question
Scarcity
answer
society has limited resources and therefore cannot produce all the goods and services people wish to have
question
Economics
answer
the study of how society manages its scarce resources
question
Efficiency
answer
society is getting the maximum benefits from its scarce resources
question
Equality
answer
benefits are distributed uniformly among society's members
question
opportunity cost
answer
the cost of an item that is what you give up to get that item
question
rational people
answer
people who systematically and purposefully do the best they can to achieve their objectives, given the available opportunities
question
marginal change
answer
describes a small incremental adjustment to an existing plan of action
question
market economy
answer
the decisions of a central planner are replaced by the decisions of millions of firms and households
question
Firms
answer
decide who to hire and what to make
question
Households
answer
decide which firms to work for and what to buy with their incomes
question
property rights
answer
what market economies need in order so that individuals can own and control scarce resources
question
market failure
answer
refers to a situation in which the market on its own fails to produce and efficient allocation of resources
question
externality
answer
the impact of one person's actions on the wellbeing of a bystander
question
market power
answer
the ability of a single person or firm (or a small group) to unduly influence market prices
question
productivity
answer
the amount of goods and services produced by each unit of labor input
question
inflation
answer
an increase in the overall level of pries in the economy
question
business cycle
answer
the irregular and largely unpredictable fluctuations in economic activity, as measured by the production of goods and services or the number of people employed
question
circular-flow diagram
answer
a graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology that firms use to turn these factors into output
question
productions possibilities frontier
answer
the study of how households and firms make decisions and how they interact in specific markets
question
Microeconomics
answer
the study of economy-wide phenomena
question
Macroeconomics
answer
descriptive statements that make a claim about how the world is
question
Positive statements
answer
prescriptive statements making a claim about how the world ought to be
question
Normative statements
answer
Used when comparing the productivity of one person, firm, or nation to that of another. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good
question
absolute advantage
answer
describing the opportunity costs faced by two producers
question
comparative advantage
answer
goods produced abroad and sold domestically
question
Imports
answer
goods produced domestically and sold abroad
question
Exports
answer
a group of buyers and sellers of a particular good or service
question
Market
answer
a market in which there are so many buyers and so many sellers that each has a negligible impact on the market price
question
Competitive market
answer
the amount of a good that buyers are willing and able to purchase
question
Quantity demanded
answer
the claim that, other things being equal, the quantity demand of a good falls when the price of the good rises
question
Law of Demand
answer
a table that shows the relationship between the price of a good and the quantity demanded
question
Demand schedule
answer
a graph of the relationship between the price of a good and the quantity demanded
question
Demand curve
answer
a good for which, other things equal, an increase in income leads to an increase in demand
question
Normal good
answer
a good for which, other things being equal, an increase in income leads to a decrease in demand
question
Inferior good
answer
two goods for which an increase in the price of one leads to an increase in the demand for the other
question
Substitutes
answer
two goods for which an increase in the price of one leads to a decrease in the demand for the other
question
Complements
answer
the amount of a good that sellers are willing and able to sell
question
Quantity supplied
answer
the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises
question
Law of Supply
answer
a table that shows the relationship between the price of a good and the quantity supplied
question
Supply schedule
answer
a graph of the relationship between the price of a good and the quantity supplied
question
Supply Curve
answer
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
question
Equilibrium
answer
the price that balances quantity supplied and quantity demanded
question
Equilibrium price
answer
the quantity supplied and the quantity demanded at the equilibrium price
question
Equilibrium quantity
answer
a situation in which quantity supplied is greater than quantity demanded
question
Surplus
answer
a situation in which quantity demanded is greater than quantity supplied
question
Shortage
answer
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
question
law of supply and demand
answer
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
question
price elasticity of demand
answer
the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
question
total revenue
answer
a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity divided by the percentage change in income
question
income elasticity of demand
answer
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in price of the second good
question
cross-price elasticity of demand
answer
a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
question
price elasticity of supply
answer
...
question
If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a
a. 0.0125 percent increase in the quantity demanded.
b. 4 percent increase in the quantity demanded.
