How Markets Work 1.4

• In the circular flow diagram, what do households receive from factor markets?

  - Income
• In what form do households receive income from labor within a resource market?

  - Wages
• As the price of a good or service increases, consumers will purchase a lower quantity of that good or service due, in part, to the fact that consumers cannot afford the same quantity of a good or service at a higher price. This concept is known as the _____

  - Income effect
• An increase or decrease in which of the following factors would cause a shift in the demand curve for a given good? Select the two correct answers.

  - Income

  
  

  - Price of related goods
• In a hypothetical country, the population is expected to increase by 25% following recent legislation relaxing the barriers that restrict immigration. It is expected that the new immigrants will purchase the same goods or services as the current population does. If all other economic forces are held constant, how would this increase in population influence demand?


  - Shift the demand curves for all goods and services to the right
• Which of the following satisfies the law of supply? Select the two correct answers.

  - A decrease in price is followed by a decrease in quantity supplied

  
  

  - An increase in price is followed by an increase in quantity supplied
• What is the marginal cost of increasing production from 5,000 units to 6,000 units?

  - $0.10
• Calculate the marginal product of labor associated with hiring a third worker.

  - 4,000
• A government official proposes taxing producers of plastic grocery bags at 10 cents per plastic bag. What effect would the tax have on the market for grocery bags?

  - Supply would decrease
• Baseball cards are considered to be a normal good. This means that, as incomes rise, consumers are willing and able to purchase greater quantities of baseball cards. How would an increase in incomes be modeled in a graph of the supply and demand curves for baseball cards?


  - The equilibrium point would move upward along the supply curve
• Movie tickets and popcorn are complementary goods. The price of corn, a good used in the production of popcorn, has fallen in price. Simultaneously, the rise of at-home streaming services have led movie theatres to decrease the amount of movies they offer. What is the result of these two events on the market for movie tickets?

  - The market equilibrium price of move tickets will definitely rise
• A set of collectible dolls was very popular during the holiday season, but, as is the case with many toy fads, has dropped off significantly in the following months. A surplus of dolls now lines the shelves of retailers across the country. In the absence of government intervention, what is likely to occur?

  - The low price brought about by a decrease in demand will incentivize producers to decrease the quantity of dolls supplied to the market
• Which of the following is generally true of a competitive free market economy?

  - It can run itself without the intervention of government
• Match the definition with the type of market structure.

  - Oligopoly: A market with significant barriers to entry and a small number of price-setting firms

  
  

  - Monopoly: A market with significant barriers to entry and a single price-setting firm

  
  

  - Perfect competition: A market with no barriers to entry and a large number of price-taking firms

  
  

  - Monopolistic competition: A market with no barriers to entry and a large number of price-setting firms
• How did the growth of aviation and public transportation impact economic activity differently?

  - The growth of aviation meant both goods and people could travel more easily, while the growth of public transportation only allowed people to move more easily
• How did the introduction of the smartphone change the landscape for communication and commerce?

  - It allowed businesses to exist without a physical location
• Due to the implementation of communism, did the Soviet Union see an increase or a decrease in the quality of products produced? Why?

  - Decrease, due to the lack of labor incentives to progress and improve