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108 Cards in this Set

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  • Back
the invisible hand does what?
directs economic activity through prices
the invisible hand is more effective at what?
ensuring efficiency
a countrys standard of living is determined by what?
the countrys ability to produce goods and services
falling inflation is related to what?
rising unemployment
what will be the result of a woman planting a flower on the vacant lot next to her?
external benefit
households are sellers for what?
in the markets for factor of production
what is most accurate about product production?
An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier
an economic is efficient when?
when it is getting all it can get from the scarce resources it has available.
The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as what?
the amount of the other good that must be given up.
a demand curve shows what?
shows the relationship between price and quantity demanded
Shannon bakes cookies and Justin grows vegetables. In which of the following cases is it impossible for both Shannon and Justin to benefit from trade?
Shannon does not like vegetables and Justin does not like cookies.
Assume Cliff and Paul were both producing wheat and corn, and each person was dividing his time equally between the two. Then each decides to specialize in the product in which he has a comparative advantage. Furthermore, they agree to trade 3 bushels of wheat for 3 bushels of corn
As a result of these new arrangements, Cliff is able to consume 3 bushels of wheat and 3 bushels of corn, and this point lies outside of Cliff’s production possibilities frontier
A farmer has the ability to grow either corn or cotton or some combination of the two
Given no other information, it follows that the farmer’s opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton is equal to 1.
Which of the following statements about comparative advantage is not true
Comparative advantage is determined by which person or group of persons can produce a given
Total output in an economy increases when ?
each person specializes because each person spends more time producing that product in which he or she has a comparative advantage.
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 the opportunity cost of 1 table is chairs for Mike and 3 chairs for Sandy.
Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen
. If these two countries decide to trade, Belarus should export linen to Russia.
Assume for the United States that the opportunity cost of each airplane is 100 cars. Then which of these pairs of points could be on the United States’ production possibilities frontier
(300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)
Despite the fact that not all markets are perfectly competitive, the study of perfect competition is worthwhile
because some degree of competition is present in most markets, not just in perfectly competitive markets.
If Francis experiences a decrease in his income, we would expect that, as a result
Francis’s demand for normal goods will decrease.
Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December and you will start a new job in January. You have no plans to purchase hot dogs in January
For you, hot dogs are an inferior good.
You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought, and that this will cause the price of peanuts to double by the end of the year.
As a result, your demand for peanut butter increases today.
Ford Motor Company announces that it will offer $3,000 rebates on new Mustangs starting next month. As a result of this information what happens?
, today’s demand curve for Mustangs shifts to the left
Which of the following is not a determinant of demand?
the price of a resource that is used to produce the good
A dress manufacturer recently has come to expect higher prices for dresses in the near future
We would expect the dress manufacturer to supply fewer dresses now than it was supplying previously.
Suppose there is an earthquake that destroys several corn canneries. Which of the following would not be a direct result of this event?
Buyers would not be willing to buy as much as before at each relevant price.
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 relative price of beef, making it less attractive to produce.
What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film falls and more firms decide to manufacture traditional film?
Price will fall and the effect on quantity is ambiguous.
How does the concept of elasticity allow us to improve upon our understanding of supply and demand?
? Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept
Which of the following statements about the price elasticity of demand is correct?
The price elasticity of demand for a good measures the willingness of buyers of the good to move away from the good as its price increases. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.
demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because ?
other flavors of ice cream are good substitutes for this particular flavor.
Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded
. Price elasticity of demand for X is 1
Suppose the price of Twinkies decreases 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
price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a ?
40 percent decrease in the quantity demanded
Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue and your job is on the line
. If the demand for sandwiches is elastic, you should decrease the price of sandwiches.
have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a major shoe store
. The first step you would take would be to determine the price elasticity of demand for the store’s products
Last year, Joan bought 50 pounds of hamburger when her household’s income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan’s income elasticity of demand for hamburger is what?
negative, so Joan considers hamburger to be an inferior good.
Muriel’s income elasticity of demand for football tickets is 1.50. All else equal, this means that if her income increases by ?
20 percent, she will buy 30 percent more football tickets
A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the elasticity of supply for bagels is
1.63
sellers do not adjust their quantities supplied at all in response to a change in price,
supply is perfectly inelastic.
When, in a particular market, the law of demand and the law of supply both apply, the imposition of a binding price ceiling in that market causes ?
quantity demanded to be greater than quantity supplied.
Which of the following characterizations is correct?
Rent control is an example of a price ceiling and the minimum wage is an example of a price floor.
Which of the following is not a function of prices in a market system?
Prices ensure an equitable distribution of goods and services among consumers.
Which of the following would be the least likely result of a price ceiling imposed in the market for rental cars
free gasoline given to people as an incentive to a rent a car
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
An alternative to rent-control laws that would not reduce the quantity of housing supplied is?
the payment by government of a fraction of a poor family’s rent.
One disadvantage of government subsidies over price controls is
that subsidies make higher taxes necessary.
