Pre-Assessment Flashcards
(37 cards)
Which factor of production are power tools, hammers, steel, and other building materials examples of?
Capital
What economic assertion is described by a statement of fact?
Positive statements
A town chooses to use most of its budget for road repair instead of fire protection. What is this scenario an example of?
Scarcity
A student has been working extra hours at a part-time job and is debating subtracting an hour from work for extra studying.
How is this student making this decision, according to economists?
At the margin
What will happen if something other than price affects production for sellers?
The seller will have a new supply curve.
The market for dog food is in equilibrium. Then both the supply and the demand for dog food increases.
What effect will this change have on the equilibrium price and quantity for dog food?
The change in equilibrium price is ambiguous, and the quantity increases.
Which kind of line represents a perfectly inelastic supply curve?
Vertical
In price elasticity of demand, how much will quantity demanded decrease if demand is elastic and there is a 9% increase in price?
10%
A seller offers hay and has to raise the price by 10% because of increased cost of production. The price elasticity of demand for hay is 0.5.
By how much will this seller’s sales drop?
5%
What is true if the quantity demanded of meals eaten at restaurants falls by 25% when income falls by 10%?
Restaurant meals are normal goods.
A seller would like to raise revenues and can be somewhat flexible with prices. The good’s price elasticity of demand is 0.75.
What should this seller do to raise revenues?
Raise the price
What describes the relationship between eggs and bacon if the cross price elasticity between these goods is a negative number?
They are complements.
How should a seller feel when the cross elasticity between the seller’s product and another is positive and when the price of the other good decreases?
Concerned because the seller’s good is a substitute for the other
A new kind of smartphone is selling for $500. The first cell phone costs $300 to produce, and each subsequent phone costs $325 to produce.
What is the producer surplus for this market when selling four cell phones at this rate?
$725
The equilibrium price in a market is $5, but the government has legally mandated that price must be $12.
What two events will happen?
There will be a surplus because of the mandate.
and
Fewer goods will be exchanged than without the mandate.
What will happen to consumer surplus because of price floor?
It will decrease.
A factory that converts wood pulp into high-purity cellulose is dumping millions of gallons of waste into a local wetland. In response, which amount will be equal to what the government taxes the polluter?
Marginal external cost
A factory that manufactures tires produces a pollutant that it emits into the air. The air pollution affects the surrounding neighborhoods, causing illness and property damage.
What is a characteristic of this externality?
It is a market failure.
Before the financial crisis of 2007–2008, the government of the United States was buying risky home loans from banks, which led to the massive default of subprime loans.
What economic concept is described?
Moral hazard
An individual has eaten two ice cream cones. Each ice cream cone costs $3 and even though he has enough money, he chooses not to buy a third ice cream cone because it would not satisfy him as much.
What economic concept is exemplified?
Law of diminishing marginal utility
A customer buys coffee and tea every week at the grocery store. This week she discovers that the price of tea has fallen significantly. Because she is spending less on tea, she is able to buy more tea and coffee, and she does so.
What economic concept is exemplified?
Income effect
ABC Manufacturing has an accounting profit of $150,000 and an economic profit of $120,000. The company’s explicit costs are $100,000.
What are the implicit costs of this company?
$30,000
A hot dog company produces and sells specialty hot dogs. Last year, it produced 8,000 Chicago style, New York style, and tofu hot dogs and sold each one for $8. The company incurred variable costs of $24,000 and a total cost of $30,000.
What was this company’s average fixed cost to produce 8,000 specialty hot dogs?
$0.75
A firm employs three workers who produce an output of 100 units. The firm decides to then add a fourth worker, who increases output to 102 units. The additional output of the fourth worker is 2 units, which is fewer than the 10 additional units when the firm added the third worker.
What would economists attribute this change to?
Diminishing marginal returns
