TAMU ECON 202 exam 1
Consider the two demand curves illustrated in the figure to the right. Which of the two is relatively more elastic?
D1- less steep
Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?
D increases, S no change, P and Q increase
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement?
Economics assumes that consumers and firms are rational, not that they always make the right decisions.
In a paper written by Bentley College economists Patricia M. Flynn and Michael A. Quinn, the authors state: "We find evidence that Economics is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major." A list of famous economics majors published by Marietta College includes business leaders Warren Buffet, Donald Trump, Ted Turner, and Sam Walton, as well as former presidents George H.W. Bush, Gerald Ford, and Ronald Reagan. Sources: Patricia M. Flynn and Michael A. Quinn, "Economics: A Good Choice of Major for Future CEOs," Social Science Research Network, November 28, 2006; and Famous Economics Majors, Marietta College, Marietta Ohio, May 15, 2012. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?
Economics teaches us how to look at the tradeoffs involved in every decision.
Which of the following statements is true of the scientific method?
Empirical arguments are more credible when they are based on a large data set.
The x axis point moved Refer to the figure above. A change in the budget constraint from B1 to B2 indicates:
a decrease in the price of sweaters.
The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good) results in
a decrease in the quantity of macaroni and cheese demanded.
In many cities, firms that own office buildings can renovate them for use as residential apartments. According to a news story, in many cities "residential rents are surpassing office rents." Source: Eliot Brown, "Developers Turn Former Office Buildings Into High-End Apartments," Wall Street Journal, May 7, 2014. The response to an increase in residential rents would be
a decrease in the supply of office space, shifting it to the left.
Which of the following is the textbook's definition of a supply schedule?
a table that shows the relationship between the price of a product and the quantity of the product supplied
a shift to the right of budget constraint line Refer to the figure above. A change in the budget constraint from B2 to B3 indicates:
an increase in the consumer's income
Which of the following events would cause the supply curve to decrease from Upper S1 to S2
an increase in the price of nuts
Trinh quits his $80,000 a−year job to become a full−time volunteer at a museum. What is the opportunity cost of his decision?
at least $80,000
Utility refers to how much consumers utilize a product or service.
false
Centrally planned economies allocate resources based on decisions by ________, while market economies answer these questions through decisions made by _________.
government; households and firms
An omitted variable is a variable that:
has been left out, and if included, would explain why the variables considered in a study are correlated.
The production possibilities frontier will shift outward
if technological advances occur
Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts that: "If only one poor person is helped with this method, then all our time and money would have been worth it." If you were a member of the organization, what reply best represents clear economic thinking? This attitude
ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.
If the market price 'Pmkt' is below the price 'P0', then quantity supplied is ______ quantity demanded and the market is in _____
less than; shortage
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises,
the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in the quantity demanded.
consider the supply of copper. What would make the supply of copper more elastic? The supply of copper would become more elastic if
the time horizon becomes longer.
According to the law of supply,
there is a positive relationship between price and quantity supplied and as the price of a product increases, firms will supply more of it to the market.
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
For which of the following products is the price elasticity of demand (in absolute value) the largest?
tide liquid detergent
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Which of the following is the textbook's definition of a supply curve?
a curve that shows the relationship between the price of a product and the quantity of the product supplied
If demand is perfectly elastic, then what is the effect of an increase in price?
a decrease in quantity demanded to zero
Assume that a combination of 10 bottles of wine and 2 liters of milk lies on a consumer's budget constraint. If the price of one bottle of wine is $10, and one liter of milk is $1, what is the consumer's income?
$102
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If Maria borrows her parents' car and pays for only the gasoline, what is her total cost of driving to destination A?
$340
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. What is the total cost involved if Maria chooses to travel by train?
$460
The figure to the right illustrates the demand for taxi rides in a large city. Suppose the price per ride is initially $40 but then falls to $20 due to a recession. What is the price elasticity of demand for taxi rides? Using the midpoint formula, the price elasticity of demand is -demand is
-1.20 elastic
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If Maria's opportunity cost of time increases to $80 per hour, the cost involved in taking the train is:
$720
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If Maria's opportunity cost of time increases to $80 per hour, the cost of driving to destination A is
$730
downward sloping budget constraint Refer to the figure above. If the price of a table is $2, what is John's income?
