Chapter 2 Economics Test!

A dairy farmer's primary source of information about purchasing more cows would be the price of milk. This is because the price of milk directly affects the profitability of the dairy farm. If the price of milk is high, it indicates a strong demand for dairy products, which can be an incentive for the farmer to invest in more cows. Conversely, if the price of milk is low, it may not be financially viable for the farmer to purchase more cows. Therefore, monitoring the price of milk is crucial for a dairy farmer to make informed decisions about expanding their herd.

When the major business in a small town gives all of its workers a raise, it means that the workers will have more disposable income to spend. This increase in income will likely lead to an increase in consumer spending, causing the demand for normal goods in the town to increase. As a result, the demand curves for these goods will shift to the right, indicating a higher quantity demanded at each price level.

When people expect the price of antique furniture to fall in the near future, it is likely that the demand for antique furniture will decrease. This can be explained by the law of demand, which states that as the price of a good decreases, the quantity demanded increases. Therefore, if the price of antique furniture is expected to decrease, people will likely wait to purchase it at a lower price, leading to a decrease in demand. As a result, the demand curve for antique furniture will shift to the left.

During a depression, when many people lose their jobs, their income decreases. As a result, they have less money to spend on goods and services. This leads to a decrease in demand for normal goods. The demand curve for normal goods will shift to the left, indicating a decrease in quantity demanded at each price level.

When a group of retired rich people move to a poor town, their increased wealth and purchasing power will likely lead to an increase in demand for luxury goods such as jewelry. This increase in demand will cause the demand curve for jewelry stores to shift to the right, indicating a higher quantity of jewelry demanded at each price level.

When the price of fresh beans increases, it becomes relatively more expensive compared to fresh corn, which is a substitute good. As a result, consumers are likely to switch to fresh corn as a cheaper alternative, leading to an increase in the demand for fresh corn. This increase in demand will cause the demand curve for fresh corn to shift to the right.

The law of demand describes the effects of price on demand. According to this law, as the price of a product increases, the quantity demanded decreases, and vice versa. This is because consumers tend to buy less of a product when it becomes more expensive, and are more likely to purchase more of it when the price is lower. Therefore, price is a crucial factor in determining the level of demand for a product.

Normal goods are goods that experience an increase in demand as a result of an increase in buyers' incomes. This means that as people's incomes rise, they are willing and able to purchase more of these goods. This is because normal goods are considered to be of higher quality or luxury items that people desire when they have more disposable income. As a result, the demand for normal goods increases with an increase in buyers' incomes.

Oil producers rely on prices as the best source of information about changes in demand for oil. Prices directly reflect the demand and supply dynamics in the market. When the demand for oil increases, prices tend to rise, indicating a higher demand. Conversely, when the demand decreases, prices tend to fall, signaling a lower demand. Oil producers closely monitor price fluctuations to gauge changes in demand and adjust their production levels accordingly. Therefore, prices serve as a reliable indicator for oil producers to understand and respond to shifts in demand for oil.

A fad item typically experiences a shift in demand curve from left to right initially, indicating a sudden increase in demand as it becomes popular. However, as the fad fades away over time, the demand curve shifts back from right to left, indicating a decrease in demand as the item loses its popularity. This pattern of demand shifting right and then left is commonly observed for fad items.

The marginal utility of a product typically decreases as more of the same product is consumed. In this case, the customer's first new car gives him a marginal utility of 25 utils. This suggests that the customer derives a certain level of satisfaction from owning the car. However, the marginal utility of a second identical car is likely to be lower because the customer already has one car and the additional car may not provide the same level of satisfaction. Therefore, the most likely marginal utility for the second identical car would be 15 utils, indicating a decrease in satisfaction compared to the first car.

A "substitute good" refers to a product that can be used as an alternative to another product. In this case, margarine can be considered a substitute good for an expensive brand of butter. Margarine is a cheaper alternative to butter and can be used in similar ways in cooking and baking. Therefore, if someone cannot afford or does not want to purchase the expensive brand of butter, they can opt for margarine as a substitute.

A rise in preference for microwave cookware would likely lead to a drop in the demand for stainless steel skillets. This is because people who prefer microwave cookware may not have a need for stainless steel skillets, as they may not use them for cooking purposes. Therefore, the increased preference for microwave cookware would result in a decrease in demand for stainless steel skillets.

William Stanley Jevons's major contribution to economics was the principle of diminishing marginal utility. This principle states that as an individual consumes more units of a good or service, the additional satisfaction or utility derived from each additional unit decreases. Jevons's work on this concept helped to shape the understanding of consumer behavior and the concept of utility in economics.

A fad item refers to something that becomes extremely popular for a short period of time and then fades away. The flattop haircut, gourmet ice cube, and pet rock have all been considered fad items at some point. However, the peanut butter and jelly sandwich is not a fad item as it has been a popular and timeless food choice for many years, without any sudden rise and fall in popularity.

A demand curve is preferable to a demand schedule because it displays more information. A demand schedule only presents the quantity demanded at different price levels, while a demand curve also shows the relationship between price and quantity demanded graphically. This allows for a better understanding of how changes in price affect demand and provides a visual representation of the demand relationship. By including both price and quantity information, a demand curve provides a more comprehensive view of the demand behavior.

When the price of complementary goods rises, it will cause a decrease in the demand for a normal good. Complementary goods are products that are typically used together, such as hot dogs and hot dog buns. When the price of hot dog buns increases, consumers may be less likely to purchase hot dogs as they would need to spend more money on the buns. This decrease in demand for hot dogs is a result of the increased price of the complementary good, indicating an inverse relationship between the price of complementary goods and the demand for a normal good.

When there is an increase in demand, it means that consumers are willing to buy more of a particular product at each price level. This leads to a shift in the demand curve to the right. This shift indicates that at each price, the quantity demanded is higher than before. In other words, there is a higher demand for the product at all price levels, resulting in the need for a new demand curve that is shifted to the right.

Prices serve several purposes, including transmitting information about the value and scarcity of goods and services, providing incentives for producers to supply more of what is in demand, and redistributing income by determining who can afford certain goods and services. However, increasing utility is not one of the purposes of prices. Utility refers to the satisfaction or benefit that individuals derive from consuming goods and services, and while prices can influence the choices individuals make in order to maximize their utility, the primary purpose of prices is not to directly increase utility.

A decrease in demand means that consumers are buying less of a particular good or service. This leads to a decrease in the quantity demanded at each price level, causing the demand curve to shift down. The downward shift indicates that consumers are willing to buy less of the product at any given price, reflecting a decrease in overall demand for the product.

Increased manufacture of chocolate usually comes first because it is the process of converting cocoa into chocolate. Once the chocolate is manufactured, it can then be distributed and sold, leading to increased orders and purchases of chocolate. However, without the initial step of manufacturing the chocolate, there would be no product to order or purchase. Therefore, increased manufacture of chocolate is the logical first step in the sequence.