Midterm review

The Scarcity Principle states that

• people don't have enough money to buy what they want.

• society will eventually run out of resources.

• with limited resources, having more of one thing means having less of another.

• some countries have fewer resources than others.

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us ______.

• that choices must be made; how to make good choices

• that good choices eliminate scarcity; how to make good choices

• how to make choices; that choices must be made

• how to make good choices; that choices involve costs and benefits

The marginal cost of an activity is the

• total cost of the activity divided by the change in the level of the activity.

• total cost of the activity divided by the level of the activity.

• change in the level of the activity divided by the change in the cost of the activity.

• change in the total cost of the activity that results from carrying out an additional unit of the activity.

If a country’s economic decisions are made by an individual or small number of individuals, then it has a

• centralized economy.

• free-market economy.

• capitalist economy.

• open economy.

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case

• excess demand will lead the price of oranges to rise.

• excess supply will lead the price of oranges to fall.

• excess demand will lead the price of oranges to fall.

• excess supply will lead the price of oranges to rise.

A demand curve is ______ sloping because ______.

• downward; of increasing opportunity costs

• upward; people prefer to purchase high-quality consumer goods

• downward; reservation prices tend to fall over time

• downward; fewer people are willing to buy an item at higher prices

The price elasticity of demand for a good measures the responsiveness of

• demand to a 1 percent change in price of that good.

• price to a 1 percent change in the demand for that good.

• quantity demanded to a 1 percent change in price of that good.

• price to a 1 percent change in the quantity demanded of that good.

If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand?

• 30

• 3

• 1/3

• 1/6

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is

• Q × P × (1/slope).

• (P/Q) × (slope).

• (Q/P) × (1/slope).

• (P/Q) × (1/slope).

Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ______ and PepsiCo's ability to raise revenues through price increases ______.

• increased; was reduced

• increased; increased

• decreased; was reduced

• had no effect; was reduced