Economics is the study of what
How society manages its scares resources
The opportunity cost of going to college is what
The value of the best
... [Show More] opportunity a students gives up to attend college
What is the most important factor that explains differences in living standards across countries
Productivity
The business cycle is the
irregular fluctuations in economic activity
The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that
Equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources
An economic theory about international trade that is based on the assumption that there are only two countries trading two goods
can be useful in helping economist understand the complex world of international trade involving many countries and many goods
Production is efficient if the economy is producing at a point
on the production possibilities frontier
The production possibilities frontier illustrates
a)none are correct
b)the combination of output that an economy should produce
c)the combination of output that each member of society should consume
d) the trade-off between efficiency and equality
A)none of the above are correct
Microeconomics is a study of
economy wide phenomena
The production possibilities is a graph that shows various combinations of output that an economy
can produce
Suppose the united states has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that
The US should produce more pork than what it requires and export some of it to Mexico
Canada and the US both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if
The opportunity cost of producing a bushel of wheat is lower for Canada that it is for the US
The most obvious benefit of specialization and trade is that they allow us to
consume more goods than we otherwise would be able to consume
What must be given up to obtain an item is called
opportunity cost
Trade can make everybody better off because it
allows people to specialize according to comparative advantage
In a market economy, supply and demand determine
both the quantity of each good produced and the price at which it is sold
The law of demand states that other than equal when the price of a good
falls the quantity demanded of the good rises
The supply of a good or service is determined by
those who sell the good or services
If the number of buyers in a market decreases then
demand will decrease
Buyers and sellers who have no influence on market price are referred to as
Price takers
Assume the market for pork is perfectly competitive when one pork buyer exits the market
the price of pork does not change
the force that make market economies work are
supply and demand
If a 30 percent change in price causes a 15 percent change in quantity supplied then the price elasticity of supply is about
0.5 and supply is inelastic
Economists compute the price elasticity of demand as the
percentage change in quantity demanded divided by the percentage change in price
The price of elasticity of demanded measures how much
quantity demanded responds to a change in price
A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
inelastic
Goods with many close substitutes tend to have
more elastics demands
If demand is price inelastic then
buyers do not respond much to a change in price
The price elasticity of supply measure how responsive
sellers are to a change in price
When tax is levied on sellers of tea
both sellers and buyers of teas are made worse off
Suppose the equilibrium price of a physical examination by a doctor is $200 and the government imposes a price ceiling of $150 per physical as a result of the price ceiling the
quantity demanded of physicals increases and the quantity supplied decreases
If the government removes a tax on a good then the price paid by buyers will
decrease and the price received by sellers will increase
The imposition of a binding price ceiling on a market causes
quantity demanded to be greater than quantity supplied
The presence of a price control in a market for a good or service usually is an indication that
Policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers and sellers
When a tax is placed on the buyers of lemonade the
burden of the tax will be shared by the buyers and the sellers buy the division of the burden is not always equal
If the supply curve is more price elastic than the demand curve in a particular market will the buyers or the sellers bear a larger burden of a per unit tax imposed on the market
the buyer will bear the larger tax burden
Suppose the price of natural gas a typical for heating homes rise in January in Alaska would you expect the price elasticity of demand for natural gas to more inelastic immediately after the price increase or at some point in the future
Gas will be inelastic in the short run
Explain how trade with other countries is beneficial
Trade allows countries to specialize
Welfare economics is the study of
how the allocation of resources affects economic well being
The invisible hand refers to
the marketplace guiding the self interests of market participants into promoting general economic well being
On a graph the area below a demand curve and above the price measures
consumer surplus
if a consumer places a value of $15 on a particular good an if the price of the is $17 then the
consumer does not purchase the good
producer surplus equal
amount received by seller cost of sellers
total surplus in a market is equal to
consumer surplus+ producer surplus
the social security tax is a tax on
labor
when the government imposes taxes on buyers or sellers of a good society
loses some of the benefits of market efficiency
consider a good to which a per unit tax applies the greater the price of elasticity's demanded and supply for the good the
greater the dead weight loss from the tax
A tax on a good
raises the price that buyers effectively pay and lowers the price that sellers effectively receive
The benefit to sellers of participating in a market is measured by the
