BUSINESS ECONOMICS: Points to read: Chapter 1 Which of the four types of economic decision makers is most important? : households, because they demand goods and services and supply resources Which of the four types of decision makers in the U.S. economy plays the largest role? : U.S. households, as buyers in product markets and sellers in resource markets Which of the following would not shift the demand curve for pork? : an increase in the price of pork Which of the following is true of units of utility? : They cannot be compared across consumers. Which of the following is the best example of substitutes? : hiking boots & sneakers Which of the following is one of the chief reasons for the increased number of married women in the U.S. work force? : The opportunity cost of household work has increased. Which of the following is most likely to be an inferior good?used clothing Which of the following is most likely to be a normal good? : tickets to a major league baseball game Which of the following is an example of human capital? : college education Which of the following is a normative statement? : Congress must recognize that the growing national debt is the most serious problem that the country faces. Which of the following is a major advantage of the sole proprietorship? : ease of start-up Which of the following are the four categories of resources? : labor, entrepreneurial ability, capital, and natural resources Whether we look at marginal tax rates or average tax rates, the U.S. incometax is : progressive When quantity demanded of a good is less than the quantity supplied at the prevailing market price, : The price of the good tends to fall When economists refer to capital, they might mean : human skills used in production Utility : satisfaction Utility is : the sense of pleasure or satisfaction derived from consuming goods and services Utility is : hard to measure because it is a subjective concept The term "fiscal policy" refers to : spending and taxing by governments The statement "Households maximize utility" means that households : are assumed to do what they think will increase their satisfaction The opportunity cost of a particular activity : varies from person to person The most important characteristic of the equilibrium price is that it : Clears the market leaving neither a surplus or shortage The mixed economy is the dominant economic system in the world because : there is private ownership of property but government regulation of individuals reduces some of the flaws of pure capitalism The main source of revenue for the U.S. federal government is : personal income taxes The law of demand says that the lower the price of a good, other things constant, : the larger the quantity demanded of that good The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product. : TRUE The difference between the maximum amount a person is willing to pay for a given quantity of a good and the amount actually paid for that quantity is called : consumer surplus The cross-price elasticity of demand between milk and soft drinks is likely to be : Positive, because the items are substitutes Suppose you drink more tea because the price of coffee has increased. Which of the following best explains your action? : The substitution effect Sunk costs : should not be considered when making economic decisions Someone who committed the association-is-causation fallacy might conclude that : event B, which follows event A, was caused by the event A Someone who commits the fallacy of composition is likely to assume that : what is true for the individual is also true for the group Society's production possibilities frontier : is based on simplifying assumptions, but is still useful for illustrating scarcity, opportunity cost, and economic growth Scarcity is best defined as : insufficient resources to satisfy unlimited wants Price elasticity of demand is defined as : the percentage change in quantity demanded divided by the percentage change in price Opportunity cost is defined : as the value of the best alternative not chosen Opportunity cost exists because : resources are scarce but wants are unlimited Movements along a demand curve are called changes in : quantity demanded Marginal utility is a measure : of the total utility gained from consuming an extra unit of a good John takes 10 minutes to iron a shirt and 20 minutes to type a paper. Harry takes 10 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct? : Harry has a comparative advantage in ironing. If we say that demand has increased, we mean that there has been : rightward shift of the demand curve If the government imposes a ceiling price on apartment rents, whatwouldn'thappen? : an increase in the number of new apartment complexes being built If all resources are used efficiently to produce goods and services, a nation will find itself producing : somewhere on its production possibilities frontier If a good is offered to you free of charge, then you : stop consuming it when its marginal utility equals 0 If a firm facing a perfectly elastic demand curve raises its price, : its sales will decrease to zero Households act as demanders when they demand : goods and services from firms and the government For which of the following is demand most likely to be perfectly inelastic? : Insulin (a medical necessity versus an optional product) Firms are organized in one of three ways : : As a sole proprietorship, as a partnership, as a corporation Elasticity measures : the responsiveness of decision makers to changes in prices, income, or other variables Economics is best defined as the study of how : individuals decide to use scarce resources in an attempt to satisfy their unlimited wants Cross-price elasticity of demand is used to determine whether : two products are substitutes or complements Assuming the price of bananas is zero, Mike will eat bananas until : : His marginal utility of the last banana consumed is 0 As the baby boom ended, fewer families had young children and, as a consequence, the : demand curve for preschool services shifted inward An increase in the price of butter, a substitute good, would be most likely to cause : a rightward shift of the demand curve for margarine A price floor set below the equilibrium price will result in a surplus. : FALSE A price ceiling set below the equilibrium price will result in a shortage. : TRUE A point outside the production possibilities frontier : cannot be reached using the available technology A perfectly inelastic demand curve is : a vertical straight line A perfectly elastic demand curve is : a horizontal straight line A measure of consumer surplus in any market is : the area beneath the demand curve and above the price "More elastic" means : more responsive