Midterm Flashcards
(166 cards)
1
Q
In Economics, capital refers to
A
buildings and machines used in the product process
2
Q
According to economists, people respond to
A
incentives
3
Q
The trade-offs that society faces can be illustrated in a graph that displays the
A
Production possibilities curve
4
Q
If you have a choice of consuming either two apples, three oranges, or one candy bar, the opportunity cost of the candy bar is
A
Two apples or three oranges, whatever you value more
5
Q
What is the x-coordinate
A
The first number of an ordered pair, which represents the points horizontal location
6
Q
The way that economists explain it, a worker is a ____ in the ____ market.
A
Seller; labour
7
Q
Economics deals primarily with the concept of
A
Scarcity
8
Q
Economists view normative statements as
A
Prescriptive, making a claim about how the world ought to be
9
Q
A rancher can produce only beef, while a farmer can produce only potatoes. If the rancher and the farmer each like both foods, which of the following is most likely?
A
They could gain from trade because each would enjoy a greater variety of food
10
Q
If the price of a textbook rises and then students purchase fewer textbooks, an economic model can show a cause-and-effect relationship only if
A
All the other variables are constant
11
Q
How much of one good must given up to produce one of the other good
The opportunity cost of producing one good in terms of the other good
The trade-off inherent in the production of one good versus the other good
A
The slope of a production possibilities frontier measures
12
Q
“A hair stylist should not have to obtain a cosmetology license” is an example of
A
A normative statement
13
Q
Contains a value judgement such as “have to” “ought to” “must” “should”
A
Normative statement
14
Q
If the opportunity cost of producing corn is lower for Ohio than for Iowa, then
A
Ohio has the comparative advantage in corn production
15
Q
Economists view positive statements as
A
Descriptive, making a claim about how the world is
16
Q
What are factors of production
A
Inputs into the production process
17
Q
A primary function of prices in a market economy is to provide participants with
A
Economic information
18
Q
How is the slope of a line calculated
A
Change in y/Change in x
19
Q
What does comparative advantage reflect
A
Relative opportunity cost
20
Q
What is the opportunity cost of going to university
A
The value of the best opportunity a student gives up to attend university
21
Q
What is a false statement about slope
A
Slope can be computed by delta x divided by delta y
22
Q
When the price of pizza falls relative to the price of spaghetti, people buy more pizza instead of spaghetti. In this is example, people are responding to
A
Incentives
23
Q
How do prices direct economic activity in a market economy
A
By influencing the actions of buyers and sellers
24
Q
When scientists make good assumptions
A
They greatly simplify the problem without substantially affecting the answer
25
Daniel decides to spend the last two hours of the night before his economics exam studying instead of sleeping. What is Daniel's trade-off
2 hours of sleep
26
What determines a country's limits to acceptable terms of trade?
The country's opportunity costs
27
Every society must deal with the problem of scarcity because
Human wants are nearly unlimited relative to the availability of resources
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There is usually more than one way to use your discretionary time
In large, polluted metropolitan areas, more clean air is desired than is available
There are many competing uses for the tax monies collected by your city. What concept is this
scarcity
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You got this
breathe
30
The economic concept of scarcity refers to the fact that
Limited resources require economies to make choices among production alternatives
31
What are the forces that make market economies work?
Demand and supply
32
The tickets to the Toronto Raptors-Indiana Pacers basketball games are usually sold out in advance of game day, This suggests that
The price is set below the equilibrium level
33
What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers rose and the price of tea rose?
Price will rise and the effect on quantity is ambiguous
34
Which of the following will definitely cause equilibrium quantity to fall?
The demand decreases and supply decreases
35
What might cause a movement along the supply curve?
Change in the price of the good or service
36
What is the unique point at which the supply and demand curves intersect
Equilibrium
37
The law of demand implies that
Price and quantity supplied are positively related
38
The horizontal summation of individual demand curves gives
A market demand curve
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What will result from an increase in resource costs to firms in a market?
An increase in equilibrium price and a decrease in equilibrium quantity
40
If the number of buyers in the housing market decreases
Demand in the market will decrease
41
If suppliers expect the price of their product to fall in the future, they will normally
Increase supply now
42
New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto workers accept lower wages, and automobile insurance becomes more expensive?
The price will fall
43
The supply schedule shows a relationship between
Price and quantity supplied
44
If Francis receives an increase in his pay, we would expect
Francis's demand for luxury goods to increase
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What would happen if both supply and demand increased
Equilibrium quantity would definitely increase
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The market supply curve shows
The total quantity supplied at any price
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What can cause the price of a good to rise?