$80
Suppose the price of pepper increases by 10 percent and, as a result, the quantity of salt demanded (holding the price of salt constant) decreases by 3 percent. The cross-price elasticity of demand between pepper and salt is In this example, pepper and salt are____ Instead, suppose pepper and salt were substitutes. If so, then the cross-price elasticity of demand between pepper and salt would be
-.3 complements positive
"A 10 percent increase in the price of cigarettes reduces consumption by 3 to 5 percent." According to the article, the price elasticity of demand for cigarettes ranges from _____ (the lowest end of the range in absolute value) to _____. The price elasticities in this range If manufacturers raise prices, then their revenue will
-.3 -.5 are inelastic because they are less than one increase because the percentage increases in price will be larger than the percentage decreases in quantity
In 1916, the Ford Motor Company sold 500,000 Model T Fords at a price of $440. Henry Ford believed that he could increase sales of the Model T by 1,000 cars for every dollar he cut the price. Use this information to calculate the price elasticity of demand for Model T Fords. Use the midpoint formula in your calculation. Assuming the price decreases by $1 and the quantity increases by 1000 cars, the price elasticity of demand for Model T Fords is
-0.88
A study of the consumption of beverages in Mexico found that: "Overall, for soft drinks a 10% price increase decreases the quantity consumed by 10.6%." Source: M.A. Colchero, et al., "Price Elasticity of the Demand for Sugar Sweetened Beverages and Soft Drinks in Mexico," Economics and Human Biology, Vol. 19, December 2015, pp. 129-137. Given this information, the price elasticity of demand for soda in Mexico is ___________. (Enter your response rounded to two decimal places. Use a negative sign if you are entering a negative number.) Is demand price elastic or price inelastic? Briefly explain.
-1.06 Elastic, because the percentage change in quantity demanded is greater than the percentage change in price.
If a 27 percent increase in the price of Cheerios causes a 29 percent reduction in the number of boxes of cereal demanded, the price elasticity of demand for Cheerios is -The demand for Cheerios is
-1.07 -elastic
You own a hot dog stand that you set up outside the student union every day at lunch time. Currently,you are selling hot dogs for a price of $3, and you sell 30 hot dogs a day (point A on the diagram to the right). You are considering cutting the price to $2. The graph to the right shows two possible increases in the quantity sold as a result of your price cut. Use the information in the graph (new quantities are given on the horizontal axis) to calculate the price elasticity LOADING... between these two prices on each of the demand curves. Use the midpoint formula to calculate the price elasticities. On the demand curve containing the points "A" and "B", the price elasticity of demand for a price cut from $3 to $2 is -On the demand curve containing the points "A" and "C", the price elasticity of demand for a price cut from $3 to $2 is
-1.67 - -0.95
When economists speak of a surplus, they mean a situation in which
-firms have unsold goods piling up. -the quantity supplied exceeds quantity demanded. -the market price is above the equilibrium price.
Leonard Fleck, a philosophy professor at Michigan State University, has written, "When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will improve the length or quality of our lives as we age. But as presently healthy taxpayers, we want costs controlled." Source: Leonard Fleck, Just Caring: Health Care Rationing and Democratic Deliberation. New York: Oxford University Press, 2009. -Is it necessary for all economic systems to limit services such as health care? A market system prevents people from getting as many goods and services as they want due to which of the following?
-yes -their income
tacos enchiladas katherine 10 5 josh 8 12 18 17 what is the opportunity cost (in terms of tacos given up) of producing an extra enchilada at point E on the graph?
.667
The price elasticity of supply when supply is perfectly inelastic is
0
When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?
0
tacos enchiladas Ben 9 6 Madysen 6 12 15 18 Assume the price of enchiladas is $3. The quantity supplied of tacos at a price of $1 will be?
0
Next, suppose the demand for a mystery novel by Stephen KingStephen King is infinitely elastic. In this example, assume the initial price of the novel is $24.00 and the quantity demanded is 62 thousand copies per year. If the price of the mystery novel increases by $3.00, then the quantity demanded will be copies ____ per year.
0
On most days, the price of a rose is $1, and 8,000 roses are purchased. On Valentine's Day, the price of a rose jumps to $2, and 30,000 roses are purchased. However, we do have constant supply. What is price elasticity of supply?
1.74
Assume that a consumer can spend $20 on two goods: pens and pencils. If the price of one pen is $5 and the price of one pencil is $2, which of the following combinations of the two goods represents a point on the consumer's budget constraint?
2 pens and 5 pencils
Refer to the graph to the right. What is the opportunity cost of moving from point B to point C?
20 sedans
Suppose instead that the price of LCD TVs is $___________. This will result in a , which will place ________ pressure on the price.
