil rather inelastic
there are few widely available good substitutes for oil
Consumers are likely to be more sensitive to price changes for automobiles than for canned soft drinks because:
automobiles have more substitutes
The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?
If a 4% increase in the price of pepper results in a 1% decrease in pepper sales, what is the absolute value of the price elasticity of demand for pepper? Is it elastic or inelastic?
Increases in farm productivity lowered the prices of many agricultural products. Farm revenues decreased, which implies that the:
demand for many agricultural products is inelastic
Extensive flooding in the Midwest decreases the world supply of corn. If corn is inelastically demanded, what will happen to total revenues from corn production?
they will rise
If the supply of a product is inelastic, a large price increase will:
only bring about a small increase in quantity supplied
the supply cure for a picasso painting is
If the price of cocoa rises by 20%, the quantity supplied of cocoa rises by 4%. What is the elasticity of supply?
The supply curve for manufactured goods is usually more elastic than for raw materials because production of manufactured goods can often be:
increased at the same cost per unit by building more factories
gun buyback programs will be less effective if the
supply of guns is more elastic
In an "open access" city, where building new housing is less restricted, the supply of housing is:
If the supply of a good is very elastic, then any increase in demand for the good will have a
very small impact on the price of the good
How does the price elasticity of supply for Henri Matisse paintings compare with the price elasticity of supply for Damien Hirst paintings? Note that Matisse is deceased, whereas Hirst still lives.
matisse paintings likely have a lower price elasticity of supply
the different between why buyers pay for a unit of a good and what sellers receive is known as the
Suppose the imposition of a per unit tax on sellers shifts the supply curve from S0 to S1. With the tax, buyers pay _____ and sellers receive _____.
6 - 3
Suppose that there is a tax of $5 per unit and the demand curve is more elastic than the supply curve. Which of the following statements could be TRUE?
buyers pay 1
If a tax is imposed on a market with inelastic demand and elastic supply:
buyers will bear most of the burden of the tax
Suppose the demand for pizza is inelastic and the supply of pizza is elastic, and the demand for cigarettes is inelastic and the supply of cigarettes is elastic. If a tax were levied on the sellers of both of these commodities, we would expect that the burden of:
both the pizza and the cigarette taxes would fall more heavily on buyers than on sellers
To be efficient, the revenue from taxation must provide goods that have benefits that _____ the deadweight loss caused by the taxation itself.
If a $2 tax on cigarettes decreases both consumer and producer surplus:
tax revenues will be less than the amount of the lost consumer and producer surplus
Newly formed trade unions raise wages for workers in country X, where cars are manufactured. The higher wages increase the costs for the car manufacturers, who then relocate to country Y, where labor costs are lower. Car manufacturing begins to thrive in country Y relative to country X. Which answer BEST describes the concept highlighted by this scenario?
changes in one market can affect markets and people in other regions of the world
Land used to grow corn can also grow soybeans. As the demand for corn used in ethanol began to increase the price of corn, what happened to the price of soybeans?
the price of soybeans rose, since farmers began planting corn instead of soybeans thus decreasing the supply of soybeans
the market acts like a computer because
prices are information processors
the great economic problem is to
arrange our scarce resources to satisfy as many of our infinite wants as possible
in a demand and supply diagram, the market price represents the value of the
good in its next highest value use
the bankruptcy of firms
frees up resources to higher valued uses, a vital role in capitalism
After a hurricane knocks out power to thousands of households, the price of electric generators increases threefold. According to economists:
this discourages the use of electric generators in low-valued uses, making them more readily available for high-valued uses.
A U.S. manufacturer arranges to purchase parts from a German supplier for 500,000 euros in 6 months. The U.S. manufacturer is concerned that the dollar will depreciate against the euro, meaning the dollar cost of the 500,000 euros will rise. The U.S. manufacturer should:
buy a futures contract that fixes the dollar cost of 500,000 euros in 6 months.
_____ is a special case of _____ that involves transferring consumption of goods from a high-value time period to a low-value time period.
Speculators _____ prices today and _____ prices in the future.
One of the biggest problems with centrally planned economies is that:
central planners have limited information on the true value of the various ways to utilize scarce resources
Markets work well because of the information delivered by:
Price ceilings create five important effects:
shortages, reductions in product quality, wasteful lines, a loss of gains from trade, and a misallocation of resources.
Rent controls are:
an inefficient way to help the poor in raising their standard of living
Over time, housing shortages caused by rent control _____ because the supply of housing is _____ elastic in the long run.
Some economists compare the destructiveness of rent control to that of aerial bombardment because it causes:
landlords to neglect their buildings allowing them to deteriorate over time
Housing vouchers are a better option than rent controls when a government is attempting to make housing affordable for the poor. The reason is that the housing voucher entitles the tenants to:
a certain dollar amount off the rent of any apartment they choose
After a hurricane, the prices of many items rise. How BEST might the government help poor people afford to buy goods and services?
give poor people debit cards for use in purchasing essential items while leaving prices unregulated
which is not a cost of binding price controls
the presence of price floors in a market is usually an indication that
the sellers of the good or service outnumber the buyers
when the minimum price that can be legally charged is above the market price, we say there is a price
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