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Econ Test 2


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The textbook suggests that a universal health insurance program which lowers patient's out-of-pocket expenses would tend to
increase the non-monetary costs of medical care, such as waiting longer in line
Your text suggests if the price of insulin were to significantly increase, more diabetics will
all of these
a. turn toward substitutes such as a better diet and exercise
b. adopt holistic healthcare, organic medicines, and other perceived substitutes
c. avoid refilling their prescriptions
The statement that "water is a necessity" is misleading because
it falsely implies that people use water only or primarily for drinking
Suppose somebody made the following statement: "There will be a substitute for Howard Stern, the radio shock-jock." The economic way of thiking suggests that this statement
is incorrect because many people choose to listen to other shock jocks as the perceived costs of listening to Howard Stern change
Many middle-to-older-aged men now claim they "neeed" Viagra (the new male impotency wonder drug) for an enjoyable sex life. The economic way of thinking predicts that
a. fewer men would be likely to claim they need Viagra if the price per pill were much higher
b. other things constant, more prescriptions would be written if the price of Viagra falls significantly
c. other things constant, fewer prescriptions would be written if the price of Viagra falls significantly
d. more men would be likely to claim they need Viagra if the price per pill were much lower compared to the current price
Physicians declare that people should drink eight full glasses of water per day to maintain optimal health. it is now common knowledge. But people don't necessarily follow doctor's orders because
people value other goods in addition to optimal health
Which of the following will not change the demand for movie tickets?
a change in the price of movie tickets
Blockbuster rents DVDs. Other things constant, which of the following would likely increase the demand for their DVDs?>
a. a rise in the cost of going to the movies
b. a fall in the price of DVD players
"less demand causes lower prices, and lower prices cause more demand." This statement shows that
the speaker has confused himself by saying DEMAND in the second half of the statement when he meant QUANTITY DEMANDED
Suppose a student is attending your college on an athletic scholarship, and doesn't pay a penny for tuition. the economic way of thinking suggests that this student's cost of attending college is
positive, because this student sacrificied some other opportunity to attend this college
The basic reason suburban stores are more likely than downtown stores to provide free parking for their customers is that
the cost of using land is higher in the downtown area
if the land suitable for growing corn is also suitable for growing soybeans, the discovery that soybean oil prevents cancer will
raise the cost of growing corn
Sunk costs are irrelevant to economic decisions because
they represent no opportunity for choice
The market value of downtown real state is most basically determined b the
uses to which people would like to put it if given a chance
The fact that almost everyone would be willing to pay far more for a cup of diamonds than for a cup of water demonstrates that
very few people are ever in danger of dying of thirst
Supply curves slope upward to the right because
higher prices attract resources from other uses
Other things constant, a higher price for corn tends to increase
the quantity supplied of corn
is the cost of an all-volunteer army in the US higher or lower than the cost of a conscripted army?
higher to taxpayers but lower to military personnel
with price on the vertical axis and quantity on the horizontal axis, a decrease in supply would be shown graphically as
an upward shift in the supply curve
Adam Smith maintained that a well-governed society's wealth is positively related to
the division of labor
Your textbook maintains that it is best to view the market as
a process of competing bids and offers
transaction costs in economic theory are
the costs of arranging agreements between demanders and suppliers
in the economic way of thinking money
allows people to make a wide range of negotiations
a barter exchange
takes place without money
suppose the market-clearing price of guitars is $500, but the prevailing price is currently $750. Pick the correct statement
guitar sellers would not be able to succesfully sell all they planned to sell
according to your text, when a shortage exists

e.g. elmo dolls
buyers compete with buyers
vcr players have become more abundant, and cheaper, over the past few years. Which of the following explains this result?
the supply curve for VCRs has shifted to the right
A decrease in the supply of good will cause a larger increase in its price
the more inelastic the demand for that good
a continuing long term large decline in the demand for coffee will not cause the price of coffee to fall much over the years if
the supply of coffee is highly elastic
suppose the equilibrium pric of wheat is 2.50 per bushel. what would happen if wheat farmers persuaded the government to set a legally-mandated price support of 3.75 per bushel?
a. the quantity demanded of wheat would fall
b. a surplus of wheat would occur
c. the quantity supplied of wheat would rise
If the price of sandals is fixed by law below the market-clearing price,
sandal inventories at shoe stores will be smaller
which of the following is most likely to be observed in a community where legal ceilings are imposed on residential rents?
people moving into the community will have difficulty locating residential space to rent
under a system of rent controls, landlords are more likely to
discriminate against students
suppose the market clearing rent is 500 per month, but a rent control is established at 400 per month. Which is most likely to emerge?
the quantity of apartments demanded would exceed quantity supplied
beer and wine were difficult to find during the prohibition on alcohol, but whisky and gin were plentiful..why?
criminals found it much more efficient to produce hard liquor
the economic way of thiking suggests that alcohol prohibition in the US
led to a surge in prices and considerable profit opportunities for those willing to break the law
there is no economic law that says poets can't someday become as rich as professional basketball players in the market process. It is more likely to happen if
poets are able to consistently sell out twenty thousand or larger stadiums at thirty dollars per ticket
why in the US do professional soccer players command a far lower salary than professional baseball players?
soccer is in far less demand
Halibut tends to be much more expensive than cod. the economic way of thinking helps explain this fact by
pointing out theory of supply and demand
the Florida freeze has destroyed 40% of the orange crop. the reduction in supply will increase orange prices, and therefore reduce deman. As demand falls, orange prices will also fall. what's wrong with this reasoning
the higher price would not reduce demand
a market is an equilibrium when
the quantity demanded equals the quantity supplied at the market price
in the long run, the number of firms in an industry may change. If the number of firms increases, then
the supply curve will shift outward to the right cause there will be more choices more supply
in contrast to tax, a goverment subsidy for a given good tends to
increase the supply of the good
An inferior good is one for which

