Question

1) Select the phrase that correctly completes the following statement. "An increase in input prices caused a decrease in the supply of baseballs. As a result ________."

a. the price of baseballs increased and the demand for baseballs decreased b. the equilibrium quantity of baseballs increased c. the price of baseballs increased and the quantity demanded of baseballs decreased d. the price of baseballs increased. The higher price caused the supply of baseballs to increase

2)In a competitive market, the demand curve shows the ________ received by consumers and the supply curve shows the ________.

a. utility; average cost. b. marginal benefit; marginal cost c. economic surplus; opportunity cost d. net benefit; net cost

3)Suppose a drought increased the price of corn by 25 percent while it decreased the quantity by 50 percent. The price elasticity of demand equals

a. 20.0 b. 2.0 c. 0.5 d. Zero

4)An outward shift of a nation's production possibilities frontier represents

a. economic growth. b. rising prices of the two goods on the production possibilities frontier model. c. an impossible situation. d. a situation in which a country produces more of one good and less of another.

5)If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of

a. moral hazard. b. the principal-agent problem. c. asymmetric information. d. adverse selection.

Answer 1

Question 1

Option C is correct - The price of baseball increased and the quantity demanded of baseballs decreased.

There is an increase in the input prices of of baseball and it decreased the quantity supplied as now it has become expensive to produce more baseballs. This will increase the price of baseball (due to decrease in the supply of baseballs). The price increase will lead to decrease in the quantity demanded of baseballs (due to law of demand which says that quantity demanded and price have an inverse relationship).

Question 2

Option B is correct - marginal benefit ; marginal cost

In competitive market, the demand curve is the marginal benefit because demand curve shows the willingness to pay for a good by a consumer and the and the marginal benefit is the additional benefit received from an additional unit of output consumed. As the quantity consumed increases for a good its demand decreases same is true for marginal benefit. Also, the supply curve is the marginal cost curve. The supply curve represents the quantity supplied by the producer and the marginal cost is the additional cost incurred for an extra unit of output produced. Thus marginal cost curve represents the quantity sold by the producer based on the extra cost incurred for each additional production level.

Question 3

Option B is correct - 2.0

Price elasticity of demand = Percentage change in quantity demanded / percentage change in prices

= 50 / 25

= 2

Question 4

Option A is correct - Economic growth

An outward shift of an nation's production possibilities frontier represents an increase in the productivity of resources, still keeping resources at same level. This increase in productivity will increase the production level and thus represent economic growth.