Question 1

Economists assume that rationality is a typical or normal human behavior in decision making. To achieve an optimal result, the rational decision maker is predicted to choose additional units of a scarce item until:

Accepted Answer

Maximization of the total net value from hiring scarce resources within a limited budget requires additional output use until marginal cost = marginal benefit.

Question 2

When a market or a policy achieves a ""Pareto-Optimum"", then

Accepted Answer

When the economy achieves a Pareto Optimum, then all mutually beneficial trades have been exhausted, and no additional activity can make anyone better off without making others worse-off.

Question 3

Assume that suppliers of soybeans experience a change in natural production conditions. The natural growing conditions change from "normal" to "below normal". Which of the following is the best prediction of the impact of this change in production conditions in the soybean market?

Accepted Answer

A change in production conditions is a supply-side movement in the market. When production conditions deteriorate, then we predict a ""decrease in supply"" as the result.

Question 4

The claim that human beings are constantly faced with the necessity to "make choices," and the idea that every choice is accompanied by an opportunity cost, are emphasized in economics because

Accepted Answer

Resource scarcity in the economy necessitates choices and creates opportunity costs.

Question 5

Suppose the Czech Republic and Slovakia can produce either wheat or cotton on an acre of land. If the Czech Republic (CR) produces 1.0 bale of cotton, the CR gives-up 1.33 bushels of wheat. If Slovakia (SK) produces 1.0 bale of cotton, SK gives-up 2.00 bushels of wheat. Which nation has a comparative advantage in cotton output, and which nation has comparative in wheat output?

Accepted Answer

Comparative advantage is determined by lower opportunity cost. In this question, CR has a lower opportunity cost thant SK in cotton production, while SK has a lower opportunity cost in wheat production.

Question 6

Idenrtify the key measurement in economics that is most closely associated with this managerial question? "What is the extra $cost of producing one more unit of output?

Accepted Answer

In economics, Marginal Cost is a key measurement where we determine the extra cost of an additional output uinit.

Question 7

Consider electricity and natural gas as alternative and substitute energy sources. In this scenario, we predict the cross-price elasticity of demand coefficieint for these two power sources to be negative (Ex<0)

Accepted Answer

True consumer substitute products have a positive cross-price elasticity coefficient. Assume that A and B are subsitutes; then an increase in the price of a product A causes an increase in the demand for its subsitute (Product B)

Question 8

The reaction to a price change along a product's demand curve is known to be elastic (Ep > 1) , Assume that that the $price increases for this product with an elastic demand. Under these conditions, total revenues ($P x Qd) received by a firm will decrease.

Accepted Answer

When a Price-Elastic demand occurs, then the proportional decrease in quantity demanded is larger than the proportional increase in price.

Question 9

Suppose a market experiences an "Increase in Supply", while the Demand Curve remains constant. Predict the correct changes in the equilibrium price and equilibrium quantity that are produced by the "increase in supply":

Accepted Answer

Ceteris paribus, an increase in supply causes an increase in equilibirum quantity and a decrease in equilibirum price.

Question 10

As defined in the model of supply and demand, the corn market temporarily experiences a shortage. Then the market begins adjusting itself, and moves towards the equilibrium price for corn. As the corn price increases, we predict that:

Accepted Answer

When an auction occurs to clear a shortage from the market, the rising price simultaneeously causes buyers to purchase less units and sellers to sell more units.

Question 11

Which of the following is the best and most accurate definition of the Law of Demand?

Accepted Answer

Law of Demnand: Ceteris paribus, consumers rationally purchase less units of the same product, in response to an increased price.

Question 12

A market is analyzed in economics as a situation where

Accepted Answer

Buyers and sellers are each self-interested and rational decision-makers who enter markets to conduct mutually-acceptable transactions.

Question 13

Which of the following statements best describe what the law of increasing opportunity costs means?

Accepted Answer

When not all resources are equally well adapted to the production of all uses, then there will eventually be a rising marginal cost of producing more units of the same product, as the economy initially transitions from the hiring of the most-well-adapted resources to the least-well-adapted resources.

Question 14

In economics, a resource is identified as a scarce resource, if the supply of the resource is unlimited in comparison to the relatively limited human demands for that resource.

Accepted Answer

A resources is identified as scarce, if the supply of the resource is limited in comparison to the relatively un limited human demands for that resource.

Question 15

A Pareto-Better choice occurs when at least one person is made better-off, without making others worse-off.

Accepted Answer

Pareto-better choices will cause at least one person to be better-off without making others worse-off.

Quiz 3: A Policy Analysis Toolbox: Methods to Investigate Agricultural and Food Market Scenarios