Chapter 1-4

Question 1

Is clean air a scarce good in economic terms? Explain why.

Answer 1

Air itself is not a scarce good due to it being an unlimited resource, but clean air is because not all places have clean air available. For example, in highly populated areas, clean air is a scarce good due to all the air pollution produced by companies there. Because we eventually have to pay to get the clean air, it becomes a scarce good. (However, in Los Angeles, clean air is a scarce resource. We have to give up production of certain goods and services, resources used to make automobiles run with less pollution, and resources to make gasoline burn in a cleaner fashion. Because we must give up something in order to have clean air, clean air is what we call a scarce good.)

Question 2

If a good or service is scarce..

Answer 2

we must give something up if we want more of the good. (A shortage only means that at the current price the quantity demanded is greater than the quantity supplied. The core of scarcity is not a shortage, but that we have to give up something else (time, alternative goods and services, etc.) if we want to enjoy any of this good or service.)

Question 3

Clear skies and clear rivers are scarce goods. True or false?

Answer 3

Maybe, but only if they are in those areas of the world where we may have to give something else up in order to enjoy clear skies or clear rivers. (If we have to stop driving as much or change some production methods in order to experience clear skies and clear rivers, then clear skies and rivers are scarce goods.)

Question 4

What is the opportunity cost of washing dishes every night for your family? Not just ½ hour; but what would you do with that time?

Answer 4

It depends. Some nights, maybe I could use that hour for studying for a test to get a better grade. Other nights, I could spend that hour with friends. It all just depends on the night and what I might want to do or have planned.

Question 5

What is the opportunity cost of your also doing your neighbor’s dishes? a second neighbor’s dishes? a third? a fourth? Does your opportunity cost increase or decrease as you do more dishes? Why?

Answer 5

Each time you are doing more and more dishes, the opportunity cost increases also because I will lose more and more time that I could spent doing something else. Of course, there is a limitation of how many dishes I will be able to do. The more dishes I do, the less time I have for something else. (There is no one right answer to this question because the one best alternative for one person, the opportunity cost, may be very different than that for the next person. For person A the opportunity cost may be watching TV, while for Person B the opportunity cost may be spending a half-hour in an office working. This distinction is important.
It is safe to assume that the opportunity cost increases as you choose to wash the neighbors’ dishes. We have limited time to do the things we want to do. If we spend more and more of our time doing our own or someone else’s dishes, the value of other forgone opportunities will become increasingly high. The first half-hour may be giving up a chance to catch up with some work; the second may be giving up visiting with some old friends (an important opportunity); and the third might be missing the finish of the Bulls game (and that is important).)

Question 6

Suppose that you are considering purchasing a ticket to go to a concert with some friends. What is your opportunity cost?

Answer 6

The opportunity cost is the money you spent on purchasing the ticket that you can spend on something else. You can spend it on something else like at the movie’s, buy groceries, etc. (The opportunity cost is what you would have purchased with the money you will spend on the concert and what you would have spent your time doing if you did not go to the concert. We cannot always assign dollar values to opportunity costs, but occasionally we can. If the cost of the concert ticket is $50 and I would have spent those three hours working for $10 per hour, the opportunity cost of going to the concert is what I could have purchased for $80 (the $50 plus 3 hours times $10). That is what I am giving up.
Note that in this case and in all others, opportunity cost does not include all possible alternatives. The opportunity cost of any choice is what you actually give up – the next best choice. If tonight you would like to go to a movie, visit with some friends, go to a concert, watch a television concert, catch up on sleep, or even study for next week, those are not all opportunity costs if you decide to go to a party instead. The opportunity cost of the party is the one single thing that you would actually have done instead.)

Question 7

Suppose that I already have purchased a ticket for $50 to a sold-out concert. I could turn it back into the box office and get a refund, or I could sell it for $120 on eBay or Craigslist to someone who does not have a ticket. What is my opportunity cost of attending the concert?

Answer 7

The opportunity cost is $120 you could’ve gotten on eBay or craigslist, get a refund for that $50, and be able to spend the time doing something else. (Once again, the cost is what I give up by going to the concert. So, it is the cost of the ticket plus what I would have done with my time. In this case, however, the ticket cost has changed. Now, I do not give up the original $50. Assuming that the best price I can get for the ticket is $120, that is the real cost of the ticket for me now.
This is a much more difficult concept. You didn’t pay $120, but in a very real sense that is what you are giving up to go to the concert now. That, in that very real sense, is the real cost of the ticket. The $120 is the opportunity cost (along with what you would have done with your time))

Question 8

Suppose that I already have purchased a ticket for $50 to a sold-out concert. I could turn it back into the box office and get a refund, or I could sell it for $120 on eBay or Craigslist to someone who does not have a ticket.
Suppose that you have purchased the ticket for $50. There is no scalping market. (People can buy tickets at the box office and it is illegal to buy or sell tickets from or to anyone else.) Also, suppose that the box office will not refund the ticket price once the ticket has been purchased. What is your opportunity cost of attending the concert in this case?

Answer 8

Zero, plus what I would have done with my time. (The correct answer is that even though I paid $50 for the ticket, it has no value now beyond getting me into the concert. Thus, the cost of going to the concert at this point is zero, plus what I would have done with my time. I cannot get my money back; I cannot sell it to someone else. (Let’s just assume that I am not allowed to give it to someone. If I could, there might be some benefit in doing so.) The idea is that the amount you originally paid is now irrelevant. What is relevant is what you are giving up at this time by going to the concert. The original payment is irrelevant. Whether you go to the concert or not will not affect that fact that you already paid the $50. The amount that you have already spent is a sunk cost. That amount is not affected by the choice you make now. It is sunk in that it is no longer available; it is gone; it is irrelevant to the current decision.)

Question 9

I started a business last year. My revenues were $100,000. My rent and materials costs were $60,000. My best alternative was and is to go to work for a company in a job that would pay me $30,000. The “true” profits from my business were _____.

Answer 9

$10,000 (My revenues are $100,000. My costs of generating those revenues are the payments for rent and materials ($60,000) and the $30,000 that I could earn in my best alternative job. Thus my “true” profit is the $100,000 minus $90,000.)

Question 10

Your college purchased a building east of campus for $500,000. Given changes in the city’s real estate market, the current market value of the building is now $2 million. The total value of the use of the building for the college is estimated to be $1.5 million. What should your college do? Explain why.

Answer 10

Not use the building. Using the building would mean losing $ .5 million in doing so. (If the college uses the building it will gain benefits of $1.5 million at a cost of $2 million. Not a good decision.)

Question 11

A business has spent $50 million dollars on development of a new laptop. It must spend an additional $20 million to bring the finished computer to market. What must the value of the investment be for it to make sense for the business?

Answer 11

The value, if any, of the results of the $50 million spent so far, plus the $20 million. (The remaining required expenditure of $20 million is the easiest part to see. But if I could use the results of the development to date in an alternative project, or sell those results to another company, then the value in the alternative project or the amount I could get from selling those results to someone else, should also be included. If I cannot sell the results of that development or use them in an alternative project, then they should not be included as part of the consideration of whether or not to continue.)

Question 12

Is tuition a part of the cost of deciding to go to college?

Answer 12

Yes (It is part of the cost because we have to give that amount of money to the college if we go. And we don’t have to give that amount up, if we decide not to go.)

Question 13

Is room and board part of the cost of the decision to go to college?

Answer 13

Part of room and board may be part of the cost. (If room and board is more expensive than what your family spends on you at home, then that increase is a part of the cost. If your family continues to spend the same amount on housing and eating once you are gone (unlikely in the case of food), then the entire cost of room and board is part of the cost of going to college.)

