Economists use the phrase "There is no such thing as a free lunch," to illustrate
that to get one thing, we must give up something else.
In
... [Show More] economics, the cost of something is
what you give up to get it
The opportunity cost of going to college is
the value of the best opportunity a student gives up to attend college.
For most students, the largest single cost of a college education is
the wages given up to attend school.
Daniel decides to spend the last two hours of the night before his economics exam studying instead of sleeping. For Daniel, his tradeoff would be
the two hours of rest he would have gotten.
Fred who is a Colts Fan paid $85 for a ticket to go to a Football game. He also spent an additional $30 for parking and bought dinner for $10. Fred took four hours off from a part time job that pays him $10 an hour to go to the game. Fred's opportunity cost of going to the game is
$155
You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your most attractive alternative. Tickets to see Dylan cost $50. On any given day, you would be willing to pay up to $70 to be at a Bob Dylan concert. Assume there are no other costs of seeing either performer. What is the opportunity cost of seeing Eric Clapton?
$20
A marginal change is a
small, incremental adjustment
Making decisions "at the margin" means that people
compare the marginal costs and marginal benefits of each decision.
A rational decision maker takes an action only if the
marginal benefit is greater than the marginal cost.
If the total cost of producing 3 units is $10 and the total cost of producing 4 units is $15, then the marginal cost of the fourth unit is
$5
If the total cost of producing 4 units is $150 and the marginal cost of producing the fifth unit is $20, then the total cost of 5 units is
$170
In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers?
to produce enough to meet the output target, without regard for quality or cost
Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. Which of the following principles does this best illustrate?
People respond to incentives
Good economic models
omit many details to allow us to see what is truly important.
Economists make assumptions
to make the world easier to understand.
When a production possibilities frontier is linear it shows
that resources are perfectly shiftable from the production of one good to another.
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
the nation is not using all available resources or has inefficiencies.
Production efficiency is achieved when
producing one more unit of one good cannot occur without producing less of some other good.
For two people who are planning to trade, it is impossible to
have a comparative advantage in both goods.
Trade is based on absolute advantage. True or False
False
The slope of a line is equal to the change in the x-variable divided by the change in the y-variable. T or F?
False
The concept of slope can be used to answer questions about how much one variable responds to changes in another variable. T or F?
True
Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that
Sandy has an absolute advantage in tables.
The comparative advantage is determined by which person can produce a good using fewer inputs. T or F?
False
Gains from trade are based on the principle of comparative advantage. T or F?
True
The principle of comparative advantage does not provide answers to certain questions. One of those questions is
What determines the price at which trade takes place?
The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta. Which of the following should be the manager's choice?
David will make pizza because he has comparative advantage in making pizza
Normative statements are
prescriptive, whereas positive statements are descriptive.
One way to characterize the difference between positive statements and normative statements is as follows
Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be.
Prices rise when the government prints too much money. Normative or Not Normative?
Normative
When drawing a demand curve
When drawing a demand curve
Two goods are substitutes if a decrease in the price of one good
reduces the demand for the other good.
Which of the following would NOT shift the demand curve for a good or service?
a change in the price of the good or service
Holding the nonprice determinants of supply constant, a change in price would
result in a movement along a stable supply curve.
When quantity supplied decreases at every possible price, we know that the supply curve has
shifted to the left.
We know that DVD players have seen a significant fall in price over recent years. We also know that this fall in price have been caused by significant decreases in the cost of producing DVD players. In terms of the supply and demand analysis this is explained by
A shift to the right of the supply curve
The Colombian ministry of Agriculture announced that an unexpected frost has destroyed one third of this year's Colombian coffee crop. In the United States, which is a large importer of Colombian coffee, the effect of the frost would
Lower the equilibrium price of coffee pots, a coffee complement
The CNN reports an outbreak of mad cow disease in the US. If chicken and beef are substitutes, how will these developments affect the equilibrium price and quantity of chicken sold in the US.
Equilibrium price increases; equilibrium quantity increases
Which of the following is most likely to increase the price of personal computers in the short-run?
The development of personal computer software that makes it easier to use personal computers
Suppose that demand increases AND supply decreases. What would you expect to occur in the market for the good?
Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
Which of the following would result in an increase in equilibrium price and an ambiguous change in equilibrium quantity?
a decrease in supply and an increase in demand
What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties and fewer used textbooks are sold?
The price change will be ambiguous.
In an article in August of 2015 it was reported in Forbes that "Year-to-date Prius sales were down 15.4 percent." It was also observed that gas prices had fallen significantly. That lower gas prices can lead to lower sales of hybrid vehicles is best explained by observing that
a fall in the price of gas leads to an increase in the demand for gas-powered vehicles that are substitutes for hybrid vehicles, thus leading to a decrease in demand (a leftward shift of the demand curve) for hybrid vehicles.
During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production?
Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.
The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of the good rises, and when the price falls, the quantity demanded falls. T or F?
False
If something happens to alter the quantity demanded at any given price, then the demand curve shifts. T or F?
