Economics 1021A/B Chapter Notes - Chapter 8: Demand Curve, Opportunity Cost, Normal Good
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utility function
1. |
_____ |
The satisfaction or benefit that consumers receive from consuming goods or services.
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2. |
________________ _ |
A particular combination of specific quantities of goods or services |
3. |
________________ _ |
Consumers can rank all conceivable bundles of goods or services |
4. |
_____ |
If A is preferred to B, and B is preferred to C, then A is always preferred to C. |
5. |
_____ |
Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services. |
6. |
_____ |
A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility. |
7. |
_____ |
The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed. |
8. |
_____ |
The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant. |
9. |
_____ |
The line showing all bundles of goods that can be purchased at given prices if the entire income is spent. |
10. |
_____ |
The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes. |
11. |
_____ |
The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes. |
12. |
________________ _ |
The sum of the substitution and income effects. |
13. |
_____ |
A good for which quantity demanded varies directly with price, causing an upward sloping demand curve. |
14. |
_____ |
A list of prices and the corresponding quantity consumers are willing and able to purchase at each price. |
A bowed out PPF reflects which of the following ideas?
i.increasing opportunity cost
ii. resources are not equally productive in all activities
iii. prices of goods increase over time
I only |
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I and iii |
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ii and iii |
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I and ii |
1 point
QUESTION 2
With no international trade, a country ________ consume at a point outside of its PPF; with international trade, a country ________ consume at a point outside of its PPF.
can; cannot |
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cannot; can |
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cannot; cannot |
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can; can |
1 point
QUESTION 3
If the production possibilities frontier between two goods is a straight line, then the
the line does not qualify as a production possibilities frontier because the unattainable production points are too close to the inefficient production points. |
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opportunity cost is not a ratio. |
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increasing opportunity costs. |
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resources are equally productive in both goods. |
1 point
QUESTION 4
As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?
It might increase, decrease, or remain constant depending on how much people value the additional units of the good. |
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It decreases. |
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It increases. |
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It remains constant. |
1 point
QUESTION 5
"Comparative advantage" is defined as a situation in which one person can produce
more of a good than another person. |
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a good for a lower dollar cost than another person. |
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a good for a lower opportunity cost than another person. |
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more of all goods than another person. |
1 point
QUESTION 6
When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost
increases. |
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decreases. |
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might increase, decrease, or remain constant depending on how much people value the additional units of the good. |
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remains constant. |
1 point
QUESTION 7
A bowed out production possibility frontier shows that the
opportunity cost relationship is linear. |
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the opportunity cost of a good is constant as more of the good is produced. |
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the opportunity cost of a good increase as more of the good is produced. |
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the opportunity cost of a good decrease as more of the good is produced. |
1 point
QUESTION 8
Which of the following statements is correct?
The production possibilities frontier shows that there are no limits to production. |
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Any point on or within the PPF is production efficient. |
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If capital is idle, the economy is producing at its full potential. |
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A tradeoff is a limit that forces an exchange or a substitution of one thing for something else. |
1 point
QUESTION 9
A major earthquake occurs in the central part of the United States. What impact would this have on the nation's production possibilities frontier and why?
A tradeoff would occur to replace the resources and goods destroyed. |
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It would shift inward because some of the nation's resources, such as capital and labor, would be destroyed. |
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It would shift outward because unemployment would be reduced. |
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Nothing would happen because the nation would still have the same capabilities. |
1 point
QUESTION 10
When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods
must increase. |
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must decrease. |
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must remain the same. |
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must change but they might increase or decrease. |
1 point
QUESTION 11
Moving along a country's PPF, a reasonable opportunity costs increase is that
unemployment increases as a country produce more and more of one good. |
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unemployment decreases as a country produces more and more of one good. |
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some resources are better suited for producing one good rather than the other. |
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technology declines as a country produce more and more of one good. |
1 point
QUESTION 12
A reason the production possibilities frontier exists is
scarcity of resources and unlimited technology. |
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unemployment. |
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scarcity of resources. |
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unlimited resources and technology. |
1 point
QUESTION 13
Moving from one point to another on a production possibilities frontier implies
increasing the production of one good and decreasing the production of another. |
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increasing the production of both goods. |
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decreasing the production of both goods. |
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holding the production levels of both goods constant. |
1 point
QUESTION 14
Specialization and trade make a country better off because with trade the country can consume at a point
outside its production possibilities frontier. |
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on its trading partner's production possibilities frontier. |
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inside its production possibilities frontier. |
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on its production possibilities frontier. |
1 point
QUESTION 15
The production possibilities frontier is the
the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced when technology is changing. |
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the minimum output that can be produced when resources are used inefficiently. |
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the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology. |
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maximum output that can be produced at an opportunity cost of zero. |
1 point
QUESTION 16
The opportunity cost of economic growth is ________ and the benefit of economic growth is ________.