Question 14

Is the income you could earn after going to college part of the cost of going to college?

Answer 14

No (That is one of the benefits. Not a cost.)

Question 15

Is the money, you could have earned instead of going to college, part of the cost of going to college?

Answer 15

Yes (Yes, it is because if that is what you would be doing instead of college, you are giving it up.)

Question 16

A classic movie about the end of the world showed a floating island on what was the Pacific Ocean. In the middle of the movie filming, the set sank in a hurricane. The producers who had already spent $70 million on the set were faced with a new cost of $50 million to rebuild the set. Expected additional costs continued to be $100 million. The expected revenues were $160 million. Should they have rebuilt the set and finished the movie?

Answer 16

Yes. The set sank. What is it about sunk costs that you do not understand? (Once the set sank, the costs of completing the movie were $50 plus $100 million. The expected revenues were $160 million. So the decision to complete the movie lowered the losses from $ 70 million if they had stopped to $60 million if they completed the filming.)

Question 17

I am thinking about going out to visit with some friends tonight. Given what I have learned in economics, I am comparing my costs with my expected benefits. My alternatives in order of preference are to stay in my room and watch TV; stay in my room and study economics; have my friends over to my room; or go to bed early tonight. What are the costs relevant to my decision?

Answer 17

The benefits gained from staying in my room and watching TV ( I am giving up the best alternative, not all of the alternatives. And staying in my room and watching TV is the most valuable alternative.)

Question 18

Some friends and I are heading to a concert. We all have purchased $50 tickets. I just realized that I lost my ticket on the subway ride to the concert. I am confronted now with a decision of whether or not to buy a new ticket and go to the concert . Which of the following best describes that decision?

Answer 18

Is the concert worth paying $50 to attend? (The lost ticket is a sunk cost. I cannot get it back. Thus, the cost of going is buying a $50 ticket (plus the value of the time I will spend))

Question 19

Why is it so difficult to ignore costs we have actually already paid?

Answer 19

Because they are explicit and we actually handed over a check. (Because we actually handed money to someone or wrote a check to someone.)

Question 20

Why is it so difficult to consider costs that we have not physically paid as part of the cost of the decision?

Answer 20

Because we have not directly paid someone. (These costs are implied. We gave a sum up instead of accepting payment. So, it is a real cost. We would have had that amount.)

Question 21

Good economic decision-making means..

Answer 21

Thinking about marginal benefits and marginal costs of the good and services (Rational choices require us to compare how our benefits and our costs will change as a result of a decision. So, we should think ‘on the margin’. What additional benefits will we generate? What additional costs will we have to pay?)

Question 22

“When [Warren] Buffett graduated from Columbia, he asked Benjamin Graham for a job (for no salary) at the Graham-Newman Co. According to Buffett, ‘Ben made his customary calculation of value to price and said no’.” Warren Buffett Speaks. Janet Lowe. Wiley, p. 31. Can you explain the irony in this story? Use rational consideration of costs and benefits. What was Benjamin Graham really saying? Why might you be turned down for a nonpaying internship?

Answer 22

Even though it’s rare that someone doesn’t get hired for a job with no pay for his work, the company probably thought that it was not worth the time to train him for that job. The time to train him for the job is the marginal cost which would have been greater than the marginal benefit, what the company would’ve gotten from training him. (For those who do not know of him, Warren Buffett is the billionaire investor and entrepreneur, CEO of Berkshire Hathaway. Perhaps the second richest person in the world, he is reported to be very talented. It seems strange that he would not be hired for a job when he was not even asking for a salary. It is possible that the company did not see Buffett’s future potential. It is also possible and highly likely that Buffett would have been of little use to the company. It may have been more trouble than it was worth for the company to spend time training Buffett. The marginal cost of the time it would have taken to train Buffett exceeded the marginal benefit that the training would have created. Graham made a rational economic decision.)

Question 23

Which of the following does not represent an opportunity cost of attending college?

Answer 23

Food (Food purchased at college will not be part of the cost. One must purchase food whether one goes to college or not. (The increase in costs of food is part of the opportunity cost if one is spending more than one would at home.))

Question 24

A small clothing firm currently produces 50,000 shirts and blouses per month. The costs of its factory, raw materials, and labor is $500,000 per month. If the company is to increase production by 5,000 and that requires an additional labor and raw material expense of $100,000, what is the best estimate of costs of the increased production?

Answer 24

$100,000 (The best estimate of costs is what one has to give up to increase production. In this case it is $100,000.)

Question 25

In your own words, summarize the connection between opportunity cost, marginal cost and benefit, and rational decision-making.

Answer 25

Opportunity cost is the thing you're giving up to do or buy something. The marginal cost ends up being the opportunity cost when you're trying to make a rational decision to see if the marginal benefit exceeds the marginal cost. You'd want it to have more of a marginal benefit because you'd want a benefit more than how much you're putting into something. (​A rational decision maker will choose to do something whenever the marginal benefit exceeds the marginal cost. Such a decision makes the decision maker better off. The marginal cost of doing something is the opportunity cost - the value of the best forgone alternative)

Question 26

Why are some seemingly obvious, explicit costs of a choice not really costs of that choice? Why are other, much less obvious, and only implied, costs actually significant costs of a choice?

Answer 26

All your past explicit costs doesn't really matter to the current situation because it will not affect anything. The only thing that is affective is what I can do right now and what I can do in the future. (A past explicit payment seems very real, but is irrelevant to my decision about whether or not to keep doing something now. That past payment is not affected by my choice now. What is affected by my choice now is how much I could save now if I did not choose not to do something now. Or how much I could sell something for now, if that is part of the decision. If I actually paid for an automobile three years ago, that is wrote a check or handed over cash or paid a credit card charge, it seems and actually was at the time a real cost. But now, I cannot undo that. It is not part of the cost of driving that car now. The actual cost now is what could I get for the car if I sold in today. That is what I am giving up and is the real, effective, and meaningful measure of what it costs me now to drive that car.)

Question 27

Marginal cost

Answer 27

The increase in costs resulting from an action, or the increase in costs resulting from producing one more unit of output.

Question 28

I have been invited to dinner and a free concert with some friends. I told one of them that “I have nothing better to do and I will join them.” My friend was insulted and said if that was my attitude, I should not come along. Did my friend understand rational decision-making?

Answer 28

No, because through rational thinking, you realize that you can spend your time doing nothing or go to the dinner and free concert. You aren't doing anything else that you would consider to be valuable. ( If I had something better to do, I should do it. My statement is that this is the best thing I can imagine. Just not worded in the nicest fashion possible. I am not having to give up anything that is more valuable)

Question 29

In every economy, resources are limited, but wants are large and increasing. What is this condition called?

Answer 29

Scarcity (Scarcity, the condition that our wants are greater than our abilities to satisfy them, forces us to make choices among competing uses of resources.)

Question 30

Scarcity

Answer 30

Our wants are greater than our abilities to satisfy them. This leads to the necessity for making choices about how we use our resources.

Question 31

Sunk cost

Answer 31

A cost that has already been paid and cannot be recovered.

Question 32

The production possibilities frontier model takes the production decision in an economy and simplifies it down to a choice between two goods to produce. Now suppose that we only have a total of six hours per week to devote to studying. That is, we can spend our time on any combination of studying economics and biology as long as the total is not more than six hours per week. Can you identify the assumptions that we have made in order to create the production possibilities frontier model?