2000; surplus; downward
Assume the figure to the right illustrates the market for houses for sale in a small city. Suppose the market price of houses is $_________. How large will the resulting surplus be? At a price of $__________, there will be ______ surplus houses. (Enter your response as a whole number.) What is the equilibrium price of houses? The equilibrium price is $_________.
225,000; 225,000; 600; 150,000
Suppose the figure to the right illustrates the monthly demand for imported rugs at a local rug gallery. Suppose the price of rugs increases from $55,000 to $5,500. Total revenue before the price change is $ The change in total revenue is $ The demand for imported rugs at this rug gallery is _____ over the given price range.
275,000 -25,000 elastic
Downward sloping budget constraint. Refer to the figure above. If John spends his entire income on tables, how many tables can he purchase?
40
Consider the market for gasoline, illustrated in the figure to the right. The equilibrium quantity of gasoline is ___ million gallons (enter a numeric response using a real number rounded to two decimal places) and the equilibrium price is ______ per gallon. If instead the market price were ________, then there would be a _______ of ____ million gallons.
5; $2.50; $3.25; surplus; 3
Consider the market for gasoline, illustrated in the figure to the right. The equilibrium quantity of gasoline is ____ million gallons (enter a numeric response using a real number rounded to two decimal places) and the equilibrium price is $_____ per gallon. If instead the market price were $______, then there would be a _______ of ____ million gallons
5; 2.50; 1.75; shortage; 3
In the diagram to the right, when the price is $________ per player, the amount of the ________ is _____million players per month.
71; surplus; 56
Suppose the demand for a Czech novel translated into English is perfectly inelastic. Assume the initial price of the translated novel is $30.00 and the quantity demanded is 873 copies per year If the price of the translated novel increases by $1.00, then the quantity demanded will be ________ copies per year.
873
Which of the following is most likely to be an example of causation?
A firm producing CFLs installs new machinery. The per-day production of CFLs increases.
Which of the following illustrates the law of supply?
An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied.
Consider the markets for BP supreme-grade gasoline, all BP grades of gasoline, and all gasoline. For which of these three markets will demand be most elastic? Demand will be most elastic for
BP supreme-grade gasoline, then for all BP grades of gasoline, and then for all gasoline.
The graph to the right shows your weekly demand for pizza. How was this demand curve constructed?
By computing your optimal consumption of pizza at the various prices shown, all other variables that affect your demand for pizza held constant.
Which of the following statements identifies a difference between correlation and causation?
Correlation implies a mutual relationship between two things, whereas causation occurs when one thing directly affects another.
Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety. Similarly, using all its resources in the production of liquor chocolates, the firm can produce 8,000 bars per month. However, during a given month, the firm produces both varieties. Which of the following, if true, would suggest that the firm is operating on its PPF?
Even though the demand for both liquor and dark chocolates has increased, the company can increase the production of only one variety.
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.
tacos enchiladas katherine 10 5 josh 8 12 18 17 which producers are supplying their maximum output of Enchiladas at point F on the graph?
Josh
tacos enchiladas katherine 10 5 josh 8 12 18 17 Which producers are supplying their maximum output of enchiladas at point I on the graph?
Katherine
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If the opportunity cost of time increases to $80 per hour, which of the following statements is true?
Maria should choose to travel by train as it saves her $10.
Which of the following statements is true?
Normative statements depend on personal preferences.
tacos enchiladas Paige 15 10 Gage 7 14 22 24 When the price of tacos is $2, and the price of enchiladas is also $2, then
Paige will supply only tacos, and gage will supply only enchiladas
tacos enchiladas Matthew 12 4 Amanda 5 10 17 14 if the price of tacos is $5 and the price of enchiladas is $2, where will the economy be located on the PPF on the left-hand side of Figure 4?
Point C
Which of the following statements is true?
Rational economic agents maximize more than just monetary income.
Which of the following claims is most likely to suffer from reverse causality?
Relatively wealthy people tend to be relatively healthy.
________ occurs when the direction of cause and effect is mixed up in a study.
Reverse causality
Soo Jin shares a one−bedroom apartment with her classmate. Her share of the rent is $700 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics student, you rightly conclude that
Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250.
Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?
S decreases, D no change, P increases, Q decreases.
Which of the following describes the substitution effect of a price change?
The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
From the list below, select the variable that will cause the supply curve to shift:
The cost of raw materials
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?