True
When an increase in the price of one good lowers the demand for another good, the two goods are called complements. T or F?
True
A decrease in the price of a product and an increase in the number of buyers in the market affect the demand curve in the same general way. T or F?
False
An increase in supply will cause a decrease in price, which will cause an increase in demand. T or F?
False
A decrease in supply will cause an increase in price, which will cause a decrease in quantity demanded. T or F?
True
Over the past 10 years, the price of wind power has fallen significantly while at the same time the amount of wind power has increased. This is best explained by
a rightward shift in the supply curve for wind-generated power because of improvements in the technology of wind turbines.
The equilibrium of supply and demand in a market
maximizes the total benefits received by buyers and sellers.
Suppose Chris and Laura attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called
willingness to pay
A consumer's willingness to pay measures
how much a buyer values a good.
Consumer surplus is
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
A demand curve reflects each of the following EXCEPT the
ability of buyers to obtain the quantity they desire.
On a graph, consumer surplus is represented by the area
below the demand curve and above price.
Producer surplus is the area
below the price and above the supply curve.
When a market is in equilibrium, Consumer surplus will be equal to producer surplus. T or F?
False
Inefficiency exists in any economy when a good is
not being consumed by buyers who value it most highly
The "invisible hand" refers to
the marketplace guiding the self-interests of market participants into promoting general economic well-being.
In a pure market economy, the "for whom" or distribution question is largely answered
according to the needs of individuals and groups in society.
A price ceiling, such as a rent ceiling,
results in a shortage if the ceiling price is less than the equilibrium price
Which of the following is a typical effect of a price ceiling set below the equilibrium price?
Less of the good is produced with the ceiling than would be produced without the ceiling.
An effective price ceiling on a good or service can ________.
benefit those who are able to buy the good or service at the lower price
In response to a shortage caused by the imposition of a binding price ceiling on a market
sellers could ration the good or service according to their own personal biases.
long lines of buyers may develop.
price will no longer be the mechanism that rations scarce resources.
In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that
OPEC raised the price of crude oil in world markets.
likely outcome of rent ceilings?
waiting lists of potential renters of rent-controlled housing
You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. Harpo, who is one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Chico, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Zeppo, a third advisor, says that the best way to avoid a shortage of oranges is to take no action at all. Which of your three advisors is most likely to have studied economics?
Zeppo
Workers determine the supply of labor, and firms determine the demand for labor. T or F
True
If policy makers believe that the equilibrium wage rate is too low, policy makers can raise wages by legislating a "minimum wage," that is, a wage
floor above the equilibrium wage.
A minimum wage set above the equilibrium wage rate for low-skilled workers ________.
creates unemployment among low-skilled workers
When government imposes a price ceiling or a price floor on a market,
price no longer serves as a rationing device.
If the support price for wheat, that is a price floor for wheat, is set at $3.00 per bushel when the equilibrium market price is $2.00 per bushel, there will be
an increase in the quantity supplied, and a decrease in the quantity demanded, leading to a surplus of wheat
There are several criticisms of the minimum wage. Which of the following is not one of those criticisms?
The minimum wage fails to raise the wage of any employed person.
In the Spring of 2012 the price of gasoline increased to $4.00 a gallon. If in order to lessen the burden on consumers the US government imposes a price ceiling on gasoline of $3.00 per gallon, which of the following is likely to result?
Quantity demanded will exceed quantity supplied so there will be a shortage of gasoline in the US market.
The Earned Income Tax Credit is an example of
a wage subsidy.
The price elasticity of demand is equal to the ________ in the ________ divided by the ________ in the ________.
The price elasticity of demand is equal to the ________ in the ________ divided by the ________ in the ________.
When quantity demanded responds only slightly to changes in price, demand is said to be
inelastic.
Dan sells newspapers. Dan says that a 8 percent increase in the price of a newspaper will decrease the quantity of newspapers demanded by 4 percent. According to Dan, the demand for newspapers is ________.
inelastic
There are very few, if any, good substitutes for motor oil. Therefore,
the demand for motor oil would tend to be price inelastic.
The difference between slope and elasticity is that
slope is a ratio of two changes, and elasticity is a ratio of two percentage changes
If a good is a luxury, demand for the good would tend to be
elastic
The smaller the price elasticity of demand, the
more likely the product is a necessity.
IUPUI increased tuition by 10 percent and the total tuition payments received by IUPUI rose by 7 percent. What kind of demand curve is IUPUI faced with?
Inelastic demand
When the price of oranges increases from $4 to $6 per bag, the quantity demanded of oranges decreases from 800 bags to 700 bags. The price elasticity of demand over this price range is equal to
1/3 or 0.3333.
Suppose the price of Twinkies is reduced from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is
0.64
A Vertical Demand Curve illustrates the demand for a product with
zero price elasticity of demand at all prices.
When the price of a can of Coca-Cola increased from 60 cents to 80 cents a can, the quantity dropped from 1 million cans per day to 500,000 cans per day. Using the midpoint formula for computing the elasticity, the price elasticity of demand for Coca-Cola is:
2.33 [Show Less]