Microecon exam review questions- perez

Larry was accepted at three different graduate schools, and must choose one. Elite Ucosts $50,000 per year and did not offer Larry any financial aid. Larry values attendingElite U at $60,000 per year. State College costs $30,000 per year, and offered Larry anannual $10,000 scholarship. Larry values attending State College at $40,000 per year.NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.Larry values attending NoName at $15,000 per year. Larry's opportunity cost ofattending State NoName U is: A) $20,000 B) $60,000 C) $15,000 D) $30,000

A) $20,000

Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45,respectively. Her marginal utility from the 9th bonbon is ________. A) 7 B) 4.67 C) 42 D) 77

A) 7

When a slice of pizza at the student union sold for $2, Moe did not purchase any. Whenthe price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer thatMoe's reservation price for a slice of pizza is: A) at least $1.75 but less than $2. B) exactly $1.75. C) less than $1.75. D) exactly $2.00.

A) at least $1.75 but less than $2.

When Lorenzo eats 1 slice of pizza for lunch, his total utility is 23, and when he eats 2slices of pizza for lunch, his total utility is 42. Assuming that Lorenzo's marginal utilityfrom eating pizza is always positive, we can infer that his total utility from eating 3slices of pizza at lunch is: A) greater than 42 and less than 61. B) greater than 42 and less than 84. C) greater than 23 and less than 42. D) greater than 42 and less than 46.

A) greater than 42 and less than 61.

If the demand for steak increases as income increases, then steak is a(n): A) normal good. B) substitute good. C) complementary good. D) inferior good.

A) normal good.

13)The textbook notes that the last time a major league batter hit .400 was in 1941. This is because: A) specialization by pitchers, infielders, and outfielders has made it harder for batters to hit. B) baseball diamonds have become larger. C) the league imposes harsh penalties for steroid use. D) the average quality of batters has fallen.

A) specialization by pitchers, infielders, and outfielders has made it harder for batters to hit.

If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4thcup is 15, then: A) there is evidence of diminishing marginal utility. B) the price of a cup of coffee must be relatively low. C) it is optimal for the consumer to have 3 cups of coffee. D) it is optimal for the consumer to have 4 cups of coffee.

A) there is evidence of diminishing marginal utility.

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the priceof a jar of peanut butter is $3. Dusty can buy a maximum of ________ loaves of breador a maximum of ________ jars of peanut butter. A) 10; 20 B) 20; 10 C) 15; 15 D) 10; 5

B) 20; 10

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though,said they were $29.99. Therefore: A) Gertie should not buy the jeans because they will be of lower quality than sheexpected. B) Gertie should buy the jeans because the price is less than her reservation price. C) Gertie should not buy the jeans because the price is not equal to her reservationprice. D) Gertie should buy the jeans because the price is more than her reservation price.

B) Gertie should buy the jeans because the price is less than her reservation price.

Moe has a big exam tomorrow. He considered studying this evening, but decided tohang out with Curly instead. If neither activity involves any explicit costs, and Moealways chooses rationally, it must be true that: A) Moe gets less benefit from spending time with Curly than from studying. B) Moe gets more benefit from spending time with Curly than from studying. C) the opportunity cost of studying is greater than the value Moe gets from spendingtime with Curly. D) the opportunity cost of studying is less than the value Moe gets from spendingtime with Curly.

B) Moe gets more benefit from spending time with Curly than from studying.

You are trying to decide whether to purchase the latest Harry Potter book online orborrow it from the library. There is no charge for borrowing a book from the library, butgoing to the library takes more time than ordering a book online. Regardless of how youget the book, its benefit to you is the same. If the cost of buying the book online is $13,then you should: A) buy the book online because it takes less time. B) borrow the book from the library if the cost of doing so (in terms of the extra timeit takes) is less than $13. C) borrow the book from the library if the cost of doing so (in terms of the extra timeit takes) is greater than $13. D) borrow the book from the library because you can get it from the library for free.

