Econ 2223 Midterm Exam
Which of the following is not a factor of production?
$100,000 cash
(Figure 3.2) The equilibrium price and quantity, respectively, are
$9 and 30 units.
(Table 19.3) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. The marginal utility per dollar of the second cola is
4
(Table 19.3) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. The marginal utility per dollar of the third pretzel is
4.
If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then quantity demanded will fall by what percentage?
6 percent.
Which of the following causes demand to be more elastic with respect to price?
A high ratio of price to income.
Which of the following is the best example of an externality?
A nonsmoker gets sick from secondhand smoke.
(Figure 1.7) The cost of producing at point G rather than point D is
AB units of food
If demand is elastic, then
An increase in price will reduce total revenue.
Assume that pens and pencils are substitutes. In the market for pens, what would we expect to happen if the price of pencils rises?
An increase in the demand for pens.
Explicit costs
Are the sum of actual monetary payments made for resources used to produce a good.
(Figure 1.1) At which point is society employing some of its available technology, but not all of it?
C
Which of the following would most likely have a price elasticity coefficient less than 1?
Coffee
Which of the following does not influence the price elasticity of demand?
Costs of production.
(Figure 3.1) Choose the panel that best describes the type of shift that would occur if consumer confidence in the economy improves.
D
Higher prices will increase total revenue if
Demand is inelastic.
(Figure 1.7) Which of the following points is considered to be inefficient?
E
Which of the following is most likely an inferior good?
Generic canned food.
When demand is elastic, the absolute number for price elasticity will be
Greater than 1.
A demand curve that is completely elastic is
Horizontal.
Cross-price elasticity refers to
How responsive consumers of one good are to a change in the price of another good.
If a good is inferior, its
Income elasticity of demand is negative.
Assume the price elasticity of demand for MC Pretzel Co. pretzels is 0.8. If the company increases the price of each bag of pretzels, total revenue will
Increase because the percentage increase in price is greater than the percentage change in quantity demanded.
If the elasticity of demand for cigarettes is 0.4, a seller should
Increase price to increase total revenue.
When income falls, the quantity demanded for inferior goods
Increases.
Which economist argued that free markets unleashed the "animal spirits" of entrepreneurs, propelling innovation, technology, and growth?
John Maynard Keynes
(Figure 1.7) Which of the following points is unattainable, ceteris paribus?
N
Ceteris paribus, as the number of substitutes for a good increases, the
Price elasticity of demand should become larger.
Total revenue is
Quantity sold times price.
If DVD players and DVDs are complementary goods, an increase in the price of DVDs will, ceteris paribus,
Reduce the demand for DVD players.
Price elasticity of demand shows how
Responsive the quantity demanded is to a change in price.
Income elasticity measures the
Responsiveness of quantity demanded to a percentage change in income.
The local baseball team owner hires you to help maximize the team's profits. You are told that costs are constant because enough help is always hired for a full stadium, so assume your task is to maximize revenues from ticket sales. Your advice to the owner should be to
Set the price of tickets at the unitary elasticity price.
If demand is perfectly elastic,
The demand curve is horizontal.
If the price elasticity of demand for cigarettes is 0.4,
The demand is very inelastic.
Suppose a flu shot generates external benefits. What does this imply about the level of production the private market would generate?
The market will likely underproduce, relative to socially optimal levels.
Which of the following is possible when the market fails?
The mix of goods and services is on the production possibilities curve.
When demand is inelastic
The percentage change in price is greater than the percentage change in quantity demanded.
The basic formula for price elasticity is
The percentage change in quantity demanded divided by the percentage change in price.
If the demand for a product is elastic, then
The percentage change in quantity demanded is greater than the percentage in price.
The formula for the elasticity of supply is
The percentage change in quantity supplied divided by the percentage change in price.
Supply is very inelastic when
The quantity supplied changes little when the price increases.
Supply is very elastic when
The quantity supplied has a large increase in response to an increase in price.
Which of the following is an assumption under which the production possibilities curve is drawn?
The supply of resources is fixed.
Technically the elasticity number is negative because
When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.
If the price of X increases and you buy more Y, then
X and Y are substitutes and the price of Y will increase.
Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of perfume?
a decrease in the price of perfume
Ceteris paribus, if the price of a digital camera rises, then we can expect
a decrease in the quantity demanded of digital cameras.
(Figure 1.3) A movement from point F to point D results in
a reallocation of resources from broom production to mop production.
If a price is below equilibrium,
a shortage will cause the price to rise and the quantity supplied to increase.
If a price is above equilibrium,
a surplus will cause the price to fall and the quantity supplied to decrease.
(Table 19.1) Josh is eating pizza at his favorite Italian restaurant. For Josh, diminishing marginal utility begins
after the first slice of pizza.
