Econ Test Pracitce

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case:

excess demand will lead the price of oranges to rise

inferior goods

goods that consumers demand less of when their incomes rise

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:

5

normal goods

A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.

buyer's reservation price

For a potential buyer or consumer, it is the maximum value the buyer is willing to pay in order to buy a good. For a potential seller or producer, it is the minimum value the seller is willing to accept in order to sell a good. What is the maximum amount you are willing to pay for something?

Office workers and word processing programs are complements if:

a decrease in the wage paid to office workers leads to an increase in the demand for word processing programs.

"As the price of personal computers continues to fall, demand increases." This headline is inaccurate because:

a falling price of personal computers increases the quantity demanded, not demand.

demand curve

a graph of the relationship between the price of a good and the quantity demanded

supply curve

a graph of the relationship between the price of a good and the quantity supplied

When the current price of a good is below the equilibrium price:

buyers have an incentive to offer to pay sellers more than the current price.

opportunity cost

by making a decision to undertake an action, you forgo the benefits you could have gotten from other actions; implicit + explicit costs

income effect

change in price affects buyers purchasing power, it covers the change in the quantity of goods you bought and how much you paid for the goods and how those affected each other; for example, if coffee becomes more expensive, then you might buy less of it. It deals with how affordable the coffee is. The less expensive it is the more you buy and the more expensive it is the less you buy.

If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are:

complements

Suppose that recent studies conclude that high-fiber diets do not reduce the risk of developing colon cancer as was previously thought. The likely result will be that the:

demand for high-fiber foods will decrease.

A demand curve is ______ sloping because ______.

downward; fewer people are willing to buy an item at higher prices

change in demand

entire demand curve moves

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:

greater than $4.50 but no more than $5.00.

economic surplus

he benefit of whatever actions you undertake minus the cost of the action; you should always make decisions to where you are getting the highest benefit for the lowest cost

Shelly purchases a leather purse for $400. One can infer that:

her reservation price was at least $400.

marginal cost and benefit

how much of the activity do we want to do to make this beneficial. Is there a point where the benefit of doing the activity is going to be less than the cost of that activity -One additional unit of activity- is the benefit at doing something 10 times different than the benefit of doing something 11 times -Total benefit- benefit we get from being inclusive of every unit of activity

5 things that change demand

income, trends and tastes, prices of related goods, expectations as well as the size and composition of the population.

At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n):

increase in the demand for apartments.

The supply curve illustrates that firms:

increase the quantity supplied of a good when its price rises.

If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n):

inferior good

If the demand for steak increases as income increases, then steak is a(n):

normal good

Cost-Benefit Principle

tells us how people should behave, and generally how they will behave. Does the benefit mean more in the long run than what it costs me now.

quantity demanded

the amount of a good that buyers are willing and able to purchase; the demand curve itself does not move, only one point

According to the Cost-Benefit Principle, you should spend an additional hour studying for an exam if, and only if,:

the benefits of studying for an additional hour exceed the costs of studying for an additional hour.

substitution effect

the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes. buyers switch to/from substitutes when the price changes; stuff that replaces what you are currently consuming; for example when you drink coffee, you can switch to pre workout or tea. But the question is is it doing the same thing? And which one is cheaper but still is effective. So if you switched from coffee to an energy drink but realize that coffee is cheaper and still does what you need, then you would switch back to coffee.

equillibrium price

the price at which the quantity of a good demanded in a given time period equals the quantity supplied

seller's reservation price

the smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost

explicit costs

the sticker price for that decision; an example is if you take a year off of school and the cost you pay to travel is the explicit cost

Suppose that as the price of apples rises, people switch from eating apples to eating oranges. This is known as:

the substitution effect of a price change.

Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:

the value she places on seeing the movie

compliments

two goods for which an increase in the price of one leads to a decrease in the demand for the other

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

wash clothes;bigger

implicit costs

what did you have to give up on or forgo to do this; same example of travel is that you miss a year of pay

excess demand

when quantity demanded is more than quantity supplied

excess supplied

when quantity supplied is more than quantity demanded