Econ midterm multiple choice

Which of the following statements best describes the concept of consumer surplus?

"I was going to pay $200 for new sunglasses that I had seen at the Oakley store but I ended up paying only $140 for the same sunglasses."

Juanita goes to the Hardware Emporium to buy a new circular saw. She is willing to pay $120 for a new saw, but finds saws on sale for $85. Juanita's consumer surplus from the purchase is

$35

Demand and supply in a market are described by the equations Qd = 66-3P Qs = -4+2P Solve for the equilibrium price p*

14.00

A movement along the demand curve for toothpaste would be caused by

A change in the price of toothpaste

If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as

A decrease in quantity demanded

Which of the following would shift the supply for MP3 players to the right?

A decrease in the price of an input used to produce MP3 players

Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?

A decrease in the price of corn

The phrase 'demand has increased' means that

A demand curve has shifted to the right

The production possibilities frontier model can be applied to

A firm, an individual, and the whole economy

If an increase in income leads to an increase in the demand for peanut butter, then peanut butter is

A normal good

Comparative advantage means

A producing unit can produce a good or service at a lower opportunity cost than any other producing unit

What is the difference between an 'increase in supply' and an 'increase in quantity supplied'?

An 'increase in supply' means the supply curve has shifted to the right while an 'increase in quantity supplied' refers to a movement along a given supply curve in response to an increase in price.

Which of the following would cause a decrease in the supply of milk?

An increase in the price of product that producers might produce instead of (substitute for producing) milk

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

An inferior good

Which of the following is the correct way to describe equilibrium in a market?

At equilibrium quantity demanded equals quantity supplied

Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

At least $125,000

An increase in the demand for bananas will NOT be caused by

Buyers switching to a more healthy diet

You have absolute advantage whenever you

Can produce more of something than others with the same resources

You have comparative advantage whenever you

Can produce something at a lower opportunity cost than others

The ____ model demonstrates the roles played by households and firms in the market system

Circular flow

If the price of gasoline doubles while your income is constant

Consumer purchasing power has decreased and consumers buy less of everything

If a demand curve shifts to the right, then

Demand has increased

Assume that you own a small boutique hotel. In an attempt to raise revenue you reduce your rates by 20 percent. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?

Demand is inelastic.

If there are many substitutes available for a product demand for that good is likely to be

Elastic

Economists use the concept of __________ to measure how one economic variable, such as quantity demanded response to a change in another economic variable, such as price

Elasticity

Which of the following is a consequence of minimum wage laws?

Employers will be reluctant to offer low-skill workers jobs with training

Why do we set the equations of the lines for Qd and Qs equal in order to solve for the equilibrium price and quantity? Correct!

Equilibrium is the price where Qd and Qs are equal

The natural resources used in production are made available in the

Factor market

If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.

False

The demand for heating oil in the short run is more elastic than the long run demand for heating oil

False

True or False: If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase

False

True or false: scarcity is defined as the situation that exists when the quantity demanded for a good is greater than quantity supplied

False

Which of the following could explain why the demand for table salt is inelastic?

Households devote a very small portion of their income to salt purchases.

The production possibilities frontier shows that

If all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good

Which of the following statements is true?

If the price of a good is raised and total revenue increases, demand is inelastic.

Which of the following describes the difference between "scarcity" and "shortage"?

In the economic sense, almost everything is scarce. A shortage of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price.

A good for which demand increases when income decreases is called

Inferior good

A demand curve that is horizontal indicates that the commodity:

Is perfectly demand elastic

Consider the following equation for demand: Qd = 66-3p. What does the minus sign before 3p tell us? You Answered

It expresses the negative relationship of price and Qd

The existence of a shortage in a market will cause

Market price to rise and quantity supplied to increase

When you purchase a new pair of jeans you do so in the

Product market

As the average age of the population of the United States gets older, the demand for

Retirement homes will increase

Which of the following statements is true about scarcity?

Scarcity refers to the situation in which unlimited wants exceed limited resources

The supply curve for watches

Shows the relationship between the price of watches and the quantity of watches supplied

Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?

Some consumers will be unable to obtain digital music players at the market price, and will have an incentive to offer to buy the product at a higher price

When the price of a good falls, consumers buy a larger quantity because of the ______ effect and the _______ effect

Substitution; income

If the price of automobiles were to increase, then

The demand for gasoline would decrease

Refer to the table below. Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Select the correct implication from your work. Table Price Quantity $35 40 $25 50

The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.

