Microeconomics: Chapters 1-5

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Which of the following determines whether a firm will earn higher revenues when it raises its price?

The price elasticity of demand.

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

inelastic.

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. They then notice that they are selling approximately 15 percent fewer sodas. The price elasticity of demand for sodas from the campus vending machines, therefore, is:

inelastic.

If demand is ___ with respect to price, a price increase will ___ total revenue.

inelastic; increase

A market equilibrium:

leaves no unexploited opportunities for individuals.

All else equal, the jobs that are the least likely to be outsourced are those that:

require face-to-face communication.

Refer to the accompanying figure. Suppose a consumer protection group convinces the government to impose price controls in this market. If the government requires cheese to be sold for less than the equilibrium price, then, relative to before the price controls, total consumer surplus in the market:

could either increase or decrease.

If two products are substitutes, then the:

cross-price elasticity of demand between them will be positive.

As the price of flour (an input in the production of cookies) increases, firms that produce cookies will:

decrease in the supply of cookies.

If a nation restricts imports, it will:

decrease the total value of goods and services produced in that nation.

A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to:

0.5

Refer to the accompanying graph. What is the price elasticity of demand when the price of rice is $3 per pound?

0.5

Suppose that the demand for electricity has been found to be price inelastic. The most likely explanation for this finding is that:

few substitutes for electricity exist.

Refer to the accompanying table. Total utility ___ as additional apples are consumed, but marginal utility ___ with each additional apple consumed.

first increases then decreases; decreases

Which of the following jobs is least likely to be outsourced?

flipping hamburgers

If an increase in the price of good X leads to a decrease in the demand for good Y, then:

good X and good Y are complements.

You have found data that indicates that the income elasticity of demand for generic (unbranded) shampoo is -0.7. You should conclude that generic shampoo:

is an inferior good.

Consumer surplus measures:

the difference between the most a buyer would be willing to pay for a product and the price actually paid.

When a market is not in equilibrium:

the economic motives of sellers and buyers will move the market to its equilibrium.

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect:

the equilibrium price and quantity of pencils to fall.

When the supply curve shifts to the left and there is no change in demand:

the equilibrium price will rise.

The tendency for marginal utility to decline as consumption increases beyond some point is called:

the law of diminishing marginal utility.

The price elasticity of supply at a point is the:

the percentage change in quantity supplied divided by the percentage change in price.

The Scarcity Principle states that:

with limited resources, having more of one thing means having less of another.

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is:

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $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 of attending NoName U is:

$20,000

You won a free ticket to see the latest Star Wars movie this Friday night (which you can costlessly resell for its face value of $15). Your favorite band is also performing on Friday and is your only alternative activity. Friday is your last chance to see either the movie or the band. Tickets to see your favorite band cost $30, and on any given day, you would be willing to pay as much as $50 for a ticket. Based on this information, what is your opportunity cost of going to see the Star Wars movie on Friday?

$35

$35,000

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. The benefit to Matt of driving to campus to buy the concert ticket last week was:

Jack has a ticket to see the Foo Fighters for which he paid $30 yesterday. He takes an unpaid day off from work to get ready for the concert. When he arrives at the concert, five different people offer him $70 for his ticket. Jack decides to keep his ticket. At the time he makes this decision, his opportunity cost of seeing the Foo Fighters is:

$70

$70,000

Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Suppose Smith and Jones begin by producing 0 computers and 220 calculators per hour. If they wish to produce 2 computers and 200 calculators per hour efficiently, then Smith should spend ___, and Jones should spend ___.

12 minutes making computers and 48 minutes making calculators; 1 hour making calculators.

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table. Based on last month's data, Larry's opportunity cost of selling a truck is selling:

2 cars.

Refer to the accompanying table. Corey's opportunity cost of delivering of a pizza is making:

2 pizzas.

A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can assembly 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. If the firm sells each computer for $650, then how many hours a day should the firm employ Pam to maximize its net benefit from her employment?

4 hours

Earth Movers & Shakers operates 3 iron ore mines. The accompanying table shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. The opportunity cost of moving one miner from Mother Lode to another mine is:

4 tons per day.