c. 5 percent increase in the quantity demanded.
d. 80 percent increase in the quantity demanded.
a. 0.0125 percent increase in the quantity demanded.
b. 4 percent increase in the quantity demanded.
c. 5 percent increase in the quantity demanded.
d. 80 percent increase in the quantity demanded.
answer
diamond earings
question
Which of the following is likely to have the most price elastic demand?
a. dental floss
b. milk
c. salt
d. diamond earrings
a. dental floss
b. milk
c. salt
d. diamond earrings
answer
buyers' responsiveness to a change in the price of a good.
question
The price elasticity of demand measures
a. buyers' responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.
d. the movement along a supply curve when there is a change in demand.
a. buyers' responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.
d. the movement along a supply curve when there is a change in demand.
answer
three months after the price increase
question
If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?
a. immediately after the price increases
b. one month after the price increase
c. three months after the price increase
d. one year after the price increase
a. immediately after the price increases
b. one month after the price increase
c. three months after the price increase
d. one year after the price increase
answer
greater the responsiveness of quantity demanded to a change in price.
question
The greater the price elasticity of demand, the
a. more likely the product is a necessity.
b. smaller the responsiveness of quantity demanded to a change in price.
c. greater the percentage change in price over the percentage change in quantity demanded.
d. greater the responsiveness of quantity demanded to a change in price.
a. more likely the product is a necessity.
b. smaller the responsiveness of quantity demanded to a change in price.
c. greater the percentage change in price over the percentage change in quantity demanded.
d. greater the responsiveness of quantity demanded to a change in price.
answer
d. 0.43.
question
Table 5-2
Price Quantity
$100 0
$80 10
$60 20
$40 30
$20 40
$0 50
____ 19. Refer to Table 5-2. Using the midpoint method, if the price falls from $40 to $20, the absolute value of the
price elasticity of demand is
a. 20.
b. 10.
c. 2.33.
d. 0.43.
Price Quantity
$100 0
$80 10
$60 20
$40 30
$20 40
$0 50
____ 19. Refer to Table 5-2. Using the midpoint method, if the price falls from $40 to $20, the absolute value of the
price elasticity of demand is
a. 20.
b. 10.
c. 2.33.
d. 0.43.
answer
d. 1.5
question
Table 5-3
The following table shows the demand schedule for a particular good.
Price Quantity
$15 0
$12 5
$9 10
$6 15
$3 20
$0 25
4
____ 20. Refer to Table 5-3. Using the midpoint method, when price rises from $6 to $9, the price elasticity of
demand is
a. 0.43
b. 0.67
c. 1.00
d. 1.5
The following table shows the demand schedule for a particular good.
Price Quantity
$15 0
$12 5
$9 10
$6 15
$3 20
$0 25
4
____ 20. Refer to Table 5-3. Using the midpoint method, when price rises from $6 to $9, the price elasticity of
demand is
a. 0.43
b. 0.67
c. 1.00
d. 1.5
answer
c. 0.42.
question
Table 5-4
Price Total
Revenue
$10 $100
$12 $108
$14 $112
$16 $112
____ 22. Refer to Table 5-4. As price rises from $10 to $12, the price elasticity of demand using the midpoint
method is approximately
a. 0.08.
b. 0.18.
c. 0.42.
d. 0.58.
____
Price Total
Revenue
$10 $100
$12 $108
$14 $112
$16 $112
____ 22. Refer to Table 5-4. As price rises from $10 to $12, the price elasticity of demand using the midpoint
method is approximately
a. 0.08.
b. 0.18.
c. 0.42.
d. 0.58.
____
answer
d. All of the above are correct.
question
The price elasticity of demand changes as we move along a
a. horizontal demand curve.
b. vertical demand curve.
c. linear, downward-sloping demand curve.
d. All of the above are correct.
a. horizontal demand curve.
b. vertical demand curve.
c. linear, downward-sloping demand curve.
d. All of the above are correct.
answer
b. -2.33, and good Y is an inferior good.
question
Table 5-6
Income
Quantity of Good X
Purchased
Quantity of Good Y
Purchased
$30,000 2 20
$40,000 6 10
____ 40. Refer to Table 5-6. Using the midpoint method, the income elasticity of demand for good Y is
a. 2.33, and good Y is a normal good.
b. -2.33, and good Y is an inferior good.
c. -0.43, and good Y is a normal good.
d. -0.43, and good Y is an inferior good.