Refer to the table below. Assume that an economist has estimated the price elasticity of demand values in the table above. Use the data in the table to select the correct statement. Estimated Price Elasticity of Demand Coca-Cola -3.0 All carbonated soft drinks -1.5 All soft drinks -0.8

The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be

If a firm expects that the price of its product will be lower in the future than it is today

The firm has an incentive to increase supply now and decrease supply in the future

Consider a market for used books that can be described by the following equations: Qd = 1000-60P Qs = 280 + 30P Why do we see the minus sign before the p variable in the Qd equation and the plus sign before the p variable in the Qs equation?

The law of demand has a negative relationship, the law of supply has a positive relationship

Which of the following explains why a firm would be interested in the knowing the price elasticity of demand for a good it sells?

The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.

A demand curve shows the relationship between

The price of a product and the quantity of the product demanded

Which of the following is evidence of a surplus of bananas?

The price of bananas is lowered in order to increase sales

One would speak of the change in the quantity of a good supplied, rather than a change in supply if

The price of the good changes

A change in all of the following variables will change the market demand for a product except which one?

The price of the product

At a product's equilibrium price

The product's demand curve crosses the product's supply curve

The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services. How does this affect the digital photo printing market?

The supply curve for digital photo printing services shifts to the right

Which of the follow is a result of imposing a rent ceiling?

There is an increase in the quantity of apartments demanded.

If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.

True

True or False: As the number of firms in a market decreases, the supply curve will shift to the left and the equilibrium price will rise

True

True or false: In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached.

True

Making optimal decisions 'at the margin' requires

Weighing the costs and benefits of a decision before deciding if it should be pursued.

A successful market economy requires

Well-defined property rights and an independent court system to adjudicate disputes based on the law

Which of the following statements is true?

When a firm lowers its price its total revenue may either increase or decrease.

A decrease in the equilibrium price for a product will result

When there is an increase in supply and a decrease in demand for the product

When ________ in a market, the total net benefit to society is maximized

a competitive equilibrium is achieved

If opportunity costs are constant, the production possibilities frontier would be graphed as

a negatively sloped straight line

The minimum wage is an example of

a price floor

A black market is a market where buying and selling take place

at prices that violate government price regulations

In a competitive market when there is no deadweight loss,

consumer surplus plus producer surplus is maximized

An outward shift of a nation's production possibilities frontier represents

economic growth

A perfectly elastic demand curve is

horizontal

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be

inelastic

In May 2011, the average price of gasoline in the United States was $3.76 per gallon, and consumers purchased nearly 5 percent less gasoline than they had during May 2010, when the average price of gasoline was $2.79 per gallon. Based on these figures, from May 2010 to May 2011, the demand for gasoline was

inelastic

If demand is perfectly elastic, the absolute value of the price elasticity coefficient is

infinity

A supply schedule

is a table that shows the relationship between the price of a product and the quantity of the product supplied

The area above the market supply curve and below the market price

is equal to the total amount of producer surplus in a market

In a competitive market equilibrium the ________ equals the ________ of the last unit sold.

marginal benefit; marginal cost

The larger the share of a good in a consumer's budget, holding everything else constant, the

more price elastic is a consumer's demand

To affect the market outcome, a price floor

must be set above the equilibrium price.

In order to be binding (or to have immediate impact on the market), a price floor

must lie above the free market equilibrium price

Two-dimensional graphs have a horizontal and a vertical axis and are used in economics to illustrate

relationships between two economic variables

The study of economics focuses on the choices individuals/societies make. Choices arise due to

scarcity of resources

The most important determinant of the price elasticity of demand for a good is

the availability of substitutes for the good

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

the demand for aspirin is inelastic

Opportunity cost is defined as

the highest valued alternative that must be given up to engage in an activity

As gasoline prices increased throughout 2010 and into 2011, consumers began to explore alternatives to driving their cars and more people eventually ended up using public transportation. This exemplifies that for a specific product, the longer the time period involved,

the larger (in absolute value) the price elasticity of demand

A consumer is willing to purchase a product up to the point where

the marginal benefit is equal to the price of the product

If the demand for cell phone service is inelastic, then

the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Total revenue is equal to

the price of a product multiplied by the number of units of the product sold.

Deadweight loss refers to

the reduction in economic surplus resulting from not being in competitive equilibrium.

Which of the following is not a determinant of a good's price elasticity of demand?

the slope of the demand curve

If the slope of a demand curve is equal to -0.1 then

we don't know whether the demand is elastic or inelastic

The maximum price that a buyer is willing to pay for a good measures his

willingness to pay