Suppose that a tax is placed on DVDs. If the sellers end up bearing most of the tax burden, we know that the supply is more what?
inelastic than demand
Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct
Eighty percent of the burden of the tax falls on buyers
Suppose Bart, Benjamin, and Brent each purchase a particular type of electric pencil sharpener at a price of $20. Bart’s willingness to pay was $22, Benjamin's willingness to pay was $25, and Brent's willingness to pay was $30. Which of the following statements is correct?
Had the price of the pencil sharpener been $26 rather than $20, only Brent would have been a buyer.
Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Noah is rational in deciding how many cans to buy
His consumer surplus is $0.85
Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup. He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct?
Chad’s willingness to pay for his second cup of latté was smaller than his willingness to pay for his first cup of latté
Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons?
It decreases
On a graph, consumer surplus is the area above or below the curve?
below the demand curve and above the price
Sally sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Sally is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Sally is rational in deciding how many knives to sharpen
. Her producer surplus is $1.00.
At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result of selling three cakes, Nick experiences a producer surplus in the amount of $19.50. Nick must be selling his cakes for
$9.50 each.
Kristi and Rebecca sell lemonade on the corner. It costs them 7 cents to make each cup. On a certain day, they sell 40 cups, and their producer surplus for that day amounts to $15.20. Kristi and Rebecca sold each cup for
45 cents
Inefficiency exists in an economy when
a good is not being consumed by buyers who value it most highly and not being produced by the lowest-cost producers.
If the government allowed a free market for transplant organs (such as kidneys) to exist, the shortage of organs would ?
be eliminated and there would be no surplus of organs
"invisible hand" refers to ?
the marketplace guiding the self-interests of market participants into promoting general economic well-being
Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?
Kendra must decide between going to Colorado or Cancun for spring break.
As a result of a successful attempt by government to cut the economic pie into more equal slices
, the pie gets smaller, and there will be less pie overall
Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns $8 an hour. Her opportunity cost of working is ?
the enjoyment she would have received had she watched the video.
Russell spends an hour studying instead of playing tennis. The opportunity cost to him of studying is
is the enjoyment and exercise he would have received had he played tennis
Teresa eats three oranges during a particular day. The marginal benefit she enjoys from eating the third orange can be thought of as ?
as the total benefit Teresa enjoys by eating three oranges minus the total benefit she would have enjoyed by eating just the first two oranges.
After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision
The marginal cost of going to Ft. Lauderdale decreases.
Warren drinks four cups of coffee during a particular day. The marginal benefit he enjoys from drinking the fourth cup can be thought of as
as the total benefit Warren enjoys by drinking four cups minus the total benefit he would have enjoyed by drinking just three cups; determines Warren’s willingness to pay for the fourth cup; is likely different from the marginal benefit provided to Warren by the third cup.
A construction company has built 50 houses so far this year at a total cost to the company of $8 million. If the company builds a 51st house, its total cost will increase to $8.18 million. Which of the following statements is correct?
For the first 50 houses, the average cost per house was $160,000. The marginal cost of the 51st house, if it is built, will be $180,000. If the company can experience a marginal benefit of $190,000 by building the 51st house, then the company should build it
Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $800 to potential buyers. He can sell the boat as it is now for $300. What should he do?
He should complete the repairs and sell the boat for $800.
A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day. The shop does not sell day-old donuts, so all unsold donuts are thrown away at 3 p.m. each day. The cost of making and selling a dozen donuts is $1.50; there are no costs associated with throwing donuts away. If the manager has 10 dozen donuts left at 2:30 p.m. on a particular day, which of the following alternatives is most attractive?
Lower the price of the remaining donuts, even if the price falls below $1.50 per dozen.
Stan buys a 1966 Mustang for $2,000, planning to restore and sell the car. He goes on to spend $8,000 restoring the car. At this point he can sell the car for $9,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $12,000. Stan should be indifferent between ?
selling the car now and (ii) replacing the engine and then selling it
Sarah buys and sells real estate. Two weeks ago, she paid $140,000 for a house on Oak Street, intending to spend $20,000 on repairs sell the house for $175,000. Last week, the city government announced a plan to build a “halfway house” for convicted criminals on Oak Street. As a result of the city’s announced plan, Sarah is weighing two alternatives: She can go ahead with the $20,000 in repairs and then sell the house for $135,000, or she can forgo the repairs and sell the house as it is for $120,000. what should she do?
should forgo the repairs and sell the house as it is for $120,000
A typical worker in Italy can produce 24 units of product in an eight-hour day, while a typical worker in Poland can produce 25 units of product in a 10-hour day. what can we conclude
We can conclude that the standard of living will likely be higher in Italy than in Poland.
A worker in Bangladesh can earn $1 per day making cotton cloth on a hand loom. A worker in the United States can earn $100 per day making cotton cloth with a mechanical loom. What accounts for the difference in wages?
Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.
In a particular country in 1995, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2005, the average worker needed to work 40 hours to produce 68 units of output. increase or decrease, and by how much?
