EXPLAIN YOUR CHOICE OF TRUE OR FALSE AND OBTAINED YOUR EXPLANATION

1. The production possibilities model can be used to demonstrate the concept of opportunity cost.

2. Production possibility curves are upward sloping because increased production of one good implies reduced production of other goods.

3. An economy that operates inside of its production possibility curve is less efficient than it would be if it were operating on its production possibility curve.

4. If the principle of increasing marginal opportunity cost holds, then the opportunity cost of producing each additional unit of a good should fall as production of that good rises.

5. Two nations with differing comparative advantages will be able to consume more if they specialize and trade with one another than if they did not specialize or trade with one another.

6. The law of one price means that prices will eventually be the same in all countries and eventually countries will not have a reason to trade.

7. Productive efficiency is not achieved at any point inside the production possibility curve.

8. If cigar prices tripled while sales of cigars rose 30%, this would likely be due to a shift in demand.

9. According to the law of demand, only the price of a good influences the amount people will choose to purchase.

10. A demand curve is downward sloping because as the price of a good falls, demanders will substitute some other good for that good whose price has fallen.

11. A change in the price of carrots will cause a movement along the demand for carrots curve and a shift in the demand for substitute vegetables.

12. The law of supply states that more of a good will be supplied the lower its price, other things constant.

13. Suppliers will supply more of a good when the price of that good rises because the opportunity cost of not producing that good has risen.

14. An increase in the number of firms causes the price firms are able to charge to fall, which results in a movement along the market supply curve.

15. An improvement in the technology for producing a good will shift the supply curve for that good to the left.

16. When quantity demanded is greater than quantity supplied, the resulting shortage causes the price to fall.

17. Price elasticity of demand is the percentage change in price divided by the percentage change in quantity demanded.

18. If the price of a good goes up by 20 percent and the quantity demanded falls by 40 percent, the price elasticity of demand is 2.

19. If the price of corn goes up by $1 a bushel and the quantity supplied rises by 100 bushels, the price elasticity of supply has to be 100.

20. Refer to the graph below.

Since the supply curve intersects the horizontal axis, all of the points along the supply curve shown are inelastic.

21. Most likely, the elasticity of demand for transportation is greater than the elasticity of demand for cars.

22. Revenue remains unchanged along a straight-line demand curve.

23. Refer to the graph below.

If price is currently at B and rises, total revenue will rise.

24. The cross-price elasticity of demand is the percentage change in price divided by the percentage change in price of another good.

25. If demand is highly inelastic and supply shifts to the right, then the equilibrium price will rise significantly while quantity will remain virtually constant.

26. An excise tax on alcohol causes the supply of alcohol to decrease and the price of alcohol to decrease.

27. If the demand for insulin is highly inelastic, then the burden of a tax on insulin will be borne almost entirely by sellers.

28. If government's goal is to alter people's behavior through taxation, then taxing goods with relatively elastic demand and supply would be most effective.

29. A price ceiling is in essence an implicit tax on producers and an implicit subsidy to consumers.

30. Unlike excise taxes, price ceilings create no deadweight loss.

31. Price ceilings create shortages, but taxes do not.

32. The military draft is an implicit tax on potential recruits and subsidy to those who demand defense services.

33. The principle of diminishing marginal utility says that people don't enjoy consuming more of a good.

34. If marginal utility is declining but still positive, total utility is increasing.

35. According to the principle of rational choice, a consumer should spend money on those goods that give the most marginal utility per dollar.

36. When the ratios of the marginal utility to the price of goods are equal, you're maximizing utility.

37. John is maximizing utility when consuming two goods, French fries and hot dogs. If the marginal utility from the last box of fries John consumed is 60 and the marginal utility of the last hot dog John consumed is 120, and hot dogs cost $1.00 apiece, a box of fries must cost 50 cents.

38. Mary is maximizing utility by eating three pancakes and two eggs. The principle of rational choice says that if there is diminishing marginal utility and the price of eggs rises, Mary will choose to eat more pancakes and fewer eggs.

39. If there is diminishing marginal utility, and the price of labor goes up, you supply more labor.

40. Focal point equilibria definitely violate the principle of rational choice.

41. A monopolistically competitive industry has many firms that sell differentiated products.

42. Significant barriers to entry exist in a monopolistically competitive industry.

43. A monopolistically competitive firm faces a downward-sloping demand curve.

44. The oligopoly model is the only model that explicitly considers how the pricing and output decisions of one firm affect other firms.

45. The cartel model of oligopoly assumes that firms jointly behave as a monopolist in order to maximize joint profits.

46. Implicit collusion occurs when oligopolistic firms negotiate a common price.

47. According to the contestable market model, if there are no barriers to entry or exit, the price an oligopolist sets will provide no economic profits in the long run

48. The higher is an industry's concentration ratio, the more competitive is the industry.

49. The Herfindahl index is calculated by adding the squared value of the market shares of all the firms in the industry.

50. According to the contestable market model, the higher an industry's concentration ratio, the more profitable the industry.