Frank owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the accompanying table below. If Frank spends 2 hours picking apples in the east orchard and 2 hours picking apples in the west orchard, how many apples in total will Frank be able to pick today?

If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. Which of the following statements is correct?

Ana has the comparative advantage in fudge, but Leo has the absolute advantage in fudge.

Ana specializes in fudge and Leo specializes in toffee.

For the fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your marginal cost of the 100th meal is:

Refer to the accompanying table. ___ has the comparative advantage in making pizza, and ___ has the comparative advantage in delivering pizza.

Corey; Pat

The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts. The maximum number of dresses that Becky can make in a day is represented by point:

Yes, this point it attainable, but inefficient.

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. If the Chicago-Atlanta round-trip air fare were $350, should you use the coupon to go to Miami?

Yes, your economic surplus would be $50.

You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. Should you go see a movie or work as a math tutor?

You should work as a math tutor.

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. Given that driving to campus to buy the concert ticket was rational for Matt, Matt should:

drive to campus to buy the books because the $5 he would save is more than he saved driving to campus to buy the concert ticket.

The benefits to specialization are even greater when two trading partners have:

large difference in opportunity costs.

A rational person:

makes choices based on added benefits and added costs.

The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts. Relative to point X, at point Y:

more skirts and fewer dresses are produced.

Refer to the accompanying table. Based on their comparative advantage, Martha should specialize in making ____ while Julia should specialize in making ____.

pies; cakes

Normative economic principles are concerned with how people ___ make decisions while positive economic principles are concerned with how people ___ make decisions.

should; do

Refer to the accompanying figure. For the nation whose PPC is shown, it must be true that:

some of the nation's productive resources are better-suited to making milk, and some are better-suited to making movies.

Refer to the accompanying figure. If Pat and Chris each spend half their time on each task, then:

they will plant fewer bulbs and remove fewer bags of trash than if they each had specialized in the task at which they have a comparative advantage.

Refer to the accompanying table below. The marginal cost of the 4th unit of activity is:

Taylor's marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20. If Taylor eats out 3 times a month, Taylor will watch ___ movies, and have marginal utility per dollar of ___ from eating out and a marginal utility per dollar of ___ from going to the movies.

4; 6; 1/2

Refer to the accompanying figure. What is the equilibrium quantity of bananas in this market?

5 pounds/day

Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then at a price of $2.00 per pound, the market demand for hamburger is:

6 pounds per week.

Which of the following is likely to lead to a decrease in the demand for tennis balls?

An increase in the price of tennis racquets.

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?

Joe should drive to the warehouse if his cost of driving to the warehouse is less than $200.

The fact that the average price of a gallon of gasoline is much higher in England than in the U.S. leads to which of the following predictions?

Large cars with poor gas mileage will be less popular in England than in the U.S.

You are the Minister of Trade for a small island country with the following annual PPC. You are negotiating a trade agreement with a neighboring island with the following annual PPC. If you offer to give the other island 1 coconut for every 4 fish they give you, then they will:

accept your offer because their opportunity cost of a coconut is greater than 4 fish.

The price of bananas will increase in response to:

an excess demand for bananas.

When two people agree to a price in a negotiation, we can assume that:

both parties will benefit.

According to the accompanying table, Julia has the absolute advantage in making:

both pies and cakes.

Equilibrium price and quantity are determined by:

both supply and demand.

A movement along a demand curve from one price-quantity combination to another is called a:

change in quantity demanded.

In general, individuals and nations should specialize in producing those goods for which they have a(n):

comparative advantage.

The Scarcity Principle applies to:

everyone.

Suppose supply decreases, but there is no change in demand. As the market reaches its new equilibrium:

excess demand will lead the price to rise.

The demand for a good is elastic if the price elasticity of demand is:

greater than one.

