Practice Test 1

Refer to the accompanying figure. In this market, equilibrium price is ______ and equilibrium quantity is ______.

$25, 10

Refer to the accompanying figure. When this market is in equilibrium, total producer surplus in the market is ______ per day.

$250

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.

What might cause a decrease in current supply of a product?

New information that leads sellers to believe that the product's price will rise in the future

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

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

normal good.

Refer to the accompanying figure. Total producer surplus in this market is:

$125

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 is the marginal cost of the 5th car wash each month?

$15

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. This firm's fixed cost each day is:

$50

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, how much profit does this firm earn at its profit-maximizing level of output?

$800

All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has:

a higher opportunity cost of taking the day off work.

Refer to the accompanying figure. At a price of $3, there will be:

an excess demand of 5 units

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

an increase in supply of laptops.

The marginal cost of an activity is the:

change in the total cost of the activity that results from carrying out an additional unit of the activity.

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

comparative advantage.

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

complements.

As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to:

decrease.

If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is:

following the Cost-Benefit Principle.

In general, individuals and nations should specialize in producing goods ______ other individuals or nations.

for which they have a lower opportunity cost compared to

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

increases taxes on cigarettes, effectively raising the price.

A variable factor of production:

is variable in both the short run and the long run.

Demand tends to be ______ in the short run than in the long run.

less elastic

If fast food is an inferior good then:

the demand for fast food will fall as income rises.

Refer to the accompanying table below. The marginal benefit of the 5th unit of activity is:

$10

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm's total revenue at its profit-maximizing level of output is ______.

$2,400

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 State College is:

$35,000

Refer to the accompanying figure. The marginal utility of the 5th apple is:

-5

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.

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. In the graph above, the average variable cost curve is labeled _____, the average total cost curve is labeled _____, and the marginal cost curve is labeled ______.

C; B; A

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

greater than one.

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

many close substitutes.

A profit-maximizing perfectly competitive firm must decide:

only on how much to produce, taking price as fixed.

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then this firm should:

produce 80 doughnuts.

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 100 pizzas per day, it earns an economic ______ of ______.

profit; $650

If supply increases, then:

the quantity demanded will increase.

What might cause a demand curve to shift to the right?

An increase in the price of a substitute

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then at this firm's profit maximizing level of output, the firm will earn an economic ______ of ______ per day.

profit; $8

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. When Acme Dynamite produces 250 units of output, its profit is:

$3,750.

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. Which of the following is true?

Lou has a comparative advantage over Alex in cleaning.