study guide for test #2

Question 1

Which two economic concepts best explain why the law of demand says there is an inverse relationship between price and quantity demanded?

Answer 1

income effect and substitution effect

Question 2

A table that indicates the quantity demanded of a particular good at various prices is:

Answer 2

demand schedule

Question 3

An increase in the price of a good:

Answer 3

will result in a decrease in the quantity demanded

Question 4

The idea that wealthy people purchase certain luxury goods as a signal that they have a high social standing is known as:

Answer 4

c. conspicuous consumption.

Question 5

The law of demand is illustrated by a demand curve that is:

Answer 5

downward sloping

Question 6

the law of supply is illustrated by a supply curve that is:

Answer 6

upward sloping

Question 7

A change in which factor is not likely to cause a shift of the demand curve?

Answer 7

price

Question 8

When we move along a demand curve we call the resulting change in the quantity consumers want to buy:

Answer 8

change in the quantity demanded

Question 9

simple price shifts contribute most directly to

Answer 9

changes in the quantity demanded

Question 10

If the government decides to impose a price floor above the equilibrium price, the price floor will:

Answer 10

cause a surplus of the good

Question 11

How do sticky prices lead to shortages or surplusses?

Answer 11

by preventing the equilibrium price from resetting quickly enough

Question 12

When prices in a particular market move very slowly in relation to their equilibrium values, these prices are referred to as:

Answer 12

sticky prices

Question 13

If the government decides to impose a price ceiling below the equilibrium price, the price ceiling will:

Answer 13

cause a shortage of the good

Question 14

Price changes that cause consumers or producers to change their patterns are known as:

Answer 14

signals

Question 15

Prices help achieve customer satisfaction in part by:

Answer 15

encouraging producers to make goods that provide the most value

Question 16

What main economic problem does rationing attempt to correct?

Answer 16

shortages

Question 17

Suppose there is a shortage of beef. What is the most likely reason that a restaurant chain would not immediately adjust its prices on hamburgers and steaks?

Answer 17

costs on reprinting menus and changing advertising

Question 18

When excess supply persists for a significant period of time, we call it:

Answer 18

surplus

Question 19

What happens during a market failure?

Answer 19

markets overproduce or underproduce

Question 20

The increase in total output that results from hiring an additional worker is called the:

Answer 20

marginal product of labor

Question 21

Anita has recently opened a small coffee shop in her community. She employs two high school students to work at the coffee shop part-time. Which of the following represents a fixed cost that Anita must pay?

Answer 21

monthly rent payments

Question 22

A period of time during which the quantities of all inputs are variable is:

Answer 22

the long run

Question 23

A firm’s total cost can be calculated by:

Answer 23

adding fixed and variable costs

Question 24

The additional revenue a firm receives from selling another unit of output is called:

Answer 24

marginal revenue

Question 25

The costs of a firm's inputs that change with the number of units of output produced are:

Answer 25

variable costs

Question 26

If a firm sells 30 units of output at a price of $10 each, its marginal revenue is:

Answer 26

$10

Question 27

Firms will continue to produce additional units if:

Answer 27

the marginal revenue of producing an additional unit is greater than the marginal cost of producing an additional unit.

Question 28

A cost that does not change with the level of output produced is called a:

Answer 28

fixed cost

Question 29

If a market finds itself in a temporary situation in which at a price of $10 the quantity demanded is 100 and the quantity supplied is 50, we would expect to see:

Answer 29

price will eventually rise

Question 30

Which two key economic factors determine prices in the free market?

Answer 30

supply and demand

Question 31

A rightward shift of demand will:

Answer 31

increase the equilibrium price

Question 32

A rightward shift of supply will:

Answer 32

decrease equilibrium price

Question 33

When there is a great deal of demand for something that is in short supply, we expect:

Answer 33

the price to be high

Question 34

Which good is likely to be the most expensive?

Answer 34

one w high demand and low supply

Question 35

At a price above equilibrium:

Answer 35

quantity supplied exceeds quantity demanded

Question 36

If a market finds itself in a temporary situation where at a price of $10 the quantity demanded is 150 and the quantity supplied is 150, we would expect to see:

Answer 36

the price remains at $10

Question 37

If the market for soybeans is in equilibrium:

Answer 37

the price is at a level at which the quantity of soybeans produced is equal to the quantity of soybeans demanded.

