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When economists say a good is scarce, they mean
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the human desire for the good exceeds the amount freely available from nature
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For a college student who wishes to calculate the true costs of going to college, the costs of room and board
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should be counted only to the extent that they are more expensive at college than elsewhere
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In economics, transaction costs refer to the
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time, effort and other resources needed to search out and negotiate an exchange
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Consumers buy less of a good as its price increases because
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substitute goods are now relatively cheaper
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Adam Smith believed that if people were free to pursue their own interests,
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public interests would be served quite well
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Between 1994 and 2004, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?
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technological improvements that reduced the cost of supplying cellular phone service
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After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators and chainsaws) cause their prices to rise. These higher prices
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help to direct the items towards their highest valued uses
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Taxes create deadweight losses because they
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distort incentives
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Suppose the state of Colorado imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The absolute value of the price elasticity of demand for cigarettes is equal to
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0.67
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The demand for salt is
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inelastic because there are few substitutes for salt and it represent a small percentage of a consumer's budget
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If Randy experiences a decrease in his income, we would expect that Randy's demand for
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normal foods will decrease
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If a firm has a U-shaped long run average cost curve,
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it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production
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When marginal cost is less than average total cost,
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marginal cost may be rising, falling or constant
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If consumer tastes are changing more in the favor of the consumption of a particular good the
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market demand curve would shift to the right
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Saccharin and aspartame are both low-calorie substitutes for sugar. If Saccharin is found to cause cancer,
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the price of aspartame will increase
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Andre decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Andre pay for his computer?
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$2,300
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If an economy is operating at a point inside the production possibilities curve,
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it's resources are not being used efficiently
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Lowincomesville is a poor town. The mayor has decided to impose a law to cut all rental rates on apartments in half and to fix them at this level. Will this help the poor? Why or why not? Be sure to distinguish between the short run and the long run.
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The immediate effect will be a benefit to those currently living in apartments. Such a move, fixing rents below their equilibrium value, will create a shortage. We would expect a decline in rental housing as well as a decline in quality. In the long run, the poor may be worse off due to a lack of rental housing.
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A popular video program, used to teach primary school children about economics, defines scarcity as "when you don't have enough of something." Evaluate this definition based on your understanding of the scarcity concept.
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This definition is a bit simplistic for college understanding. The video uses the example of three hats and four children to assert a scarcity of hats. We would more properly view this as a shortage of hats created because the hats, as presented, have no price. The shortage can be eliminated but scarcity cannot. Scarcity is the fundamental concept from which economics derives. Besides resources, virtually all other things, including your time, are scarce. Your textbook's definition will serve you better than the one from the video.
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The AB Manufacturing Company has hired an economist to evaluate its financial situation. She explains to the board of directors that the company is making zero economic profit. Should the company go out of business?
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The company should remain operating. Earning zero economic profit implies that the firm has an accounting profit equal to what the firm could be making at its highest valued alternative. A situation where zero economic profit is made would be considered normal.
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