Answer 32

We have assumed: 1) There are only two subjects to study for 2) The individual can only study for a total of 6 hours 3) The person has an equal ability in biology and economics

Question 33

In what manner do the scores in biology increase? At a faster or slower pace as more time is devoted to studying biology?

Answer 33

Each hour you spend studying for biology, your score increases. At first, it’ll be a big increase but over time the increase isn’t as much.

Question 34

What is happening to the opportunity cost as the number of hours of study of economics is increased? Why?

Answer 34

The first hours for studying biology was really effective. Towards the end, the last hours become less and less effective. The opportunity cost of each hour that you spend studying for economics then increases. As you study more of one subject, you study less of another.

Question 35

A firm produces pencils or pens. Three workers can produce a total of 10 pens per hour, four workers produce a total of 14 pens per hour, and 5 workers can produce a total of 16 pens per hour. Likewise, three workers can produce a total of 10 pencils per hour, four workers produce a total of 14 pens per hour, and five workers can produce a total of 16 pens per hour. The firm has a total of eight workers and three workers are producing pens and five workers are producing pencils. What is the marginal cost of increasing the production of pens from 10 pens per hour to 14 pens per hour?

Answer 35

2 pencils per hour (Increasing production of pens requires switching one worker from producing pencils to producing pens. Therefore, the cost of increasing the production of pens is the production of pencils that the worker could have made instead.)

Question 36

A firm produces pencils or pens. Three workers can produce a total of 10 pens per hour, four workers produce a total of 14 pens per hour, and five workers can produce a total of 16 pens per hour. Likewise, three workers can produce a total of 10 pencils per hour, four workers produce a total of 14 pens per hour, and five workers can produce a total of 16 pens per hour. The firm has a total of eight workers and four workers are producing pens and four workers are producing pencils. What is the marginal cost of increasing the production of pens from 14 pens per hour to 16 pens per hour?

Answer 36

4 pencils per hour (The worker could have produced 4 pencils per hour instead of producing 2 more pens per hour. Notice the comparison of your answer to the previous question. The worker is producing a smaller output of pens than the last worker and they could have been producing a larger number of pencils per hour. This shows how decreasing marginal productivity is related to increasing marginal cost.)

Question 37

Consider two possible production possibility frontiers A and B. One is a straight line as show in A and the other is concave toward the origin in B. Describe what happens to opportunity cost of producing desktop computers as desktop production is increased for graph A and graph B.

Answer 37

For the straight line, there isn’t a diminishing marginal returns because you could be making 8,000 laptops and still make 8,000 desktops also. However, diminishing marginal returns occurs in the curved one because when you make 8,000 laptops, you’ll only be making 4,000 desktops.

Question 38

A company could produce t-shirts for a $500 profit, long sleeved shirts for a $350 profit, hoodies for a $200 profit, or socks for a $50 profit. If they can only produce one of these four options, what is the opportunity cost of producing t-shirts?

Answer 38

$350 (The next best option for this company would be to produce long sleeved shirts since they provide the second highest level of profit, assuming there are no other non-monetary benefits to producing the other articles of clothing.)

Question 39

Why does the law of diminishing returns apply to so many different types of production? Why does that mean increasing marginal costs?

Answer 39

Law of diminishing returns applies because each producer wants to know how much we could increase an input for it to benefit the producer the most. If they get one more worker making shoes and the production of shoes increases from 5 to 15, second worker from 15 to 25, and the third worker from 25 to 30, you are getting less and less even thought the overall is increasing. For increasing marginal cost, if you were paying the worker $200 to make 20 shoes, but the worker only ends up making 18 shoes, the cost would increase from $10 to $11.11. If you have diminishing returns, you have increasing marginal costs.

Question 40

Is it possible to have allocative efficiency without technical efficiency?

Answer 40

Yes (Allocative efficiency only requires that the economy is producing to match the wants and needs of the economy. This can be done without producing as much as possible.)

Question 41

Describe, in your own words, the principal concepts in the production possibilities frontier economic model.

Answer 41

We can assume that there is only two things available. A company will be assumed that it can only produce computers and cellphones, not any other thing. We can also give a representation of what production will look like ion we maximized each thing. We can also show how outside world things can affect the production like technology advancing for cellphones so that it would have more of an increase automatically. If diminishing return occurs, you will be able to see it when you produce more and more of one product but decrease the production of the other.

Question 42

Which of the following best describes the relationship between diminishing marginal returns and marginal cost?

Answer 42

Marginal returns must increase as output increases due to diminishing marginal return. (Diminishing returns says that as one increases an input, eventually the additions to output will begin to get smaller. That implies that the costs of each of those new units of output will be larger. (If one more worker now produces half of what the previous worker hired did, the cost of that new production is twice as much as the previous worker’s output))

Question 43

If the opportunity cost of an action is greater than the benefits of that action, we would describe the effects on the economy as _______.

Answer 43

Allocatively inefficient and economically inefficient (The action could be technically efficient in that it produces a good at the lowest possible cost. But if we are giving up more than we are gaining, we are misallocating our resources. That means that we are allocatively inefficient (we are producing the wrong goods). Because allocatively efficiency is one part of economic efficiency, the economy must also be economically inefficient.)

Question 44

As resources are moved from the production of one good to another, we would normally expect the cost of producing one more unit of the new good to _______.

Answer 44

Increase (As more resources are devoted to the production of a good it is likely that some of those resources do not add as much to production as the first resources used. Thus, for example, each new additional worker will not be able to add as much to production as the first few workers hired. The cost in terms of what that worker could have produced will begin to increase.)

Question 45

Allocative efficiency

Answer 45

Allocating our resources to produce the kinds of goods and services we want the most.

Question 46

Diminishing marginal returns

Answer 46

Increasing one input, while holding all other inputs constant, will eventually result in smaller and smaller additions to output.

Question 47

Economic efficiency

Answer 47

Using all of our resources in a technically and allocatively efficient manner.

Question 48

Principle of increasing marginal costs

Answer 48

The cost of each additional unit of output increases because the opportunity cost of what could have been made with a unit of input increases.

Question 49

Production possibilities frontier

Answer 49

An economic model showing possible combinations of outputs, given resources and technology.

Question 50

Technical efficiency

Answer 50

Using methods to produce goods and services that minimize costs of producing or maximize output given our inputs

Question 51

Provide an example of two goods that would have a negative slope. Imagine a line showing the production of one of your goods as production of the other good increased. Describe the line.

Answer 51

An example of two goods with a negative slope could be boots and flip flops/sandals because they are typically warn in opposite weather conditions. The more people buying boots the less people buying sandals and vice versa. This would result in a negative slope. If more people are buying sandals, chances are it's warmer and less people are buying boots.

Question 52

Consider two demand curves, demand curve A has a slope of -3 and demand curve B has a slope of -2. Remember that demand curves are drawn so that price is on the y-axis and quantity of goods is on the x-axis. Which of the following must be true?

Answer 52

As price is decreased, quantity demanded increases more for demand curve B than demand curve A (A slope of -3 for demand curve A means that for every dollar decrease in price, quantity demanded increases by 3 units. For demand curve B, the increase in quantity demanded is only 2.)

Question 53

Demand Curve

Answer 53

A line that describes the quantity of goods that individuals are willing and able to buy at every price level.

Question 54

Negative Slope

Answer 54

The slope is a negative number. As one variable increases, the other variable decreases.

Question 55

Positive Slope

Answer 55

The slope is a positive number. If one variable increases the other variable increases or if one variable decreases the other variable decreases.

Question 56

If the economy is producing at a point inside the production possibilities frontier..

