MULTIPLE CHOICE HOMEWORK ASSIGNMENTS CHAPTERS 1, 3, 4, 5
Suppose country A has five families. Their incomes are $11,000, $21,000, $29,000, $39,000, and $49,000. Country A's median income is ___________, and its mean income is __________
$29,000; $29,800
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. You suggest that the team _____________.
design and execute an experiment.
If the income elasticity of demand for a good is negative, the good is
inferior
What is meant by comparative statics?
A change in an outcome, such as work, that results from a change in a factor, such as the wage.
Consider the following table: Item % change in P % change in Q Sofas 20 -15 Floor Lamp 9 -9 Oriental Rugs -20 28 A) For sofas, the price elasticity of demand is _____. Demand for sofas is _______. B) For lamps, the price elasticity of demand is ________. Demand for lamps is ____________. C) For rugs, the price elasticity of demand is _______. Demand for rugs is _______. D) Of these three price changes, which would, through its impact on sales, generate a revenue increase for the store?
A) -.75; inelastic B) -1; unit elastic C) -1.4; elastic D) sofas and rugs
The total benefit for burgers and beers is given below. Burgers cost $20 and beers cost $40. Quantity Total Benefit Burgers Total Benefit Beer 1 20 40 2 35 60 3 50 70 4 65 75 A) What is the marginal benefit of the third beer? B) The marginal benefit per dollar of the second burger is ______. C) Which of the following is true regarding an extra dollar spent on the second burger?
A) 10 B) $0.75 C) It gives more benefit than an extra dollar spent on the second beer.
What areas are addressed in the study of economics?
A. Optimal tax policies. B. The costs associated with a decision. C. Prices D. Money
Which of the following is not an example of causation? A. Washing your car will lead to raining that day. B. Heavy drinking will lead to liver disease. C. Exercising daily will lead to weight loss. D. All of the above are examples of causation.
A. Washing your car will lead to raining that day.
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve?
All variables that can affect the demand for the good are held constant.
In a perfectly competitive market, ___________.
all of the buyers and sellers are price takers
Why does a demand curve with a constant slope not have a constant elasticity?
Slope is based on absolute change and elasticity is based on percentage change.
As the text explains, it can sometimes be very difficult to sort out the direction of causality. Causation occurs when there is ____________.
a logical cause-and-effect relationship.
A negative income elasticity would indicate _________ good. If your income increased 10% and your demand for diamond jewelry increased 15%, diamond jewelry would be considered _______ good.
an inferior; a luxury
To say that economists use the scientific method means that they are using ___________.
an ongoing process to develop models of the world and then test and evaluate those models.
If the government sets a minimum wage for seasonal workers, then the supply curve for sparkling wine would __________.
decrease (shift left)
If the number of sellers of sparkling wine decreases significantly, then the supply curve for sparkling wine would __________.
decrease (shift left)
A consumer's budget constraint refers to the collection of all possible bundles that ___________.
exactly exhaust a consumer's entire budget.
For a trade to take place, a buyer's willingness to pay must be ____________.
higher than the seller's willingness to accept and equal to the seller's willingness to accept.
For two goods that are complements, the cross-price elasticity of demand will be
negative
A study was conducted examining diabetes rates by ethnicity. It was determined that Hispanics had the highest rate of diabetes. A conclusion might be made that people of Hispanic origin are the most inclined to be diabetic. However, that positive correlation could be the result of _____________ given that other factors, such as diet, that were not considered.
omitted variables
Suppose Hershey's increases the price of its chocolate syrup by 14 percent. In response, the quantity demanded of Nesquik chocolate syrup rises by 10 percent and the quantity demanded of Breyer's vanilla ice cream falls by 5 percent. The cross-price elasticity of demand between Hershey's syrup and Nesquik's syrup is _______ , implying these two goods are ________ _. The cross-price elasticity of demand between Hershey's syrup and Breyer's vanilla ice cream is ________, implying these two goods are __________. Suppose that incomes rise by 9 percent given the price change cited above. As a result, Hershey's experiences a 5 percent increase in sales volume. Given this information, Hershey's syrup is a ________ good.
positive; substitutes; negative; complements; normal good
Economists refer to the process of adding up the individual demand curves to find the market demand curve as aggregation. Aggregation consists of fixing the _______________ and adding up the ____________ by each buyer.
price of the good; quantity demanded
Consumer surplus is __________.
the value or total benefits one receives from a good in excess of the price paid for it.