producer surplus
when a tax is imposed on the buyers of a good the demand curve shifts
downward by the amount of the tax
Some good can be produced at low cost only if the are produced in large quantities this phenomenon is called
economies of scale
In analyzing the gains and losses from international trade to say the Moldova is a small country is to say that
Moldova is a price taker
Within a country the domestic price of a product will equal the world price if
the country allows free trade
At present the US uses a system of quotas to limit the amount of sugar imported into the country which of the following statements is most likely true
the quotas are probably the result of lobbying from US producers of sugar the quotas increase producer surplus for the US reduce consumer surplus for the US and harm foreign sugar producers
A tariff is a
tax on an imported good
Transaction costs
can keep private parties from solving external problems
A term market failure refure to
a market that fails to allocate resources efficiently
A corrective tax
places a price on the right to pollute
When externalities cause markets to be inefficient
private solutions can be developed to solve the problem
A positive externality
Is a benefit to someone other than the producer and consumer of the good
Tradable pollution permits
will be more valuable to firms that can reduce pollution only at high costs
Pollution is a
negative externality that can be viewed as a common resource problem
A free ride is a person who
receives the benefit of a good but avoids paying for it
Government policy can potentially raise economic well being
when a good does not have a price attached to it
Knowledge is an example of a
Public good
Good that are rival in consumption but not excludable would be considered
common resources
Governments can grant private property rights over resources that are previously viewed as public such as fish or elephants why would governments want to do so
to prevent overuse
Taxes on specific good such as cigarettes gasonline and alcoholic beverages are called
excise taxes
state and local governments generate revenue from all of the following sources expect
a)sales tax
b)the federal government
c)customs duties
d)corporate income taxes
C)custom duties
The larges source of income for the federal government is
individual income taxes
a tax levied on the total amount spent in retail stores is called
A sales tax
Part of the dead weight loss from taxing labor earnings is that people
will work less
Over the pass 100 years as the US economy's income has grown
both tax rates and tax revenues have increased
The demand for energy drinks is more elastic than the demand for milk would a tax on energy drinks or a tax on milk have a larger dead weight loss explain
A tax on energy drinks would have a larger dead weight loss than a tax on milk. A tax on energy drinks would raise their price. Because their demand is more elastic, quantity would respond more thus increasing dead weight loss
List four benefits of international trade
Increased variety of goods
lower costs through economies of scale
increased competition
enhanced flow of idea
Describe the Laffer Curve
The laffer curve depicts the relationship between the size of a tax and the amount of tax revenue generated. As the size of a tax increases, tax revenue first increases but then decreases
Provide several examples of important taxes on labor in the US. For a typical worker, what is the marginal tax rate on labor income once all the labor taxes are summed
The social security tax
The medicare tax
a state income tax for many states
The marginal tax rate on labor income for a typical worker is about 40%
List five arguments given to support trade restrictions
protecting job
defending national security
helping infant industries
Preventing unfair competition
Responding to foreign trade restrictions
Economists normally assume that the goal of a firm is to
maximize its profit
Economic profit is equal to total revenue minus the
opportunity cost of producing goods and services
The value of a business owner's time is an example of
an opportunity cost
Marginal cost tells us the
amount by which total cost rises when output is increased by one unit
In the long run
inputs that were fixed in the short run become variable
a firms opportunity cost of production are equal to its
explicit cost+implicit costs
Total revenue equals
price x quantity
The total cost is the
market value of the inputs a firm uses in production
a key characteristic of a competitive market is that
producers sell nearly identical products
The short run market supply curve in a perfectly competitive industry
shows the total quantity supplied by all firms at each possible price
which of the following is a characteristic of a competitive market?
a)firms sell differentiated products
b)buyers and sellers are price takers
c)there are many buyers but few sellers
d)there are many barriers to entry
B) Buyers and sellers are price takers
In a competitive market the action of any single buyers or seller will
have a negligible impact on the market price
a firm has market power if it can
influence the market price of the good it sells
When existing firms in a competitive market are profitable an incentive exists for
new firms to enter the market even without government subsidies
when marginal revenue equals marginal cost the firms
may be minimizing the loss rather than maximizing its profit
when profit maximizing firms in competitive markets are earning profits
new firms will enter the market
The production decisions of perfectly competitive firms follow on the ten principles of economics which states that rational people
think at the margin
Price discrimination is the business practice of
selling the same good at different prices to different customers
A profit maximizing monopolist will produce the level of output at which
Marginal revenue is equal to marginal cost [Show Less]