2-3 short paragraphs on the questions:
1. Explain Opportunity Cost and provide an example.
2. What is the difference between absolute advantage and comparative advantage? What is the benefit of trade?
3. Provide a brief description of supply and demand. How is equilibrium used to determine the market price and quantity?
4. Give an overview of what an inferior good is. What will happen when consumer incomes increase? Include an example from your own life.
5. Minimum wage is a price floor. Explain some of the impacts that a price floor on the price of labor may cause.
Quiz:
1. Economics deals with
- how to profit from the stock market.
- how to satisfy limited human wants.
- how society allocates unlimited resources.
- how individuals allocate scarce resources to satisfy unlimited human wants.
2. What is the type of mechanism that answers the basic economic questions through a decentralized decision making process?
- Market system
- Dictatorship
- Command and control
- Mixed economic system
3. Economic models are used to
- simplify reality to predict outcomes.
- exactly replicate reality.
- predict all possible outcomes of a study.
- determine the thoughts of individuals.
4. Suppose that you have four choices: go to a movie, read a book, watch television, or go to a concert. You choose to go to a movie. The opportunity cost of the movie is
- the value of the book that was not read.
- the value of the television program that was not watched.
- the value of the concert that you didn't attend.
- the value of the activity that you would have selected if you hadn't gone to the movie.
5. If an economy is operating at a point inside the production possibilities curve
- society's resources are being inefficiently utilized.
- the curve will move to the left.
- society's resources are being used to produce too many consumer goods.
- economic policy must implemented to slow growth of the economy further.
6. Comparative advantage occurs
- when a country can produce a good at a lower opportunity cost compared to other countries.
- when a country can produce all goods more quickly than any other country.
- when the production possibilities curve shifts outward to the right.
- only for individuals and not countries.
7. The concept of absolute advantage relies upon
- the idea of comparative advantage.
- the ability to produce more units of an item with a given amount of resources.
- the idea of opportunity cost.
- the concept of economic efficiency as measured on the production possibility curve.
8. The law of demand is based on the observation that
- people buy less of a product when the product becomes less fashionable.
- people buy more of a product when the price falls.
- people are indifferent to price changes.
- stores go out of business if they lower prices.
9. A fundamental principle in demand analysis is that a change in price leads to
- a movement along the demand curve.
- a rightward shift of the demand curve.
- a leftward shift of the demand curve.
- a complementary movement on the supply curve.
10. Assume that coffee and tea are substitutes. Given a downward sloping demand curve for tea, an increase in the price of tea will cause
- an increase in the demand for coffee.
- a decrease in the demand for coffee.
- a leftward shift of the demand curve for tea.
- a leftward shift in the demand for coffee.
11. Other things being equal, an increase in wages paid to workers in the steel industry will cause
- the quantity of steel demanded to increase.
- the quantity of steel supplied to decrease.
- the supply of steel to decrease.
- the demand for steel to decrease.
12. Which of the following will cause an outward (rightward) shift in the supply curve?
- A reduction in the price of the good
- An increase in the price of labor input
- An increase in the price of labor input
- Technological progress
13. According to the above figure, equilibrium is at point
14. In a market system, which component conveys information about what is relatively scarce and what is relatively abundant?
- The number of producers
- The number of consumers
- Prices
- The amount of government regulation
15. Suppose that the price of lumber decreases. In the market for new homes, you would expect which of the following to occur?
- the market clearing price will fall and the equilibrium quantity will rise.
- the market clearing price will rise and the equilibrium quantity will fall.
- both the market clearing price and the equilibrium quantity will fall.
- both the market clearing price and the equilibrium quantity will rise.
16. Price floors
- provide free-market incentives for producers.
- create surpluses by setting the price above equilibrium.
- create shortages by setting the price above equilibrium.
- are used by advocates of the free market.
17. Price ceilings often generate
- market-clearing prices.
- rapid increases in supply to meet the excess demand.
- equilibriums that utilize rationing by price.
- black markets.
18. An import quota will
- lead to a shift of the demand curve.
- leave the equilibrium price unchanged and increase the quantity sold.
- limit the amount of a foreign good that can be brought into the United States.
- limit the amount of a good that local producers can make.
19. Niki is willing to pay up to $5 for an ice-cream bar but she actually pays $2 for it. The consumer surplus of the ice-cream bar for Niki
- is $2.
- is $3.
- is $7.
- cannot be determined without information about the market structure.
20. The price elasticity of demand is a measure of
- the responsiveness of the quantity demanded of a good to changes in the price of the good.
- the quantity demanded of a good at a given price.
- the demand for a product holding prices constant.
- the horizontal shift in the demand curve when the price of a good changes.
21. If the absolute price elasticity of demand for automobiles is equal to 0.75
- that demand is inelastic.
- that demand is elastic.
- that there is a strong responsiveness of quantity demanded to automobiles price cuts.
- None of the above
22. Which of the following is a determinant of the price elasticity of demand for an item?
- The availability of a close substitute for the item
- The percentage of a consumer's budget allocated to expenditures on the item
- The amount of available time to adjust to a change in the price of the item
- All of the above
23. If personal computer prices rise by 1%, you should expect the number of color printers purchased to
- increase.
- decrease.
- be equal to 10.
- be equal to one.
24. The price elasticity of demand would most likely be the lowest for
- a McDonald's hamburger.
- salt.
- a Toyota sport utility vehicle.
- Shell gasoline.
25. The most important determinant of price elasticity of supply is
- the number of close substitutes that there are for the good.
- the time period that firms have in order to adjust to the new price.
- the price of the good.
- the importance of the good in the budgets of consumers.
26. In economics, another term for satisfaction is
- income elasticity.
- price elasticity.
- utility.
- marginal productivity.
27. Suppose that Homer derives 45 utils of total utility from eating four donuts and 55 utils of total utility from eating five donuts. What is Homer's marginal utility from eating the fifth donut?
28. The principle that, "as more of a good is consumed, its extra benefit declines" is known as
- the law of demand.
- the law of diminishing marginal product.
- the law of diminishing marginal utility.
- the law of comparative advantage.
29. Suppose that a consumer buys five goods so that utility is maximized. The price of one of the goods falls, while the prices of the other four goods do not change. The consumer should
- buy less of all consumed goods to get to the optimal position.
- buy more of all of the goods except the one that experiences the decline in price, to get to the optimal position.
- buy more of all consumed goods to get to the optimal position.
- buy more of the good that experienced the fall in price to get to the optimal position.
30. The substitution effect argues that a consumer
- will always use the additional purchasing power from a price decrease to purchase more of both goods.
- will not purchase more of a good when its price falls.
- will purchase more of a good that has become relatively cheaper, and less of a good that has become relatively more expensive.
- will purchase less of both goods if his or her real income increases.