The Law of Supply states that, in most cases, the quantity supplied of a good ________ when the price of the good rises. This means we would expect a typical supply curve to be ____________
rises; upward-sloping.
In a perfectly competitive market, sellers _________ and buyers _________.
cannot charge more than the market price; cannot pay less than the market price.
Debbie, a member of your team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey. Troy, another member of your team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas. Debbie's method is a _____________ and Troy's method is ___________. Group A is the __________ and Group B is the _________
controlled experiment; natural experiment; treatment group; control group
Given that country A has a median income of $29,000 and a mean of $29,800 and country B has a median income of $29,000 and a mean of $49,800. Which country has greater income inequality?
country b
Economics is all about making choices. The reason we have to choose one thing over another is:
economic resources are scarce.
When economists test their theories using evidence-based analysis, they are most likely using __________.
empiricism through the use of data.
The following table shows the demand of books: Price ($) Quantity of books Demanded 0 300 20 200 40 100 60 0 A) Draw the demand curve B) Assume the law of demand is true. Also assume the information provided by the demand schedule is correct. However, make no other assumptions. Given this information, if the price of a book is $25, the quantity demanded of books will be ________ the quantity of books demanded when the price is $10 per book.
less than
In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________.
lose all or almost all of its customers.
Three years after graduating from college, you get a promotion and a 24 percent raise. Your consumption habits change accordingly. Suppose your consumption of sockeye salmon has increased by 32 percent. Your income elasticity of demand is __________. Thus, we can say that a sockeye salmon is a(n) ____________.
1.33; luxury good
Suppose 1,317 people bought popsicles on a hot summer day. If the average number of popsicles that each person bought is 9, the number of popsicles sold that day is
11,853
Suppose there are three goods: A, B, and C. The price of good A is $5, the price of good B is $10, and the price of good C is $20. The total budget of the consumer is $75. The total benefit from different quantities of each good is shown in the table below. Good A Good B Good C Quantity Total Benefits Total Benefits Total Benefits 0 0 0 0 1 45 58 80 2 81 103 154 3 111 143 222 4 135 176 275 5 155 203 320 The optimal choice for the consumer is: _____ unit(s) of good A, ____ unit(s) of good B, and _______unit(s) of good C. In equilibrium, the total benefits received by the consumer are ______.
5; 3; 1; $378
Suppose the price of X is $40, the price of Y is $50, and a consumer has income of $400. A) show the budget constraint for this consumer on the graph to the right. B) The opportunity cost of buying one unit of good Upper Y is ______unit(s) of good Upper X. C) Which of the following combinations of X and Y will be represented by a point on the consumer's budget constraint?
B) 1.25 C) 5 units of Upper X and 4 units of Upper Y.
We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in
only the price of a good
Suppose country B also has five families. Their incomes are $11,000, $21,000, $29,000, $39,000, and $149,000. Country B's median income is ___________ and its mean income is _________.
$29,000; $49,800
You have been invited to play a 4-hour round of golf that has a value to you of $70. The total price to play the round of golf is $35. The net benefit of the round of golf is _____. Now assume that you have a job that pays you $8 per hour. Would you be optimizing to accept the invitation to play golf? To optimize, you should _______
$35; play golf
You are hired as a consultant for a local restaurant. It is considering whether to close at 9:00 p.m., stay open an extra hour (10:00 p.m.), or close earlier (8:00 p.m.). Based on wages and utility bills, the added cost (the marginal cost) of staying open for each additional hour is $328. If the additional revenue (the marginal revenue) during the last hour is $368, the profit earned during the last hour of operation will be _________. If the additional revenue during the last hour is $268, the profit earned during the last hour of operation will be __________. If the additional revenue (the marginal revenue) from staying open until 10.00 p.m. is $328, the profit earned during the last hour of operation will be _________.
