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Chapter 1-A

Terms in this set (41)

Which of the following statements is​ true?
Human resource managers design compensation systems to encourage employees to work hard
Economists make many assumptions to simplify their models​ because:
The real world is too complex to analyze fully
Which of the following is an example of a positive​ statement?
If you consume this​ good, you will get sick
The primary participants in a market are
Firms who supply the product and consumers who buy​ it, but government policies such as taxes also play an important role in the operation of markets
Most private sector firms want to maximize
Profit
When interacting with a small number of rival​ firms, a manager uses a
Strategy
Economic theory​ is:
The development and use of a model to test hypotheses
Which of the following is​ true?
A normative statement concerns what somebody believes should ​happen; a positive statement concerns what will happen
Consider the demand for avocados. Does an increase in average income cause a shift of the demand curve for avocados or a movement along the demand​ curve? Explain briefly.

An increase in average income causes
A shift of the avocado demand curve because only a change in the price of avocados causes a movement along the avocado demand curve
An increase in the price of a good will lead​ to:
a movement up along the supply curve for that good
An increase in production costs will lead​ to:
a rightward shift of the supply curve
For the​ following, assume the good is a normal good. Suppose that income increases. In this case, the
demand curve shifts rightward while the supply curve stays the same
Suppose that the price of an input increases. In this​ case, the
supply curve shifts leftward while the demand stays the same
Identify whether the indicated event influences the demand or supply side of the relevant market.

Market: Advertising Services
Event: More firms enter the market

Market: Oil
Event: Producers expect prices to rise
Supply
For which of the following industries is the​ supply-and-demand model likely to be most​ accurate?

The​ supply-and-demand model will most closely mirror reality for
wholesale trade
retail trade
During the spring and summer of 2008 when gasoline prices were rising​ quickly, politicians in several countries proposed a moratorium on some or all gasoline taxes to help consumers. In the United​ States, John​ McCain, the Republican candidate for​ President, proposed suspending the federal gasoline tax of 18.4¢ for the summer when demand tends to be higher.

Hillary​ Clinton, while an active candidate for the Democratic nomination for the​ President, also pushed this plan. In the United​ Kingdom, Prime Minister John Major proposed delaying a 2p rise in a fuel tax until the fall. How would these​ short-run policies have affected the prices consumers pay in these countries if the policies had been​ enacted?

Temporarily suspending or delaying fuel taxes that consumers pay would
shift the demand curve up by an amount equal to the size of the suspended tax
The United Kingdom has a drinking problem. British​ per-capita consumption of alcohol rose​ 19% between 1980 and​ 2007, compared with a​ 13% decline in other developed countries. Worried about excessive drinking among young​ people, the British government increased the tax on beer by​ 42% from 2008 to 2012. Does a specific tax substantially reduce the equilibrium quantity of​ alcohol? Answer in terms of the slopes of the demand and supply curves.

Assume the demand curve is downward sloping and the tax is paid by consumers.

A specific tax on consumers
will not substanitally reduce the equilibrium quantity of alcohol if supply is relatively vertical
Consumers and firms are known as price takers only if
they cannot affect the market price
Suppose that the wage rate decreases. In this case, the
supply curve shifts rightward while the demand stays the same
According to the Law of​ Demand, the demand curve for a good​ will:
slope downward
An increase in the price of a good will lead​ to:
a movement up along the demand curve for that good
An increase in​ consumer's income will lead​ to:
a rightward shift of the demand curve for a normal good
The​ supply-and-demand model is appropriate in which of the following​ markets?
wheat
During the spring and summer of 2008 when gasoline prices were rising​ quickly, politicians in several countries proposed a moratorium on some or all gasoline taxes to help consumers. In the United​ States, John​ McCain, the Republican candidate for​ President, proposed suspending the federal gasoline tax of
18.4 cents for the summer when demand tends to be higher.

Hillary​ Clinton, while an active candidate for the Democratic nomination for the​ President, also pushed this plan. In the United​ Kingdom, Prime Minister John Major proposed delaying a 2p rise in a fuel tax until the fall. How would these​ short-run policies have affected the prices consumers pay in these countries if the policies had been​ enacted?

Temporarily suspending or delaying fuel taxes that consumers pay would
shift the demand curve up by an amount equal to the size of the suspended tax
After Hurricane Katrina damaged many U.S. gasoline refineries in​ 2005, the price of gasoline shot up around the country. The Federal Trade Commission announced that it would investigate price gouging - charging
​"too much" - and several members of Congress called for price controls on gasoline. What would have been the likely effect of such a law had it been​ passed?

