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Econ Chapter 4-6 Study Guide Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. For most products and services, increased price results in ____ 2. An increase in the price of milk causes a decrease in the demand for cereal. The two products are ____ 3. Because a modest price increase has little or no effect, the demand for the product is ____ 4. Consumers' willingness to replace a costly item with a less costly item is an example of ____ 5. An increase in the price of cameras results in a decrease in the demand for film. The two products are ____ 6. When a customer's need for a product is not urgent, demand tends to be ____ 7. Total cost is the sum of the ____ 8. When producers offer fewer products for sale at each and every price, ____ 9. Rent payments and property taxes would be counted as ____ 10. Many businesses are engaging in e-commerce because ____ 11. Profits will be maximized when marginal revenue ____ 12. Which of the following is NOT a reason why prices effectively perform the allocation function? ____ 13. In a market economy, a high price is a signal for ____ 14. At a given price, a surplus occurs when ____ 15. The federal minimum wage law demonstrates ____ 16. When economic or political conditions are unstable, ____ 17. Prices enable a market economy to adjust to unexpected events by ____ 18. All of the following are characteristics of allocation by rationing EXCEPT ____ 19. If a competitive market is at equilibrium, and if there is a sudden increase in demand, then a temporary ____ 20. The theory of competitive pricing ____ 21. Deficiency payments are part of a federal program to assist Completion Complete each sentence or statement. 22. The income effect and ____________________ effect can cause a change in the quantity demanded. 23. A successful advertising campaign can cause a change in ____________________ which in turn causes a shift in the demand curve. 24. When demand decreases, the demand curve shifts to the ____________________. 25. Computers and software are examples of ____________________ goods. 26. The ____________________ demand curve is the sum of all individual demand curves. 27. When a consumer's need for a product is urgent and cannot be put off, demand for the product is usually ____________________. 28. The ____________________ test can be used to estimate demand elasticity. 29. Demand ____________________ relates changes in the quantity demanded to changes in price. 30. When a purchase requires a large portion of income, demand for the product is usually ____________________. 31. Demand is unit elastic if a change in price causes a ____________________ change in quantity demanded. 32. Because of the ____________________, you'll feel wealthier if the price of entertainment drops. 33. Liters of soda are ____________________ because a small change in price causes a large change in the quantity demanded. 34. The study of how prices are determined and how individual economic decisions are made is ____________________. 35. The ____________________ states that the quantity demanded for a good or service varies inversely with its price. 36. After you've had a certain amount of your favorite food, your enjoyment lessens. This is an example of ______________________________. 37. Hot dogs and buns are ____________________ because they are used together. 38. The ____________________ shifts to the left if demand for a product decreases. 39. Beef and pork are ____________________ because they can be used in place of each other. 40. The demand for prescription medicine is generally ____________________ because people must have it, and they will purchase it in the same amount whether the price goes up or down. 41. You create ____________________ for a product when you wish to purchase it and have the money to do so. 42. The ____________________ is a period of production in which producers can adjust the quantities of their resources, including capital. 43. The Law of Variable Proportions states that in the ____________________, output will change as one input is varied while the others are held constant. 44. The three stages of production are: increasing returns, ____________________ returns, and negative returns. 45. A production function describes the relationship between changes in output to different amounts of a single input while other inputs are held ____________________. 46. The theory of production deals with the relationship between _________________________ and the output of goods and services. 47. ____________________ serve as signals to both producers and consumers. 48. Prices have the advantages of neutrality, ____________________, efficiency, and clarity. 49. ____________________ prices are signals for businesses to produce more and for consumers to buy less. 50. Problems with ____________________ include fairness, high administrative costs, and diminished incentives to work and produce. 51. A change in price affects the allocation of resources between ____________________. 52. Some economists argue that the ____________________ actually increases the number of people who do not have jobs. 53. Target prices, or ____________________, can create surpluses of agricultural crops. 54. A price ____________________ is the maximum legal price that can be charged for a product. 55. In the 1930s the U.S. government sought to solve the problem of agricultural surpluses by giving farmers a ____________________ to cover the difference between the market price and target price. 56. Governments interfere in the market economy to help achieve the social goals of ____________________ and security. 57. During times of emergency, the government may establish ____________________ in order to ensure the fair distribution of certain products. 58. A shortage or surplus signals producers to adjust their output until the _________________________ is reached, the point at which the quantity supplied equals the quantity demanded. 59. The ____________________, or monetary value of an item, is determined by supply and demand. 60. To ensure the economic stability of the nation's farms, the Commodity Credit Corporation will sometimes establish a ____________________. 61. Sometimes governments impose a ____________________ to artificially control how high prices will go. 62. When producers are left with a ____________________ of products, they may reduce prices. 63. A ____________________ makes up the difference between the actual market price and the target price. 64. Producers do not like to see a ____________________ in the market because that means they could have sold more product if they had supplied more. 65. The minimum wage is the ____________________ for wages in the United States. 66. To stimulate sales, a manufacturer may offer a temporary price reduction by providing a ____________________. Matching ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. demand marginal utility demand schedule elasticity substitutes elastic microeconomics unit elastic change in quantity demanded substitution effect ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. demand curve change in demand Law of Demand complements market demand curve demand elasticity microeconomics inelastic diminishing marginal utility income effect ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. supply fixed cost supply curve variable cost total revenue quantity supplied raw materials break-even point subsidy long run ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. Law of Supply short run overhead market supply curve Law of Variable Proportions change in supply total cost supply elasticity marginal cost total product ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. price price ceiling ration coupon target price economic model deficiency payment market equilibrium shortage surplus equilibrium price Short Answer 117. Synthesizing Information Explain how changes in consumer tastes and consumer incomes affect demand. 118. Analyzing Information What are three reasons that consumer demand changes? 119. Analyzing Information What are three determinants of demand elasticity? Give an example of each. 120. Making Predictions A farmer purchases a new type of seed corn that will reduce her need for pesticides by two-thirds. The new seed is only slightly more expensive than the type she has planted in the past. What effect might this new technology have on her production? Explain. 121. Analyzing Information Jon opens a video rental store. What factors should he consider in making his decision on what hours to operate each day? What hours would you recommend? Why? 122. Making Predictions The producer of a popular computer game believes that a chief competitor will introduce a new, more appealing game within the next six months. What is likely to happen to the price and popularity of the game? What might be an effective immediate response to this expectation? Essay 123. Understanding Cause and Effect Explain how an understanding of elasticity can help business owners determine the most profitable prices to set for their products. 124. Synthesizing Information Explain the income effect and how it is related to the Law of Demand. 125. Determining Cause and Effect What are two examples of how the government has set prices? Describe the results of each.