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph. At a price of $15 (the price at which the two demand curves intersect), the price elasticity of demand for the new drug is ___ the price elasticity of demand for the over-the-counter pain reliever.

less than

Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ___ the price elasticity of demand for a Snickers candy bar at the grocery store.

less than

Refer to the accompanying figure. Suppose the solid line shows the current demand curve for coffee. In response to an announcement that much of next year's coffee crop has been destroyed by a storm in Brazil, you should expect:

the demand curve to shift to D(B) in anticipation of higher future prices.

If supply increases, then:

the quantity demanded will increase.

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests:

there are few other places to purchase soda on campus.

At her current level of consumption, Jess gets half as much marginal utility from an additional bagel as from an additional muffin. If the price of muffin is $2 each, then Jess is maximizing her utility if the price of a bagel is:

$1.00

$22

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35

At her current level of consumption, Wiebke's marginal utility from an additional pencil is 15 utils, and her marginal utility from an additional pen is 10 utils. This implies that Wiebke would be willing to give up at most _____ pencils for an additional pen.

0.66

Refer to the accompanying figure. What is the price elasticity of supply at point A?

The accompanying table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. The Chair of the Economics Department at State U says that fundraising employees should be hired as long as their marginal benefit exceeds their marginal cost. If the University follows this advice, then ___ employee(s) will hired, and the net benefit (total donations minus total labor costs) will be ___.

2; $25,426

Refer to the accompanying figure. The absolute value of the slope of the demand curve D1 is ___, and the absolute value of the slope of demand curve D2 is ___.

2; 1/2

Refer to the accompanying figure. For demand curve D1, what is the price elasticity of demand when P = 12?

Suppose Bianca buys a used a textbook from Sebastian for $55. If Bianca's surplus from this transaction was $10, we can infer that:

Bianca's reservation price was $65.

For which of the following products is demand likely to be least elastic with respect to price?

Food

Refer to the accompanying figure. If the price rises from $10 to $14, what will happen to the price elasticity of supply?

It decreases.

Refer to the accompanying figure. At P = 4, how does the price elasticity of demand for D1 compare to that for D2?

It will be lower for D1 than D2.

If Les can produce two pairs of pants per hour while Eva can produce one pair per hour, then it must be true that:

Les has an absolute advantage in producing pants.

Lou and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The accompanying table shows the number of rooms they can each clean and the number of meals they can each cook in an hour. If Alex and Lou work out an efficient arrangement for these two chores, then under that arrangement:

Lou would do all of the cleaning, while Alex would do all of the cooking.

If a consumer reallocates his or her spending away from Good B and towards Good A, then the consumer's total utility will increase if:

MUA/PA > MUB/PB.

Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger can gather more mangoes per hour than Maryann and can also catch more fish per hour than can Maryann. Therefore:

Maryann should specialize in the activity for which she has a comparative advantage.

A good example of central planning at work in the U.S. is:

New York City's rent control program.

Pat can either drive to work, which takes half an hour and uses $1.50 worth of gas, or take the bus, which takes an hour and costs $1.00. How should Pat get to work?

Pat should drive if saving half an hour is worth $0.50 or more.

Suppose it takes Paul 3 hours to bake a cake and 2 hours to mow the lawn, and suppose it takes Tom 2 hours to bake a cake and 1 hour to mow the lawn. Which of the following statements is correct?

Paul has the comparative advantage in baking cakes.

Suppose that Chris had been charging $1.00 per pound for potatoes. When Chris lowered the price to $0.90 per pound, his total revenue fell. When Chris raised the price to $1.10, total revenue also fell. Which of the following could explain this?

The price elasticity of demand for potatoes is 1 at a price of $1.00 per pound.

Refer to the accompanying figure. At a price of $9, there will be:

an excess supply of 5 units.

Refer to the given table. Relative to column A, column B represents:

an increase in demand.

Refer to the accompanying figure. Assume the market is originally at point W. Movement to point Y is the result of:

an increase in supply and an increase in quantity demanded.

Two goods are complements if:

an increase in the price of one good leads to a decrease in demand for the other.

An increase in the demand for GM automobiles results in:

an increase in the quantity supplied of GM automobiles.

Suppose that the technology used to manufacture laptops has improved. The likely result would be:

an increase in the supply of laptops.

