EXAM 1 MICRO

"Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well." This relationship between price and quantity supplied a. is referred to as the law of supply. b. applies only to a few goods in the economy. c. is represented by a downward-sloping supply curve. d. All of the above are correct.

a

A rightward shift of a supply curve is called a(n) a. increase in supply. b. decrease in supply. c. decrease in quantity supplied. d. increase in quantity supplied.

a

Demand is inelastic if the price elasticity of demand is a. less than 1. b. equal to 1. c. greater than 1. d. equal to 0.

a

Elasticity is a. a measure of how much buyers and sellers respond to changes in market conditions. b. the study of how the allocation of resources affects economic well-being. c. the maximum amount that a buyer will pay for a good. d. the value of everything a seller must give up to produce a good.

a

If Shawn can produce donuts at a lower opportunity cost than Sue, then a. Shawn has a comparative advantage in the production of donuts. b. Sue has a comparative advantage in the production of donuts. c. Shawn should not produce donuts. d. Shawn is capable of producing more donuts than Sue in a given amount of time.

a

If the cross-price elasticity of two goods is positive, then the two goods are a. substitutes. b. complements. c. normal goods. d. inferior goods.

a

A movement downward and to the right along a demand curve is called a(n) a. increase in demand. b. decrease in demand. c. decrease in quantity demanded. d. increase in quantity demanded.

d

A production possibilities frontier is bowed outward when a. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good. b. an economy is self-sufficient instead of interdependent and engaged in trade. c. the rate of tradeoff between the two goods being produced is constant. d. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

d

Demand is said to be price elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good.

d

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the a. supply for marijuana is elastic. b. demand for marijuana is elastic. c. supply for marijuana is inelastic. d. demand for marijuana is inelastic.

d

Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point X and point Y is a. 0.4. b. 1. c. 2. d. 2.5

d

The cross-price elasticity of demand can tell us whether goods are a. normal or inferior. b. elastic or inelastic. c. luxuries or necessities. d. complements or substitutes.

d

Which of the following statements is not correct? a. Trade allows for specialization. b. Trade has the potential to benefit all nations. c. Trade allows nations to consume outside of their production possibilities curves. d. Absolute advantage is the driving force of specialization.

d

Figure 3-1 Panel (a) Panel (b) chairs couches chairs couches ____ 2. Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches is constant in a. Panel (a). b. Panel (b). c. both Panel (a) and Panel (b). d. neither Panel (a) nor Panel (b)

B

For some market, Qd = 100 - 3p ; Qs = -50 + 2p Find equilibrium Price & Quantity a. P = 10 ; Q = 70 b. P = 20 ; Q = 40 c. P = 30 ; Q = 10 d. P = 40 ; Q = 30

C

Income elasticity of demand measures how a. the quantity demanded changes as consumer income changes. b. consumer purchasing power is affected by a change in the price of a good. c. the price of a good is affected when there is a change in consumer income. d. many units of a good a consumer can buy given a certain income level.

a

Producer surplus measures the a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market. c. price that buyers are willing to pay for sellers' output of a good or service. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand

a

Refer to Table 3-21. Jamaica's opportunity cost of one cooler is a. 0.5 radios, and Norway's opportunity cost of one cooler is 0.125 radios. b. 0.5 radios, and Norway's opportunity cost of one cooler is 8 radios. c. 2 radios, and Norway's opportunity cost of one cooler is 0.125 radios. d. 2 radios, and Norway's opportunity cost of one cooler is 8 radios.

a

The price elasticity of demand measures how much a. quantity demanded responds to a change in price. b. quantity demanded responds to a change in income. c. price responds to a change in demand. d. demand responds to a change in supply.

a

Tom Brady should probably not mow his own lawn because a. his opportunity cost of mowing his lawn is higher than the cost of paying someone to mow it for him. b. he has a comparative advantage in mowing his lawn relative to a landscaping service. c. he has an absolute advantage in mowing his lawn relative to a landscaping service. d. he might sprain his ankle.

a

Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could a. benefit both Steve and Tom. b. benefit Steve, but not Tom. c. benefit Tom, but not Steve. d. benefit neither Steve nor Tom.

a

Total surplus in a market is equal to a. consumer surplus + producer surplus. b. value to buyers - amount paid by buyers. c. amount received by sellers - costs of sellers. d. producer surplus - consumer surplus.

a

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded is referred to as a. equilibrium. b. the law of demand. c. the relationship between supply and demand. d. the definition of an inferior good.

b

A decrease in the price of a good would a. increase the supply of the good. b. increase the quantity demanded of the good. c. give producers an incentive to produce more to keep profits from falling. d. shift the supply curve for the good to the left.

b

Each of the following is a determinant of demand except a. tastes. b. production technology. c. expectations. d. the prices of related goods.

b

If mayonnaise and Miracle Whip are substitutes, then which of the following would increase the demand for Miracle Whip? a. a decrease in the price of Miracle Whip b. an increase in the price of mayonnaise c. a decrease in the price of mayonnaise d. Both a and b are correct.

b

On a graph, the area below a demand curve and above the price measures a. producer surplus. b. consumer surplus. c. deadweight loss. d. willingness to pay.