decreased current consumption; decreased future consumption |
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decreased current consumption; increased future consumption |
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increased current consumption; increased future consumption |
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increased current consumption; decreased future consumption |
1 point
QUESTION 17
In terms of a nation's production possibilities frontier, what impact does international trade have?
International trade shifts the nation's production possibilities frontier outward. |
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International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported. |
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International trade shifts the nation's production possibilities frontier inward. |
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International trade allows the nation to consume at a point outside its production possibilities frontier. |
1 point
QUESTION 18
The production possibilities frontier illustrates the
goods and services that people want. |
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limits to people's wants. |
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resources the economy possesses, but not it is the level of technology. |
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maximum combinations of goods and services that can be produced. |
1 point
QUESTION 19
As we move along the production possibilities frontier,
the possibilities of tradeoffs diminish. |
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the production of one good increases as the production of the other good decreases. |
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more of both goods can be produced. |
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a tradeoff is not possible because nations need all goods. |
1 point
QUESTION 20
What is the opportunity cost of economic growth?
Eliminate scarcity |
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Land. |
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Capital goods. |
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Consumption of goods. |
1 point
QUESTION 21
Which of the following statements is correct?
i.As the economy grows, the opportunity costs of economic growth decrease.
ii. Economic growth has no opportunity cost.
iii. The opportunity cost of economic growth is current consumption forgone.
ii only |
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iii only |
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I only |
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I and iii |
1 point
QUESTION 22
Does economic growth depend upon which of the following?
i. Increasing the quantity of labor.
ii. Lowering the prices of goods and services.
iii. Advancing technology.
ii only. |
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I only. |
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I and iii. |
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iii only. |
1 point
QUESTION 23
When drawing a production possibilities frontier, which of the following is held constant?
the amount of money in the economy |
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the prices of goods and services |
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the quantity of the goods and services that are produced |
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the available factors of production and the state of technology |
1 point
QUESTION 24
To increase its economic growth, a nation should
encourage spending on goods and services. |
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increase in current consumption. |
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encourage education because that increases the quality of labor. |
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limit the number of people in college because they produce nothing. |
1 point
QUESTION 25
The opportunity cost of one more slice of pizza in terms of sodas is the
some pizza slices we have to give up to get one extra soda. |
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the total number of sodas that we have divided by the total number of pizza slices that we have. |
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the total number of pizza slices that we have divided by the total number of sodas that we have. |
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the number of sodas we have to give up to get one extra pizza slice. |
1. Use the table below for the following question. Suppose you have a budget of $6 and that brownies and Twizzlers cost $1 each. What is the consumer optimum?
Number of Brownies |
Total Utility of Brownies |
Marginal Utility of Brownies |
Number of Twizzlers |
Total Utility of Twizzlers |
Marginal Utility of Twizzlers |
0 |
0 |
- |
0 |
0 |
- |
1 |
10 |
10 |
1 |
6 |
8 |
2 |
19 |
9 |
2 |
13 |
7 |
3 |
26 |
7 |
3 |
19 |
6 |
4 |
30 |
4 |
4 |
23 |
4 |
5 |
30 |
0 |
5 |
25 |
2 |
6 |
29 |
-1 |
6 |
25 |
0 |
6 brownies |
3 brownies and 3 Twizzlers |
4 brownies and 2 Twizzlers |
any combination of 6 because they're both $1 |
8 |
2. Use the table below for the following question. What is the consumer equilibrium for a $6 budget if the price of brownies rises to $1.50 and the price of Twizzlers remains at $1.00?