e.g. potatoes and table wine
demand decreases as income increases

In consumer theory, an inferior good is one for which demand decreases when income rises, unlike the more common normal goods, for which the opposite is observed. Inferiority, in this sense, is an observable fact rather than a statement about the quality of the good.
with a market clearing price
the quantity demanded will just equal the quantity supplied
According to a market-clearing figure, at a price of $1/gallon, there would be

equilibrium is set at $2 and 30m gal

$ p/gallon
1 2 4

Gallons p day
10 20 30 40 50
a shortage of 20 mil gall (difference between the gal at market clearing price plus gal sold at $1 ) 30-10 = 20 g
in a free market economy, the equilibrium market price and quantity in the above figure will adjust to
break even $2 and 30 mill
according to the above figure, an increase in the price from $2 to $4 will result in
an increase n quantity demanded of 20m gallons =50-30 (equilibrium) 20
A surplus exists n the gasoline market when the price is
the highest $4/gallon
a demand curve
slopes down because of the inverse relationship between price and quantity demanded
if the demand curve shifts to right it means
that supply has increased and demand has decreased meaning that there's prob a surplus because the price has gone up
Suppose Alec Baldwin and Kim Basinger wear mathing Swatch watches in their new movie. After the movie is released, suppose consumers increase their demand for the watches and the manufacturer increases supply as a result
supply or equilibrium quantity will increase and the equilibrium price is indeterminate
the objective of rent control is to
keep rents below levels that would be observed ina freely competitive market
rent controls often have adverse effects, including
deterioration in the quality of existing rental units
in the US, goverment imposed price supports are most often associated with
agricultural products (price floors when supply is more than demand to keep from loosing, a minimum price above equilibrium)
Opponents of minimum wage legislation argue that higher minimum wages serve to
increase unemployment, particularly among unskilled minority workers
people often complain about price gouging after a disaster such as a hurricane. Suppose the goverment succesfully prevented price increases due to the disaster. We would expect
reconstruction to take longer because the quantity supplie of new materials will increase more slowly
price floors set above a market equilibrium price cause
in NY, rents can be adjusted only when a tenant leaves. This induces
tenants to stay in apts longer than they wold otherwise
in economic terms, the total price of a pound of meat for an individual who has waited in line is
the money price of the meat AND the opp cost of time spent waiting in line
A goods price elasticity of demand can be calculated by using the formula
% change in quantiy demanded / % chage in price
if elasticity of demand for concert tickets is .75, an increase in ticket prices will
increase total revenue
suppose the elasticity of demand for subscriptions to a newsletter is 1.3 in order to increase the total revenues from subscriptions the publisher should
reduce the price of the newsletter
one of the most important determinants of a good's price elasticiy of demand is
the ease with which consumers can substitute other goods for the product
inelastic demand implies
that a % increase in the price results in a smaller percent decrease in quantity demanded
T/F-Henry Hazlitt argued taht rent controls were beneficial
T/F-henry hazlitt argued that the minimum wage had no impact on employment
T/F-henry hazlitt argued that agricultural price supports lower prices of agricultural products compared to the free-market
henry hazlitt in a competitive market economy it is the high cost producers, the inefficient producers, that are driven out by a
fall in the price of the commodity produced
hazlitt argued that goverment intervention with market prices
leads to "fly by night" operations
in class i said that maybe the real reason people complain about price "gouging" or "rip-offs" is that they believe that it is
b. their right to get the commodity
c. they duty of the business to give them what they want
T/F-Economist Steven Hanke found in Colorado that when water meters were used people used more water
T/F-CA electricity problems were due to price floors and enviromental restrictions on the building of power plants
T/F-john stossel would support drug legalization
stossel's video argued that an unintended consequense of drug laws is:

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