If the income elasticity for a particular good is negative, then:

as income increases, consumers tend to purchase less of the good.

According to the law of diminishing marginal utility:

as you consume less of something, your marginal utility from consuming that good will increase.

Refer to the accompanying table. Based on their comparative advantages, Pat should specialize in ____, and Corey should specialize in ____.

delivering pizza; making pizza

Refer to the accompanying figure. For Jeff, the consumption of movies reflects the law of:

diminishing marginal utility.

Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should:

drink a third glass of soda if the extra benefit of doing so is positive.

If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is:

elastic.

Sven likes to water ski, but can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's marginal utility from his first hour of skiing was ___ his marginal utility from his tenth hour of skiing.

greater than

If bagels and cereal are substitutes, then the cross-price elasticity of demand between bagels and cereal will be:

greater than zero.

Refer to the accompanying figure. It is efficient for this farmer to:

grow 500 bushels of wheat and 250 bushels of corn.

Suppose the market for shoes consists of three consumers. The accompanying table shows the quantity demanded at various prices for each consumer. The data suggest that Leigh:

has a greater demand for shoes than either Pat or Chris does.

According to the Principle of Increasing Opportunity Cost, in expanding the production of any good, we should start by utilizing the resources that:

have the lowest opportunity cost.

All else equal, compared to small-budget items such as paper towels, the price elasticity of demand for big-ticket items such as refrigerators is:

higher.

increased

Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ___ and PepsiCo's ability to raise revenues through price increases ___.

increased; was reduced

According to the Incentive Principle, people will be less likely to smoke if the government:

increases taxes on cigarettes, effectively raising the price.

The benefits of specialization can be used to explain why:

individuals and nations benefit from trade.

For any horizontal demand curve, the price elasticity of demand is:

infinite.

When Thurston catches 10 fish a day, he can gather a maximum of 40 coconuts, and when he catches 20 fish a day, he can gather a maximum of 30 coconuts. If Thurston's opportunity cost of producing each good increases as he produces more of it, and he decides to catch 30 fish a day, then the maximum number of coconuts he can gather must be:

less than 20.

Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is:

less than zero.

The cross-price elasticity of demand between two goods that are substitutes can never be:

negative.

According to the accompanying table, Martha has the absolute advantage in making:

neither pies nor cakes.

The absolute price of a good in dollar terms is the good's:

nominal price.

If the demand for a good decreases as income decreases, then the good is a(n):

normal good.

During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durable goods are:

normal goods.

An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of:

normative economics.

One thing that distinguishes normative economic principles from positive economic principles is that:

normative principles tell us how people should behave, and positive principles tell us how people will behave.

If a given production combination is efficient, then it must be:

on the production possibilities curve.

An implication of scarcity is that:

people must make trade-offs.

Suppose a retail store was offering 10 percent off list prices on all goods. The benefit of the 10 percent savings is:

positively related to the list price of the good.

The percentage change in quantity demanded that results from a 1 percent change in price is known as the:

price elasticity of demand.

The accompanying graph depicts demand. At point D, demand is:

price inelastic.

If there is an excess supply of sport utility vehicles, then:

quantity supplied is greater than quantity demanded.

If cross-price elasticity of demand between two goods is positive, the two goods are:

substitutes.

If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are:

substitutes.

The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are:

substitutes.

The Scarcity Principle tells us ___, and the Cost-Benefit Principle tells us ___.

that choices must be made; how to make good choices

The price elasticity of demand is a measure of:

the change in quantity demanded of a good that results from a change in its price.

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph. Demand for the new drug is ___ while demand for one brand of the over-the-counter pain relievers is ___.

the line labeled A; the line labeled B

You read online that, at current rates of production, the yearly world supply of food is sufficient to feed the projected 2050 population of earth, but that after 2050 there will be massive starvation. This prediction appears to assume that:

the long-run supply of food is perfectly inelastic.

The opportunity cost of an activity includes the value of:

the next-best alternative that must be foregone.

Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then:

the opportunity cost of attending State U. includes the money Alex could have earned working for four years.

