ECO 102 Macroeconomics Unit 2 Challenge 1 and 2

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Unit 2 Challenge 1   

Which of the following statements is FALSE relating to the Law of Demand?

·        A.)

If the producer increases the price of a good, consumers will demand a lower quantity.

·        B.)

Perfectly inelastic demand is an exception to the Law of Demand.

·        C.)

Consumers can usually find substitutes to the good in question.

·        D.)

The Law of Demand takes into account all other variables in the market.

 

As the price of a product increases, people purchase __________. This is because they are able to find __________ for the product in question. These changes create movement along the demand curve.

·        A.)

more; substitutes

·        B.)

less; complements

·        C.)

less; substitutes

·        D.)

more; complements

Using the above graph, which of the following statements is FALSE relating to the Law of Demand?

·        A.)

When price decreases, the quantity demanded will always increase by the same amount.

·        B.)

A movement along the demand curve is due to a change in price.

·        C.)

A reduction in price will result in an increase in quantity.

·        D.)

The Law of Demand expresses a negative relationship between quantity on the X axis and price on the Y axis.

A demand curve can shift for many reasons.

Select the reason below that does NOT shift a demand curve.

·        A.)

Price of complements increases

·        B.)

Changes in price of the good

·        C.)

Price of substitutes increases

·        D.)

Changes in preferences

According to recent numbers, demand for college education had fallen in recent years.

Which of the following examples would indicate a movement along the demand curve?

·        A.)

There is a change in price and quantity for college tuition.

·        B.)

One of the parents of a college student becomes unemployed.

·        C.)

Instead of going to college, students are joining the workforce right away to begin making money.

·        D.)

Cost of college text books continues to rise over the last 10 years.

During the 18th Century, as troubles with Britain escalated, American colonists stopped drinking British tea, and instead starting drinking coffee. 

The is an example of which factor of demand?

·        A.)

Change in taste/preference

·        B.)

Change in the price of a complement

·        C.)

Change in price of a substitute

·        D.)

Change in the price of the good

Which of the following statements is FALSE as it relates to the Law of Supply?

·        A.)

Opportunity cost is a big factor in the Law of Supply.

·        B.)

If the price of a good decreases, the quantity supplied decreases.

·        C.)

As the market price for a good increases, businesses will provide more of that good.

·        D.)

​The supply curve shows an inverse relationship between price and quantity.

As prices increase, producers are willing to __________.

·        A.)

demand less of a good or service

·        B.)

produce less of a good or service

·        C.)

demand more of a good or service

·        D.)

supply a larger quantity of a good or service

Why does a supply curve slope upward?

·        A.)

Because as prices increase, producers are willing and able to supply more.

·        B.)

Because costs of production eventually decrease.

·        C.)

Because as prices increase, opportunity cost of producing goods decrease.

·        D.)

Because there is an inverse relationship between price and quantity supplied.

In the market for jeans, which of the following would cause a shift from S1 to S2?

·        A.)

Jeans suddenly become the "it" item to have for the new season

·        B.)

Increase in the price of jeans

·        C.)

New technology that cuts production time for jeans in half

·        D.)

Increase in the price of cotton

Which of the following causes a shift in supply to the left?

·        A.)

Education that leads to a more skilled workforce

·        B.)

A decrease in the price of inputs

·        C.)

A natural disaster that destroys farms and factories

·        D.)

An increase in technology

Which situation below describes the graph above?

·        A.)

As the price of a good increases, producers provide more of it.

·        B.)

Heat destroys the mango crop almost completely.

·        C.)

The price for 1,000 kilograms of mangoes increases from 50 cents per kilogram to 75 cents per kilogram, so producers offer more mangoes.

·        D.)

A change in technology makes it possible to process mangoes more efficiently.

Suppose you are willing to pay $3 for an ice cream cone.  The price at the local creamery is $1.75.

What is your consumer surplus?

·        A.)