Air pollution best illustrates
an external cost.
Ceteris paribus, which of the following is most likely to cause a decrease in the supply of skateboards?
an increase in the cost of materials used to produce skateboards
Ceteris paribus, which of the following would you not expect to have an affect on the demand curve for new automobiles?
an increase in the price of new automobiles
Which of the following is a determinant of market supply?
available technology
If a price ceiling is to be effective, it should be set
below the equilibrium price and it will create a market shortage.
Who participates in markets?
business firms, consumers, and government agencies
Suppose Caesar allocates his entire budget to the purchase of soft drinks and chips. The marginal utility of the last bottle of soft drink purchased is 12 utils, and each bottle costs $1.20. The marginal utility of the last bag of chips purchased is 8 utils, and each bag costs $1. In order to maximize his utility, Caesar should
buy more soft drinks and fewer chips since he gets more marginal utility per dollar from soft drinks.
In economics, a public good
cannot be denied to consumers who have not paid.
A decrease in the price of bubble gum below equilibrium will
cause a shortage of bubble gum.
An increase in the price of gasoline above equilibrium will
cause a surplus of gasoline.
Marginal utility is the
change in total utility obtained by consuming one extra unit of a good or service.
A consequence of the economic problem of scarcity is that
choices must be made about how resources are used.
Assume a series of forest fires reduces the supply of lumber, which is an input in the production of wooden bats. Baseballs and wooden bats are complements. If the price of wooden bats increases, we can expect the
demand for baseballs to decrease.
A "free-rider" is an individual who reaps
direct benefits from someone else's purchase of a public good.
If the price elasticity of demand is equal to 2, the good has _____ demand.
elastic
(Table 3.1) If the price is $2, the market will
experience a shortage of 22 units.
If the government places a price ceiling on cancer-treating drugs, then
fewer cancer-treating drugs will be available.
(Table 19.3) Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. If Michael has $48 to spend on cola and pretzels, what combination should he purchase in order to maximize his utility?
four colas and four pretzels
When an economy is producing efficiently, it is
getting the maximum goods and services possible from the available resources.
Opportunity cost may be defined as the
goods or services that are forgone in order to obtain something else.
Jessie's demand schedule for candy bars indicates
her opportunity cost of buying candy bars.
A private good
is consumed by one person and excludes consumption by others.
If an economy is producing inside the production possibilities curve, then
it can produce more of one good without giving up some of another good.
Marginal utility refers to the amount of satisfaction a consumer gets from consuming the _____________ unit of a product.
last
The additional pleasure or satisfaction from a good will decline as more of it is consumed in a given period. This is the definition of the
law of diminishing marginal utility.
Rational Consumer Choice depends on comparison of
marginal utility and price.
Total utility is maximized when the
marginal utility is zero.
When the invisible hand does not produce optimal outcomes for the economy, there is evidence of
market failure.
At the equilibrium price, there are
no shortages or surpluses.
Given that resources are scarce,
opportunity costs are experienced whenever choices are made.
(Figure 1.3) An increase in the proportion of the population that is unemployed above the normal rate is best represented by a movement from
point C to point A.
Ceteris paribus, a rightward shift of the market demand curve for drones causes the equilibrium
price to increase and equilibrium quantity to increase.
Economic explanations of consumer behavior take into consideration
prices and income.
The market will overproduce goods that have external costs because
producers experience lower costs than society.
When a surplus exists for a product,
producers reduce the level of output and reduce price.
Business firms supply goods and services to ____ and purchase factors of production in ____.
product markets; factor markets
In a market economy, which of the following is an incentive for producers to produce efficiently?
profits
The fact that there are too few resources to satisfy all our wants is attributed to
scarcity.
An increase in the price of gasoline will
shift the demand curve for gas-guzzling automobiles to the left.
Ceteris paribus, which of the following would you not expect to affect the demand curve for new automobiles?
supplier expectations regarding future prices
If there is a surplus at a given price, then
that price is greater than the equilibrium price.
In 2018 a company sold 35,000 drones at $150 each. In 2019 the same company sold 40,000 drones at $170 each. This information suggests that
the demand for drones increased from 2018 to 2019.
A point on a nation's production possibilities curve represents
the full employment of resources to achieve a particular combination of goods and services.
Which of the following is the best example of land?
the water used to make a soft drink
(Figure 3.2) If the actual market price were fixed at $6 per unit, then
there would be a shortage of 20 units.
Ceteris paribus, an increase in the supply of gasoline will cause the equilibrium price
to fall and equilibrium quantity to rise.
A mixed economy
utilizes both market and nonmarket signals to allocate goods and services.
Which of the following is not one of the three core economic issues that must be resolved?
what to produce with unlimited resources
