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113 Cards in this Set
- Front
- Back
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Under what conditions is the productions possibility frontier linear rather than bowed out? |
The producer can switch between two goods at a constant rate |
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Goods produced abroad and domestically |
Imports |
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Exports |
Goods produced domestically and sold abroad |
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The ability to produce a good at a lower opportunity cost than another producer |
Comparative Advantage |
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Opportunity Cost |
Whatever must be given up to obtain something |
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Ability to produce a good using fewer inputs than another producer |
Absolute Advantage |
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________ advantage is more important for trade |
Comparative |
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If two parties trade based on comparative advantage and both gain, in what range must the price of the trade lie? |
Between the two opportunity costs |
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Why do economists oppose policies obstructing trade between nations? |
Trade makes both better off |
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The Production Possibilities Frontier shows _________________ |
various mixes of output an economy can produce |
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Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes. His roommate,Andrew, can do each task 10 minutes faster. How should the roommates allocate the work? a. Mark should do more of the cooking, based on his comparative advantage b. Mark should do more of the washing based on his comparative advantage c. Andrew should do more of the cooking based on his absolute advantage d. Andrew should do more of the washing based on his absolute advantage e. There are no gains from trade for the roommates f. I cannot answer the question with knowing the roommates’ opportunity costs |
a. Mark should do more of the cooking, based on his comparative advantage |
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In the US, it takes ten hours of labor to produce a computer, while it takes two hours of labor tomake a shirt. In China, producing a computer takes forty hours while producing a shirt takes fourhours. There are 100 million workers in the US and 500 million workers in China. Assuming thatworkers in both countries work 40 hours per week, this means that the US can produce a totalof 400 million computers or 2 billion shirts per week, while China can produce 500 millioncomputers or 5 billion shirts. What, if at all, will these nations trade? a. China will export computers and the US will export shirts b. China will export shirts and the US will export computers c. Both nations will export shirts d. Both nations will export computers e. The nations will not trade with each other because there are no gains from trade f. It depends on which country has comparative advantage |
b. China will export shirts and the US will export computers |
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Despite rising gas prices, the consumption of gasoline has increased. What could explain this?a. An increase in the demand for gas b. A decrease in the demand for gas c. A decrease in the demand for gas along with an increase in supply d. None of the above |
a. An increase in the demand for gas |
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The price of laptop computers falls. What change does this cause in the laptop market?a. Demand for laptops increases b. Quantity demanded of laptops falls c. The supply of laptops falls d. The quantity supplied of laptops falls e. The quantity supplied of laptops increases |
d. The quantity supplied of laptops falls |
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The price of semiconductors, which are used in computers, falls. What does this do to the market price and quantity of computers? a. Price falls and quantity increases b. Price falls and quantity falls c. Price rises and quantity increases d. Price rises and quantity falls e. Price rises and quantity stays unchanged f. Price falls and quantity stays unchanged |
a. Price falls and quantity increases |
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The price of chicken wings has fallen 12% while consumption of chicken wings has increased by19%. What could explain this? a. An increase in demand b. A reduction in demand c. An increase in supply d. A reduction in supply |
c. An increase in supply |
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Chick-fil-A's "Eat Mor Chikin" advertising campaign features three cows holding signs that saythings like: "Save the cows, eat more chicken." If the cows are convincing, what effects would this have on the beef market? a. Quantity would rise and price would fall b. Quantity would fall and price would fall c. Quantity would rise and price would rise d. Quantity would fall and price would rise |
b. Quantity would fall and price would fall |
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Chick-fil-A's "Eat Mor Chikin" advertising campaign features three cows holding signs that saythings like: "Save the cows, eat more chicken." What effect would Chick Fil-A’s advertising have in the chicken market? a. Quantity would rise and producer surplus would rise b. Quantity would rise and producer surplus would fall c. Quantity would fall and producer surplus would rise d. Quantity would fall and producer surplus would fall |
a. Quantity would rise and producer surplus would rise |
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The price of gold has increased greatly while the amount of gold that has been purchased has fallen. What would explain this? a. An increase in demand b. A reduction in demand c. An increase in supply d. A reduction in supply |
d. A reduction in supply |