The country is operating on its production possibilities frontier.
Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else constant, how would this affect the market for Blu
The demand for Blu−ray players would increase and the equilibrium price of Blu−ray players would increase
An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise. Holding everything else constant, how would this affect the market for gasoline
The demand for gasoline−powered automobiles would increase and the equilibrium price of gasoline−powered automobiles would increase
The graph illustrates an initial competitive equilibrium in the market for apples at the intersection of D1 and S1 (point A). If the price of oranges, a substitute for apples, decreases and the wages of apple workers increase, how will the equilibrium point change?
The equilibrium point will move from A to E.
The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D1 and S2 (point B). If there is an decrease in the price of fertilizer used on sugar cane and there is a decrease in tastes for sugar−sweetened soft drinks, how will the equilibrium point change?
The equilibrium point will move from B to C.
Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $200,000 next year playing for a minor league baseball team, $900,000 next year playing for a European professional football team, or $0 returning to college for another year.
The opportunity cost of the student-athlete returning to college next year is $900000.
What are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward.
The demand for pears is highest during summer and lowest during winter. Yet pear prices are normally lower in summer than in winter. What must be happening to the supply of pears, from winter to summer, for the equilibrium price to fall? Click on the icon to experiment with inward and outward shifts in supply and demand. Note the change in equilibrium price and quantity.
The supply increases more than the demand increases.
The substitution effect is the change in the quantity demanded of a good that results from ______________, holding constant the effect of the price change on consumer purchasing power.
a change in price making the good more or less expensive relative to other goods
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
Causation occurs when:
a change in one variable is the reason for the change in another variable.
Assume that cotton is a normal good. Which of the following would cause both the equilibrium price and equilibrium quantity of cotton to increase?
an increase in consumer income
A news story from 2017 about the oil market stated, "crude oil prices fell ... in part [due to] renewed concerns about the global supply glut." Source: Paul Ebeling, "Crude Oil Prices Falling, Traders Worry About Global Supply Glut," livetradingnews.com, March 27, 2017. a. In referring to a "global glut," the article describes the result of a significant This change resulted in a b. In response to the global glut of oil, the market price will c. The glut will start to shrink when crude oil producers
a.increase in supply of, relative to the demand for, crude oil.; a surplus of oil such that there is a greater quantity supplied than quantity demanded for crude oil b.fall to a new, lower equilibrium price at which the quantity demanded would equal the quantity supplied. c.reduce the amount that they offer for sale, and buyers increase the amount they buy.
The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learning and Assessment in College, Barbara Walvoord and Virginia Anderson state that "grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class." Source: Barbara E. Walvoord and Virginia Johnson Anderson, Effective Grading: A Tool for Learning and Assessment in College, 2nd edition, San Francisco: Jossey-Bass, 2010, p. 1. The grading system used by a teacher can affect the incentives of students to learn the course material by
altering the payoffs to achieving success on the various components of the course.
Consider firms selling three goods-one firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than one, and one firm sells a good with an income elasticity of demand greater than one. In a recession, sales of a good with
an income elasticity of demand greater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most.
Scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost.
According to a news story about the bus system in the Lehigh Valley in Pennsylvania, "Ridership fell 14 percent in 2012 after a 33 percent increase" in bus fares. Source: Dan Hartzell, "Rebounding from a 2012 Rate Hike, LANTA's Ridership Was up Last Year," (Allentown, PA) Morning Call, March 13, 2014 Given this information, the demand for bus trips is inelastic . The best explanation for this result is that
bus trips are a necessity for those without cars.
On the diagram to the right, a movement from represents a
change in quantity supplied.
"When there is a shortage of a good_______________________ The process continues until the market is finally in equilibrium."
consumers compete against one another by bidding the price upward.
Suppose the demand for premium bottled water increases rapidly during 2018. At the same time, six more firms begin producing premium bottled water. A student remarks that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall. The student's remarks (that, because of these events, we can't know for certain whether the price of premium bottled water will rise or fall) is The new equilibrium quantity will be
correct. When there is an increase in supply and an increase in demand, the new equilibrium quantity increases but whether the equilibrium price increases or decreases is unknown. either point C and point D
According to an article in the Wall Street Journal, the demand for orange juice is declining in the United States "as newer entrants in the beverage aisle, including more-exotic fruit juices, such as pomegranate, energy drinks and ready-to-drink coffee, have grabbed a greater share of the market." At the same time, orange juice production has been declining as bacterial infections reduce the quantity of fruit that orange trees can produce. The article notes that despite the decline in the demand for orange juice, the price of orange juice might increase. Source: Alexandra Wexler, "U.S. Orange-Juice Sales Fall to Record Low," Wall Street Journal, August 18, 2014. On the graph to the right, assuming that the initial point is 'A', move the cursor to illustrate how the price of orange juice might also increase as a result of these events. Given the scenario described in the article, the price of orange juice could increase if
demand decreased less than the supply decreased.