$40; -$60; $0
Jonathan works at a convenience store and makes note of changes to sales after the price of liquid soap unexpectedly increases by 20 percent. He notices that the sale of shampoo decreases by 8 percent and the sale of lotion remains constant. The cross-price elasticity of demand between liquid soap and shampoo is ____________. Based on the cross-price elasticity of demand, we can infer that liquid soap and lotion are ___________
-.4 ; unrelated
Which of the following statements about the principles of economics is false? A. An investor selecting and investing in a stock or a combination of stocks that always earns him 15% returns on his investment is an example of optimization. B. A chess player selecting his best moves to win the chess tournament is an example of optimization. C. Based on the sales of last three years, a shopkeeper infers that the higher the discount offered on goods the higher will be its demand. This is an example of empiricism. D. Five mobile operators selling mobile phones at the same price in a city is an example of equilibrium.
A. An investor selecting and investing in a stock or a combination of stocks that always earns him 15% returns on his investment is an example of optimization
What would cause a shift in the supply curve for orange juice? A. new machinery that speeds up the picking process. B. a freeze over all of Florida for three nights in a row. C. tax credits for citrus farmers. D. a new medical discovery about the benefits of citrus.
A. new machinery that speeds up the picking process. B. a freeze over all of Florida for three nights in a row. D. tax credits for citrus farmers.
Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, what would represent your budget constraint for entertainment?
Amount spent on iTunes + Amount spent at Redbox = $20.
An economist observes that many students spend $100,000 to go to college. She could ask whether such spending is worth it, or she could assume that it is worth it. In other words, she could assume that students are optimizing and that the education system is in equilibrium. Her analysis also assumes that there are no other benefits to college besides higher income and there are no other costs besides monetary costs. Which of the following, if true, supports the economist's conclusion? A. The opportunity cost of spending on college education is negative. B. A college education increases the earnings of an individual by at least $100,000 over his or her lifetime. C. The opportunity cost of spending on college education is zero. D. A college education has no impact on an individual's earnings over his or her lifetime.
B. A college education increases the earnings of an individual by at least $100,000 over his or her lifetime.
Suppose the market price of corn is $5.50 per bushel. Which of the following is not one of the three conditions that will need to be satisfied for the corn market to be in equilibrium at this price? A. The buyers of corn will only use it for activities that they feel are worth at least $5.50 per bushel. B. Both the buyers and sellers of corn could benefit by making small changes to their market behaviors. C. The cost to corn farmers of growing the corn must be less than $5.50 per bushel. D. The quantity of corn produced by corn farmers will equal the quantity purchased by buyers.
B. Both the buyers and sellers of corn could benefit by making small changes to their market behaviors.
Which of the following statements regarding a market are true? (Check all that apply.) A. It is a group of people who do not engage in any type of trade. B. It uses prices to allocate goods and services. C. It is always located at a specific place. D. It has different types of rules and arrangements for trading.
B. It uses prices to allocate goods and services. D. It has different types of rules and arrangements for trading.
Suppose a total of 2,500 students are allowed in the engineering programs at all of the colleges in a particular city. From the previous three years' record, it shows that the number of students who enroll in the entrance exam for the engineering program increases if there is an increase in the number of IT recruiters the previous year. This year there is a total of 3,200 students who have enrolled to take the entrance exam of which only up to 2,500 of those who passed would get in. Based on either the students' perspective or the college perspective, what combination of economic key concepts does the situation follow? A. Optimization and empiricism B. Optimization and equilibrium C. Optimization, equilibrium, and empiricism D. Equilibrium and empiricism
C. Optimization, equilibrium, and empiricism
Which of the following is not an item studied under microeconomics? A. Individual preferences. B. Prices of individual goods. C. Cigarette taxes. D. Aggregate issues.