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A study by the rice pudding marketers’ association finds that the elasticity of demand for rice pudding is -1.58. If the price of rice increases, what will happen to spending on rice pudding? a. Spending will rise b. Spending will fall c. Spending on rice pudding will be unaffected d. It depends on the elasticity of demand for rice |
b. Spending will fall |
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Consider the market for insulin (critical medicine for diabetes patients). If the cost of producinginsulin falls, what would you expect would occur in the insulin market? a. Supply would increase and spending on insulin would rise b. Supply would increase and spending on insulin would fall c. Supply would decrease and spending on insulin would rise d. Supply would decrease and spending on insulin would fall |
b. Supply would increase and spending on insulin would fall |
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Two years ago, the average price of a 12-inch pizza was $8.50, and 20 million pizzas were sold.Last year, the price of a 12-inch pizza was $9.50, while the number of pizzas consumed fell to 16million. Using the midpoint method, the elasticity of demand for pizza would be: a. -1/2 b. -2 c. Inelastic d. None of the above |
b. -2 |
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Suppose that the weekly demand and supply curves for pizza can be described as Qd =300-15P and Qs= 100 + 10P. What is the market-clearing price? a. $20 b. $10 c. $8 d. $16 e. It depends on the elasticity of demand for pizza |
c. $8 |
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Suppose that the weekly demand and supply curves for pizza can be described as Qd =300-15P and Qs= 100 + 10P. How many pizzas would be bought each week? (Find market clearing price first) a. 8 b. 180 c. 0 d. 200 e. 400 f. It depends on the elasticity of demand for pizza |
b. 180 |
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If a change in demand caused the price of sweatshirts to rise, which would be correct?a. There would be a shortage b. There would be a surplus c. Producer surplus would increase d. Producer surplus would decrease |
c. Producer surplus would increase |
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Demand Schedule |
A table that shows the relationship between the price of a good and quantity demanded |
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Law of Demand |
Claim that, other things being equal, the quantity demanded of a good falls when the price rises |
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Change in consumer income would ______ the demand curve. |
Shift |
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The price of the good changing would _______ the demand curve. |
move on |
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Prices of related goods changing would ______ the demand curve. |
shift |
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The number of sellers increasing/decreasing would ______ the supply curve. |
Shift |
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An improvement of technology would _______ the supply curve. |
Shift |
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The price of the good itself increasing/decreasing would ____________ on the supply curve. |
move on |
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Increase in Income = Increase of Demand |
Normal Good |
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Increase in Income = Decrease in Demand |
Inferior Good |
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Two goods in which price increase in one leads to demand increase for another |
Substitutes |
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Coke and Pepsi. This is an example of a __________. |
Substitutes |
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Peanut butter and Jelly. This is an example of _________. |
Complements |
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Complements |
2 goods in which increase in price results in decrease of demand in the other |
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Elasticity |
Measure of responsiveness of quantity demanded or quantity supplied to a change in one of its determinants |
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% change in quantity demanded _________________________________ % change in price |
Price elasticity of demand |
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Quantity demanded only responds slightly to change in price |
Inelastic Demand |
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In an attempt to help hard-working Americans, Congress proposes to increase the payroll tax paid by employers, and to reduce the payroll tax paid by employees by the same amount. For example, if employers and employees each currently pay 50% of the tax, then under the proposal, employers would pay all of the tax, and employees would not pay any payroll tax at all. Which of the following best describes the effect of this policy? a. Employees would be better off and employers would be worse off, with no change indeadweight loss b. Employees would be better off and employers would be worse off, with an increase in deadweight loss c. Employees would not be affected and employers would not be affected, with no change in deadweight loss d. Employees would not be affected and employers would not be affected, but therewould be an increase in deadweight loss |
a. Employees would be better off and employers would be worse off, with no change indeadweight loss |
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The current price for a bag of potato chips is $2.99. Now, Congress imposes a $1 tax on each bagof chips sold, paid by the seller. Which of the following best describes the effect? a. Buyers pay $2.99, while sellers receive $1.99; fewer bags of chips are purchased. b. Buyers pay $2.99, while sellers receive $1.99; deadweight loss is created. c. Buyers pay $3.99, while sellers receive $2.99; fewer bags of chips are purchased. d. Buyers pay $3.99, while sellers receive $2.99; deadweight loss is created. e. The price buyers pay will be between $2.99 and $3.99. Deadweight loss is created andfewer bags of chips are purchased. f. The price sellers receive will be between $1.99 and $2.99. Deadweight loss is created and fewer bags of chips are purchased. g. A and B h. C and D i. E and F j. None of the above |
