1 Economics is the study of how society manages its scarce resources 2 Which is the most accurate statement about trade Trade can make every nation 3 better off The principles of decision making include all of the following EXECPT People respond to bribes 4 Govt can potentially improve market outcomes if there is a market failure or if the market outcome is Inequitable 32 When studying how some event or policy affects a market elasticity provides information on the direction and magnitude of the effect 33 The price elasticity of demand measures how much quantity demanded responds to 34 a change in price If the price of gasoline rises when is the price elasticity of demand likely to be the highest one year after the price increase 35 Demand is said to be price elastic if buyers respond substantially to changes in the 5 A tradeoff exists between a clean environment and a higher level of income in that price of the good Laws that reduce pollution raise costs of production and reduce incomes 36 Which of the following is likely to have the most price inelastic demand 6 You are selling your 2010 Honda At the last minute the transmission dies You Toothpaste can pay 600 to have it repaired or sell the car as is In the interest of your best choice you consider that the value what you could get for the car is 6500 if transmission works 5700 if it doesn t so since you re such a good economics student you Get the car fixed because will the value of a fixed car exceeds the value of one that isn t fixed 7 One way to characterize the difference between positive statements and 8 normative statements is as follows Positive statements offer descriptions of the way things are whereas normative statements offer opinions on how things ought to be The two basic reasons why economists often appear to give conflicting advice to policymakers are differences in scientific judgments and values 9 Almost all economists agree that rent control adversely affects the availability and quality of housing 10 Point D represents a level of production in this economy that is possible but not efficient 11 Which arrow represents the flow of goods and services B 12 The bowed shape of the production possibilities frontier can be explained by the fact that he opportunity cost of one good in terms of the other increases as one changes production points along the frontier 13 Refer to Figure 2 4 The opportunity cost of this economy moving from point Z to point Y is10 lamps 14 Refer to Figure 2 6 Efficient production is represented by which point s A B 15 Refer to Figure 2 11 The shift of the production possibilities frontier from A to B can best be described as economic growth 16 The United States and Germany can produce the following amounts of steel and coal in thousands of tons per week What is the opportunity cost of producing one ton of steel in the United States 3 tons 17 The United States and Germany can produce the following amounts of steel and coal in thousands of tons per week Which country has a comparative advantage in the production of coal Germany 18 The United States and Germany can produce the following amounts of steel and coal in thousands of tons per week What country will specialize in the production of steel if international trade takes place US 19 The forces that make market economies work are Supply demand 20 Refer to Figure 4 1 The movement from point A to point B on the graph shows An increase in quantity demanded the quantity demanded of the good rises 22 The market demand curve is the sum of all individual demand curves 23 Refer to Figure 4 6 The shift from D to D is called A decrease in demand 24 If a good is normal then an increase in income will result in a n Increase in the demand for the good 25 Currently you purchase ten frozen pizza per month You will graduate from 26 college in December and you will start a new job in January You have no plans to purchase frozen pizzas in January For you frozen pizzas are a n inferior good If American cheese and cheddar cheese are substitutes then which of the following would increase the demand for cheddar cheese an increase in the price of American cheese 27 Today people changed their expectations about the future This change can affect today s demand 28 Refer to Figure 4 10 Which of the following would cause the supply curve to shift from Supply B to Supply A in the market for disposable ballpoint pens An increase in the price of ink 29 Wheat is the main input in the production of flour If the price of wheat decreases then we would expect the Supply of flour to increase 30 Refer to Figure 4 13 If the supply curves that are drawn represent supply curves for single family residential houses then the movement from S to S could be caused by a n decrease in the price of lumber In a market economy who or what determines who produces each good and how much is produced Prices 31 37 Suppose the price of potato chips decreases from 1 45 to 1 25 and as a result the quantity of potato chips demanded increases from 2 000 to 2 200 Using the midpoint method the price elasticity of demand for potato chips in the given price range is 0 64 38 Refer to Table 5 2 Using the midpoint method if the price falls from 80 to 60 the absolute value of the price elasticity of demand is 2 33 39 For a horizontal demand curve the slope is equal to 0 and the price elasticity of demand is undefined 40 Ryan says that he would buy one cup of coffee every day regardless of the price If he is telling the truth Ryan s A demand for coffee is perfectly inelastic 41 When quantity moves proportionately the same amount as price demand is unit elastic and the price elasticity of demand is 1 42 Consider luxury weekend hotel packages in Las Vegas When the price is 250 the quantity demanded is 2 000 packages per week When the price is 280 the quantity demanded is 1 700 packages per week Using the midpoint method the price elasticity of demand is about 1 43 and an increase in the price will cause hotels total revenue to decrease 43 How does total revenue change as one moves downward and to the right along a linear demand curve It first increases then decreases 44 If demand is price inelastic then when price rises total revenue Will rise 45 Refer to Figure 5 12 Total revenue when the price is P1 is represented by the area s B D 46 In a free competitive market what is the rationing mechanism Price 47 A shortage results when a Binding price ceiling is imposed on a market 48 A legal minimum on the …