Price controls on gasoline would have
resulted in a shortage because demand would have exceeded supply
Consider the supply of avocados. Explain why a change in the price of fertilizer causes a shift in the supply curve for avocados rather than a movement along the supply curve for avocados.

A change in the price of fertilizer causes a shift in the supply curve for avocados because
a change in the cost of inputs changes how much a producer will supply at any given price
It is appropriate to use the supply and demand model​ if, in a​ market,
All of the above.
The U.S. supply of frozen orange juice comes from Florida and Brazil. What is the effect of a freeze that damages oranges in​ Florida?

The price of frozen orange juice in the United States will

​Furthermore, the quantity of orange juice sold by Floridian firms will____________________and the quantity sold by Brazilian firms will_______________
increase

decrease

increase
Heinz makes most of its money from ketchup and​ prepared, packaged foods that are substitutes for fresh foods. Revenue tends to be low in the second quarter​ (May, June, and​ July). Can you provide a possible reason for this​ pattern? ​(Hint​: Fresh fruits and vegetables are substitutes for many Heinz prepared​ foods, and ketchup is commonly used on food prepared at outdoor​ cookouts.)

Revenue for Heinz tends to be low in the second quarter because
substitute fresh foods are cheaper
According to the regression results for CEO​ compensation, is the effect of experience on CEO compensation statistically​ significant?

The estimated coefficient on the experience explanatory variable​ (measured in​ years) is 36.10 and the corresponding standard error is 8.49.

The effect of experience ____ statistically significantly different from zero at the 0.05 level of significance.
is
What section of a​ straight-line demand curve is​ elastic?

The elasticity of demand is elastic_________

What section of a​ straight-line demand curve is​ inelastic?

The elasticity of demand is inelastic________
at all no points above the curve's midpoint

at all points below the curve's midpoint
You work for a firm producing fitness equipment. You have been told that the demand curve for the​ firm's main​ product, a​ multi-station home​ gym, is linear. You have been provided with price and quantity data obtained from focus groups and have been asked to run a regression of revenue on price.

A linear functional form can properly be used to​ estimate:
quantity with price as the explanatory variable because the demand curve is linear.
Some​ companies, such as​ Heinz, can forecast revenues well using pure time series analysis​ (that is, by extrapolation of prior​ data, accounting for seasonal​ effects). Other​ companies, such as FedEx​ (which makes money by shipping​ packages), or Sony​ (which sells consumer​ electronics) find that they cannot rely on pure time series analysis for reliable forecasting. They are strongly affected by recessions and need to use​ theory-based methods, including such explanatory variables as income in their forecasting models. Why are they different from​ Heinz?

We need​ theory-based methods to forecast revenues for companies such as FedEx and Sony because
demand for their products is affected by variables other than results from prior time periods.
Suppose that the demand curve for wheat in each country is perfectly inelastic up to some​ "choke" price p --- a price so high that nothing is bought---so that the demand curve is vertical at​ Q at prices below​ p and horizontal at​ p. If​ p and​ Qp* and​ Q* vary across​ countries, what does the​ world's demand curve look​ like? Discuss how the elasticity of demand varies with the price along the​ world's demand curve.

Assuming many​ countries, the​ world's demand curve for wheat can best be described as

Elasticity along the​ world's demand curve for wheat
downward sloping

will increase with price.
A variable that likely is incorporated in the error term is
consumer income
Economists use the term salience in behavioral economic as a reference​ to:
something that is striking or obvious.
An indifference curve cannot be thick and cannot have a positive slope because this would violate the property of

An indifference curve cannot bend backward
forming a​ "hook" at the​ end, because this would violate the property of

An indifference curve cannot intersect another indifference curve because this would violate the property of
more is better

more is better

transitivity
Which of the following pairs of goods are​ complements, which are​ substitutes, and which are​ unrelated?

We observe the price of Pepsi decreases and the quantity demanded of Coca minus Cola decreases:

A smartphone and smartphone​ apps:

Tide laundry detergent and Cheer laundry​ detergent:

You observe that your significant other always adds 1 oz of cream to each cup of​ coffee:
substitutes

complements

perfect substitutes

perfect complements
Bounded rationality means​ that:
people have a limited capacity to​ anticipate, solve complex​ problems, or enumerate all options
Why would a​ consumer's demand for a product change when the product price is quoted inclusive of taxes rather than before​ tax?

Whether taxes are quoted as part of a​ product's price might affect consumer demand because
mentally calculating the impact of taxes has a cost
Do you think fewer people would apply for a job if the salary were quoted after deducting income tax rather than in​ pre-tax form?

Quoting salaries after deducting income taxes rather than in​ pre-tax form
would have little effect on applications becuase for such an important and infrequent​ decision, the worker would make the mental​ pre/post tax calculation
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