Answer 56

More of both goods can be produced

Question 57

Write a paragraph explaining the meaning of the production possibilities frontier in terms of efficiencies, if it represents the entire economy. Think of two kinds of generic goods – consumer goods and new capital (factories, machines, tools) goods.

Answer 57

If a company wants to produce shoes and backpacks but can only produce 50 pair of shoes and 10 backpacks or 100 pair of shoes and 5 backpacks, they have to decide which is more of a demand. The opportunity cost of producing 50 pair of shoes is 5 backpacks.

Question 58

Which of the following is true of an economic model?

Answer 58

Makes simplifying assumptions to provide a simpler version of a complex problem so that it may be studied and understood

Question 59

A company produces reuseable water bottles. If they hire one worker that worker will produce 10 water bottles in an hour, if they hire a second worker both workers will produce 16 total water bottles in an hour, and if they hire a third worker they will all produce 18 total water bottles. What is the marginal benefit of hiring the second worker?

Answer 59

6 (The marginal benefit is the additional output created with the additional worker. The increase of the second worker increases the total output from 10 to 16, an addition of 6 units of output.)

Question 60

A company produces flashlights. If they hire one worker that worker will produce 10 flashlights in an hour, if they hire a second worker both workers will produce 16 flashlights in an hour, and if they hire a third worker they will all produce 18 flashlights. What is the marginal benefit of hiring the third worker?

Answer 60

2 (The marginal benefit is the additional output created with the additional worker. The increase of the third worker increases the total output from 16 to 18, an addition of 2 units of output.)

Question 61

Over the past year, major American automotive companies have switched some of their production from smaller, more fuel efficient cars to trucks and SUVs. Pick the best response as to why they switched production.

Answer 61

The price of trucks and SUVs increased, so marginal cost of continuing to produce smaller cars was too great. (Technological improvements specific to larger trucks and SUVs have made them easier to produce. Therefore, continuing to produce cars means the company is giving up more trucks and SUVs if they don’t switch workers to another production process. Option D could make sense if prices of trucks and SUVs had increased.)

Question 62

A pizza parlor can make 100 pizzas in an evening. They make 40 pepperoni pizzas and 60 extra cheese pizzas. 100 people order pizza, but 50 people would like a pepperoni pizza and 50 would like an extra cheese pizza. This pizza parlor is what?

Answer 62

Technically efficient, but not allocatively efficient nor economically efficient (The pizza parlor has used all of their resources, but they have not produced the combination that is most valued by their customers.)

Question 63

A pizza parlor can make 100 pizzas in an evening. They make 35 pepperoni pizzas and 35 extra cheese pizzas. 100 people order pizza, but 50 people would like a pepperoni pizza and 50 would like an extra cheese pizza. This pizza parlor is what?

Answer 63

Allocatively efficient, but not technically efficient nor economically efficient (The pizza parlor did not use all of their resources to maximize output or did not use the best available technology, however, the proportion of toppings matched the preferences of the customers.)

Question 64

If a country is operating on the production possibilities frontier curve..

Answer 64

The country is technically efficient. (The production possibilities frontier curve describes the maximum production capability of a country for different bundles of goods. This implies technical efficiency. Answer A and C might be correct, but we do not have information about preferences of the country's consumers.)

Question 65

When parents say, “My child is very intelligent, but he just doesn't try. My child would rather play video games than study.” The child is _______.

Answer 65

Allocatively efficient, but not technically efficient (The child may be allocating his time to his preferred activities, so he may be allocatively efficient in his mind. But, he's apparently not reaching his full production potential with the resources that he has.)

Question 66

Increasing marginal cost is a direct result of __________.

Answer 66

Diminishing marginal returns (As more inputs are used in a production process, less additional output is produced with each additional input. Since less output is added by each additional worker, the cost of each additional unit of output has to increase.)

Question 67

Tesla is building a car battery factory in Nevada to drastically increase their production capacity from where it is now. Since the factory has not opened, Tesla is __________.

Answer 67

Increasing its production possibility frontier (Expanding production in the future does not mean a firm is not technically efficient now. The factory will allow Tesla to reach a point outside of the production possibilities frontier curve that it currently cannot attain.)

Question 68

As a larger number of students are assigned to groups to work on a project..

Answer 68

The less each additional student will contribute to the project (As more students are added to a group, eventually each additional student will make a smaller and smaller contribution than before. Maybe the first students in the group have a skill set that is uniquely suited for the project and each additional student has abilities in something unrelated.)

Question 69

A firm may produce chairs or tables. If the firm is using all of its resources to produce tables and a new technology makes it easier to produce chairs, but the firm continues to produce only tables, which of the following is true?

Answer 69

The firm is still technically efficient, but the marginal cost of tables increases (The new technology only affects the ability to make chairs, so the firm is still using all of its resources, however, they could be used to make more chairs than before so the marginal cost has increased.)

Question 70

In order for a country to be economically efficient and operate at a point beyond the production possibilities frontier curve, the country would have to do which of the following?

Answer 70

improve technology in the future (Any point outside of the production possibilities frontier curve is unattainable given current resources and technology. The only way to reach such a point is to improve technology or increase resources in the future.)

Question 71

If one worker produces 15 cones of ice cream in an hour, two workers produce 25 ice cream cones, and three workers produce 30 ice cream cones in an hour, what is the marginal return of production of the second worker?

Answer 71

10 (The marginal productivity of the worker is the output contributed by the last worker hired. Since one worker has been removed from the production process, the last laborer is the second worker. The second worker increases production from 15 to 25 cones, an addition of 10 ice cream cones.)

Question 72

A country is currently producing bricks and spatulas using all of their resources and satisfying the wants of their economy. If the country has a change in preferences and wants more spatulas, which of the following is true?

Answer 72

They are no longer economically efficient because they are not allocatively efficient (The country is no longer satisfying the wants of its economy so it is not allocatively efficient nor is it economically efficient.)

Question 73

How is real GDP measured?

Answer 73

Total of all final goods and services produced in the U.S. valued at a base year’s prices (Real GDP uses base year prices to calculate total production and measures the total final goods and services produced.)

Question 74

GDP calculated using current year prices is often called ______________ GDP.

Answer 74

nominal

Question 75

GDP calculated using base year prices is called ______________ GDP.

Answer 75

real

Question 76

GDP divided by the number of people in the country is called GDP ______________.

Answer 76

per capita

Question 77

Imagine a country where Real GDP grows from $300 million to $350 million in 10 years. Meanwhile the population grows from 5 to 7 million. On average, did individuals in the country improve?

Answer 77

No (Even though Real GDP increased, Real GDP per capita decreased from $60 to $50.)

Question 78

Why might developing countries have greater GDP growth rates than the United States?

Answer 78

Most of the time, developing countries have an increasing GDP due to the fact that they are still developing and the nation is trying to move forward into being a developed country like the United States. Because the United States is already a developed country, the economy can increase but it doesn't necessarily have to like a developing country. Not only that, but the a change in the GDP can affect a developing country more than it would a developed country if they have a smaller base. Due to the advantages in a developed country like having the privilege to go to school and get an education and then inventing something to increase life, the developing country may be better because of the new available resources.

Question 79

Is it possible for the percentage of GDP made up of consumption spending, investment spending, and government spending to add up to more than 100%?

Answer 79

yes, if net exports are negative.

Question 80

A man in Washington, DC buys a Volvo directly from Sweden for $30,000. Which of the following is true?

