econ 2106 exam 1

Suppose that a 2% increase in income in the economy decreases the quantity of gadgets demanded by 1% at every possible price. This implies that: A) the supply of gadgets is elastic B) income elasticity is positive and gadgets are a normal good C) income elasticity is negative and gadgets are a normal good D) income elasticity is negative and gadgets are an inferior good

D) income elasticity is negative and gadgets are an inferior good

Suppose that a 2% increase in income in the economy decreases the quantity of gadgets demanded by 1% at every possible price. This implies that: A) the supply of gadgets is elastic B) income elasticity is positive and gadgets are a normal good C) income elasticity is negative and gadgets are a normal good D) income elasticity is negative and gadgets are an inferior good

D) income elasticity is negative and gadgets are an inferior good

When the price of shoes falls from $50 to $40, the quantity demanded rises from 100 to 110. Using the midpoint method, what is the absolute value of the price elasticity of demand? A. 2.32 B. 2 C. 0.5 D. 0.43

D. 0.43

Suppose that when the price of t-shirts rise from $10 to $15, the quantity suppliers are willing to sell rises from 200 to 250. Using the midpoint formula, what is the price elasticity of supply? A. 1.8 B. 1.67 C. 0.6 D. 0.56

D. 0.56

Suppose that when the price is $10, a deli is willing to sell 200 sandwiches. If the price falls to $8, how many sandwiches would the deli be willing to sell? A. 400 B. 300 C. 200 D. 100

D. 100

The price of quinoa has been rising quickly. What information does this give and to whom? A. Quinoa producers learn that quinoa is now more valuable, so they should produce more. B. Quinoa consumers learn that quinoa is relatively scarce, so they should purchase less. C. Corn producers learn that quinoa is now more valuable, so they should switch to growing quinoa. D. All of the above.

D. All of the above.

Which of the following would decrease the quantity demanded (move along the demand curve)? A. an increase in the price of a complement B. an increase in the number of buyers C. an increase in the expected future price D. an increase in the current price

D. an increase in the current price

Which one of the following pairs lists goods that are NOT substitutes? A. hamburger and veggie burger B. pen and pencil C. bus and train D. car and gas

D. car and gas

You decide that reading the textbook tonight will lay the foundation for your later success in your economics class. Which of the four types of interdependencies is this? A. dependencies between each of your individual choices B. dependencies between people or businesses in the same market C. dependencies between markets D. dependencies through time

D. dependencies through time

Public goods are A. excludable and rival B. excludable and nonrival C. nonexcludable and rival D. nonexcludable and nonrival

D. nonexcludable and nonrival

Match the following types of market failure to an example 1. Market power 2. Externalities 3. Information problems 4. Irrationality 5. Government regulations A. You didn't follow the Rational Rule when making a purchase. Or restaurant owner refuses to ignore sunk costs - Throws good money after bad... B. The used car seller knows more about the car than you do as a buyer. C. A trade quota creates a shortage. D. Your local utility company produces electricity by burning coal and causing pollution. E. The breakfast cereal market is not perfectly competitive.

1. E 2. D 3. B 4. A 5. C

When the price of hamburgers increased by 10%, the quantity of hot dogs sold increased by 5%. What is the cros-price elasticity of demand for hot dogs? Are hot dogs and hamburgers substitutes or complements? A. 0.5; substitutes B. 0.5; complements C. 2; substitutes D. 2; complements

A. 0.5 substitutes

Which of the following is a quota? A. The Organization of the Petroleum Exporting Companies (OPEC) sets an official production cap of 24.845 million barrels a day. B. Swati wants to move in to an apartment building that is rent-controlled but is put on a waiting list for at least one year. C. Ben wants to purchase the trendiest sneakers available at a department store but finds that they are already sold out.

A. The Organization of the Petroleum Exporting Companies (OPEC) sets an official production cap of 24.845 million barrels a day.

Which of the following is an eample of a positive externality? A. Your neighbor plants a garden, causing the value of your house to rise. B. Your neighbor's band practices early in the morning, waking you up. C. More people decide to drink tea instead of coffee, increasing the price of tea. D. The cost of sugar falls, decreasing the price of ice cream.

A. Your neighbor plants a garden, causing the value of your house to rise.

Economic surplus is maximized when A. marginal revenue equals marginal cost. B. average revenue equals average cost. C. total revenue equals total cost.

A. marginal revenue equals marginal cost.

Diminishing marginal benefits mean that the well-being curve flattens as income increases. Therefore, when income is redistributed from those with high incomes to those with low incomes, A. the marginal increase in well-being for those with low incomes is greater than the marginal decrease in well-being for those with high incomes. B. the marginal increase in well-being for those with low incomes is less than the marginal decrease in well-being for those with high incomes. C. the marginal increase in well-being for those with low incomes is equal to the marginal decrease in well-being for those with high incomes. D. There is not enough information to answer.

