CHAPTER1
Economics is best defined as the study of
how society manages its scarce resources.
Your opportunity cost of going to a movie is
the total cash expenditure needed to go to the movie plus the value of your time. A marginal change is one that
incrementally alters an existing plan.
Adam Smith’s “invisible hand” refers to
the ability of free markets to reach desirable outcomes, despite the self-interest of market participants.
Governments may intervene in a market economy in order to All of the above.
If a nation has high and persistent inflation, the most likely explanation is
the central bank creating excessive amounts of money. CHAPTER 2 An economic model is a
a simplified representation of some aspect of the economy.
The circular-flow diagram illustrates that, in markets for the factors of production,
households are sellers, and firms are buyers.
A point inside the production possibilities frontier is feasible but not efficient.
An economy produces hot dogs and hamburgers. If a discovery of the remarkable
health benefits of hot dogs were to change consumers’ preferences, it would
move the economy along the production possibilities frontier.
All of the following topics fall within the study of microeconomics EXCEPT
the influence of the government budget deficit on economic growth.
Which of the following is a positive, rather than a normative, statement?
Law X will reduce national income. CHAPTER 4
A change in which of the following will NOT shift the demand curve for hamburgers? the price of hamburgers.
An increase in ________ will cause a movement along a given demand curve,
which is called a change in ________. supply, quantity demanded
Movie tickets and film streaming services are substitutes. If the price of film
streaming increases, what happens in the market for movie tickets?
The demand curve shifts to the right.
The discovery of a large new reserve of crude oil will shift the ________ curve for
gasoline, leading to a ________ equilibrium price. supply, higher
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods
Prices fall and quantities rise.
Which of the following might lead to an increase in the equilibrium price of jelly
and a decrease in the equilibrium quantity of jelly sold?
an increase in the price of grapes, an input into jelly CHAPTER 5
A life-saving medicine without any close substitutes will tend to have a small elasticity of demand.
The price of a good rises from $8 to $12, and the quantity demanded falls from 110
to 90 units. Calculated with the midpoint method, the price elasticity of demand is 1/2. 90 110 − /12 8 − (90+110)/2 (12+8)/2
A linear, downward-sloping demand curve is
inelastic at some points, and elastic at others.
The ability of firms to enter and exit a market over time means that, in the long run,
the supply curve is more elastic.
Over time, technological advance increases consumers’ incomes and reduces the
price of smartphones. Each of these forces increases the amount consumers spend
on smartphones if the income elasticity of demand is greater than ________ and if
the price elasticity of demand is greater than ________. zero, one CHAPTER 6
When the government imposes a binding price floor, it causes
a surplus of the good to develop.
In a market with a binding price ceiling, an increase in the ceiling will ________
the quantity supplied, ________ the quantity demanded, and reduce the ________. increase, decrease, shortage
A $1 per unit tax levied on consumers of a good is equivalent to
a $1 per unit tax levied on producers of the good.
Which of the following would increase quantity supplied, decrease quantity
demanded, and increase the price that consumers pay?
the imposition of a binding price floor
Which of the following would increase quantity supplied, increase quantity
demanded, and decrease the price that consumers pay?
the repeal of a tax levied on producers
When a good is taxed, the burden of the tax falls mainly on consumers if
supply is inelastic, and demand is elastic. CHAPTER 13
Xavier opens up a lemonade stand for two hours. He spends $10 for ingredients
and sells $60 worth of lemonade. In the same two hours, he could have mowed his
neighbor’s lawn for $40. Xavier has an accounting profit of _____ and an economic profit of ____. $50, $10
Diminishing marginal product explains why, as a firm’s output increases,
the production function gets flatter, while the total-cost curve gets steeper.
A firm is producing 1,000 units at a total cost of $5,000. If it were to increase
production to 1,001 units, its total cost would rise to $5,008. What does this
information tell you about the firm?
Marginal cost is $8, and average variable cost is $5.
A firm is producing 20 units with an average total cost of $25 and a marginal cost
of $15. If it were to increase production to 21 units, which of the following must occur?
Average total cost would decrease.
The government imposes a $1,000 per year license fee on all pizza restaurants. As
a result, which cost curves shift?
average total cost and average fixed cost
If a higher level of production allows workers to specialize in particular tasks, a
firm will likely exhibit ________ of scale and ________ average total cost. economies, falling A perfectly competitive firm
takes its price as given by market conditions.
A competitive firm maximizes profit by choosing the quantity at which
marginal cost equals the price.
A competitive firm’s short-run supply curve is its ________ cost curve above its ________ cost curve. marginal, average variable
If a profit-maximizing, competitive firm is producing a quantity at which marginal
cost is between average variable cost and average total cost, it will
keep producing in the short run but exit the market in the long run.
In the long-run equilibrium of a competitive market with identical firms, what are
the relationships among price P, marginal cost MC, and average total cost ATC? P =MC and P =ATC.
Pretzel stands in New York City are a perfectly competitive industry in long-run
equilibrium. One day, the city starts imposing a $100 per month tax on each stand.
How does this policy affect the number of pretzels consumed in the short run and the long run?
no change in the short run, down in the long run