D. Aggregate issues
Which of the following is true regarding the concept of causation? A. It states that if event A causes event B, then event B cannot have a causal effect on event A. B. It states that if event A causes event B, then event B must also cause event A. C. For any two events that occur, economists state that the first must have caused the second, since it came first. D. It describes how one event can bring about change in another.
D. It describes how one event can bring about change in another.
Suppose you come across a study that has discovered a link between reading books and life expectancy: People who read more books live longer. Which of the following correlations might exist between reading books and life expectancy even though there is no direct causal link between them? A. Reading books continuously for a long period of time can sometimes deteriorate an individual's learning process. B. Reading books continuously for a long period of time can sometimes deteriorate an individual's power of reasoning, causing early deaths. C. Individuals who can afford to spend more time reading books always enjoy more leisure and, therefore, earn less income, which leads to unsustainable life. D. Wealthy individuals who can afford to spend more time reading can also afford better medical care.
D. Wealthy individuals who can afford to spend more time reading can also afford better medical care.
How does microeconomics differ from macroeconomics?
Microeconomics is the study of how individuals, households, firms, and governments make choices, while macroeconomics is the study of the economy as a whole.
Some people choose to live close to the city center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being irrational?
No, because their opportunity cost of commuting must be lower.
Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $ 100 and his marginal benefit from an additional slice of pizza is $ 20. If the price of a soft drink is $ 5 and the price of a slice of pizza is $ 6, is Charley maximizing his total benefits?
No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits.
f a good is considered to be a luxury good, does it mean that the Law of Demand does not hold?
No, it only means that its income elasticity of demand is greater than 1.0, so the Law of Demand still holds.
John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman movie. He is _________.
Optimization in differences, since he is calculating the change in net benefits between alternatives.
Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam. She is____.
Optimization in differences, since she is calculating the change in net benefits between alternatives.
Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop United Airlines flight is $400, and the net benefit for the same trip flying on a one-stop American Airlines flight is $200. She is _____.
Optimization in levels, since she is comparing the net benefits between alternatives.
Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was $100. The same three courses online gave her a net benefit of $80, and all three in a lecture-based format gave her a net benefit of $90. She is _____.
Optimization in levels, since she is comparing the net benefits between alternatives.
Given the demand curve is Q = 6 - P A) fill in the table below Price ($) Quantity Demanded 0 1 2 3 4 5 6 B) Suppose another buyer shows up who is "willing to pay any amount" for one unit. If we take her word at face value, what does the new market demand curve look like?
Quantity demanded 6 5 4 3 2 1 0
Suppose you thought income inequality in the United States had increased over time. Would you expect the ratio of the mean income in the United States to the median income has risen or fallen?
Risen, because means change more with extreme values.
How is the mean calculated from a series of observations?
The mean is the sum values of the observations divided by the number of observations.
Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision?
The opportunity cost would be sleeping in late, since it was your next-best option.
Advances in wireless communication technology reduce the non-financial costs of long commutes: People who ride trains can get work done, and people who drive cars have more entertainment options. Given this information, which will be an effect on the geographic area of cities?
The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall.
How do economists distinguish between models that work and those that don't?
They test their models against real-world data.
The Law of Demand states that as the price of a good increases, ceteris paribus, the _________ decreases. This can be shown graphically with ____________, demand curve or numerically in a table using a _____________. The relationship that exists between these two variables can be described as ______________.
quantity demanded, a downward-sloping , demand schedule, negatively related
The competitive equilibrium price equates
quantity supplied to quantity demanded.