i. E and F |
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3. Consider a tax on insulin, a critical medicine for diabetics, and a tax on generic headache/painreliever (e.g., generic ibuprofen), both of which sell for about $8. About one million units of eachproduct are purchased annually. Which of the following best describes the impacts of these two taxes? a. I would expect the price of insulin to rise more and the tax on insulin to create moredeadweight loss. b. I would expect the price of generic pain reliever to rise more and the tax on pain reliever to create more deadweight loss. c. I would expect the price of insulin to rise more and the tax on insulin to create less deadweight loss. d. I would expect the price of pain reliever to rise more and the tax on pain reliever to create less deadweight loss. e. None of the above |
c. I would expect the price of insulin to rise more and the tax on insulin to create less deadweight loss. |
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If the state of Illinois reduced its minimum wage from $8.25/hr to $7.50/hr, what would be the expected effects? a. This would increase employment and increase wages b. This would reduce employment and increase wages c. This would increase employment and reduce wages d. This would reduce employment and reduce wages e. None of the above |
c. This would increase employment and reduce wages |
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What would best describe the welfare effects of the reduction in the minimum wage? a. Low-wage employers are worse off and social welfare is increased b. Low-wage employers are worse off and social welfare is reduced c. Low-wage employers are better off and social welfare is increased d. Low-wage employers are better off and social welfare is reduced e. None of the above |
c. Low-wage employers are better off and social welfare is increased |
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Price gouging laws are temporary price ceilings, preventing sellers from raising prices on certain“necessity” goods like water, building supplies, and heating oil following a natural disaster.These laws would likely have which of the following short-term effects? a. Increase the availability of these goods. b. Reduce the availability of these goods. c. Increase the price of these goods. d. Reduce the price of these goods. e. A and C f. B and D |
f. B and D |
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In Tennessee, the state government pays students attending community college a subsidy tocover the cost of tuition. Assuming there is not a market failure in the market for education, the subsidy will have which of the following effects? a. It will increase the tuition price charged by community colleges in Tennessee, make attending students better off, and increase total surplus. b. It will increase the tuition price charged by community colleges in Tennessee, make attending students better off, and reduce total surplus. c. It will reduce the tuition price charged by community colleges in Tennessee, make attending students better off, and increase total surplus. d. It will reduce the tuition price charged by community colleges in Tennessee, makeattending better off, and reduce total surplus. e. None of the above |
b. It will increase the tuition price charged by community colleges in Tennessee, make attending students better off, and reduce total surplus. |
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How, if at all, would your answer change to the above question change if you believe that there is a market failure in the market for education? a. Because education creates a positive externality, the subsidy would increase rather than reduce total surplus. b. Because education creates a positive externality, the subsidy would reduce rather thanincrease total surplus. c. Because education is a common pool resource, the subsidy would increase rather thanreduce total surplus. d. Because education is a common pool resource, the subsidy would reduce rather thanincrease total surplus. e. None of the above |
a. Because education creates a positive externality, the subsidy would increase rather than reduce total surplus. |
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Congress increases the tariff on imported steel. Which of the following best describes the impact of this policy? a. US steel buyers pay higher prices, US steel producers earn more producer surplus, and deadweight loss increases. b. US steel buyers pay lower prices, US steel producers earn more producer surplus, andtotal surplus increases. c. US steel buyers pay higher prices, US steel producers earn less producer surplus, anddeadweight loss increases. d. US steel buyers pay lower prices, US steel producers earn less producer surplus, andtotal surplus increases. e. None of the above |
a. US steel buyers pay higher prices, US steel producers earn more producer surplus, and deadweight loss increases. |
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Price goes up, revenue goes up |
Inelastic |
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Price goes up, revenue goes down |
Elastic |
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Price goes up, revenue constant |
Unit elastic |
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Congress increases the quota on imported tea, increasing tea imports by 38%. Which of thefollowing best describes the impact of this policy? a. US tea producers earn higher producer surplus, tea drinkers in the US pay higher prices,and deadweight loss is created. b. US tea producers earn higher producer surplus, tea drinkers in the US pay higher prices,and deadweight loss is reduced. c. US tea producers earn lower producer surplus, tea drinkers in the US pay lower prices,and deadweight loss is created. d. US tea producers earn lower producer surplus, tea drinkers in the US pay lower prices,and deadweight loss is reduced. e. None of the above |
d. US tea producers earn lower producer surplus, tea drinkers in the US pay lower prices,and deadweight loss is reduced. |