If teachers put too much weight in the grading scale on a certain part of the course, like readings outside the textbook, students might respond by ________ other parts of the course.
de-emphasizing
Suppose gasoline has few close substitutes available. If so, then an increase in the price of gasoline will likely
decrease the quantity of gasoline demanded by a relatively small amount.
An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eyeminus−surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments
decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.
Oil prices plummeted from over $100 per barrel in mid- 2014 to under $30 in early 2016. According to a Reuters article, oil traders in 2015 and 2016 put massive amounts of oil in storage (even on tankers at sea), anticipating higher prices in the future. The article noted that in early 2017, "traders are turning the spigots to drain the priciest storage tanks holding U.S. crude stockpiles as strengthening markets make it unprofitable to store for future sale." Source: Catherine Ngai and Liz Hampton, "Traders Drain Pricey U.S. Oil Storage as OPEC Deal Bites," reuters.com, February 24, 2017. Holding some oil in storage rather than selling it would
decreases the supply of oil, shifting it to the left
An article in the Wall Street Journal notes that although U.S. oil production has increased rapidly in recent years, the increase has still amounted to only 5 percent of world production. Still, that increase has been "enough to help trigger a price collapse." Source: Georgi Kantchev and Bill Spindle, "Shale-Oil Producers Ready to Raise Output," Wall Street Journal, May 13, 2015. A small increase in supply can lead to a large decline in equilibrium price when
demand is relatively inelastic.
Which of the following goods is likely to have an income elasticity of demand greater than one?
diamond jewelry
josh curt $1.75 3 0 1.50 6 2 1.25 8 3 1.00 9 5 .75 11 6
downward sloping Market demand curve starting at (3, 1.75) all the way to (21, 0.75)
Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. Maria should choose to:
drive, as is will save her $120
Amazon allows authors who self-publish their e-books to set the prices they charge. One author was quoted as saying: "I am able to drop prices and, by sheer volume of sales, increase my income." Source: David Streitfeld, "For the Indie Writers of Amazon, It's Publish or Perish," New York Times, January 4, 2015. The demand for this author's books was price
elastic because a decrease in price resulted in higher revenue.
Gao and colleagues have estimated that the cross-price elasticity of demand between beer and spirits is 0.15. If the price of spirits increases by 10 percent, then the quantity of beer demanded will In addition, Gao and colleagues have estimated the income elasticity of demand for beer to be minus−0.09. If so, then beer is
increase by 1.5 percent an inferior good
Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by __________ the grade weight assigned to being prepared.
increasing
On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs.
An article in the New York Times about the New York Metropolitan Opera (the Met) suggests that the popularity of opera might be increased if the Met reduced its ticket prices. But the article observes that such ticket price cuts would only be possible if the Met received a gift from "a very deep-pocketed donor." Source: Zachary Woolfe, et al., "The Met Opera Is Struggling. How Can It Fill Those Empty Seats?" New York Times, May 4, 2016. The authors of the article are assuming a cut in ticket prices, and assuming there is no gift from a "very deep-pocketed donor," will not increase the Met's revenue. The authors are assuming the price elasticity of demand for tickets to the Met is
inelastic
The price elasticity of demand in the United States for crude oil has been estimated to be minus−0.061 in the short run and minus−0.453 in the long run. Source: John C. B. Cooper, "Price Elasticity of Demand for Crude Oil: Estimate for 23 Countries," OPEC Review, March, 2003, pp. 1-8. The demand for crude oil
is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found.
When the price of a product changes,
it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.