An increase in demand or a decrease in supply
48
Suppose you wish to analyze the change in the equilibrium price of lumber as a result of fires that are destroying trees in the West Coast. Your first step would be
To decide whether the fires shift demand or supply
49
Which of the following reflects the downward-sloping demand curve
There is an inverse relationship between price and quantity demanded
50
When evaluating differences or similarities between an increase in supply and an increase in quantity supplied, we know that
An increase in supply is a shift of the curve, and an increase in quantity supplied is a movement along the curve
51
An early frost in the vineyards of the Okanagan Valley would cause
A decrease in the supply of wine, increasing price
52
In a free market, who determines how much of a good will be sold and the price at which it is sold
Suppliers and demanders together
53
Suppose you make silver jewellery. If the price of silver increases, we would expect you
To be willing and able to produce less jewellery than before at each possible price
54
Market demand is given as Qd= 200 - 2P. Market supply is given as Qs = 2P + 100. In a perfectly competitive equilibrium, what will be price and quantity?
A price will be $25, and quantity will be 150
55
When there is a surplus in a market
There is downward pressure on price
56
Suppose there are 100 consumers with identical individual demand curves. When the price of a movie ticket is $8, the quantity demanded for each person is five. When the price is $4, the quantity demanded for each person is nine. Assuming the law of demand holds, which of the following choices is the most likely quantity demanded in the market when the price is $6?
700
57
Suppose that the number of buyers in a market increase and a technological advancement occurs. What would we expect to happen in the market
The equilibrium quantity would increase, but the impact on the equilibrium price would be ambiguous
58
If the price of coffee increases, the demand curve for tea (a substitute good) will
Shift to the right
59
Wheat is the main input in the production of flour. All other things being equal, if the price of wheat decreases, we would expect
The supply of flour to increase
60
What is the relationship between price and quantity supplied
Positive, or direct
61
Rent control is best characterized as
A common example of a price ceiling
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The price elasticity of demand measures how responsive
Buyers are to a change in price
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What does inelastic demand mean
Consumers hardly respond to a change in price
64
If sellers respond substantially to changes in price
The sellers are considered to be relatively price sensitive
65
What is the role of price controls in the market economy
Price controls are used by governments to reallocate resources more equitably
66
There are very few, if any, good substitutes for motor oil. What does this imply
The demand for motor oil would tend to be price inelastic
67
If a 10% change in price causes a 15% change in quantity supplied, what do we know about the price elasticity of supply
It is 1.5, and supply is elastic
68
If a good is a necessity, demand for the good would tend to be
Inelastic
69
When the local used bookstore prices economics books at $95 each, they generally sell 70 per month. If they lower the price to $65 each, they sell 90. Given this information, the elasticity of demand for economics books is _________. What action should the store take?
0.67; the store should raise prices to raise total revenue
70
How do most economists report the elasticity of demand
As the absolute value of the actual number
71
The initial effect of a tax on the buyers of a good appears
On the demand for the good
72
A price floor is binding when it is
Higher than the equilibrium market price
73
A perfectly elastic demand implies that
Any rise in price above that represented by the demand curve will result in no output demanded
74
Moving up a linear demand curve, what happens to total revenue
It increases, then decreases
75
The tax incidence depends on
The forces of supply and demand
76
What is one disadvantage of government subsidies over price controls
Subsidies require higher taxes
77
If a 5% increase in price causes a 15% decrease in quantity demanded, what might be said about this product
It might be a luxury
78
Suppose there is a 3% increase in the price of good X and a resulting 4% decrease in the quantity of X demanded. What is the price elasticity of demand for X
1.33
79
Using the midpoint method, what would be the price elasticity of demand of procedures fell from 6,000 to 4,000 per week after its price increased from $6,000 to $10,000
0.80
80
What does the term tax incidence refer to
The division of the tax burden between buyers and sellers
81
A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.70, the bakery would be willing to supply 900. Using the midpoint method, what is the elasticity of supply for bagels?