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The US recently decided to allow US companies to export oil. Which of the following bestdescribes the impact of this change? a. The price of oil in the US falls, consumers benefit, and total surplus increases. b. The price of oil in the US falls, consumers benefit, and total surplus falls. c. The price of oil in the US rises, consumers are made worse off, and total surplus increases. d. The price of oil in the US rise, consumers are made worse off, and total surplus falls. e. None of the above |
c. The price of oil in the US rises, consumers are made worse off, and total surplus increases. |
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The US imports many children’s toys from China. If labor costs fall in China, how does this impact the US? a. The price of toys in the US falls, US producers sell more toys, and total surplus increases. b. The price of toys in the US falls, US producers sell more toys, and total surplus decreases. c. The price of toys in the US falls, US producers sell fewer toys, and total surplus increases. d. The price of toys in the US falls, US producers sell fewer toys, and total surplus decreases. e. It would have no impact on the US market. |
c. The price of toys in the US falls, US producers sell fewer toys, and total surplus increases. |
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Chemical producers emit pollution into the air. The cost of this pollution is estimated to be $0.25 per ton of chemical produced. The market price of these chemicals is $20/ton, and 1000 tons are sold each year. Which of the following will be true? a. The social marginal cost of these chemicals is greater than their marginal cost b. The market will not produce enough of these chemicals. c. The equilibrium quantity of these chemicals will maximize social welfare. d. None of the above |
a. The social marginal cost of these chemicals is greater than their marginal cost |
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In the above example, how much of a tax should the government impose on each ton of the chemical, in order to maximize total surplus (social welfare)? a. $0.25 b. $20.25 c. $250 d. $20,250 e. Imposing a tax on the chemical will create deadweight loss (reduce total surplus) f. None of the above |
a. $0.25 |
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Due to concerns that emissions of carbon dioxide are causing global warming, manypolicymakers support a policy to reduce CO2 emissions. Some argue for limits on CO2 emissions, others argue for a carbon tax, and others suggest that we should implement and “cap and trade” system of tradable pollution permits. Which of the following is true in regards to these policies? a. Imposing a limit on pollution (a standard) is more efficient because it requires all firms to pollute the same amount. b. Imposing a tax on CO2 is more efficient because it causes all firms to pollute the same amount. c. Issuing tradable permits is more efficient because the government can sell the permits to the polluting firms. d. Imposing a tax or issuing permits is more efficient because firms with lower abatement costs will abate more pollution than firms with higher abatement costs. e. Imposing a limit on pollution or issuing permits is more efficient because it sets a cap on the total amount of pollution permitted, while a tax does not restrict the total amount of pollution. f. None of the above |
d. Imposing a tax or issuing permits is more efficient because firms with lower abatement costs will abate more pollution than firms with higher abatement costs. |
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College students often have a parties that run late into the night and involve loud music. Collegeprofessors tend to be very grumpy and go to bed very early. As a result, the professors often complain when their student neighbors have parties. Which of the following would be efficientsolutions to this situation? a. The city of Bloomington could require students to buy a license to have a party. b. The students having a party could buy earplugs for the professors that would enablethem to sleep through the night while the party was raging on nearby. c. The professors could pay the students to move their parties to a campus building that is not close to any residential neighborhood. d. All of the above e. None of the above |
d. All of the above |
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Consider two goods: (1) an Ebola vaccine, which prevents the spread of Ebola, a highly contagious disease; and (2) oil, the production and consumption of which creates air pollution.Which of the following is true? a. We could increase total surplus by imposing a tax on (1) and a subsidy on (2). b. We could increase total surplus by imposing a subsidy on (1) and a tax on (2). c. We could increase total surplus by imposing a tax on both (1) and (2). d. We could increase total surplus by imposing a subsidy on both (1) and (2). e. Imposing a tax or a subsidy on either good will create deadweight loss. |
b. We could increase total surplus by imposing a subsidy on (1) and a tax on (2). |
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Which of the following goods would you expect would be over consumed (overused) in the absence of regulation? a. Busy roads b. Scientific discoveries c. National defense d. Horses e. None of the above |
a. Busy roads |
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Which of the following goods would you expect to be underprovided in the absence ofgovernment action? a. Pizza b. National defense c. Fish from the ocean d. Air pollution e. Horses |
b. National defense |
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Area below demand curve and above price measures _________ surplus |
consumer |
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Producer Surplus |
Amount seller is paid for good minus cost of providing it |
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Consumer Surplus |
Amount buyer is willing to pay minus amount they actually paid for it |
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Total surplus = |
(Value to Buyers - Amt Paid) + (Amt received by sellers - Cost to Make) |
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Legal maximum on price at which good can be sold |
Price Ceiling |
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A price ceiling is _________ when ceiling is below equilibrium |