The Law of Supply states that as the price of a good increases, ceteris paribus, the _____________ , of that good increases. This can be shown graphically with ______________, supply curve or numerically in a table using a ____________. The relationship that exists between these two variables can be described as __________________.
quantity supplied; an upward-sloping; supply schedule; positively related
In general people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools and colleges teach people valuable skills, and employers are willing to pay higher salaries to attract people with those skills. The signaling argument says that college graduates earn more because a college degree is a signal to employers that a job applicant is diligent, intelligent, and persevering. The _____________ implies that a college student who drops out of school one month before graduation should earn much less than a student who graduates. The _____________ implies that a college student who drops out of school one month before graduation should earn almost the same as a student who graduates.
signaling argument; human capital argument
Coffee and tea are likely _______ because an increase in the price of coffee _________ the demand for tea.
substitutes, increases
Research was conducted by professor Jobs to check which one program out of three given programs is the optimal choice for a student. The three options are a 6 month, a 12 month, or a 15 month program. Important information considered by the professor in his research is how much a student pays in tuition and fees for a given program within different time spans. The program is intensive, so it can be completed faster but at higher costs. The three programs yield the same benefit for the student. The program can be completed in 6 months, 12 months, or 15 months. The tuition and fees are $38,600, $35,000 and $28,600 respectively. Professor Jobs assumes the opportunity cost of time to a student for the program is $2,000 per month Therefore, the professor concludes that the optimal decision for the student is to choose _______________. If professor Jobs assumes the opportunity cost of time to a student for the program is $500 per month instead of $2,000 per month, then the $2,000 per month cost curve lies __________ the $500 per month cost curve. The optimal program for students when the opportunity cost of time for the program is $500 per month _____________ when compared to the scenario with the opportunity cost of time is $2,000 per month.
the six month program; above; switches to the fifteen month program
When John determines what choice of walking shoes will give him the best bang for his buck, he is using optimization based on ___________. When Janet looks at the additional value of purchasing a new laptop to the cost as compared to keeping her old one, she is using optimization based on ____________
total value; marginal analysis
Your budget constraint for entertainment illustrates the concept of ________, since as you increase your purchases of one item, you __________________.
trade-offs; must decrease your purchase of the other item
The opportunity cost of an activity is a measure of _____________________when you do that activity.
what is given up
For an individual, consumer surplus is calculated as the difference between the ______________ to pay and the price actually paid for a good.
willingness
The lowest price that a seller is willing to receive to sell an extra unit of a good is called __________ while the highest price that a buyer is willing to pay for an extra unit of a good is called ____________.
willingness to accept; willingness to pay
Three years after graduating from college, you get a promotion and a 24 percent raise. Your consumption habits change accordingly. Suppose your consumption of frozen hot dogs has reduced by 16 percent. Your income elasticity of demand is ____________ Thus, we can say that a frozen hot dog is a(n) ___________.
-.66 ; inferior good
Three years after graduating from college, you get a promotion and a 24 percent raise. Your consumption habits change accordingly. Suppose your consumption of pork chops has increased by 20 percent. Your income elasticity of demand is ____________. Thus, we can say that a pork chop is a(n) ____________.
.83; normal good
Henry has $420 to spend on movies and concerts. Suppose the price of a movie ticket is $14 and the price of a concert ticket is $70. A) Draw Henry's budget line B) Now suppose Henry has $840 to spend rather than $420. How will this change affect Henry's budget line?
B) It shifts outward in a parallel fashion.
Suppose the demand for a good is given by: Q = 4-1p A. Draw the demand curve B. Suppose the price is $1. What is the consumer surplus? C. Suppose the price is $3. What is the consumer surplus?
B. 4.5 C. 5
Which of the following is are characteristics of a market (there are multiple)? A. Markets are physical locations where trading occurs B. There are rules and arrangements for trading C. Flexible prices D.Voluntary exchanges between economic agents
B. There are rules and arrangements for trading C. Flexible prices D.Voluntary exchanges between economic agents
In equilibrium, everyone ___________.
simultaneously optimizes, so that nobody benefits by changing his or her own behavior.