Answer 80

The value of consumption increases by $30¸000. The value of imports increases by $30¸000. The value of net exports decreases by $30¸000. (The purchase of the car increases consumption by $30,000. The good was an import, so imports increase by $30,000 as well. Net exports is Exports – Imports, so Net Exports decrease by $30,000.)

Question 81

A man in Washington, DC buys a Volvo directly from Sweden for $30,000. The purchase of the Volvo for $30,000 changes GDP by how much?

Answer 81

0

Question 82

The largest component of GDP in the U.S. is ___________.

Answer 82

consumption (Between 2014-2016, around 68% of GDP was from consumption, by far the largest portion of GDP. )

Question 83

Investment in public education and highways counts as what component of GDP?

Answer 83

government spending (The government pays for highways and public education, so both of these go into Government Spending. While the wording can be confusing, government spend (G) incorporates public investments, while Investment (I) spending counts private investment spending.)

Question 84

Why are transfer payments (Social Security payments and unemployment assistance) not included in GDP?

Answer 84

These things aren't payments to receive a goods and service. We use tax to be able to pay for these things.

Question 85

Imagine that there are 160,000 people in the population of working age. 150,000 have jobs, 5,000 do not have jobs and are looking for work, and 5,000 do not have jobs but are not looking. Calculate the unemployment rate (in percentage).

Answer 85

3.2 (5,000 people are considered unemployed because they do not have jobs and are looking for work. There are 155,000 people in the labor force (employed + unemployed). Therefore, the unemployment rate = 5,000/155,000 x 100 = 3.2%)

Question 86

The average unemployment level was 7,900,000 in December 2015 and 7,500,000 in 2016. Calculate the percent change in the unemployment level.

Answer 86

-5% ((7500000 – 7900000) / 7900000 x 100 = -5%))

Question 87

If the labor force increases, but the number of people unemployed stays the same, what happens to the unemployment rate?

Answer 87

decreases (If the labor force is increasing but the number of people unemployed does not change, then more people must be employed. Mathematically, the denominator of the unemployment rate is getting bigger while the numerator is staying the same.)

Question 88

During times of low employment, some people get discouraged, stop looking for work, and go back to school. How does going back to school affect the labor force?

Answer 88

It decreases the number in labor force (The labor force does not include people who are retired, in school, taking care of children at home, or too young to work.)

Question 89

In a period with a rising unemployment rate, which of the following is most likely true?

Answer 89

Real GDP is growing more slowly than the labor force. (The unemployment rate is calculated by dividing the number of people unemployed by the labor force. If real GDP is growing more slowing than the labor force, it probably means that a smaller percentage of the labor force is working and thus unemployment is increasing.)

Question 90

Inflation means that which of the following is true?

Answer 90

Average price levels are increasing. (Inflation refers to periods of time with generally rising prices.)

Question 91

The typical measure used to calculate inflation is CPI. CPI uses what to calculate price levels?

Answer 91

A typical basket of goods purchased by consumers (CPI uses a typical basket of goods to measure how prices are changing. Core CPI, which is also often reported, removes food and energy purchases from the typical basket.)

Question 92

Why would we expect there to naturally be some levels of unemployment?

Answer 92

There will always be some levels of unemployment due to the growing population and how long it takes people to get a job. Sure, you may be able to get a job at Sonic when you're 15, but you wouldn't want that job forever. You'd have to get a high school degree, then get a college degree of some sort, and then get into a career field after years of being an intern and building up job experience.

Question 93

High inflation rates will cause which of the following changes in an economy’s production possibilities frontier?

Answer 93

a shift to the left (This is a challenging question. Inflation means that some resources are not used in producing the goods and services we would like. The production possibilities frontier is reduced. (The best option is shift to the left, although it technically shifts down and to the left.) The economy will not be able to produce as much with the resources that are left to produce goods and services.)

Question 94

If the U.S. unemployment rate was 10%, would the current economy likely be producing at its capacity?

Answer 94

no (The unemployment rate peaked at 10% during the recession. During this time, many more people wanted to work than were able to, and the economy was not producing as much as it was able to.)

Question 95

Summarize why changes in real GDP, unemployment, and inflation are desirable or undesirable.

Answer 95

If you are able to produce more goods and services, there is a higher standards of living. If inflation increases, it is undesirable because then you will be getting less for what your money is worth. If inflation decreases, then it becomes desirable as you will get more for your money. A high unemployment rate is undesirable because then it means the economy is not growing. The more the economy grows, the more jobs available, which is why that is more desirable. You also don't want the GDP to decrease rapidly for a long period of time as it will be the economy is in recession, but you don't want it to increase rapidly either as then inflation will occur.

Question 96

GDP

Answer 96

The market value of all of the final goods and services produced annually within a nation.

Question 97

Net exports

Answer 97

Exports of goods and services minus imports of goods and services.

Question 98

Real GDP

Answer 98

The real value of all final goods and services produced in an economy in a year. Real GDP is measured in dollars adjusted for changes in the overall price level.

Question 99

Real GDP per capita

Answer 99

Real GDP per person; real GDP divided by population.

Question 100

Unemployed

Answer 100

An individual is counted as unemployed if he or she does not have a job and is actively looking for work.

Question 101

Unemployment rate

Answer 101

The percentage of the labor force that is unemployed.

Question 102

Which definition is the best one for GDP?

Answer 102

The sum of all final goods and services produced in a country in a given year. (GDP is measuring how much is produced in a country in a given year. It does not include goods produced by citizens who live outside of the country.)

Question 103

Which of the following best describes how the unemployment rate is calculated?

Answer 103

The number of people looking for a job divided by the number of people who either have a job or are looking for a job. (Unemployment rate is unemployed divided by labor force. The labor force includes those people who either have a job or a looking for a job. It does not include people who want a job but have stopped looking for a job.)

Question 104

Inflation measure is ______________, while deflation measure is ______________.

Answer 104

The increase in price of a typical bundle of goods / the decrease in price of a typical bundle of goods. (Inflation is defined as an increase in the overall level of prices of goods and services in the economy. It is often calculated by the change in price of typical bundle of goods. Deflation is the decrease in price of a typical bundle of goods.)

Question 105

Investment spending in Gross Domestic Product will include which of the following?

Answer 105

A new factory (A new factory is the only option where a new good or service is produced. The purchased company would not currently be included in GDP until new goods and services were produced.)

Question 106

Does GDP include the purchase of a haircut?

Answer 106

Yes (GDP includes all goods AND serviced produced in a year. A haircut is a service, so it is included in GDP calculations.)

Question 107

Compare the following two situations. In the first, gasoline prices alone rise from $2.50 per gallon to $4.00 per gallon. In the second, prices of most goods and services – including gasoline prices -- increase by 4 percent. Which of those situations represents inflation in an economy?

Answer 107

Only the second situation (Inflation is when average prices increase or prices of most goods increase. While the rise in gasoline prices might be of serious concern, it does not represent inflation spread across the entire or most of the economy.)

Question 108

High levels of inflation are reflected by a(n) ______________ of the PPF?

Answer 108

shift in (During high inflation, resources are spent combating inflation rather than adding to GDP.)

Question 109

How much (if any) does each of the following transactions raise GDP? An individual pays a carpenter $10,000 to build a garage. ______________

Answer 109

$10,000

Question 110

How much (if any) does each of the following transactions raise GDP? The same individual purchases $3,000 worth of materials and builds himself a garage, which is worth $10,000. ______________

Answer 110

$3,000 (consumption increases by $3,000. If the garage is not sold, then the $10,000 does not become a part of GDP.)

