Question

1.) True or False? For all societies, resources are scarce, and technology is limited, while people’s wants and needs for goods and services seem to be unlimited. (2 points)

2.) (1 point) Adam Smith’s “invisible hand” refers to a.) the subtle and often hidden methods that businesses use to profit at consumers’ expense. b.) the ability of free markets to reach desirable outcomes, despite the self-interest of market participants. c.) the ability of government regulations to benefit consumers, even if consumers are unaware of the regulations. d.) the way producers or consumers in unregulated markets impose costs on innocent bystanders.

3.) (1 point) Governments may intervene in a market economy in order to a.) protect property rights b.) correct a market failure due to externalities c.) achieve a more equal distribution of income d.) all of the above

4.) True or False? One of Mankiw’s “Ten Principles of Economics” says that “Markets are usually a good way of organizing economic activity.” (2 points)

5.) True or False? One of Mankiw’s “Ten Principles of Economics” says that “Governments can always improve market outcomes.” (1 point)

6.) True or False? Markets can sometimes fail to produce efficient outcomes. (1 point)

7.) (1 point) A point inside a nation’s production possibilities frontier is a.) efficient but not feasible b.) feasible but not efficient c.) both efficient and feasible d.) neither efficient nor feasible

8.) (1 point) A point on the production possibilities frontier is 2 of 7 a.) impossible b.) possible, but not efficient c.) both possible and efficient d.) neither possible nor efficient.

9.) True or False? When production is efficient, it is possible to increase the output of one good only by reducing the output of another. (1 point)

10.) True or False? The bowed shape of a production possibilities frontier is due to the existence of specialized resources that are better at producing one output rather than another. (1 point) Chapter 3

11.) England and Scotland can both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour. (Draw a diagram of the two production possibilities frontiers in the space below if that would help you to answer the following questions.) a.) Which country has a lower opportunity cost in producing sweaters? (England/Scotland) (2 points) b.) Which country has a comparative advantage in producing sweaters? (England/Scotland) (2 points) c.) Which country will export sweaters, if trade is allowed? (England/Scotland) (2 points)

12. ) True or False? A nation will typically export goods in which it has a comparative advantage and import goods in which has a comparative disadvantage. (1 point)

13.) True or False? “When people in two countries have different opportunity costs of producing the same two goods, then each group of people can benefit from specializing in production and trading with one another.” (1 point) 14.) True or False? According to Prof. Hambley, trade is not a “zero-sum game” in which one participant wins but the other loses. Instead, trade is “win-win” situation for both participants. (2 points)

15.) True or False? “If a certain trade is good for one person, it can’t be good for the other one.” (2 points)

16.) True or False? According to the Law of Demand, holding “other things” constant, an increase in the price of a good will cause the quantity of that good demanded to fall. (2 points)

17.) True or False? The Law of Demand is true both for an individual’s demand for a particular good, and for the market demand. (2 points)

18.) A movement along a demand curve in response to a change in price is called a (change in demand; change in quantity demanded), while a shift in an entire demand curve to the left or right is called a (change in demand; change in quantity demanded). (2 points; 1 point each)

19.) Which of the following events would increase market demand and shift the market demand curve to the right? (Circle the letters of the correct answers.) (6 points) a.) the number of buyers increases b.) tastes change and each buyer wants to buy more of the good than before c.) the income of buyers increases, and the good is a normal good d.) the price of a substitute good increases e.) the price of a complementary good increases f.) buyers suddenly expect the good’s price will be higher in the future

20.) True or False? According to the Law of Supply, an increase in the price of good will usually result in an increase in the quantity of that good supplied. (2 points)

21.) True or False? The Law of Supply is true for a market supply curve, because it reflects the behavior of individual suppliers. (2 points)

22.) How do the following events affect the supply of an individual good? a.) the number of sellers falls. Supply (increases, falls) (1 point) b.) the technology of producing the good improves. Supply (increases, falls) (1 point) c.) an input used in producing the good become more expensive. Supply (increases, falls) (1 point) d.) producers expect the price of the good they produce to be higher “tomorrow”. Supply today (increases, falls). (1 point)

23.) If the price of a good or service is less than its equilibrium price, the quantity demanded is (greater than, less than, equal to) the quantity supplied. This situation is called a (shortage, surplus, equilibrium). In this situation, the price will tend to (rise, fall, stay the same). (3 points; 1 point each)

24.) If the price of a good or service is greater than its equilibrium price, the quantity demanded is (greater than, less than, equal to) the quantity supplied. This situation is called a (shortage, surplus, equilibrium). In this situation, the price will tend to (rise, fall, stay the same). (3 points; 1 point each)

25.) True or False? According to the Law of Supply and Demand, shortages and surpluses are usually only temporary. (2 points)

26.) An increase in the supply of a good will (increase, decrease) the equilibrium price and (increase, decrease) the equilibrium quantity. (Draw a diagram!) (2 points)

27.) An increase in the demand for a good will (increase, decrease) the equilibrium price and (increase, decrease) the equilibrium quantity. (Draw a diagram!) (2 points)