$1.25

·        B.)

$1.75

·        C.)

$3.00

·        D.)

$4.75

Trevor is willing to pay $22 for the DVD of a newly released movie, but the market price for the DVD he wants is only $10.

What is his consumer surplus?

·        A.)

$32

·        B.)

$22

·        C.)

$12

·        D.)

$10

Kate is willing to pay $12,000 a year in college tuition, but the market price for the courses she wants to take is only $8,000 a year.

Her consumer surplus will be _________ over the course of one year.

·        A.)

$4,000

·        B.)

$8,000

·        C.)

$20,000

·        D.)

$12,000

If producers are willing to sell 20 cans of soda at a total price of $10 and a local restaurant offers to pay $16, then producer surplus is equal to __________.

·        A.)

$16

·        B.)

$10

·        C.)

$26

·        D.)

$6

At what point described below will producer surplus most likely drop to zero for a firm?

·        A.)

When revenue equals opportunity and variable costs

·        B.)

When producer and consumer surplus are both the same quantity

·        C.)

When the firm is making a significant profit

·        D.)

When the firm is taking a significant loss

A firm would stop producing when producer surplus is __________.

·        A.)

equal to opportunity cost

·        B.)

smaller than deadweight loss

·        C.)

equal to zero

·        D.)

negative

Which of the following does NOT describe equilibrium?

·        A.)

Quantity supplied and quantity demanded are equal

·        B.)

The market clearing price is attained

·        C.)

Firms maximizing profit

·        D.)

Every buyer can find a seller, every seller can find a buyer

If the price of organic vegetables reaches equilibrium, which of the following describes what will happen?

·        A.)

The price will eventually fall.

·        B.)

The price will continue to rise.

·        C.)

There will be a shortage because the organic vegetables will sell out.

·        D.)

There will be no market basis for the price to change.

Price was one of the main factors keeping organic food from becoming more popular. At the moment, consumers were not purchasing as much organic milk as the farmers were producing, since they were able to continue buying the less expensive regular milk.

If the price of organic milk stays high, which of the following describes what will happen?

·        A.)

The price will go down until it reaches equilibrium.

·        B.)

As the price decreases, consumers will buy less milk.

·        C.)

The price will continue to increase.

·        D.)

Vendors will sell more milk at the higher price.

When price decreases, the quantity supplied will __________.

·        A.)

increase or decrease in price, depending on elasticity of supply

·        B.)

increase

·        C.)

remain the same

·        D.)

decrease

Which of the following statements explains how price and quantity influence the Law of Demand?

·        A.)

The market price of carbonated beverages increases, so Sampa Cola offers more of them.

·        B.)

The market price of carbonated beverages increases, so consumers purchase less of them.

·        C.)

This describes a relationship between the market price of carbonated beverages and the quantity produced.

·        D.)

Sampa Cola develops a new type of machinery that makes it possible to produce more beverage at a lower cost.

Where do supply and demand intersect, ceteris paribus?

·        A.)

When there is a surplus

·        B.)

When there is a shortage

·        C.)

At the reservation price

·        D.)

At equilibrium

Unit 2 Challenge 2

A shortage exists when the __________.

·        A.)

market is in equilibrium

·        B.)

quantity demanded is greater than the quantity supplied

·        C.)

quantity supplied is greater than the quantity demanded

·        D.)

reservation price is not met

Which of the following statements is true?

·        A.)

A price ceiling creates surplus when it is binding.

·        B.)

A price ceiling is when the minimum wage is higher than the prevailing market wage.

·        C.)

A price floor happens when the market clears.

·        D.)

A price floor is binding when it is placed above equilibrium.

In order to be effective, a price ceiling must be set __________.

·        A.)

above the current equilibrium price

·        B.)

below the current equilibrium price

·        C.)

at the highest possible price for the market

·        D.)

at the market clearing price

Binding price floors will __________.