If supply and demand both increase, the new equilibrium price will be ___ and the new equilibrium quantity will be ___.

uncertain; higher

Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:

unit elastic.

Whether studying the output of the U.S. economy or how many classes a student will take, a unifying concept is that:

wants are unlimited and resources are scarce, so trade-offs have to be made.

For two goods, X and Y, to be classified as substitutes, it must be the case that:

when the price of X rises, the demand for Y increases.

Refer to the accompanying graph. What is the price elasticity of demand at point A?

Points that lie beneath the production possibilities curve are:

attainable but inefficient.

Refer to the accompanying figure. If Zeynep's current budget constraint is BC2, and her budget for ham sandwiches and cheese sandwiches is $120, then the price of a cheese sandwich is:

$6.

If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand?

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the:

cross-price elasticity of demand.

Refer to the accompanying figure. Suppose the solid line represents the current supply of Star Wars action figures. If retailers learn that a new Star Wars movie will be released in several months, this news is likely to cause:

current supply to shift to S(A) in anticipation of higher future prices.

Refer to the accompanying figure. An increase in demand is represented by a shift from:

curve C to curve D.

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of:

inconsistent reasoning; saving $20 is saving $20.

Refer to the accompanying figure. Moving from demand curve D1 to demand curve D2 illustrates a(n):

increase in demand.

The Incentive Principle states that a person:

is more likely to take an action if its benefit increases.

If the demand for electricity is inelastic, and the local utility wants to increase its total revenue, it should ____ its price.

raise

A seller's reservation price is generally equal to:

the seller's marginal cost.

If you have a comparative advantage in a particular task, then:

you give up less to accomplish that task than do others.

Refer to the accompanying figure. Let εX denote the price elasticity of demand at point X. Which of the following describes the relationship between εA, εB and εC?

εA> εC> εB

The following accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CUP speed is the only source of variation), and only the CPU speeds listed below are available for purchase. The total cost of a 2.5GHz computer is:

$1,000

Jody has purchased a non-refundable $75 ticket to attend a Miley Cyrus concert on Friday night. Subsequently, she is asked to go to out dinner at no expense to her. If she uses cost-benefit analysis to choose between going to the concert and going out to dinner, the opportunity cost of going out to dinner should include:

only the entertainment value of the concert.

Economists believe the Cost-Benefit Principle is:

a simple but useful model of how people should make choices.

A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. What is the marginal cost of producing the computers that Pam can assemble during her 3rd hour of work?

$1,240

$1,840

$11,000

The accompanying table below shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. What's the average benefit of 4 car washes per month?

$14

At his current level of consumption, Evan gets twice as much marginal utility from an additional bottle of water as that from an additional bottle of soda. If the price of soda is $1.00 per bottle, then Evan is maximizing utility if the price of a bottle of water is:

$2.00

The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts. At a price of $15 per unit, what would be the total consumer surplus in this market each day?

$75

Refer to the accompanying figure. What is the slope of the supply curve?

1/2

Refer to the accompanying figure. For Chris, the opportunity cost of planting one bulb is removing:

1/3 of a bag of trash.

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table. Based on last month's data, Ralph's opportunity cost of selling a truck is selling:

1/4 of a car.

Refer to the accompanying figure. For Pat, the opportunity cost of planting one bulb is removing:

1/5 of a bag of trash.

Jamie's marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. If Jamie consumes 3 muffins a day, then what is her marginal utility per dollar spent on the third muffin?

Frank owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the accompanying table below. What is the opportunity cost to Frank of spending an additional hour picking apples in the East orchard?

10 apples

Refer to the accompanying figure. What is the price elasticity of supply at point B and point C?

1; 1

Refer to the accompanying figure. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is ___ and for D2 the price elasticity of demand is ___.

1; 4

If a 10 percent decrease in the price of a good leads to a 20 percent increase in the quantity demanded, then what is the price elasticity of demand?

Jamie's marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. What is Jamie's optimal combination of muffins and doughnuts each day?

2 muffins, 4 doughnuts

If the absolute value of the price elasticity of demand for tickets to a football game is 2, then if the price increases by 1 percent, quantity demanded decreases by:

2 percent.