Question 111

How much (if any) does each of the following transactions raise GDP? The same individual goes to the woods, cuts down a tree, and uses the wood to build himself a garage that is worth $10,000. ______________

Answer 111

$0 (Nothing was spent on consumption and the garage was not sold to anyone to affect GDP.)

Question 112

How much (if any) does each of the following transactions raise GDP? The Jones family sells its old house to the Reynolds family for $130,000. The Jones family then buys a newly constructed house from a builder for $175,000. ______________

Answer 112

$175,000 (The $175,000 is counted towards GDP because it is new construction. The $130,000 does not count towards GDP because nothing new has been produced.)

Question 113

If the unemployment rate decreases, which of the following is true?

Answer 113

The number of people looking for work decreased and the number of people with jobs increased by even more. The number of people employed increased but the number of people looking for work stayed the same. The number of people unemployed stayed the same but the labor force increased. (Unemployment rate is the number of people looking for jobs divided by the labor force (employed + those looking for work). A. If the number of people looking for jobs decreases and the number of people with jobs increases by more, then the numerator is decreasing and the denominator is increasing by more. B. The numerator stays the same and the denominator increases, so the unemployment rate decreases. C. This is actually the same as B, just written in a different way. )

Question 114

If people become discouraged looking for work and drop out of the labor force without finding a job, how does it affect unemployment rates?

Answer 114

Unemployment rate decreases (When people leave the labor force because they are discouraged, it decreases both the numerator of the unemployment rate and the denominator by the same amount. This change lowers the unemployment rate overall.)

Question 115

If a country is importing $1 million worth of goods and exporting $800,000, then net exports are:

Answer 115

-$200,000 (Net Exports = Exports – Imports = $800,000-$1,000,000.)

Question 116

If the unemployment rate in the United States is 4% (or around full employment), what is likely happening to real GDP?

Answer 116

Real GDP is growing at expected rates. (We expect some levels of unemployment, and 4% is often considered to be full employment. Therefore, real GDP is likely growing at expected rates as the country is close to producing on its PPF. )

Question 117

At which of the following levels of inflation should the country be concerned?

Answer 117

5% (Inflation is often targeted to be around 2%. Inflation around 5% means that prices are rising at rates higher than expected and individuals that have money in cash are losing wealth at faster rates. The country will expend resources to combat inflation.)

Question 118

If a country is experiencing deflation:

Answer 118

Changes in real GDP are greater than changes in nominal GDP. (If a country is experiencing deflation, then Nominal GDP (measured in current year prices) will be understating how much the economy is growing. Reminder: Real GDP uses a base year prices, so it removes price changes.)

Question 119

Of the measures discussed in this chapter, which is the best measure of the average individual’s well-being?

Answer 119

Real GDP per capita (Real GDP per capita uses base year prices to calculate GDP, so it takes out inflation. It is divided by the number of people in the country, so it takes into consideration the number of people in an economy.)

Question 120

China has one of the largest real GDPs in the world. What does that measure not consider when determining the well-being of its citizens?

Answer 120

The number of people in the country (Remember that real GDP per capita is the best measure of well-being for a country. While China has one of the largest GDPs in the world, it also has the largest population in the world. )

Question 121

Why is the purchase of a share of stock not included in GDP?

Answer 121

The purchase of a share of stock does not correspond to the production of a good or service. (The newly issued stock is not included because no new goods and services have been produced. If a business sells a share of stock and uses the proceeds to build a new factory, the building of the new factory will become investment and therefore part of GDP. It is true, however, that the service fee of buying or selling a stock is included, even though the stock itself is not.)

Question 122

If the United States consumes $300,000 million worth of imports from Canada, how does it affect U.S. GDP?

Answer 122

Imports are not counted as a part of GDP. (GDP measures how much is produced in a country and the $300,000 million is not produced in the U.S. so it is not included. Whatever is imported in the U.S. is counted toward consumption but then subtracted in imports.)

Question 123

In the recent past, the government has attempted to stimulate the economy by sending tax refunds to individual people so that they will buy more products. What component of GDP is the government attempting to increase?

Answer 123

consumption (The money is transferred to consumers (not counted in GDP) with the expectation that individuals will buy goods, which will go toward consumption spending.)

Question 124

There have been recent talks about increasing spending on highways and roads. What component of GDP would that affect?

Answer 124

Government spending (G) (Highways and roads are paid for by the government and included in government spending (G), which includes public investments. )

Question 125

The Bureau of Labor Statistics (BLS) reports unemployment rate numbers each month. Their preliminary reports for February of 2017 said that over 200,000 jobs had been added and the unemployment rate had dropped to 4.7%. What does this report signal about the economy?

Answer 125

The economy is improving. (Adding jobs is a good sign for the economy. Full unemployment rates are typically around 4%.)

Question 126

When you buy songs online, many factors influence your decision. Make a list of the characteristics that might affect how many songs you, as a consumer, purchase in a typical month. If you do not purchase music, list the characteristics that determine how many books or magazines you buy or movies you attend.

Answer 126

One factor would be if it's a popular song right now that keeps getting played on the radio. If you have a song stuck in your head, you'll want to listen to it. Second factor would be the artist. If an artist you really love releases a song, you'll want to buy it even before it comes out. Another factor may be the price. Some songs are way cheaper than others. Or, if you have Apple Music, you may have unlimited downloads so you wouldn't care about the price and may want to just "buy" every song you possibly know.

Question 127

If the price of individual songs online were to increase, how would your decision about how many songs to buy change? Do you buy more music? Do you buy less? Why?

Answer 127

You'd buy less but you'd probably continue to buy it if there isn't that much of a difference. You'd buy less of it because you could spend that money else where. Not to mention the fact that there are free sites like YouTube where you don't have to spend money just to listen to a song.

Question 128

Can you think of exceptions to the law of demand?

Answer 128

If it's a basic necessity, people will still continue to buy it. For example, people will always need gas for their car. Of course, they could just walk or use another form of transportation. But most people will just end up paying more for that gas because they need it for their car. No matter how high the gas prices get, people will always have a demand for it; therefore, people will always pay for gas no matter how much it may cost.

Question 129

Can you think of a recent example of how changing tastes affected demand?

Answer 129

Around 2015, there was a huge outbreak of eboli in Africa. This led to a decrease in people traveling to go there which decreased revenue from tourists the country would've gotten each year. A lot of people don't want to risk going to Africa, afraid to catch eboli.

Question 130

Can you think of a good that someone might buy less of if his or her income increases?

Answer 130

Cheap ramen noodles. Obviously, if someone has the money to buy better food and/or want to be healthier, they now have the option to. They will probably stop eating cheap ramen noodles.

Question 131

Sometimes changes in income will not increase or decrease the quantity of a good or service purchased. Can you think of an example?

Answer 131

The consumption of water. No matter how much income you are making, your consumption most likely will stay the same.

Question 132

How will an increase in the price of DVDs affect the demand for DVD players? Why?

Answer 132

Demand for DVD players decreases (DVDs and DVD players are complimentary goods. If the price of one increases, an individual is less likely to want the other.)

Question 133

What will happen to current purchases if people expect lower prices in the future? What will happen with expectations of higher incomes?

Answer 133

Demand decreases; demand increases (If individuals expect lower prices, they will wait to purchase items (this leads to a decrease in demand). If individuals expect a higher wage, they are more likely to buy more now (leading to an increase in demand))

Question 134

What are the key influences on buyers’ decision-making? Summarize the demand discussion in your own words.

Answer 134

One influence is expectations. If you expect the price of a good is increase in the future, you'd want to buy more of it now while its cheaper. Another influence is your income. The more you make, the more you're most likely to spend. Another is preference, no matter how much something is, if your preference is very strong, you wouldn't consider the price anymore and just get it.