Income
Quantity of Good X
Purchased
Quantity of Good Y
Purchased
$30,000 2 20
$40,000 6 10
____ 40. Refer to Table 5-6. Using the midpoint method, the income elasticity of demand for good Y is
a. 2.33, and good Y is a normal good.
b. -2.33, and good Y is an inferior good.
c. -0.43, and good Y is a normal good.
d. -0.43, and good Y is an inferior good.
answer
faulse
question
The price elasticity of demand is defined as the percentage change in price divided by the percentage change
in quantity demanded. true or faulse
in quantity demanded. true or faulse
answer
faulse
question
Demand is inelastic if the price elasticity of demand is greater than 1
answer
faulse
question
The flatter the demand curve that passes through a given point, the more inelastic the demand.
answer
true
question
An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs. t/f
answer
true
question
Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls. t/f
answer
true
question
Economists often find it worthwhile to make assumptions that do not necessarily describe the real world. t/f
answer
increases as more of the good is produced.
question
When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional
unit of a good
a. increases as more of the good is produced.
b. decreases as more of the good is produced.
c. does not change as more of the good is produced.
d. may increase, decrease, or not change as more of the good is produced.
unit of a good
a. increases as more of the good is produced.
b. decreases as more of the good is produced.
c. does not change as more of the good is produced.
d. may increase, decrease, or not change as more of the good is produced.
answer
4100
question
Table 2-2
The following table contains some production possibilities for an economy for a given year:
Cakes Rolls (in dozens)
100 5000
120 4600
2
140 ?
____ 8. Refer to Table 2-2. If the production possibilities frontier is bowed outward, then "?" could be
a. 4400.
b. 4300.
c. 4200.
d. 4100.
The following table contains some production possibilities for an economy for a given year:
Cakes Rolls (in dozens)
100 5000
120 4600
2
140 ?
____ 8. Refer to Table 2-2. If the production possibilities frontier is bowed outward, then "?" could be
a. 4400.
b. 4300.
c. 4200.
d. 4100.
answer
fauldse
question
For both parties to gain from trade, the price at which they trade must lie exactly in the middle of the two
opportunity costs.
opportunity costs.
answer
true
question
When the price of a good is high, selling the good is profitable, and so the quantity supplied is large.
answer
true
question
Price will rise to eliminate a shortage
answer
100
question
The following table contains some production possibilities for an economy for a given month.
Bagels Donuts
40 150
60 ?
80 50
____ 4. Refer to Table 3-15. If the production possibilities frontier is a straight line, then "?" must be
a. 50.
b. 75.
c. 100.
d. 125.
Bagels Donuts
40 150
60 ?
80 50
____ 4. Refer to Table 3-15. If the production possibilities frontier is a straight line, then "?" must be
a. 50.
b. 75.
c. 100.
d. 125.
answer
Both the equilibrium price and quantity would increase.
question
What would happen to the equilibrium price and quantity of lattés if consumers' incomes rise and lattés are a
normal good?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
normal good?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
answer
law of demand
question
If the price of apple pies rose to $100 per pie, consumers would purchase fewer pies than if the price were $5
per pie. If the price of ice cream fell to $0.30 per scoop, consumers would purchase more ice cream than if
the price were $5 per scoop. These relationships illustrate the
a. law of demand.
b. law of supply.
c. difference between normal and inferior goods.
d. difference between substitute and complement goods
per pie. If the price of ice cream fell to $0.30 per scoop, consumers would purchase more ice cream than if
the price were $5 per scoop. These relationships illustrate the
a. law of demand.
b. law of supply.
c. difference between normal and inferior goods.
d. difference between substitute and complement goods
answer
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