Exam 1 Review (Ch. 1 - 4) PDF

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Alex Lewis
Texas Tech University ...

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Practice Exam 1 (Ch. 1 – 4) Principles of Economics 1. When an economist talks about scarcity, the economist is referring to the inability of society to satisfy all human wants because of limited resources 2. The problem of “scarcity” applies to all economic systems, regardless of their development. 3. People must make choices because of scarcity. 4. The study of the choices made by individuals is part of the definition of microeconomics. 5. The loss of the highest valued alternative is called opportunity cost. 6. The production possibilities frontier, PPF, depicts the boundary between those combinations of goods and services that can be produced and those that cannot given resources and the current state of technology 7. When producing at a production efficient point, we face a tradeoff and incur an opportunity cost. 8. A marginal curve shows that as more of a good is produced, opportunity costs of producing another unit increases and is upward sloping. 9. SEE review 10. The marginal benefit from a good is the amount a person is willing to pay for one more unit of that good. 11. The principle of decreasing marginal benefit means that as the quantity of a good consumed increase, its marginal benefit decreases. 12. SEE review 13. SEE review 14. If the marginal benefit from another computer exceeds the marginal cost of the computer, then to use resources allocative efficiently, more resources should be used to produce computers. 15. SEE review 16. The relative price of a good is the opportunity cost. 17. The “law of demand” refers to the fact that, all other things remaining the same, when the price of a good rises there is a movement up along the demand curve to a smaller quantity demanded.

18. Which of the following is consistent with the law of demand? An increase in the price of a soda cause a decrease in the quantity of soda demanded. 19. People buy more of Good 1 when the price of Good 2 rises. These goods are substitutes. 20. Suppose people buy more of Good 1 when the price of Good 2 falls. These goods are complements. 21. SEE review 22. The “law of supply” states that, other things remaining the same, firms produce more of a good the higher the price. 23. Because of increasing marginal cost, most supply curves have a positive slope. 24. Which of the following shifts the supply curve for gasoline rightward? A decrease in the price of a resource used to produce gasoline, such as crude oil. 25. If the price of a good changes but everything else influencing suppliers’ planned sales remains the same, there is a movement along the supply curve. 26. The equilibrium price is the price at which quantity demanded equals the quantity supplied. 27. SEE review 28. If a market is not in equilibrium, then which of the following is likely to occur? The price will adjust to bring the market back to equilibrium. 29. The existence of a shortage pushes the price up. 30. SEE review 31. When the demand for a good decreases, its equilibrium price falls and the equilibrium quantity decreases. 32. Suppose the equilibrium price of bottles water has risen from $1.00 per bottle to $2.00 per bottle and the equilibrium quantity has increase. These changes are a result of a rightward shift of the demand curve for bottled water. 33. SEE review 34. SEE review 35. Producers of tablet computers will be able to lower the wage rate that they pay to their workers. You are asked to predict the effects on the supply of tablet computers, and the price of a tablet computer. You predict that the supply curve shifts rightward, and the price falls.

36. The price elasticity of demand measures the responsiveness of the quantity demanded to changes in price. 37. A 20% increase in the quantity of pizza demanded results from a 10% decline in its price. The price elasticity of demand for pizza is 2.0. (%change in quantity divided by %change in price) 38. SEE review 39. SEE review 40. SEE review...