ECN exam 1

Which of the following scenarios illustrates the law of demand?

Kathleen eats more steak when the price is low, and less when the price is high.

Decisions should reflect the _____ costs, rather than just the _____ costs.

opportunity; financial

The opportunity costs of attending college include the:

potential income that could be earned working.

Equilibrium price

price at which the market is in equilibrium

Equilibrium quantity

quantity demanded and supplied at equilibrium

An individual demand curve is a graph:

that plots the quantity of an item that someone plans to buy, at each price.

Paint and paintbrushes are complements. If the price of paint rises, we can expect:

the demand for paintbrushes to decrease.

When plotting a supply curve

the quantity supplied goes on the horizontal axis.

A downward-sloping demand curve implies:

there is an inverse relationship between price and quantity demanded.

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte?

$4

Which of the following scenarios depicts a seller who is following the Rational Rule for Sellers?

American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250.

Consider the following statement: "An increase in the cost of oil will cause the price of a plane ticket to increase. This increase in price will cause a decrease in demand for airline travel and a leftward shift in the demand curve." What is the flaw of this reasoning?

An increase in the price of a ticket will not cause a decrease in demand, but rather a decrease in quantity demanded.

A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate?

Diminishing marginal product

demand shifters

Income Preferences Price of complements and substitutes Expectations Congestions and network effects Type and number of buyers

supply shifters

Input prices Productivity and technology Other opportunities and the prices of related outputs Expectations Type and number of sellers

What is quantity supplied?

It is the amount of an item that a seller is willing to sell at a particular price.

How is the economic surplus generated by a decision calculated?

It is the total benefits minus total costs arising from the decision.

Equilibrium

Quantity supplied equals quantity demanded

Over time, a continual decrease in autoworkers' wages leads to an increase in the supply of trucks. During this same time, drivers start to prefer compact cars over trucks, leading to a decrease in the demand for trucks. Which of the statements most accurately describes what happens to the equilibrium price and quantity of trucks?

The equilibrium price will decrease and it is unclear how the equilibrium quantity will change.

Which of the following is NOT a factor that can shift supply?

The market price of a product.

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?

The opportunity cost principle.

Why are supply curves typically upward-sloping?

They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services.

A normal good is:

a good for which higher income causes an increase in demand.

Quantity demanded is on the horizontal axis when you plot a demand curve and shows the:

amount of a good that a person is willing to buy at each price.

Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal:

benefit of purchasing one more coffee equals the marginal cost.

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is attempting to decide how many more episodes to watch. Kathleen should continue watching episodes as long as the marginal:

benefit of watching another episode exceeds the marginal cost.

The key to using the cost-benefit principle is to think about _____ aspects of a decision.

both financial and nonfinancial

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction.

both the buyer and the seller

The cost-benefit principle states that _____ are the incentives that shape decisions.

cost and benefits

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item.

equal to

You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost.

go; greater

The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:

greater than or equal to the marginal cost.

The interdependence principle:

implies that buyers decisions are affected by many factors other than the price of an item.

Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost.

included; nonfinancial

When you get hired for a well-paying job, you will most likely view older used cars as

inferior goods.

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.

interdependence

Diminishing marginal benefit:

is when buying an additional item yields a smaller marginal benefit than the previous item.

A rational buyer will:

keep buying a product until marginal benefit equals price.

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

less; $150

The __________ suggests, decisions about quantities are best made incrementally.

marginal principle

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:

multiply the individual supply of one of the suppliers by ten.

Diana is a student studying economics and currently working on her class schedule for next semester. She decides to enroll in a course on economic data analysis because she knows that data analysis is a highly sought-after skill from employers in her career field. Weighing what may affect her in the future opportunities demonstrated dependency:

through time.

Dependencies between your own choices reflect the fact that:

you have limited resources.