EC 2201 MidTerm Practice Exam

Refer to the accompanying table. Kate's opportunity cost of making a pie is

3/4 of a cake.

If two products are substitutes, then the

cross-price elasticity of demand between them will be positive.

As the price of flour (an input in the production of cookies) increases, firms that produce cookies will

decrease the supply of cookies.

All else equal, the price elasticity of demand for a good tends to be lower

if the good has few close substitutes.

Refer to the accompanying figure. At a price of $2, there will be

an excess demand of 6.67 units.

Refer to the accompanying figure. At a price of $7, there will be

an excess supply of 1.67 units.

For two goods, coffee and scones, suppose that MUcoffee / Pcoffee = 4 and MUscones / Pscones = 3. To maximize your total utility from these two goods, you should purchase

more coffee and fewer scones.

On a given linear demand curve, as price increases demand becomes

more elastic.

One thing that distinguishes normative economic principles from positive economic principles is that

normative principles tell us how people should behave, and positive principles tell us how people will behave.

One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that

positive economic profit is only possible in the short run.

Joaquin's marginal utility from an additional slice of pumpkin pie is 4 utils and his marginal utility from an additional slice of pecan pie is 6 utils. If a slice of pumpkin pie costs $2.50, and a slice of pecan pie costs $3, then Joaquin

should reallocate his spending towards pecan pie and away from pumpkin pie.

When a U.S. firm engages in outsourcing, it benefits _______1.________ and harms _______2.________ .

the U.S. consumers of the firm's products; the firm's U.S. employees

When a U.S. firm engages in outsourcing, it benefits ________1.________ and harms _______2._________ .

the U.S. consumers of the firm's products; the firm's U.S. employees

Professor Plum, who earns $100,000 per year, read in the paper today that the university pays its basketball coach $1 million per year in exchange for his agreement to remain at the university for at least three more years. The coach earns more than Professor Plum because

the coach is able to earn economic rent due to his unique talents.

Refer to the accompanying figure. Suppose the solid line shows the current demand for coffee. In response to news that next year's coffee harvest will be extremely good due to favorable weather conditions, you should expect

the demand curve to shift to D(A) in anticipation of lower future prices.

After the price of Revlon nail polish increased, Jen stopped buying Revlon nail polish and started buying a cheaper brand of nail polish instead. This is called

the substitution effect of a price change.

A price ceiling that is set above the equilibrium price

will have no effect on the market.

An example of an implicit cost is

the value of a spare bedroom turned into a home office.

The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

unattainable.

Refer to the accompanying figure. The marginal utility of the 7th pizza is

−5.

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. What is the marginal cost of production between 80 and 120 units of output each day?

$1.75

space is $50 per day. What is the marginal cost of production between 80 and 120 units of output each day?

$1.75

Refer to the accompanying figure. If a price ceiling were imposed at $4, consumer surplus would be

$20.

The accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed in the table are available for purchase. The marginal cost of upgrading from a 2.5GHz to 3.0GHz computer is

$200.

If a firm spends $60 to produce 30 units of output and spends $120 to produce 50 units, then between 30 and 50 units of output, the marginal cost of production is:

$3.

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. What is John's opportunity cost of cleaning windows for an hour?

$7

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's accounting profit was _______1.________ and her economic profit was _______2.________ .

1. $49,000 2. $9,000

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's explicit costs were _______1.________ , and her implicit costs were _______2.________ .

1. $51,000 2. $40,000

Last year Christine worked as a consultant. She hired an administrative assistant for $13,500 per year and rented office space (utilities included) for $3,200 per month. Her total revenue for the year was $135,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $55,000 a year. Last year, Christine's accounting profit was ________1._______ and her economic profit was ________2._______ .

1. $83,100 2. $28,100

The accompanying figure shows the supply and demand curves for oranges in Smallville. At a price of $4 per pound there will be an excess _______1.________ of _______2.________ pounds of oranges per day.

1. demand 2. 20

Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda is $0.25 per can, then what will be the market demand for soda per month?

130 cans

If a 10 percent decrease in the price of a good leads to a 20 percent increase in the quantity demanded, then what is the price elasticity of demand?

2

Refer to the accompanying figure. What is the price elasticity of demand when the price of rice is $6 per pound?

2

The accompanying graph depicts demand. The price elasticity of demand at point A is

5/2.

The accompanying graph depicts demand. The price elasticity of demand at point A is

5/2.

Refer to the accompanying figure, which shows the market for cups of coffee. What might cause a shift from the original supply curve to the new supply curve?

A new technology that reduces amount of coffee beans needed to make a good cup of coffee

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tamika 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?

Dan should specialize in sandwiches, and Tamika should specialize in smoothies.

Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true?

Forest has to make trade-offs.

Which of the following is NOT a reason why there are gains to specialization?

It increases the amount of productive resources in the economy.

Jackie wants to go to the football game this weekend, but she has a paper due on Monday. It will take her the whole weekend to write the paper. Jackie decides to stay home and work on the paper. According to the Scarcity Principle, the reason Jackie doesn't go to the game is that

Jackie can't go the game and finish the paper.

Which of the following is not a characteristic of a market in equilibrium?

Neither buyers nor sellers want the price to change.

You paid $35 for a ticket (which is nonrefundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The cost to you of working is $2/hr. Should you go to the concert instead of working Saturday?

No, the benefit of going to the concert is less than the cost.