Binding |
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A price ceiling is _________ when ceiling is above equilibrium |
Not Binding |
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A binding price ceiling leads to a ________ |
Shortage |
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Rent Control in the short run causes a ________ because supply is _______ |
small shortage, inelastic |
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Rent control in the long run causes a ________, because supply becomes _________ |
large shortage, elastic |
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Legal minimum on the price at which good can be sold |
Price Floor |
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A price floor is __________ when floor is below equilibrium |
not binding |
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A price floor is _______ when floor is above equilibrium |
binding |
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A binding price floor leads to a ________ |
Surplus |
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Tax incidence |
Manner in which the burden of a tax is shared among participants in market |
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Taxes ______ market activity - quantity of good sold is _______ |
discourage, smaller |
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Tax burden falls more heavily on market that is _______________ |
less elastic |
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Tax burdens those w/ _______ elastic market (supply or demand) |
less |
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Deadweight Loss |
The fall in total surplus that results from a market distortion, like a tax |
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Taxes make producers and consumers _____ off and government _____ of |
worse, better |
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Taxes distort incentives and cause markets to allocate resources ___________ |
inefficiently |
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When supply is relatively inelastic, deadweight loss is _______ |
Small |
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When supply is relatively elastic, deadweight loss is ______ |
large |
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When demand is inelastic, deadweight loss is _________ |
small |
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When demand is elastic, deadweight loss is ______ |
Large |
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Tax makes buyers consume _____ and producers sell ________ |
less, less |
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More deadweight loss when market is elastic because people can more easily _______ |
leave |
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A tax on a good has a deadweight loss if |
the reduction in consumer and producer surplus is greater than the tax revenue |
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The Laffer Curve demonstrates that in some circumstances the government can reduce a tax on a good and increase the ______ |
government tax revenue |
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If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight loss, he should look for goods with ____ elasticities of demand and _____ elasticities of supply |
small, small |
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Tax can raise no revenue for government and have deadweight loss still. An example of this is: |
Tax on cigarettes |
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When a country exports, consumers are _________ off and producers are ________ off |
worse, better |
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When a country ___________, gains of winners (producers) exceed loss of losers (consumers) |
exports |
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When a country ________, consumers better off and producers worse off |
imports |
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Tariffs _______ quantity of imports and moves domestic market closer to equilibrium without trade |
reduces |
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Country imports when dominant price of good is higher than __________ price |
world |
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Country exports when product cost is _______ than world price |
lower |
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If its _______, it is a positive externality |
beneficial |
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If its adverse, then its a ________ externality |
negative |
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Social Costs |
private costs and costs to bystanders negatively effected |
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Altering incentives so people can take into account the external effects of their actions |
Internalizing Externalities |
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If private parties can bargain without cost over allocation of resources, then they can solve the problem of externalities on their own |
Coase Theorom |
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Example of ____________: Bloomington students being too loud and professors are mad - Bloomington students pay professors for headphones |
Coase Theorom |
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Excludability |
property of a good whereby the person can be prevented from using it |
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Rivalry in Consumption |
property of a good whereby one person's use diminishes another person's use |
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Private Goods |
excludable and rival in competition (ice cream cones, clothing, etc) |
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Public Goods |
neither excludable nor rival in consumption (tornado siren, national defense, etc) |
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Common Resources |
Rival in consumption but not excludable (fish in ocean, environment, etc) |
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Club Goods |
excludable but not rival in consumption (cable tv, uncongested toll roads) |