Number of Brownies |
Total Utility of Brownies |
Marginal Utility of Brownies |
Number of Twizzlers |
Total Utility of Twizzlers |
Marginal Utility of Twizzlers |
0 |
0 |
- |
0 |
0 |
- |
1 |
10 |
10 |
1 |
6 |
8 |
2 |
19 |
9 |
2 |
13 |
7 |
3 |
26 |
7 |
3 |
19 |
6 |
4 |
30 |
4 |
4 |
23 |
4 |
5 |
30 |
0 |
5 |
25 |
2 |
6 |
29 |
-1 |
6 |
25 |
0 |
The consumer will buy all Twizzlers because they're cheaper. |
4 brownies |
3 Twizzlers and 2 brownies |
3 brownies and 3 Twizzlers |
7 |
3. At Nice Price for the Ice, an ice cream parlor, customers routinely buy a scoop of ice cream for $3. If consumers purchase one scoop of ice cream at $3, then why don't they keep buying more and more scoops for $3 until the store sells out?
People would not want more than one scoop of ice cream because then they would have less money to spend on other goods. |
People do not want to consume all the scoops of ice cream because their total utility is higher the less they eat. |
At some point, customers do not value an additional scoop at $3, so they will not pay $3 for a scoop after they reach that point. |
4. Suppose you plan on eating 50 potato chips. As you start consuming potato chips, your marginal utility is very high, but it begins to fall slowly until you've eaten 10 chips. After you have eaten 10 chips, your marginal utility decreases even faster with each additional chip. The marginal utility continues to decline until you've eaten 49 chips. The fiftieth chip does not give you any additional utility. After 50 chips, your mouth gets so salty that it's unpleasant to eat anymore, so marginal utility is actually negative for those chips. How many chips should you eat in order to maximize your total utility?
1 |
10 |
49 |
5. As you start consuming potato chips, your marginal utility is very high, but it begins to fall slowly until you've eaten 10 chips. After you have eaten 10 chips, marginal utility decreases even faster with each additional chip. The marginal utility continues to decline until you've eaten 49 chips. The fiftieth chip does not give you any additional utility. After 50 chips, your mouth gets so salty that it's unpleasant to eat anymore, so marginal utility is actually negative for those chips. How many chips should you eat in order to maximize your marginal utility?
1 |
10 |
49 |
50 |
6. At current levels of consumption, Alice is spending her entire budget. If Alice gets 3 utils of satisfaction per dollar spent on ice cream and 2 utils per dollar spent on shampoo, then how should she adjust her consumption to get closer to the consumer optimum?
She is already at the consumer optimum, so no adjustment is necessary. |
She should buy more ice cream and less shampoo. |
She should buy more shampoo and less ice cream. |
She should buy more of both goods. |
7. Suppose you are at a restaurant and your favorite dish costs $20. You can get your next-favorite dish for $17. If your next-favorite dish gives you 100 utils, how many additional utils do you need from your favorite dish to spend the extra $3?
15 |
17.65 |
85 |
117.65 |
8. The diamond water paradox is the observation that water is essential to life and inexpensive, while diamonds are not essential and are highly-priced. Which of the other pairs of goods exhibit a pricing structure similar to water and diamonds?
economy & luxury cars |
rice & truffles (very expensive mushrooms) |
paper clips & gasoline |
paper & textbooks |
9. Rice is a cheap staple food eaten several times a day by many people all over the world. In Trufflelandia, residents also eat expensive mushrooms known as truffles once every year as a birthday celebration. Rice keeps the people alive and truffles are not necessary for sustaining their lives. Why is rice so cheap and truffles so expensive?
Truffles taste better, so they are worth more money. |
Rice is easy to cook, so people buy a lot of it. If people are going to buy so much, then it has to be cheap. |
Truffles are more nutritious, and healthy food is always more expensive than unhealthy food. |
People eat so much rice that an additional serving of rice has little marginal value, but the marginal value of another serving of truffles is very high. |