B) borrow the book from the library if the cost of doing so (in terms of the extra timeit takes) is less than $13.

If a demand curve is horizontal at P = $5, then the price elasticity of demand is: A) 5. B) infinite. C) 0.2. D) 0.

B) infinite

On a given linear demand curve, as price increases demand becomes: A) more variable. B) more elastic. C) more negative. D) less elastic.

B) more elastic

If the demand for olives falls when the price of cheese falls, then we know that cheeseand olives are: A) normal goods. B) substitutes. C) inferior goods. D) complements.

B) substitutes.

If consumers respond to a 10% price reduction by buying twice as much of a particulargood, we would conclude that: A) there was excess demand at the original price. B) the price elasticity of demand at the original price was greater than one. C) there was excess supply at the original price. D) the price elasticity of demand at the original price was less than one.

B) the price elasticity of demand at the original price was greater than one.

If the percentage change in the price of a good is equal to the percentage change in thequantity demanded of that good, then the demand for that good is: A) perfectly elastic. B) unit elastic. C) inelastic. D) elastic.

B) unit elastic.

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, shewill earn $30, and if she washes clothes, she will earn $45. She dislikes both tasksequally and they both take the same amount of time. Janie will therefore choose to________ because it generates a ________ economic surplus. A) mow the law; smaller B) wash clothes; bigger C) wash clothes; smaller D) mow the lawn; bigger

B) wash clothes; bigger

Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (aftertaxes). They have two pre-school-aged children. Childcare for their children costs$12,000 per year. Given that Chris doesn't want to stay home with the kids, regardlessof what Pat does, Pat should stay home with the kids if, and only if, the value of Patspending more time with the kids is greater than: A) $25,000 per year. B) $37,000 per year. C) $13,000 per year. D) $12,000 per year.

C) $13,000 per year.

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takesCathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2hours to make a pie and 1.5 hours to make a cake. What is the opportunity cost to Cathyof making a cake? A) 1.33 pies. B) 1 pie. C) 2/3 of a pie. D) 1.5 pies.

C) 2/3 of a pie.

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takesCathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2hours to make a pie and 1.5 hours to make a cake. Which of the following statements iscorrect? A) Cathy should specialize in both pies and cakes. B) Cathy should specialize in pies, and Lewis should specialize in cakes. C) Lewis should specialize in pies, and Cathy should specialize in cakes. D) There are no gains from specialization and trade.

C) Lewis should specialize in pies, and Cathy should specialize in cakes.

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, inconcert on Saturday. Assume that $35 is the most you would have been willing to payfor a ticket. Your boss called, and she is looking for someone to cover a shift onSaturday at the same time as the concert. You would have to work 4 hours and shewould pay you $11/hr. The psychic cost to you of working is $2/hr. Should you go tothe concert instead of working Saturday? A) Yes, the benefit of going to the concert is equal to the cost. B) Yes, the benefit of going to the concert is more than the cost. C) No, the benefit of going to the concert is less than the cost. D) No, because there are no benefits of going to the concert.

C) No, the benefit of going to the concert is less than the cost.

Your classmates from the University of Chicago are planning to go to Miami for springbreak, and you are undecided about whether you should go with them. The round-tripairfare is $600, but you have a frequent-flyer coupon worth $500 that you could use topay part of the airfare. All other costs for the vacation are exactly $900. The most youwould be willing to pay for the trip is $1,400. Your only alternative use for yourfrequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend yoursister's graduation, which your parents are forcing you to attend. The Chicago-Atlantaround-trip airfare is $450. Should you use the frequent flyer coupon to go to Miami? A) Yes, your benefit is more than your cost. B) Yes, your benefit is equal to your cost. C) No, your benefit is less than your cost. D) No, because there are no benefits in the trip.

C) No, your benefit is less than your cost.