·        A.)

transfer some surplus from consumers to producers

·        B.)

transfer some surplus from producers to consumers

·        C.)

create additional total surplus in the market

·        D.)

benefit all producers in the market

Which of the following statements is true as it relates to equilibrium?

·        A.)

There is no deadweight loss at equilibrium.

·        B.)

For a price ceiling to be an effective, binding constraint, it must be set higher than equilibrium.

·        C.)

When above equilibrium, price floors transfer surplus from producers to consumers.

·        D.)

Set below equilibrium, rent control is an example of a price floor.

When are consumer and producer surplus maximized?

·        A.)

At equilibrium

·        B.)

When a price ceiling is imposed

·        C.)

When a price floor is imposed

·        D.)

When deadweight loss is highest

A tax effectively shifts ___________.

·        A.)

demand to the left, decreasing the price that consumers pay

·        B.)

supply to the left, increasing the price that consumers pay

·        C.)

supply to the right, decreasing the price that consumers pay

·        D.)

demand to the right, increasing the price that consumers pay

In which of the following ways do subsidies differ from taxes in relation to measuring their impact?

·        A.)

We measure the impact of a subsidy in terms of who pays for it.

·        B.)

We measure the impact of a subsidy in terms of who benefits from it.

·        C.)

With subsidies, demand is more elastic, so that means that producers benefit more than consumers.

·        D.)

With subsidies, consumers benefit more than producers.

The goal of a subsidy is to __________.

·        A.)

avoid deadweight loss

·        B.)

discourage consumption of a good

·        C.)

raise revenue for the government

·        D.)

encourage production of a good

Which of the statements about aggregate demand is true?

·        A.)

As the price level falls, consumers purchase more.

·        B.)

There is a direct relationship between price level and RGDP that consumers purchase.

·        C.)

The price level increases, so firms produce more goods.

·        D.)

The price level falls, so RGDP does as well.

As the price level falls, all of the following occur except __________.

·        A.)

fewer loans are taken out by consumers

·        B.)

more money circulates through the economy

·        C.)

consumption increases

·        D.)

interest rates fall

Which of the statements about aggregate demand is true?

·        A.)

Interest rates have no effect on aggregate demand.

·        B.)

The Wealth Effect causes a decrease in consumption as prices fall.

·        C.)

The exchange rate has no effect on aggregate demand.

·        D.)

AD represents the downward sloping relationship between price level and RGDP.

The economy will be producing along the Long Run Aggregate Supply when ________.

·        A.)

prices will affect output by producers

·        B.)

there is an underutilization of resources

·        C.)

all resources are being used to their optimal level

·        D.)

there is zero unemployment

Which of the following is true for Aggregate Supply In the short run?

·        A.)

Producers will produce less as the price level increases.

·        B.)

The quantity of resources is fixed.

·        C.)

There is a positive relationship between the price level and real GDP.

·        D.)

Prices do not affect Aggregate Supply.

Which statement below is NOT true about the LRAS?

·        A.)

An outward shift in LRAS will occur at the same rate as growth in the economy.

·        B.)

The LRAS will shift outward if resources allow for a higher sustainable output level.

·        C.)

The LRAS represents the maximum output level an economy can sustain given its current resources.

·        D.)

The LRAS remains fixed over time.

Which graph below depicts a situation in which expansionary economic policies might be necessary?

A)   B) C) D)

 

When the economy is operating beyond the LRAS curve, __________.

·        A.)

the labor force has decreased due to increased wages

·        B.)

this economy will experience cyclical unemployment

·        C.)

unemployment can be below the natural rate

·        D.)

the economy will be operating at 0% unemployment

When an economy is producing to the left of the LRAS, __________.

·        A.)

resources are over-utilized

·        B.)

expansionary fiscal policies should be put in place

·        C.)

the LRAS curve will shift to the left to meet the current price level and GDP

·        D.)

contractionary monetary policies should be put in place

 

 

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