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. Dusty can buy a maximum of ___ loaves of bread or a maximum of ___ jars of peanut butter.

20; 10

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a:

3 percent decrease in the quantity of pineapples demanded.

Refer to the accompanying figure. If this restaurant makes 75 salads in one hour, then what's the maximum number of pizzas it can make in that same hour?

The accompanying figure shows a single consumer's demand for ice cream at the student union. If there are 1,000 students on campus during a regular semester, and each student's weekly demand for ice cream is shown above, then when the student union charges $3.00 per scoop, those 1,000 students purchase a total of ___ scoops per week.

4,000

The accompanying graph depicts demand. The price elasticity of demand at point B is:

4/3

If the price elasticity of demand for chicken is 2, then a 20 percent decrease in the price of chicken will lead to a:

40 percent increase in the quantity demanded of chicken.

Refer to the accompanying table. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule is satisfied when the consumer purchases ___ units of Good A and ___ units of Good B.

4; 3

Refer to the accompanying table. If the price of Good A is $2 and the price of Good B is $6, then the rational spending rule is satisfies when the consumer purchases ___ units of Good A and ___ units of Good B.

4; 3

Refer to the accompanying figure. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do?

Reduce the price from $2.00 to $1.75.

Assume both the demand for bagels and the supply of bagels increase. Which of the following outcomes is certain to occur?

The equilibrium quantity of bagels will rise.

Refer to the accompanying figure. If the price of this good is initially $3, and price falls by a few cents, then what will happen to total expenditure on this good?

Total expenditure will fall.

If the elasticity of demand for the latest American Idol album is 1.4, this means

a 5 percent increase in the price leads to a 7 percent decrease in the quantity demanded.

A decrease in both the equilibrium price and the equilibrium quantity of rice is best explained by:

a decrease in the demand for rice.

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.

All else equal, the price elasticity of demand tends to be higher when:

a good has many substitutes.

The fact that most people make some decisions based on intuition rather than calculation is:

consistent with the cost-benefit model because most people intuitively weigh costs and benefits.

Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role was as a:

consumer at the electronics store and a seller on e-Bay.

If the cross-price elasticity of demand between lettuce and salad dressing is negative, then when the price of lettuce rises, the demand for salad dressing will ___.

decrease

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph. The manufacturer of the over-the-counter pain reliever would ____ total revenue by increasing the price from $15 to $16.

decrease

If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1 percent, quantity demanded would:

decrease by 3 percent.

Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda increases from $0.75 to $1.00 per can, the quantity of soda demanded in the market will ___ by ___ cans per month.

decrease; 40

All else equal, a decrease in the demand for oranges will lead to a(n) ______ in equilibrium price and a(n) ______ in equilibrium quantity.

decrease; decrease

If the percentage change in the price of a good is less than the resulting percentage change in the quantity demanded of that good, then the demand for that good is:

elastic.

If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ___ because these two goods are ___.

equal to 1; inelastic

At the midpoint of a straight-line demand curve, the price elasticity of demand is:

equal to one.

If price is above the equilibrium price, then there will be:

excess supply.

Refer to the accompanying figure. Moving from demand curve D1 to demand curve D2 could be caused by a(n):

increase in the price of a close substitute.

Refer to the accompanying figure. Moving from demand curve D2 to demand curve D1 could be caused by a(n):

increase in the price of a complement.

Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then when the price of hamburger decreases from $2.50 to $2.00 per pound, the quantity demanded in the market will ___ by ___ pound(s) per week.

increase; 1.5

Refer to the accompanying figure. As the production of pizza increases, the opportunity cost of producing pizza:

increases.

Suppose that the short-run price elasticity of demand for electricity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being ___ and the long-run elasticity as being ___.

inelastic; elastic

Suppose you drive a car that gets good gas mileage, and you notice that more and more people are driving gas-guzzling cars. Their increased demand for gas:

is likely to cause the price you pay for gas to increase.

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:

is perfectly inelastic.

The market equilibrium quantity:

is sometimes the socially optimal quantity.