28.) If climate change kills off half of the crop of coffee beans, you would predict the equilibrium price of a cup of coffee would (rise, fall, stay the same) and the equilibrium quantity of cups of coffee would (rise, fall, stay the same). (2 points, 1 point each)

29.) Over time, technological improvement lowers the cost of producing smartphones and also raises buyers’ incomes. Assume that smartphones are normal goods. As a result, the supply of smartphones will (increase, decrease) and the demand for smartphones will (increase, decrease). We would expect the equilibrium quantity of cellphones bought and sold will (increase, decrease, stay the same), while the price of smartphones could rise, fall, or stay the same. (6 points; 2 points each)

30.) When a hurricane accompanied by massive rainfall and flooding occurs, what would happen to the demand for bottled water, the supply of bottled water, and the price of a bottle of water? a.) The demand for bottled water would (increase, decrease, stay the same). (1 point) b.) The supply of bottled water would (increase, decrease, stay the same). (1 point) c.) The price of bottled water would (increase, decrease, stay the same). (1 point)

31.) At a recent AU basketball game, many seats at Bender Arena were empty. a.) In economic terms, would this be a shortage or surplus of seats? (shortage, surplus). (1 point) b.) What does the fact of empty seats suggest about the price of basketball tickets sold to the public? Those tickets are (too expensive, too cheap). (1 point) c.) What should AU do to the price of tickets if wants to fill the empty seats? It should (raise, lower) ticket prices. (1 point)

32.) True or False? The price elasticity of demand is defined to be the percentage change in quantity of a good demanded divided by the percentage change in its price. (2 points)

33.) The demand for a life saving medicine without any close substitutes will be (inelastic, elastic, unit elastic) (1 point)

34.) True or False? If the demand for a good is inelastic, a rise in that good’s price will reduce the revenue sellers receive from selling that good. (1 point)

35.) American University is interested in increasing total revenue from ticket sales to the public for basketball games at Bender Arena. Suppose AU estimates that the demand for basketball tickets is elastic. Should AU increase or decrease ticket prices sold to the public to raise total revenue? (increase, decrease) (1 point)

36.) True or False? The price elasticity of supply is defined to be the percentage change in the quantity of a good supplied divided by the percentage change in that good’s price. (1 point)

37.) True or False? Price elasticities of demand and supply both tend to be larger the longer the passage of time. (1 point)

38.) The price of gasoline rose sharply last month, while the quantity sold remained the same. Three people offer possible explanations: a.) Alice: Demand increased, but supply was perfectly inelastic. b.) Beth: Demand increased, but supply decreased at the same time. c.) Colleen: Supply decreased, but demand was perfectly inelastic Circle the letter(s) of the names of those whose explanations could be correct. (3 points)

39.) Rent control is an example of a binding (price ceiling, price floor) (1 point)

40.) The minimum wage is an example of a binding (price ceiling, price floor) (1 point)

41.) In the early 1970’s, long lines at the gas pump were a result of a binding (price ceiling, price floor) on the price of gasoline. (1 point)

42.) True or False? An excise tax imposed on the sellers of a good has exactly the same effects as one of equal size imposed on the buyers. (1 point)

43.) True or False? An excise tax imposed on the sellers of the good will raise the price paid by buyers, reduce the price received by sellers, and reduce the quantity bought and sold. (1 point)

44.) True or False? An excise tax creates a tax wedge between the price buyers pay and the price sellers receive. (1 point)

45.) True or False? The incidence of an excise tax depends on the elasticities of demand and supply for the good. (1 point)

46.) True or False? A buyer’s willingness to pay is the maximum amount that person would pay to obtain a good. (1 point)

47.) True or False? Consumer surplus is the difference between a buyer’s willingness to pay for a good and the price that buyer actually pays. (2 points)

48.) True or False? For all buyers in a market, consumer surplus is equal to the area under the market demand curve and above the price; it measures the benefit that buyers obtain from participating in a market, as they themselves see it. (2 points)

49.) True or False? Producer surplus is equal to the area above the market supply curve and below the price; it measures the benefit that sellers obtain from participating in a market, as they themselves see it. (2 points) 50.) True or False? Total Surplus is the sum of Consumer Surplus plus Producer Surplus. (2 points)

51.) True or False? In the absence of externalities and market power, perfectly competitive markets maximize total surplus. (2 points)

52.) True or False? When a competitive market is in equilibrium, it is not possible to increase total surplus by reallocating goods among buyers, by reallocating responsibility for production among sellers, or by changing the quantity produced. (2 points)

Answer 1

1) The statement is "True"

For every society the Technology, capital, and resources are limited but the wants of the society are unlimited.

2) Adam Smith invisible hands means "B" The ability of the free market to reach the desired equilibrium despite the self-interest of the people.

3) "D" Government will intervene market for all the above-mentioned reasons like protecting the property rights, correcting the market externalities, and achieve a more equal distribution of income.

4) "True"

A market is an efficient place to organize an economic activity. It is the place which facilitates the meeting of Buyers and sellers enabling them to carry out their transactions.