A. the marginal increase in well-being for those with low incomes is greater than the marginal decrease in well-being for those with high incomes.

Which of the following would change market demand curves WITHOUT shifting individual demand curves? A. the number of buyers B. buyers' beliefs about the future C. the income of buyers D. preferences of buyers

A. the number of buyers

For which product is the income elasticity of demand most likely to be negative? A) automobiles B) bus tickets C) computers D) tennis rackets

B) bus tickets

Assume that the price of product Y decreases by 5% and the quantity supplied decreases by 2%. The coefficient of price elasticity of supply for good Y is: A) negative and therefore Y is an inferior good B) less than one and therefore supply is inelastic C) more than one and therefore supply is elastic D) negative and therefore the supply curve is downward sloping

B) less than one and therefore supply is inelastic

The cross elasticity of demand between two goods is reported to be -0.2. This implies that: A) a 2% increase in the price of one shifts the demand curve for the other to the left by 1% B) the two goods are complements C) the two goods are substitutes D) both goods are normal goods

B) the two goods are complements

Suppose incomes rise by 10% and the quantity of fast food purchased falls by 15%. What is the income elasticity of demand? Is fast food a normal or inferior good? A. 1.5; normal B. -1.5; inferior C. 0.67; normal D.-0.67; inferior

B. -1.5; inferior

Suppose that the price of a good rises by 20%, causing the quantity demanded to fall by 5%. What is the absolute value of the price elasticity of demand? A. 4 B. 0.25 C. -0.25 D. -4

B. 0.25

Suppose you and your 99 classmates all have identical marginal benefits for cofee: the marginal benefit for the first cup is $4, of the second is $3, and of the third is $2. If the price of coffee is $3, what is the quantity demanded in the market? A. 300 cups B. 200 cups C. 100 cups D. 0 cups

B. 200 cups

Suppose the shoe store from the previous question is one of 100 identical shoe stores. What is the market quantity supplied if the price is $20? Remember that the marginal cost for the first pair of shoes is $10, for the second pair is $20, and for the third pair is $30. A. 300 pairs B. 200 pairs C. 100 pairs D. 2 pairs

B. 200 pairs

Which of the following is an example of market failure? A. The market price is too high for some people to pay, so they are unable to purchase the good. B. A monopolist sets a price above its marginal cost of production, reducing the quantity sold below that of a market. C. The market price is too low for some firms to produce, so they do not produce the good. D. Some people don't like the good, so they choose not to purchase it.

B. A monopolist sets a price above its marginal cost of production, reducing the quantity sold below that of a market.

The current sales tax of Michigan is 6%, and everyone, regardless of their income, pay sthis sales tax. Is the sales tax, progressive, regressive, or neither? A. Progressive B. Regressive C. Neither

B. Regressive

Which of the following is an example of a binding price floor? A. The minimum wage in New York City is $15, which is below the market wage for many industries. B. Sugar processers in the United States are required to pay farmers at least a minimum amount per pound of sugar. C. The Organization of the Petroleum Exporting Countries (OPEC) limits the production of oil to set a certain international price.

B. Sugar processers in the United States are required to pay farmers at least a minimum amount per pound of sugar.

Which of the following is a price ceiling? A. The government lifts the number of refugees who can enter the country annually. B. The FDA limits the price of a new high-blood pressure drug to $100 per pill. C. Joy smokes two packs of cigarettes every week. She is thinking of cutting back to one pack a week due to a cigarette tax that will take effect next month.

B. The FDA limits the price of a new high-blood pressure drug to $100 per pill.

Which of hte following statements is true when companies specialize in the goods in which they have comparative advantage? A. They have an absolute advantage. B. They will experience gains from trade. C. They have a high opportunity cost. D. All the above

B. They will experience gains from trade.

The individual demand curve follows the law of demand. This means which of the following? A. When the price of the good rises, its quantity demanded rises. B. When the price of the good falls, its quantity demanded rises. C. When the price of a good falls, its quantity demanded remains the same. D. There is no relationship between the price of the good and its quantity demanded.

B. When the price of the good falls, its quantity demanded rises.

Which of the following is a government subsidy? A. Joy smokes two packs of cigarettes every week. She is thinking of cutting back to one pack a week due to a cigarette tax that will take effect next month. B. Zach lives in the Bronx and goes to Baruch College in Manhattan. New York City gives him a free MetroCard every month for him to get from his home to his classes. C. Alex wants to visit Machu Picchu in Peru next week but can't because the Peruvian government has set a daily limit of 2,500 visitors per day.

B. Zach lives in the Bronx and goes to Baruch College in Manhattan. New York City gives him a free MetroCard every month for him to get from his home to his classes.