1.71
82
If a tax is imposed on the buyer of a product, the demand curve will shift
Downward by the amount of the tax
83
What is a key determinant of the elasticity of supply
The ability of sellers to change the amount of the good they produce
84
If two goods are substitutes, their cross-price elasticity of demand will be
Positive
85
Demand is said to be unit elastic
When the quantity demanded changes by the same percentage as the price
86
What is the main reason for using the midpoint method
It gives the same answer regardless of the direction of change
87
When a tax is placed on the buyer of a product
Buyers pay more, and sellers receive less
88
When technology improves in the ice cream industry, what happens to consumer surplus
It increases
89
What can be said if Canada exports cars to France and imports cheese from Switzerland
Canada has a comparative advantage in producing cars, and Switzerland has a comparative advantage in producing cheese
90
When a good is taxed, how does this affect buyers and sellers
Both buyers and sellers are worse off
91
What should be used to analyze economic well-being in an economy
A producer and consumer surplus
92
Critics of free trade sometimes argue that allowing imports from foreign countries costs jobs domestically. What would an economist argue
Foreign competition may cause unemployment in import-competing industries, but the increase in consumer surplus due to free trade is more valuable than the lost jobs
93
How is the benefit received by sellers in a market measured
By producer surplus
94
Why is trade beneficial
It allows each nation to specialize in doing what it does best
95
What effect does a tax on a good have on prices
It raises the price buyers pay and lowers the price sellers receive
96
When is an allocation of resources said to be inefficient
When a good is not being produced by the sellers with the lowest cost
97
If a tax is imposed on the buyer of a product, what is the effect on the demand curve
If shifts downward by the amount of the tax
98
Cost is a measure of
The seller's willingness to sell
99
Which of the following outcomes will occur as a result of a tax, whether the tax is placed on the buyer or the seller
The size of the market will be reduced
100
Inefficiency exists in any economy when a good
Is not being consumed by the buyers who value it most highly
101
What happens as elasticities of supply and demand increase
The deadweight loss from a tax becomes greater
102
When Ford and GM import automobile parts from Mexico at prices below those they must pay in Canada who is worse off
Canadian companies that manufacture automobile parts
103
What does "willingness to pay" measure
The max amount that a buyer will pay for a good
104
What does consumer surplus measure
The difference between the amount a consumer has to pay and the amount the consumer would be willing to pay
105
As the size of a tax increases, what will happen to tax revenue
It will increase and then decrease
106
What occurs at the world price
The domestic quantity demanded is less than the domestic quantity supplied
107
What area represents the increase in consumer surplus to existing buyers
BCED
108
The total surplus in a market is
The total value to buyers of the goods less the total costs to sellers of providing those goods
109
How is the benefit from a tax measured
By how much the public gains from the government spending the tax revenue
110
Zara produces muffins. Her production cost is $2 per dozen. She sells the muffins for $6 per dozen. What is her producer surplus
$4 per dozen
111
When evaluating the size of the deadweight loss due to a tax, what do we know
The greater the elasticities of supply and demand, the greater the deadweight loss
112
When a country takes a unilateral approach to free trade, what happens
It removes trade restrictions on its own
113
Cuba has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing cinnamon, exporting steel, and neither importing nor exporting rugs. What can we conclude about consumer surplus in Cuba?
It is now higher than it used to be for cinnamon, lower for steel, and the same for rugs
114
France is an importer of computer chips and is also a price taker in the chip market. The world price of these computer chips is $25. If France imposes a $5 tariff on chips, who will lose and/or gain?
Consumers will lose, and producers will gain
115
Why is national defence provided by the government
Free riders make it difficult for private markets to supply the socially optimal quantity
116
Two firms, A and B, each currently dump 50 tonnes of chemicals into the local river. From now on, both firms will require a pollution permit for each tonne of pollutants dumped. The government gives each firm 20 tonnes’ worth of pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each tonne of pollutant that it eliminates before it reaches the river, and it costs Firm B $50 for each tonne of pollutant that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that
Firm A will dump 10 fewer tonnes of pollutants into the river, and Firm B will dump 50 fewer tonnes of pollutants into the river
117
Vertical equity and horizontal equity are associated with
The ability-to-pay principle of taxation
118
McKenna earns income of $80,000 per year. Her average tax rate is 40%. McKenna paid $5500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?
