Understanding Economic Principles: Key Concepts and Applications

Question 1 1 / 1 pts If cola and iced tea are good substitutes for consumers, then it is likely that: their cross price elasticities are greater than zero. their price elasticities of demand are less than one. their income elasticities are less than zero. their price elasticities of supply are less than one . Question 2 1 / 1 pts Improvements in the productivity of labor will tend to: decrease wages. decrease the supply of labor. increase wages. increase the supply of labor. Question 3 1 / 1 pts When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________. elastic inelastic

having zero elasticity price inelasticity Question 4 1 / 1 pts The United States has approximately ___________ credit card holders. 1.8 million 18 million 80 million 180 million Question 5 1 / 1 pts Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future. budget constraint intertemporal choice risk premium opportunity cost Question 6 1 / 1 pts An inferior good is a product: for which demand increases as income increases.

for which there is no demand. for which demand decreases as income increases. that has an upward sloping demand curve. Question 7 1 / 1 pts Steel mill wage costs increase by 18 percent over a year. What is the likely economic effect on the market for steel? There is an increase in the cost of producing steel, which shifts the supply curve of steel to the right, thereby increasing the price of steel. There is an increase in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel. There is a decrease in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel. The increase in wage costs will shift the demand curve for steel to the left, increasing the cost of steel. Question 8 1 / 1 pts How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans? Consumer Spending Survey Consumer Income Budget Survey Consumer Expenditure Survey

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Consumer Income Survey Question 9 1 / 1 pts Which of the following is most likely to cause variation in American household spending patterns? differing levels of family income geographical location of households each household's personal preferences each of the above will cause a variation Question 10 1 / 1 pts Refer to Table 4-1. Suppose that D1 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D1 to D2, then: equilibrium price decreases from $6 to $4. equilibrium quantity decreases from 15 to 13. equilibrium quantity increases from 13 to 18.

equilibrium price increases from $6 to $8 Question 11 1 / 1 pts Refer to the diagram. What is the significance of the point marked L1 at the bottom upward-sloping portion of the individual labor supply (2) curve? as wages increase over this range, the quantity of hours worked also increases. as wages increase over this range, the quantity of hours worked changes very little. as wages increase over this range, the quantity of hours worked actually decreases. as wages increase of this range, the quantity of hours worked is inelastic. Question 12 1 / 1 pts If the demand for software engineers __________ slower than does supply, then wages of software engineers will __________.

increases; remain constant increases, rise increases; fall decreases; fall Question 13 0 / 1 pts Substitution and income effects of a change in price of a good may be used to explain the: direct relationship between price and quantity purchased. inverse relationship between price and quantity demanded. direct relationship between price and quantity supplied. direct relationship between income and demand. Question 14 1 / 1 pts The “law of supply” functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied. price demand supply quantity

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Question 15 1 / 1 pts Whenever there is a shortage at a particular price, the quantity sold at that price will equal: the quantity demanded at that price. the quantity supplied minus the quantity demanded. the quantity supplied at that price. (quantity demanded plus quantity supplied)/2. Question 16 1 / 1 pts Are markets always in equilibrium? No, they never "settle down" into a stable price and quantity. No, but if there is no outside interference, they tend to move toward equilibrium. Yes, because very few things tend to alter supply and demand. Yes, they are always at the equilibrium point, or very close to it. Question 17 1 / 1 pts Mark’s annual after tax income earnings are $50,000. His $40,000, 3-year CD is maturing in the near future and he is planning to spend the interest on a 6 week holiday after that. His investments can earn a total of 10% before he starts his trip. If Mark's “present consumption” is the time he spends working and his “future consumption” is his trip, his optimal choice from the table below is to:

spend $50,000 now and consume nothing in the future spend nothing now and consume $77,000 in the future. spend $10,000 now and consume $44,000 in the future. spend $20,000 now and consume $33,000 in the future Question 18 1 / 1 pts Demand is said to be ___________ when the quantity demanded is very responsive to changes in price. elastic unit elastic inelastic independent Question 19 1 / 1 pts A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

elasticity of demand for soda 0.5 and is inelastic. elasticity of demand for iced tea is 2 and is elastic. cross-price elasticity of demand for soda is -0.5. cross-price elasticity of demand for iced tea is +2. Question 20 1 / 1 pts A straightforward example of a _______________, often used for simplicity, is the interest rate. price ceiling financial investment rate of return price floor Question 21 1 / 1 pts Refer to Table 4-1. If D1 and S1 represent the demand and supply schedules in a particular market, then the equilibrium price and quantity are __________ and __________, respectively.

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$4; 11 $4; 16 $6; 13 $8; 15 Question 22 1 / 1 pts The _________________ budget constraint shows the tradeoff between present and future consumption. inflation utility-maximizing intertemporal choice time-value of money Question 23 1 / 1 pts In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts: are the negative result of a change in wage levels and a higher work effort. the result of personal preferences and intertemporal budget constraints. are being offset by negative savings or less savings in other kinds of accounts.

the result of a higher interest rates and preferences about present consumption. Question 24 1 / 1 pts Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine: the equilibrium price will fall and the equilibrium quantity will fall. both the equilibrium price and quantity will rise. the equilibrium price will rise and the equilibrium quantity will decrease. the equilibrium price will rise, while the change to equilibrium quantity is indeterminate. Question 25 1 / 1 pts If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to: rise and the equilibrium quantity to fall. rise and the equilibrium quantity to stay the same. rise and the equilibrium quantity to rise. stay the same and the equilibrium quantity to fall. Question 26 1 / 1 pts

Refer to Table 4-1. Suppose that D2 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D2 to D1, then: equilibrium price increases from $6 to $8. equilibrium quantity increases from 13 to 18 equilibrium quantity decreases from 15 to 13. equilibrium price decreases from $6 to $4. Question 27 1 / 1 pts Even with wage increases, the supply curve of labor is most often inelastic for which of the following? part-time workers full-time workers lawyers massage therapists Question 28 1 / 1 pts

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Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price. independent inelastic unit elastic elastic Question 29 1 / 1 pts As a general rule, utility-maximizing choices between consumption goods occur where the: rise in income has created the greatest utility. price ratio and marginal utilities ratio of two goods is equal. higher-income households have the greatest satisfaction. constraints on budget expenditures has fallen substantially. Question 30 0 / 1 pts When demand is inelastic: price elasticity of demand is greater than 1. consumers are not very responsive to changes in price. the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price.

demand curves appear to be fairly flat.

Test 2

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