For which product is the income elasticity of demand most likely to be negative? A) automobiles B) bus tickets C) computers D) tennis rackets

B. bus tickets

Corrective taxes are efficient because they A. cause consumers to internalize the social benefit B. cause producers to internalize the social cost C. restric tthe quantity to the socially optimal quantity D. require firms to abide by laws that are good for society

B. cause producers to internalize the social cost

If an economy is using its resources efficiently, then A. some resources are not being utilized B. more of one good can be produced only if production of another is given up C. it is impossible to produce more than one goods D. more of both goods can be produced

B. more of one good can be produced only if production of another is given up

Negative externalities lead to ____, while positive externalities lead to ____/ A. overproduction; overproduction B. overproduction; underproduction C. underproduction; overproduction D. underproduction; underproduction

B. overproduction; underproduction

Suppose a shoe store has fixed costs of $100. Its marginal cost for the first pair of shoes is $10, for the second is $20, and for the third is $30. How many shoes will it supply if the price is $20? A. three pairs B. two pairs C. one pair D. zero pairs

B. two pairs

Suppose your marginal benefit of your first cup of coffee is $4, of your second is $3, and of your third is $2. If the price of coffee is $3, how many cups of coffee will you buy? A. 0 cups B. 1 cup C. 2 cups D. 3 cups

C. 2 cups

A coffee shop finds that its price elasticity of demand is 4.0. Currently, the shop is selling 2000 cups per month at $5 per cup. If it wishes to increases its quantity sold by 10%, it must lower its price by: A. $.40 B. $.50 C. 2.5% D. 4.0%

C. 2.5%

A firm finds that its price elasticity of demand is 4.0. Currently, the firm is selling 2000 units per month at $5 per unit. If it wishes to increase its quantity sold by 10%, it must lower its price by: A. $.40 B. $.50 C. 2.5% D. 4.0%

C. 2.5%

Which of the following scenarios depicts a market with a shortage of the good being purchased and sold? A. Cody owns a bakery. At the end of the day, he still has more than a dozen blueberry muffiins left,so he donates them to a local food panty. B. Jordan goes to DSW to purchase new running shoes. Because the shoes are on sale, she buys the same pair for her sister. C. Mia goes online to preorder a new phone but discovers that the phone was sold out an hour ago. D. Austin goes to purchase concert tickets for himself and a friend. He gets a discount because there are still plenty of empty seats available.

C. Mia goes online to preorder a new phone but discovers that the phone was sold out an hour ago.

Suppose that the demand for candy is less elastic than the supply of candy. If a tax is imposed on sellers of candy, which of the following is true? A. Sellers will bear all of the tax burden. B. Sellers will bear a larger share of the tax burden since the tax is imposed on them. C. Sellers will bear a smaller share of the tax burden because supply is more elastic than demand. D. Sellers will bear none of the tax burden.

C. Sellers will bear a smaller share of the tax burden because supply is more elastic than demand.

Which of the following would cause an increase in supply? A. The number of sellers falls. B. The profit of a substitute-in-production rises. C. The input prices fall. D. The expected price next year rises.

C. The input prices fall.

Suppose your classmate tells you that you don't need to worry about people in poverty because most spells of poverty are short. Does this mean that we don't need to worry about poverty? A. We don't need to worry about poverty because most poor people are only temporarily poor. B. We don't need to worry about poverty because only a small minority of the population will ever experiencepoverty. C. We should still worry about poverty because most poor people are in long-term poverty.

C. We should still worry about poverty because most poor people are in long-term poverty.

You own and operate a trendy burger joint. You notice that instead of charging $15 for your basic burger, you can charge $18. What's going to happen to your supply of basic burgers? A. Your supply of burgers shifts to the right. B. Your supply of burgers remains the same. C. Your quantity supplied of burgers increases. D. Your supply of burgers shift to the left. Who's going to pay that much for a burger?

C. Your quantity supplied of burgers increases.

Is the US poverty line an absolute or relative standard? A. absolute B. relative C. both D. neither

C. both

According to the marginal principle (and the rational rule), economic surplus is maximized when A. total cost equals total benefit B. average cost equals average benefit C. marginal cost equals marginal benefit D. producers make as much as possible

C. marginal cost equals marginal benefit

The efficient outcome maximizes: A. consumer surplus B. producer surplus C. total economic surplus

C. total economic surplus

Which of the following claims involve positive analysis and which reflects normative analysis? A. Lower college tuition will lead more children from poor families to attend college. B. College tuition should be lower so that students from poor families can afford it. C. The average American taxpayers pay around 15% of their income in federal income taxes. D. Income taxes are too high, and the federal government should cut them.

Positive: A, C Normative: B, D

Determine the effect on price, whether domestic buyers win or lose, and whether domestic sellers win or lose: A trade deal makes it easier for US manufacturers to sell their goods in Australia

price rises, domestic buyers lose, domestic sellers win

Determine the effect on price, whether domestic buyers win or lose, and whether domestic sellers win or lose: Imports of cheap Chinese goods decline

price rises, domestic buyers lose, domestic sellers win