b

Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point Y and point Z is a. 0.5. b. 0.75. c. 1.0. d. 1.3.

b

Refer to Table 3-21. At which of the following prices would both Jamaica and Norway gain from trade with each other? a. 1 radio for 1 cooler b. 1 radio for 4 coolers c. 1 radio for 10 coolers d. Jamaica and Norway would both gain from trade at all of the above prices

b

Refer to Table 3-21. Jamaica has a comparative advantage in the production of a. coolers and Norway has a comparative advantage in the production of radios. b. radios and Norway has a comparative advantage in the production of coolers. c. both goods and Norway has a comparative advantage in the production of neither good. d. neither good and Norway has a comparative advantage in the production of both goods

b

Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for a. hair gel to increase. b. razors to increase. c. combs to increase. d. shampoo to increase.

b

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. None of the above is correct.

b

Table 3-21 Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day. Refer to Table 3-21. Jamaica has an absolute advantage in the production of a. coolers and Norway has an absolute advantage in the production of radios. b. radios and Norway has an absolute advantage in the production of coolers. c. both goods and Norway has an absolute advantage in the production of neither good. d. neither good and Norway has an absolute advantage in the production of both goods.

b

The demand curve for coffee shifts a. only when income changes. b. when a determinant of the demand for coffee other than the price of coffee changes. c. when the price of coffee changes. d. Both b and c are correct.

b

The quantity demanded of a good is the amount that buyers are a. willing to purchase. b. willing and able to purchase. c. willing, able, and need to purchase. d. able to purchase.

b

Trade can make everybody better off because it a. increases cooperation among nations. b. allows people to specialize according to comparative advantage. c. requires some workers in an economy to be retrained. d. reduces competition among domestic companies.

b

What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous.

b

Which of the following is not a determinant of the price elasticity of demand for a good? a. the time horizon b. the steepness or flatness of the supply curve for the good c. the definition of the market for the good d. the availability of substitutes for the good

b

A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer's preferences. b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus

c

A group of buyers and sellers of a particular good or service is called a(n) a. coalition. b. economy. c. market. d. competition.

c

A shortage exists in a market if a. there is an excess supply of the good. b. quantity supplied exceeds quantity demanded. c. the current price is below its equilibrium price. d. All of the above are correct.

c

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book? a. $6. b. $2. c. $8. d. $4.

c

If Shawn can produce more donuts in one day than Sue can produce in one day, then a. Shawn has a comparative advantage in the production of donuts. b. Sue has a comparative advantage in the production of donuts. c. Shawn has an absolute advantage in the production of donuts. d. Sue has an absolute advantage in the production of donuts.

c

Kelly and David are both capable of repairing cars and cooking meals. Which of the following scenarios is not possible? a. Kelly has a comparative advantage in repairing cars and David has a comparative advantage in cooking meals. b. Kelly has an absolute advantage in repairing cars and David has an absolute advantage in cooking meals. c. Kelly has a comparative advantage in repairing cars and in cooking meals. d. David has an absolute advantage in repairing cars and in cooking meals.

c

Producer surplus is a. measured using the demand curve for a good. b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production. d. the opportunity cost of production minus the cost of producing goods that go unsold.

c

Refer to Figure 7-10. Which area represents the increase in producer surplus when the price rises from P1 to P2 due to new producers entering the market? a. BCG b. ACH c. DGH d. AHGB

c

Refer to Figure 7-4. When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers? a. BDF b. AFG c. BCGD d. ABC

c

Suppose good X has a negative income elasticity of demand. This implies that good X is a. a normal good. b. a necessity. c. an inferior good. d. a luxury.

c

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should a. plant more corn so that they would be able to sell more each year. b. increase spending on fertilizer in an attempt to produce more corn on the acres they farm. c. reduce the number of acres on which they plant corn. d. contribute to a fund that promotes technological advances in corn production.

c

The midpoint method is used to compute elasticity because it a. automatically computes a positive number instead of a negative number. b. results in an elasticity that is the same as the slope of the demand curve. c. gives the same answer regardless of the direction of change. d. automatically rounds quantities to the nearest whole unit.

c

We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers' costs are minimized.

c

What must be given up to obtain an item is called a. out-of-pocket cost. b. comparative worth. c. opportunity cost. d. absolute value

c

When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy a. falls. b. stays the same. c. rises. d. may fall, rise, or stay the same.

c

Which of the following is not held constant in a demand schedule? a. income b. tastes c. price d. expectations

c

Which of the following might cause the supply curve for an inferior good to shift to the right? a. an increase in input prices b. a decrease in consumer income c. an improvement in production technology that makes production of the good more profitable d. a decrease in the number of sellers in the market

c

You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider iTunes music downloads to be a(n) a. luxury good. b. inferior good. c. normal good. d. complementary good.

c

A decrease in demand is represented by a a. movement downward and to the right along a demand curve. b. movement upward and to the left along a demand curve. c. rightward shift of a demand curve. d. leftward shift of a demand curve.

d

A movement along the supply curve might be caused by a change in a. production technology. b. input prices. c. expectations about future prices. d. the price of the good or service that is being supplied.

d