Question 38

The tendency for the price and the quantity supplied to move in the same direction is known as:

Answer 38

the law of supply

Question 39

An increase in supply is caused by:

Answer 39

a decrease in input prices

Question 40

How does technological change affect supply?

Answer 40

Better production methods make it possible to produce more goods from the same inputs.

Question 41

Which of the following events would decrease the supply of cheese pizza?

Answer 41

the price of cheese rises

Question 42

What is the most likely direct result of a rise in government subsidies to suppliers?

Answer 42

supply would increase

Question 43

Corn is an input in the production of beef. Suppose the price of corn drops. How would this change most likely affect the supply of beef?

Answer 43

It would increase because production costs would decline.

Question 44

The total revenue a firm receives from selling its product minus the total cost of producing it is:

Answer 44

profit

Question 45

How would a war in an oil-producing region most likely affect the supply of oil?

Answer 45

The supply would likely decline because the conflict would disrupt production and shipment.

Question 46

A decrease in the price of a good will result in:

Answer 46

a decrease in the quantity supplied.

Question 47

A decrease in supply means:

Answer 47

a shift to the left of the entire supply curve.

Question 48

determinants of elasticity of demand

Answer 48

availability of substitutes, if the good is a luxury or necessity, amount spent on the good, and how much time has passed since price changed

Question 49

determinants of demand

Answer 49

are consumer tastes/preferences, shifts in income, price of related goods, expectations of future prices, and number of buyers in a market.

Question 50

determinants of supply

Answer 50

include: changing input costs/factors of production, changing regulations, changing technology or production methods, natural disasters/weather, the number of firms producing goods, and the expectations for future prices.

Question 51

marginal product

Answer 51

the extra output that results from adding one unit of the input to the existing combination of productive factors.

Question 52

elasticity

Answer 52

How do changing prices affect consumer decisions?

Question 53

What happens to prices of domestic goods when similar products are imported from other countries?

Answer 53

The price of domestic goods decreased and the quantity supplied increased.

Question 54

income effect

Answer 54

the change in consumption that occurs when a price increase causes consumers to feel poorer or when a price decreases causes them to feel richer

Question 55

supply schedule

Answer 55

a good in a table listing the quantity of a good that will be supplied at specific prices

Question 56

diminishing marginal productivity

Answer 56

hired more workers but less work is done/not a lot of profit is made

Question 57

determinants of demand elasticity

Answer 57

availability of substitutes, if the good is a luxury or necessity, amount spent on the good, and how much time has passed since price changed

Question 58

elasticity of demand

Answer 58

a measure of how strongly consumers respond to a change in the price of a good, calculated as the percentage change in the quantity demanded divided by the percentage change in price

Question 59

Stages of production (in order):

Answer 59

Stage one= period of most growth in increasing marginal returns- output for adding one more worker Stage two= marginal returns start to decline (making less when selling things) Stage three= marginal returns start to decline- diminishing returns

Question 60

Government ceilings cause

Answer 60

shortages

Question 61

Government price floors cause

Answer 61

surpluses

Question 62

price signals

Answer 62

assist consumers to decide if they have the desire/ability/willingness to go through with the purchase and it helps producers decide what to produce, how to produce, and for who to produce

Question 63

elasticity of supply

Answer 63

is a measure of the responsiveness of the quantity supplied to price changes, calculated by dividing the percentage change in the quantity supplied by the percentage change in price.

Question 64

increase in demand

Answer 64

increase in price and quantity

Question 65

decrease in demand

Answer 65

decrease in price and quantity

Question 66

decrease in supply

Answer 66

increase price, decrease quantity

Question 67

increase in supply

Answer 67

decrease price, increase quantity

Question 68

if supply and demand decrease by the same amount

Answer 68

price will not change and quantity will decrease

Question 69

profit maximizing output level

Answer 69

is the amount of output that gives a firm as much profit as possible.