In that country, the productivity of the average worker increased by 6.25 percent between 1995 and 2005
In a particular country in 1995, the average worker needed to work 30 hours to produce 40 units of output. In that same country in 2005, the average worker needed to work 20 hours to produce 29 units of output. what increased?
In that country, the productivity of the average worker increased between 1995 and 2005, so we would expect the standard of living to have increased accordingly
In the imaginary country of Countriana, in 1996, the average worker had to work 10 hours to produce 20 units of output. In that same country in 2006, the average worker needed to work 18 hours to produce 36 units of output. incrase or decrease?
In that country, the productivity of the average worker remained unchanged between 1996 and 2006
Most economists believe that an increase in the quantity of money results in what?
an increase in the demand for goods and services, lower unemployment in the short run, and higher inflation in the long run.
short-run tradeoff between inflation and unemployment implies that?
, in the short run, a decrease in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.
A price floor is not binding if ?
if the quantity of the good supplied with the price floor is less than the quantity supplied of the good without the price floor
A tax on bicycles that buyers of bicycles are required to pay shifts the demand curve how?
downward, causing both the price received by sellers and the equilibrium quantity to fall.
A tax on the buyers of coffee will ?
increase the effective price of coffee paid by buyers, decrease the price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
Suppose there is currently a tax of $50 per ticket on airline tickets. The supply curve for airline tickets slopes upward and the demand curve for airline tickets slopes downward. Sellers of tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the supply curve will ?
shift downward by $20 and the price paid by buyers will decrease, but the decrease will be less than $20
a tax is imposed on a market with inelastic demand and elastic supply, who will bear most of the tax?
buyers will bear most of the burden of the tax.
Buyers of a good bear the larger share of the tax burden when?
a tax is placed on a product for which the supply is more elastic than the demand.
If a tax is imposed on a market with elastic demand and inelastic supply, who will bear most of the taxes?
sellers will bear most of the burden of the tax.
Suppose the demand for picture frames is inelastic and the supply of picture frames is elastic. A tax of $1 per frame levied on buyers of picture frames will?
increase the equilibrium price paid by buyers of picture frames by more than $0.50 but less than $1.00.
Suppose the demand for picture frames is elastic and the supply of picture frames is inelastic. A tax of $1 per frame levied on buyers of picture frames will
will increase the equilibrium price paid by buyers of picture frames by a positive amount but less than $0.50
The demand for salt is inelastic and the supply of salt is elastic. The demand for caviar is elastic and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar. We would expect what?
expect that most of the burden of these taxes will fall on buyers of salt and the sellers of caviar.
Suppose the demand for macaroni is inelastic and the supply of macaroni is elastic, and the demand for cigarettes is inelastic and the supply of cigarettes is elastic. If a tax were levied on the sellers of both of these commodities, we would expect that the burden of both taxes would fall where?
more heavily on the buyers than on the sellers.
In a circular-flow diagram, income payments flow...
flow from firms to households
In a circular-flow diagram sales revenue flows
from households to firms.
Which of the following transactions does not take place in a market for a factor of production?
Juanita works as a marriage counselor and her clients pay her on a per-hour basis for her services.
When an economy is operating at a point on (rather than inside) its production possibilities frontier, then what?
then there is no way to produce more of one good without producing less of the other
In a certain economy, brooms and radios are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more brooms and more radios, relative to the quantities of those goods that are being produced now?
The economy experiences economic growth. There is a technological advance in the broom industry, but the radio industry experiences no such advance. There is a technological advance in the radio industry, but the broom industry experiences no such advance
Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year, it is producing 55 units of food and 33 machines. Which of the following events could not explain the increase in output?
reduction in unemployment
Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 55 units of food and 30 machines. Which of the following statements is true?
The technological advance reduced the amount of resources needed to produce 30 machines. These resources could be used to produce more food
If Steven’s income decreases and, as a result, he chooses to buy fewer bagels per month at each price
his demand curve wil shift inward
a relatively steep demand curve indicates
that quantity demanded will adjust only slightly to a price change.
Bill has noticed that increases in unemployment insurance claims are associated with recessions, and therefore he advocates limits on unemployment insurance so as to prevent recessions. Martha has noticed that most drug addicts once attended schools, and therefore she advocates getting rid of schools so as to prevent drug addiction. The reasoning of both Bill and Martha suffers from ?
the omitted variable problem.
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.78. Which of the following events is consistent with a 4.68 percent decrease in the quantity of the good demanded?
? an increase in the price of the good from $48.00 to $50.97
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 1.5. Which of the following events is consistent with a 3.5 percent increase in the price of the good?
The quantity of the good demanded decreases from 25,294 to 24,000
For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The good is a luxury.
For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
There are many close substitutes for this good.
The flatter the demand curve through a given point
the greater the price elasticity of demand at that point.
The smaller the price elasticity of demand
the steeper the demand curve will be through a given point.
Which of the following expressions can be used to compute the price elasticity of demand?
Price elasticity of demand =
How does total revenue change as one moves downward and to the right along a linear demand curve?
It first increases, then decreases.