ECON Exam 2

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A price _ is the maximum legal price a seller can charge for a good


The price of _ goods is a determinant of demand

Prices are too low for firms

Prices are too high for consumers

A government intervenes and prevents prices from rising above or falling below equilibrium levels when _


A leftward shift

__ in supply while holding demand constant results in an increase in equilibrium price, but a decrease in equilibrium quantity.


The vast majority of goods that are not related to one another are called _ goods


The law of demand describes a relationship between the price of a good or service and the quantity demanded of that good or service


The added cost of producing one more unit of output is called _ cost


A _ good is one that is used together with another good.

Prices of related goods

Changes in income

Consumer tastes

Number of buyers

Consumer Expectations

Which of the following are determinants of demand?

Inverse relationship between price and quantity demanded for a product

A demand curve shows the plotted:

If costs of production rise, the producer has an incentive to produce _ output.

Taxes and subsidies

Producer expectations

Prices of other goods

Which of the following are determinants of supply?

Rises; falls

The law of supply states that as price _, the quantity supplied (Q5) rises; as price _, the quantity supplied falls.


A price _ is a minimum price fixed by the government, generally imposed above the price, which is otherwise known as the equilibrium price.

A market is a virtual and/or physical institution or space.

A market can be local, national, or international.

From an economic perspective, which of the following are true of a market?

A perfect competition, an economy’s most highly competitive market.

Which of the following consists of a large number of independently acting buyers or sellers?


A shortage results from an excess of quantity _


In general, a firm will _ the output of a good or service if the price of the good is higher


Consumers experience _ marginal utility the more they consumer of a particular good or service.


Taxes and subsidies

Resource prices

Which of the following are the determinants of supply?


A surplus is also known as an excess of _


For most, but not all products, a rise in _ causes an increase in demand.

Lower; more

The income effect indicates that a _ price increases the purchasing power of income, enabling consumers to purchase _ of a product and vice versa.

Decrease; increase

An increasing in business taxes causes a _ in supply and will _ production costs.

The number of buyers is a determinant of market _.

An increase in the number of shoe stores at the local mall

An increase or decrease in wages

An increase in the excise tax on cigarettes

Which of the following would result in a change in supply?

Price of substitues in production

All of the following are the determinants of demand, except:

Determinants; price

The _ of supply of a good are any factors other than the product’s _ that cause the supply curve of the good to shift.


An increase in _ while holding demand constant results in a decrease in equilibrium price, but an increase in equilibrium quantity.


A decrease in demand while holding supply constant results in _ in both equilibrium price and quantity.

The buyer side of any market

Which of the following specifically refers to demand?


Producer expectations of future pricers are a determinant of _


The production of a good or service in the least costly way is known as a _ efficiency.


The prices of substitute goods that are used in production is a determinant of _

Pepsi and Coca-Cola

Which of the following are substitutes?


Products that have decreased demand when consumer incomes ride and increased demand when consumer incomes fall are called _ goods


The interaction between buyers and sellers determines equilibrium price and equilibrium _

When the price of lettuce increases, the demand for salad dressing decreases

When the price of tuition decreases, the demand for textbooks increases

Which of the following illustrates the relationship between a good and its complement?


The number of sellers or competitors in a market is a determinant or shifter of the _ curve


The price of _ used in the production process help determine the costs of production incurred by firms.


One of the determinants of demand is _ expectations

Price and quantity suplied

The supply curve illustrates the relationship between:


When the government provides financial assistance for the production of a good which lowers producers’ costs and increases supply, it is called a

Inverse relationship

When two variables are being examined, and one variable moves one way and the other variable moves in the opposite direction, this is called a


Equilibrium price is otherwise known as market- price.

Distortions in resource allocation

Negative side effects



Government-set prices cause:

Increased subsidies to farmers for producing more corn

Which of the following does not exemplify an improvement in technology affecting supply?


Market _ is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each possible price during a specific period

Allocative efficiency

Which of the following refers to a particular apportionment or mix of goods and services most highly valued by society?


An increase in demand while holding supply constant results in a _ in both equilibrium price and quantity.

Shift of; movement along

A _ the demand curve represents a change in demand while a _ the demand curve represents a change in the quantity demanded.


When a factor other than price affects consumption of a good or service, the demand curve can shift _ or _.

decrease; left

An unfavorable change in consumer tastes and preferences for a product will _ demand, illustrated as a shift of the demand curve to the _.

Supplied; price

The supply curve measures quantity _ on the horizontal axis and _ on the vertical axis.

Price decreases = quantity demanded increases

Price increases = quantity demanded decreases

Which of the following statements describe the law of demand?

higher; reduce

_ resource prices raise production costs and, assuming a fixed product price, _ profits.

A leftward shift and decrease

_ in supply while holding demand constant results in an increase in equilibrium price, but a decrease in equilibrium quantity.

A buyer’s intentions or plans in regard to the purchase of a product is known as:

Horizontal (x)

Vertical (y)

Quantity demanded is illustrated on the _ axis, while price is illustrated on the _ axis.

Marginal-cost curve

The supply curve for any good, private or public is:


A private good that displays _ characteristics means that when someones buys and consumes that good, it is not available for someone to buy or consume

Rivalry; excludability

Characteristics of a pure private good include:

Only the direct, private benefits to those who demanded and use the product

The market demand curve for positive externalities reflects:


When there is no effective way of keeping individuals from the benefit of a good once it comes into existence, the characteristic of the good becomes distinguished by

Spillover cost; negative externality

If a third party to a market transaction is experiencing an uncompensated cost, then the transaction results in a market failure known as a _____________ or _____________.



Market failures in competitive markets can be classified into _side and _side

Subsidies to buyers

Government provision of public goods

Subsidies to producers

Which of the following are the three options available to government to correct spillover benefits or the under allocation of resources?

Spillover benefit

A positive externality is an uncompensated


Consumer surplus is the difference between the _ price a consumer is willing to pay for a product and the price is paid

A cost-benefit analysis

A comparison of marginal changes is known as:


A _ is a cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction


A _ causes some of the benefits or costs of a market transaction to be passed on to a third party

Public good

If a good is nonrival and nonexcludable, then it is known as a:


A private good is _ when a seller can prevent people who did not pay for a product from obtaining its benefits.

Producer surplus

The difference between the actual price a seller receives and the minimum acceptable price


_ in consumption means that one person’s consumption of a of a good does not preclude consumption of the good by others


Cost-benefit analysis can help the _ decide on the extent to which a public project should be pursued.

Quasi-public goods

Fire protection, police protection, libraries, and sewage disposal are all examples of

Market based

Cap-and -trade is what kind of program

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