53%
119
With regard to the cost of attending a concert, why is the social cost curve above the supply curve
It takes into account the external costs imposed on society by the concert organizers
120
Why does the government provide public goods
Private markets would not produce the efficient quantity of the good
121
What is the difference between technological knowledge and general knowledge
Technological knowledge is excludable and general knowledge is not
122
Some goods can be either common resources or public goods, depending on
Whether the good is rival in consumption
123
Which concept suggests that the private market can be effective in dealing with externalities
The Coase theorem
124
What is a free rider
A person who receives the benefit of a good but avoids paying for it
125
How can the government internalize a positive externality
By subsidizing production, which would increase supply
126
If the use of a common resource is not regulated, what happens
It will be overused
127
A tax system is best defined as _____ if it is characterized by small deadweight losses and small administrative burdens
Efficient
128
How are club goods classified
Excludable but not rival in consumption
129
What does an efficient tax system do
It imposes small deadweight losses and administrative burdens
130
The free-rider problem can become worse
If the number of beneficiaries is large
131
What would be an optimal tax on pollution
One for which producers internalize the cost of the pollution
132
What is one advantage of a lump-sum tax over other taxes
It doesn't cause a deadweight loss
133
How do policymakers consider goals of efficiency and equity in tax policy
Often in conflict with each other
134
If your average tax rate is 20% and your tax liability is $10,000, then what is your income level
$50,000
135
A tax on a producer of a polluting product would shift the private cost curve
Upward by the size of the tax and cause the industry to decrease the quantity it supplies to the market
136
The Coase theorem states that
Under certain conditions, private parties can arrive at the efficient solution without government involvement
137
Tax incidence refers to
Who bares the tax burden
138
Goods that are rival in consumption include
Both common resources and private goods
139
Which method could Banff National Park use to correct for overcrowding
Increase entrance fees, and ensure that they keep pace with inflation each year
140
If the government imposes a tax of $3,000 on everyone, what would this tax be
A lump-sum tax
141
What causes market failure associated with the free-rider problem
Benefits that accuse to those who don't pay
142
Assume that your roommate, Linda, is very messy. Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you. What would the Coase theorem suggest would be an efficient solution for you?
To pay your roommate at least $100 but no more than $200 to clean up after herself
143
When the government intervenes in markets with externalities, it does so
To protect the interests of bystanders
144
David is a sportsperson who makes an annual average salary of $1 million. He started his professional career right after completing high school. David’s father wanted him to get a four-year university degree. The total annual cost of attending university is $15,000. After a long discussion with his father, David decided not to go to university. What principle is this?
Principle 2: Opportunity cost - what you give up to get something else
145
When the government imposes a price ceiling (rent control), landlords do not build new apartments and do not maintain the existing ones. What principle is this?
Principle 4: People respond to incentives
146
To tackle the problem of recession, the Bank of Canada increases the money supply by lowering the overnight interest rate. The increase in money supply lowers the interest rate which in turn increases investment. This increase in investment would increase employment in the short run and increase the price level at the same time. What principle is this?
Principle 10: Society faces a short-run trade-off
147
The average wage rate for unskilled workers is low in the developing world. Is this microeconomics or macroeconomics
Microeconomics
148
An increase in government expenditures is used to increase employment during a recession. Microeconomics or macro
macro
149
Total production of automobiles in Canada. Micro or macro
Micro
150
Under a balanced budget fiscal policy, the government attempts to balance the budget every year. Micro or macro
Macro
151
If consumer income increases, other things being equal, the demand for normal goods will increase. Positive or Normative
Positive
152
Canadian workers deserve an increase in the min wage. Positive or normative
Normative
153
During a recession, unemployment can be expected to increase. Positive or normative
Positive
154
Class size should not be more than 35. Positive or normative
Normative
155
Price elasticity demand calculation with the midpoint method
PED = Change in quantity demanded divided by change in price
PED = (30 - 20) / (30 + 20) divided by (8 - 12) / (8 + 12)/2
This is an example with fictional numbers
156
Describe the short run and long run impact of a binding price ceiling (rent control) on the housing market
Short run = shortage that is small and the effect is to reduce rent
Long run = shows how the housing market responds more to market conditions as time passes.
Supply = landlords respond to low rents by not building new apartments or maintaining current ones
Demand = low rent encourages people to find their own apartments (demand falls, quantity rises)
157
Price rises and demand is inelastic, would total revenue increase, decrease, or remain unchanged
Increase in TR
158
Price falls and demand is elastic, increased, decreased, or unchanged in TR
Increase in TR
159
Price rises and demand is of unit elasticity, increase, decrease, or remain unchanged in TR
Remains unchanged
160
The four determinants of the price elasticity of supply
Close substitutes available
Necessities or luxuries
Definition of the market
Time horizon ability of sellers to respond to price change
161
If taxable income is $40,000 ($6,000 tax), $80,000 ($12,000 tax), and $120,000 ($18,000 tax) what kind of tax system is this
Proportional
162
Taxable income is $40,000 ($4,000), $80,000 ($8,000), and $120,000 ($12,000). What kind of tax system is this
Proportional
163
Taxable income is $40,000 ($6,000), $80,000 ($9,600), and $120,000 ($12,000). What kind of tax system is this
Regressive
164
Taxable income is $40,000 ($6,000), $80,000 ($6,000), and $120,000 ($6,000). What kind of tax system is this
Lump sum
165
The Coase Theorem suggests that efficient solutions to externalities can be achieved through bargaining. Under what circumstances does this fail to produce a solution?
It explains that socially efficient output can be obtained through bargaining by the bargaining process discontinued, numerous bargaining, and when there are transaction costs
166
Opportunity cost calculation
X/Y = opportunity cost