The price elasticity of demand is typically expressed as a positive number because:

it's convenient to use absolute values.

The Cost-Benefit Principle indicates that an action should be taken if:

its extra benefit is greater than or equal to its extra cost.

Jeans in general have fewer close substitutes than a specific brand of jeans. Therefore, the demand for jeans in general will be ___ than the demand for a specific brand of jeans.

less elastic

Refer to the accompanying figure. At P = 8 and Q = 4, D1 is ___ elastic than D2, which is shown graphically as D1 being ___ D2.

less; steeper than

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ___ than the price elasticity of demand for big-ticket items such as flat-screen TVs.

lower

For Outback Steakhouse, seating capacity is limited in the short run. In the long run, they can add as many seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ___ in the short run than in the long run.

lower

Suppose you have one hour to catch a flight to Miami for spring break, and it takes 45 minutes to drive to the airport. Your car is almost out of gas and the price of gas at the closest gas station is higher than at other gas stations that are much farther away. To you, the price elasticity of demand for gas is likely to be ___ than it would be if you had several hours before the flight.

lower

A firm that produces a good with many substitutes will most likely find that:

lowering its price will increase total revenue.

Which branch of economics is most likely to study differences in countries' growth rates?

macroeconomics

Refer to the accompanying table. According to the table, Corey has the absolute advantage in:

making pizza.

If the demand for a good is highly elastic, that good is likely to have:

many close substitutes.

The extra cost that results from carrying out one additional unit of an activity is the ___ of the activity.

marginal cost

A study that deals with the salaries of university professors would be considered:

microeconomics.

A market equilibrium:

might not maximize total economic surplus.

Points that lie below the production possibilities curve are inefficient because:

more of one good could be produced without producing less of the other.

Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ___ compared to the supply at a pizza restaurant that does not serve calzones.

more price elastic

If the demand curve for open-heart surgery is vertical for people with serious heart conditions, then the demand for open-heart surgery is ___ with respect to price.

perfectly inelastic

A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a:

production possibilities curve.

If the supply curve and the demand curve both shift to the left, then the new equilibrium:

quantity will be lower, but the direction of the price change is uncertain.

At a price of $20 each, the demand for t-shirts from a group's fundraising activity is unit elastic. Thus, the group's total revenue from selling t-shirts ___ at a price of $20 each.

reaches its maximum

Refer to the accompanying figure. This economy would be operating at point B if:

resources that are better-suited to making movies were being used to make milk, while resources that are better-suited to making milk were being used to make movies.

Refer to the accompanying figure. Suppose the solid line represents the current supply of Star Wars action figures. If the price of the plastic used to make action figures rises, current supply will:

shift to S(A).

Refer to the accompanying figure. Suppose the solid line shows the current demand for coffee. In response to a news story explaining that coffee causes heart disease, you should expect:

the demand curve to shift to D(A) because some people will stop drinking coffee.

Refer to the accompanying figure. Suppose the solid line shows the demand for coffee. If coffee and tea are substitutes, and the price of tea falls, then you would expect:

the demand curve to shift to D(A).

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

water production is characterized by increasing opportunity costs.

The idea that tradeoffs have to be made when resources are scarce is reflected in the fact that:

the production possibilites curve has a negative slope.

Suppose that the price of doughnuts decreases. Given that doughnut holes are a by-product of producing doughnuts, one would expect:

the supply of doughnut holes to decrease.

When a nation reduces the barriers to international trade:

the total value of all goods and services produced by the nation rises.

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that:

there are fewer substitutes for chicken generally than for Tyson chicken.

Refer to the given table. Suppose the columns in this table reflect demand and supply. At a price of $30:

there will be an excess demand of 45 units.

Economists use abstract models because:

they are useful for describing general patters of behavior.

If marginal utility is positive, then as consumption increases:

total utility will increase.

Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways?

More drivers would drive on the non-toll road, making the toll road less congested.

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. Should you use the frequent flyer coupon to go to Miami?

No, your benefit is less than your cost.

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table. Based on last month's data, ___ should specialize in truck sales, and ___ should specialize in car sales.

Ralph; Larry

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