If a market is in equilibrium , is it necessarily true that all potential buyers and sellers are satisfied with the market price?
no
The price of coffee at Starbucks is too high. This represents
normative analysis
The federal government should spend more on AIDS research. This represents
normative anaylysis
tacos enchiladas Matthew 12 4 Amanda 5 10 17 14 if the price of tacos is $2 and the price of enchiladas is $4, where will the economy be located on the PPF on the left-hand side of Figure 4?
point F
A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents
positive analysis
Rising paper prices will increase textbook prices. This represents
positive analysis
A sportswriter writing about the Cleveland Indians baseball team made the following observation: "If the Indians suddenly slashed all tickets to $10, would their attendance actually increase? Not all that much and revenue would drop dramatically." Source: David Schoenfiel, "Chat with David Schoenfield," espn.com, November 27, 2012. The sportswriter is assuming that the demand for Indians tickets is
relatively price inelastic
A consumer has $100 to spend on tables and chairs. If his income increases to $200, the prices of the goods remaining unchanged, his budget constraint:
shifts outward
Like many other cities, Denver experienced a sharp decline in construction of new houses in the years following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In addition, builders stopped buying and preparing home lots for construction. According to an article in the Wall Street Journal, by 2014, as consumers increased their demand for new homes in Denver, "New-home prices have surged over the past two years ... amid a shortage of home lots and skilled construction workers." Source: Kris Hudson, "Labor Shortage Besets Home Builders," Wall Street Journal, May 1, 2014. In the future, the price increases of new houses in Denver can be expected to be
smaller because supply is more elastic over time.
Economist X. M. Gao and two colleagues have estimated that the cross-price elasticity of demand between beer and wine is 0.31. If so, then beer and wine are
subsititutes
Historically, the production of many perishable foods, such as dairy products, was highly seasonal. Thus, as the supply of those products fluctuated, prices tended to fluctuate tremendouslylong dash—typically by 25 to 50 percent or morelong dash—over the course of the year. One impact of mechanical refrigeration, which was commercialized on a large scale in the last decade of the nineteenth century, was that suppliers could store perishables from one season to the next. Economists have estimated that as a result of refrigerated storage, wholesale prices rose by roughly 10 percent during peak supply periods, while they fell by almost the same amount during the off season. Source: Lee A. Craig, Barry Goodwin, and Thomas Grennes, "The Effect of Mechanical Refrigeration on Nutrition in the U.S.," Social Science History, Vol. 28, No. 2 (Summer 2004), pp. 327-328. Choose the graph below that corresponds to the change for the peak season.
supply shifted to the left
Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. "There is nothing morally unattractive about saying: We need to analyze which way of spending money on health care will produce more benefit and which less, and using our money as efficiently as we can. I don't think there is anything immoral about seeking to achieve environmental benefits at the lowest possible costs." Source: David Wessel, "Precepts from Professor Summers," Wall Street Journal, October 17, 2002. It would be more moral to reduce pollution,
taking the cost into account because money spent on pollution reduction is not available for other worthy activities.
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that
the demand for tarot card readers has increased.
What is the economic definition of utility? Utility is -is it measurable?
the enjoyment or satisfaction people receive from consuming goods and services. -NO
The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,
the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
The cross-price elasticity of demand is
the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit,
the supply curve shifted to the left resulting in an increase in the equilibrium price.
Over the past 30 years, the price of oil has been relatively unstable, fluctuating between $11.00 and well over $100 per barrel. Which of the following potentially contributes to oil-price instability? Oil prices are relatively unstable because
the supply of oil is inelastic.
Suppose that many cities begin to pass taxes on carbonated sodas, while at the same time scientists discover a cure for citrus greening, which is reducing orange crops in Florida and Brazil. a. Can we use this information to be certain whether the equilibrium price of orange juice will increase or decrease? b. Can we use this information to be certain whether the equilibrium quantity of orange juice will increase or decrease? The equilibrium quantity of orange juice _________ and the equilibrium price of orange juice ________.
will increase; may increase or decrease
We can show economic inefficiency:
with points inside the production possibilities frontier.
We can show economic efficiency:
with points on the production possibilities frontier.
In a market system, how does society decide what goods and services will be produced?
Consumers, firms, and the government determine what goods and services will be produced by the choices they make.
According to a news story about the International Energy Agency, the agency forecast that "the current slide in [oil] prices won't [reduce] global supply." Source: Sarah Kent, "Plunging Oil Prices Won't Dent Supply in Short Term," Wall Street Journal, December 12, 2014. Would a decline in oil prices ever cause a reduction in the supply of oil?
No, a decline in oil prices would reduce the quantity of oil supplied, not the supply of oil.
If the cross-price elasticity of demand is negative, then the products are:
complements, but if it is positive, then the products are substitutes.
The income effect causes quantity demanded to ________ when the price of a normal good decreases, and causes quantity demanded to ________ when the price of an inferior good decreases.
increase; decrease