"As the price of personal computers continues to fall, demand increases." This headlineis inaccurate because: A) the statement is backwards: increased demand leads to lower prices. B) a change in the price of personal computers shifts the supply curve. C) a falling price of personal computers increases the quantity demanded, notdemand. D) a change in the price of personal computers shifts the demand curve.

C) a falling price of personal computers increases the quantity demanded, notdemand.

The price of bananas will increase in response to: A) an increase quantity of bananas supplied. B) an increase in the supply of bananas. C) an excess demand for bananas. D) an excess supply of bananas.

C) an excess demand for bananas.

It is impossible for total utility to be ________ when marginal utility is ________. A) increasing; decreasing B) positive; negative C) decreasing; positive D) increasing; increasing

C) decreasing; positive

Pat's total utility after eating 99 Reese's Peanut Butter Cups was greater than his totalutility after eating 100 Reese's Peanut Butter Cups. Therefore, Pat's marginal utilityfrom the 100th peanut butter cup was: A) positive, but less than his marginal utility for the 99th peanut butter cup. B) zero. C) negative. D) positive, but less than one.

C) negative.

The Scarcity Principle tells us ________, and the Cost-Benefit Principle tells us________. A) that good choices eliminate scarcity; how to make good choices B) how to make choices; that choices must be made C) that choices must be made; how to make good choices D) how to make good choices; that choices involve costs and benefits

C) that choices must be made; how to make good choices

When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After theprice falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what isthe price elasticity of demand for hot dogs? A) 5 B) 66.67 C) 2 D) 0.2

D) 0.2

If 20 percent increase in the price of a good leads to a 60 percent decrease in thequantity demanded, then what is the price elasticity of demand? A) 1/3. B) 30. C) 1/6. D) 3.

D) 3.

Joe is shopping for a new computer. A computer can be delivered to Joe's home for$1,200. Alternatively, Joe can pick up the same computer at the warehouse for $1,000.How should Joe buy the computer? A) Joe should drive to the warehouse if his cost of driving to the warehouse is greaterthan $200. B) Joe should drive to the warehouse because $1,000 is less than $1,200. C) Joe should drive to the warehouse because the $200 he would save by driving tothe warehouse is more than 10% of the purchase price. D) Joe should drive to the warehouse if his cost of driving to the warehouse is lessthan $200.

D) Joe should drive to the warehouse if his cost of driving to the warehouse is lessthan $200.

In a market in which the government has set a price ceiling below the equilibrium price: A) quantity supplied will exceed quantity demanded. B) the quantity demanded will equal quantity supplied. C) there will be excess supply. D) a black market might develop.

D) a black market might develop.

During Thanksgiving you participated in a pumpkin-pie eating contest. You reallyenjoyed the first two pies, the third one was okay, but as soon as you ate the fourth oneyou became ill and lost the contest. Your total utility ________ with the first three piesyou ate. A) stayed the same B) first increased than decreased C) decreased D) increased

D) increased

If the price of textbooks increases by one percent and the quantity demanded falls byone-half percent, then demand for textbooks is: A) elastic. B) negative. C) unit elastic. D) inelastic.

D) inelastic.

Alex wants to maximize his utility. At his current level of consumption, Alex'smarginal utility from an additional cup of coffee is 15 utils, and his marginal utilityfrom an additional can of soda is 11 utils. If the price of a cup of coffee is $3 and theprice of a can of soda is $2, Alex should: A) decrease his spending on both coffee and soda. B) reallocate his spending away from soda and towards coffee. C) not change his consumption of either coffee or soda. D) reallocate his spending away from coffee and towards soda.

D) reallocate his spending away from coffee and towards soda.

You have noticed that there is a persistent shortage of teachers in an inner-city schooldistrict in your state. Based on this observation, you suspect that: A) there is an excess supply of teachers in other districts. B) the demand for teachers in the inner-city school district is too low. C) the wage for teachers in that district is higher than the wage in other districts. D) the wage for teachers in that district is lower than the equilibrium wage.

D) the wage for teachers in that district is lower than the equilibrium wage.