ECO111 DE 3

The phenomenon of scarcity stems from the fact that

• most economies’ production methods are not very good.
• in most economies, wealthy people consume disproportionate quantities of goods and services.
• governments restrict production of too many goods and services.
• resources are limited.

Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that

• trade can make everyone better off.
• people face trade-offs
• rational people think at the margin.
• people respond to incentives.

Economists build economic models by

• generating data.
• conducting controlled experiments in a lab.
• making assumptions.
• reviewing statistical forecasts.

Economists use models in order to

• learn how the economy works.
• make their profession appear more precise.
• make economics difficult for students.
• make sure that all of the details of the economy are included in their analysis.

Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?

• a landowner leases land to a farmer
• a farmer hires a teenager to help with harvest
• a retired farmer sells his combine to a new farmer
• a woman buys corn for dinner

Which of these statements best represents the law of demand?

• When buyers’ tastes for a good increase, they purchase more of the good.
• When income levels increase, buyers purchase more of most goods.
• When the price of a good decreases, buyers purchase more of the good.
• When buyers’ demands for a good increase, the price of the good increases.

In a market economy, supply and demand determine

• both the quantity of each good produced and the price at which it is sold.
• the quantity of each good produced, but not the price at which it is sold.
• the price at which each good is sold, but not the quantity of each good produced.
• neither the quantity of each good produced nor the price at which it is sold.

Which of the following would not shift the demand curve for mp3 players?

• a decrease in the price of mp3 players
• a trend that makes mp3 players more popular among 12-25 year olds
• an increase in the price of CDs, a complement for mp3 players
• a decrease in the price of satellite radio, a substitute for mp3 players

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

• 0
• 1
• 6
• 36

Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand when price rises from $9 to $12?

• 0.43
• 0.67
• 1.5
• 2.33