Question 135

"Some people predict, however, that the prices of chocolate will increase drastically in about three years because of some unhealthy crops." Given this expectation for the future, what will happen to the demand for chocolate now? What will the demand do?

Answer 135

Increase as consumers buy more now to avoid higher prices later (Expectations of future changes are an influence on demand. When consumers expect prices to increase, they will often purchase now to avoid the higher prices in the future. This will increase demand now. After the prices have increased, people will then search for cheaper substitutes and the demand for the more expensive item will decrease, so "decrease as people switch to substitute goods" cannot be the right answer. “Decrease; when prices increase, demand decreases” confuses quantity demanded and demand. The Law of Demand states that if everything else remains unchanged, then an increase in price will cause a decrease in the quantity demanded. “Stay the same as consumers plan to adjust to the prices in the future” indicates that there will be no market reaction, which does not seem likely given that the expectations do often influence current behavior.)

Question 136

Consider the markets for ball-point pens and the market for "rollerball" pens. Suppose that, due to an increased cost of the metal that is used in "rollerball" pens, the prices of "rollerball" pens and ball-point pens increase. There are no other changes. This is true because the two products have a unique relationship. What is the likely relationship between "rollerball" pens and ball-point pens? What are they?

Answer 136

Substitute goods (Substitute goods are goods that can replace one another and still achieve the same purpose. Complementary goods are goods that must be used together, so when the price of one changes the demand for the other is also effected. Normal and inferior goods refer to the consumers’ reactions depending on changes of income.)

Question 137

Consider the markets for ball-point pens and "rollerball" pens. Suppose that, due to an increased cost of the metal that is used in "rollerball" pens, the prices of "rollerball" pens increase. There are no other changes. What would happen to the demand schedules of both products? The demand curve for ball-point pens would ______________ ; the demand curve for "rollerball" pens would ______________.

Answer 137

increase, not change (The rule with substitute goods is that when the price of one increases, the demand for the substitute good increases. This happens as people buy the substitute good instead of the now more expensive good. This describes what will happen with the two different types of pens. The demand schedules show the relationship between prices and quantities demanded. The price of rollerball pens increases. The demand for rollerball pens does not change. Consequently, the demand for ball-point pens, the substitute good, increases and the curve shifts rights.)

Question 138

A decrease in income will cause which of the following to happen to the demand for used cars? Assume used cars are inferior goods.

Answer 138

The demand for used cars will increase. (Used cars may be inferior goods for many individuals. As their incomes increase, they will likely buy fewer used cars and more new cars. However, if their incomes decrease, they will be more likely to buy a used car instead of a new automobile. If used cars were classified as normal goods, the answer would be a decrease in demand.)

Question 139

An increase in the number of potential buyers will most likely cause which of the following?

Answer 139

An increase in demand (The entire demand relationship will likely change and an increase in the number of buyers will increase the market demand for a product.)

Question 140

Predict what would happen if you offered to purchase used smartphones from your fellow students for $20, $50, $100, or even $200.

Answer 140

As you offered more and more for the smartphones, more and more students would offer you more smartphones.

Question 141

In your own words, explain how and why changes in prices cause the amounts supplied by producers to change.

Answer 141

If a firm makes 100 shoes, charges $200 for each one but only takes $25 to make it, if the price goes from $200 to $300, they will produce more shoes as they will have more money for supplies to produce the shoes since the price to make it won't change. As a firm increases more and more in production, eventually the cost of the production will increase too. If the price for shoes goes from $200 to $100, they will produce less as they will have to use more money to make it even thought they are still getting as good profit.

Question 142

How does an decrease in input costs affect suppliers?

Answer 142

Supply increases (The answer is very similar to the reasoning about firm behavior in response to changes in prices. A decrease in costs (whether it is due to changes in the methods used to manufacture goods or changes in prices of inputs) will increase profits and increase incentives to produce more of the good. Thus a typical business will respond by producing more at each price.)

Question 143

Suppose a farmer has a choice between planting soybeans and planting corn. If the price of corn increases, what will happen to the eventual production of soybeans and corn? Why?

Answer 143

The farmer would produce more of soybeans because the cost to produce soybeans would stay the same but you wouldn't be able to produce as much corn because of the increase of cost of production.

Question 144

Assume that homeowners can sell their house whenever they want and they don’t have to worry about finding a new job. How will a homeowner’s decision to sell their home change if they expect housing prices to increase? What will happen to the number of houses in the market?

Answer 144

They will most likely wait to sell the house and then sell it at its highest price available. The number of houses will eventually get sold due to the homeowners not having to worry about finding a new job and getting more for what the house is worth.

Question 145

Why does the quantity supplied decrease as prices fall?

Answer 145

Consumers who are buying the product has put a decrease on what the product is worth, which means now they are willing too accept that product at a lower price. There will be a less demand for it. Therefore, the prices will fall as the quantity supplied falls also.

Question 146

What are the key determinants of supply? Summarize in your own words how changes in each affect supply and quantity supplied.

Answer 146

Key determinants of supply is input prices, how much it costs to make it. We also have to consider the amount of money it costs to not only make it, but also how much it will cost to hire someone or buy a machine to make the supply. If we have an improvement in technology, we can have an increase in supply. Quantity supplied is affected when buyers are willing to pay more or less for something. If there was an increase in demand for computers, more computers will be made but for a higher price. If people are buying more laptops instead of computers, the quantity supplied will go down as the demand for it goes down.

Question 147

What does not cause a change in demand?

Answer 147

Price of the good (Price changes the quantity demanded of a good, not demand. In order to have a change in demand, the quantity demanded at every price level must change.)

Question 148

Change in technology -->

Answer 148

Supply changes

Question 149

Price of the good sold by a firm -->

Answer 149

Quantity supplied changes

Question 150

Number of sellers -->

Answer 150

Supply changes

Question 151

Tastes and preferences -->

Answer 151

Demand changes

Question 152

Price of related goods -->

Answer 152

Demand and supply change

Question 153

An increase in the cost of an input will cause which of the following?

Answer 153

A decrease in supply and a shift to the left of The correct answer is that an increase in the price of an input will cause producers to decrease their supply and that will be a shift to the left of the supply curve. Producers will be less willing to supply the same quantities at each price.)

Question 154

Expectations of lower prices in the near future may cause some producers to do what?

Answer 154

Increase the supply of the good now (If producers expect lower prices in the future they will increase supply now if they can.)

Question 155

Six months ago, the cost of an important input in an industry increased. Then, three months later another change occurred. Production engineers invented a new method that uses fewer raw materials for the same level of production. If these were the only two events that influenced production in the last six months, what has been the influence on the supply?

Answer 155

The event of six months ago caused added costs to production and then lowered supply. The event of three months ago allowed more to be produced at each price, so the supply increased (When the cost of an input increases, the cost of production increases. This increase leads to a decrease in the amount businesses are willing to produce at each price; thus supply falls. So, the first event that occurred six months ago caused a decrease in supply. Technology is another important influence on supply. When enhanced technology allows each worker to produce more, the labor cost per unit produced decreases. If fewer resources are needed, costs will fall, and supply will increase. The overall effect cannot be determined without knowing the magnitude of each effect.)

Question 156

Consider the market for peaches. Suppose that the conditions for growing peaches in the southeast become unfavorable, and many of the southeastern peach farmers decide to leave the industry and look for other jobs. With this migration of farmers, what will happen to the supply of peaches from the southeast?