Refer to the accompanying figure. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do?

Reduce the price from $2.00 to $1.75.

Assume both the demand for bagels and the supply of bagels increase. Which of the following outcomes is certain to occur?

The equilibrium quantity of bagels will rise.

Which of the following is the most likely to be a fixed factor of production at a farm?

The land on which the farm is located

Points that lie beneath the production possibilities curve are

attainable but inefficient.

You are trying to decide whether to purchase a Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should

borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13.

Refer to the accompanying figure, which shows the market for Marvel action figures. Suppose the solid line represents the current supply of Marvel action figures. If retailers learn that a new Marvel movie will be released in several months, this news is likely to cause

current supply to shift to S(A) in anticipation of higher future prices.

It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will

have little effect on the number of trained orthopedic surgeons.

Refer to the accompanying figure. Total producer surplus in this market is:

$125

Suppose Vivek owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Vivek's total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. When Vivek makes 2 kites per day, what is his average variable cost?

$13

The accompanying figure shows the supply and demand curves for jeans in Smallville. Suppose jeans initially sell for $60 per pair. If the price of jeans falls to $40 per pair, then total economic surplus will increase by ______________ per day.

$160

The accompanying figure shows the supply and demand curves for oranges in Smallville. When this market is in equilibrium, total economic surplus is ______________ per day.

$160

The accompanying figure shows the supply and demand curves for oranges in Smallville. When this market is in equilibrium, total economic surplus is ________________ per day.

$160

If a firm spends $300 to produce 10 units of output and spends $720 to produce 20 units, then between 10 and 20 units of output, the marginal cost of production is:

$42.

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. What is the opportunity cost of using the coupon for the Miami trip?

$450

Lauren was accepted at three different graduate schools, and she must choose one. Elite U costs $50,000 per year and did not offer Lauren any financial aid. Lauren values attending Elite U at $60,000 per year. State College costs $30,000 per year and offered Lauren an annual $10,000 scholarship. Lauren values attending State College at $40,000 per year. NoName U costs $20,000 per year and offered Lauren a full $20,000 annual scholarship. Lauren values attending NoName at $15,000 per year. What is Lauren's economic surplus from attending State College instead of her next best alternative?

$5,000

Refer to the accompanying table. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule is satisfied when the consumer purchases _______1.________units of Good A and _______2.________ units of Good B.

1. 1 2. 3

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is _______1.________ so supply is _______2.________ .

1. 3/2 2. elastic

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ________1._______ so supply is ________2._______ .

1. 3/2 2. elastic

You are the Minister of Trade for a small island country with the following annual PPC: You are negotiating a trade agreement with a neighboring island with the following annual PPC: Both islands specialize exclusively in the product for which they have a comparative advantage. You have agreed to give 350 coconuts to the other island in exchange for 1,300 fish. After the trade the other island has a total of _______1.________ coconuts and _______2.________ fish.

1. 350 2. 1,200

Taylor's marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20. If Taylor watches 2 movies a month, Taylor will eat out ______1._________ times per month, and have marginal utility per dollar of ______2._________ from movies and a marginal utility per dollar of ________3._______ from eating out.

1. 4 2. 5 3. 5

Taylor's marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20. If Taylor watches 2 movies a month, Taylor will eat out _______1.________ times per month, and have marginal utility per dollar of _______2.________ from movies and a marginal utility per dollar of _______3.________ from eating out.

1. 4 2. 5 3. 5

If Aaliyah can produce 3 pairs of shoes per hour, while Bahjat can produce 2, then _______1.________ has a(n) _______2.________ advantage in producing shoes.

1. Aaliyah 2. absolute

If Aaliyah can produce 3 pairs of shoes per hour, while Bahjat can produce 2, then ________1.________ has a(n) _______2._________ advantage in producing shoes.

1. Aaliyah 2. absolute

The accompanying fiqure shows the supply and demand curves for oranges in Smallville. At a price of $4 per pound there will be an excess ________1.________ of _______2._________ pounds of oranges per day.

1. demand 2. 20

Generally, ________1._______ motivates firms to enter an industry, while ________2.________ motivates firms to exit an industry.

1. economic profit 2. economic loss

Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ________1.________ in the short run, and it will ________2.________ in the long run.

1. not shut down 2. exit the industry

Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will _______1.________ in the short run, and it will _______2.________ in the long run.

1. not shut down 2. exit the industry

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then at this firm's profit maximizing level of output, the firm will earn an economic _______1.________ of _______2.________ per day.

1. profit 2. $8

Suppose Monique is willing to pay up to $14,000 for a used Ford pick-up truck. If she buys one for $11,000, her economic ________1.________ would be _______2._________ .

1. surplus 2. $3,000

Suppose that a new drug (A) has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph by demand curve A. Prior to approval of this drug, the only treatment for this condition was any one of several nonprescription, or over-the-counter, pain relievers. The demand for one brand of the several nonprescription pain relievers is also shown on the graph as demand curve B. Demand for the new drug is ________1._______ while demand for one brand of the over-the-counter pain relievers is ________2._______ .

1. the line labeled A 2. the line labeled B

Refer to the accompanying figure. For Chris, the opportunity cost of planting one bulb is removing

1/3 of a bag of trash.

Laura's total utility from consuming 6, 7, and 8 bonbons is 30, 42, and 48, respectively. Her marginal utility from the 7th bonbon is _______________ .

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