Answer 156

Decrease (In this question, the farmers are the firms producing the peaches. When the farmers move from peach farming, the number of firms decreases in the southeast. When the number of firms decreases, the supply decreases.)

Question 157

Consider the market for peaches. Suppose that the conditions for growing peaches in the southeast become unfavorable, and many of the southeastern peach farmers decide to leave the industry and look for other jobs. In which direction will the demand curve for peaches shift?

Answer 157

Not change (The demand for peaches should not change, as none of the factors influencing demand have changed.)

Question 158

Consider an increase in the number of potential buyers. Select whether this change will affect either the supply or demand of apples and whether this change will cause it to increase, decrease or not change.

Answer 158

demand increase (The number of potential buyers influences demand. If the number of potential buyers increases, that means that there are just more people consuming goods. As the number of people increases, the number of goods demanded also increases and then demand goes up.)

Question 159

Consider a decrease in the cost of land used in apple orchards. Select whether this change will affect either supply and demand of apples and whether this change will cause it to increase, decrease or not change.

Answer 159

supply increase (This is a supply issue. Inputs such as land, labor, and capital will influence production. If there is a decrease in the cost of land that means that the price of inputs is going down. When the cost of producing goods decreases, producers are willing to produce more goods at each price. With the quantities supplied increasing, the supply curve shifts out and supply increases.)

Question 160

How would a market equilibrium change if people decided they didn’t like a good anymore?

Answer 160

A decrease in demand and an increase in supply will cause a fall in equilibrium price, but the effect on equilibrium quantity cannot be determined. 1. For any quantity, consumers now place a lower value on the good, and producers are willing to accept a lower price; therefore, price will fall.

Question 161

Lady Gaga performed at the 2017 Super Bowl halftime show for free (The NFL covered production costs). Why would an artist who regularly grosses $1.3 million dollars per concert agree to perform for free?

Answer 161

​The super bowl is viewed by over 100 million individuals. It is a venue that provides an opportunity to increase the number of buyers and change tastes and preferences for her music that is normally not available. The increased demand for concert tickets as a result increases ticket prices and the number of records sold.

Question 162

Describe the resulting situation. Nintendo released a limited supply of their original system, a product that many people wanted to buy. Due to a misestimate of potential demand, there were significantly more people that wanted the system than there were systems available for sale.

Answer 162

The price will increase. Stores sold out of the original Nintendo system and secondary market such as craigslist and eBay began listing them. A product that sold for $60 in stores sold for as much as $280 on eBay.

Question 163

Oprah Winfrey made comments about the possibility of contracting mad-cow disease from eating beef. Some observers said that those comments had negative effects on the beef market. In the same period of time, changes in rate of production may have been the real culprit. How and why would an increase in beef production, “oversupply,” and weak exports affect prices?

Answer 163

An increase in beef production is an increase in supply. “Oversupply” could be the result of two factors. Exports are a form of demand.

Question 164

How would “high feed costs” cause a fall in prices? Is this what one would expect with most goods? With cattle?

Answer 164

Higher input prices would normally cause a reduction in supply. In the case of cattle, an increase in feed costs will cause ranchers to reduce supply in the future. They will do that by selling more cattle now so that they will not have to pay the higher feed costs. This immediate further increase in supply drives down beef prices even more.

Question 165

What would you need to know to prove that a celebrity’s advice to fans not to eat meat hurt the cattle industry? How would you defend her?

Answer 165

The celebrity’s comments would have caused lower prices and lower quantities, because it would have been a shift in demand. Higher supply would have resulted in lower prices and higher quantities. If her comments had an effect and supply was also increased, then we would expect a fall in prices and would not be able to tell what would happen to quantities without knowing which effect is larger.

Question 166

Indicate how an increase in tastes for apples will affect the equilibrium price and the equilibrium quantity in the market for apples.

Answer 166

Increase; increase (The first part brings up changes in taste. As we learned, tastes and preferences influence demand. In this situation, as tastes for apples increase, the demand will increase. This means that at the current price, the quantity demanded will be higher than the quantity supplied, and a shortage is formed. As suppliers learn that consumers are willing to pay more, they will produce more apples and charge higher prices. As prices increase, some consumers pull out of the market and the quantity demanded is reduced. This continues until the quantity demanded equals the quantity supplied. A new equilibrium is created with a higher quantity supplied and higher price.)

Question 167

Indicate how a decrease in the cost of producing oranges (a substitute for apples) will affect the equilibrium price and the equilibrium quantity in the market for apples.

Answer 167

Decrease; decrease (Since the lower price of the substitute good, oranges, will attract consumers, the demand for apples will decrease. Apple suppliers will still have all of their apples and inventories will grow since suppliers cannot sell all they want at the going market price. To sell off the excess goods, suppliers will begin to lower prices and some consumers will offer lower prices. As the price drops, the quantity demanded will increase as the quantity supplied decreases, since farmers will produce less for the lower price. This will continue until the surplus does not exist and a new equilibrium price is reached. This equilibrium is a lower price and a lower quantity, therefore the correct answer is decrease/decrease. The best way to work through these is to suggest examples, to draw the graphs, and to explain why the prices and quantities adjust.)

Question 168

Recently, stores have been reporting increased sales of DVD players and a reduction in their prices. In accordance with this trend, one might predict that there has been a(n) ______________ in demand and a(n) ______________ in supply.

Answer 168

No change; increase (If the equilibrium quantity increases and the price decreases, there are a variety of combination of changes that could be the cause. The possible answers listed in the question describe only one curve shifting. The only possible change to result in lower prices and higher quantities is an increase in supply. A decrease in demand would lower prices and quantities. An increase in demand would raise prices. A decrease in supply would raise prices and lower quantities.)

Question 169

Complementary goods

Answer 169

Goods that are used together. When the price of one good increases, the demand for its complementary good decreases.

Question 170

Equilibrium price

Answer 170

The price at which quantity supplied is equal to quantity demanded. The market is in equilibrium, that is, equilibrium price will not change until something else changes.

Question 171

Equilibrium quantity

Answer 171

The quantity of a good bought and sold when quantity supplied equals quantity demanded. The equilibrium quantity will not change until something else changes.

Question 172

Equilibrium

Answer 172

A market is in equilibrium, with an equilibrium price and an equilibrium quantity, when the quantity demanded equals the quantity supplied.

Question 173

Inferior goods

Answer 173

A good is inferior if in response to an increase in income, individuals decrease their consumption of the good.

Question 174

Law of demand

Answer 174

The principle that price and quantity demanded are inversely related. A decrease in price, assuming nothing else changes, will cause an increase in the quantity demanded and an increase in price will cause a decrease in the quantity demanded. The law of demand implies a negatively sloped demand curve.

Question 175

Law of supply and demand

Answer 175

The market price and the quantity exchanged in a perfectly competitive market will move toward the price and quantity where quantity supplied is equal to quantity demanded.

Question 176

Normal goods

Answer 176

A good is normal if in response to an increase in income, individuals increase their consumption of the good.

Question 177

Quantity demanded

Answer 177

The quantity of a good or service that consumers intend to purchase throughout a given time period at a certain price.

Question 178

Quantity supplied

Answer 178

The quantity of a good or service that producers intend to sell throughout a given time period at a certain price.

Question 179

Substitute goods

Answer 179

Goods that can used in place of one another. When the price of one increases, the demand for a substitute good increases.

Question 180

Shortage

Answer 180

At a single price, the quantity demanded is greater than the quantity supplied.

Question 181

Surplus

Answer 181

At a single price, the quantity supplied is greater than the quantity demanded.