ECON 2301 Midterm Review

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the equilibrium price and quantity, respectively, are

$3 and 50 Units

when the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantiy demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

.67 and an increase in price will result in an increase in total revenue for good A

If this economy devotes all of its resources to the production of washers, then it will produce

0 dryers and 100 washers

a manufacturer produces 350 unites when the market price is $10 per unit and produces 460 units when the market price is $14 per unit. Using the midpoint method for this range of prices, the price elasticity of supply is about

0.81

what is the opportunity cost to supertown of increasing the production of toys from 200 to 300?

1100-600 = 500

What is opportunity cost to supertown of increasing the production of towys from 200-300

1100-600=500

Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result, the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.15

Using the midpoint method, if the price falls from $160 to $120, the absolute value of the price elasticity of demand is

2.33

if the price elasticity of demand for a good is 5, then a 10% increase in price results in a

50.00 percent decrease in the quantity demanded

if these are the only four buyers in the market, then the market quantity demanded at the price of 2.00 is

6+6+0+2=14

which of the following is true

Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.

Which arrow represents the flow of spending by households?

a

which arrow represents the flow of spending by households

a

which of the following changes would not shift the demand curve for a good or service?

a change in the price of the good or service

which of the following changes would not shift the supply curve for a good or service

a change in the price of the good or service

The movement from point A to point B on the graph is caused by

a decrease in price

Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see

a decrease in the demand for energy drinks

which of the following is consistent with the elasticities given in Table 5-1? (A-1.9, B-.8)

a is a luxury and b is a necessity

Minimum-wage laws dictate

a minimum wage that firms may pay workers

the term market failure refers to

a situation in which the market on its own fails to allocate resources efficiently

in a circular-flow diagram, in the markets for

the factors of production, households are sellers and firms are buyers.

A shift of the economy's production possibilities frontier from Panel (a) to Panel (b) could be caused by

an improvement in DVD production technology

The shift from Da to Db in the market for pita chips could be caused by

an increase in the price of a popcorn

if the demand for a product increase, then we would expect equilibrium price

and equilibrium quantity both to increase

for which of the following goods is the income elasticity of demand likely lowest

apples

which of the following demonstrates the law of demand

ashlyn buys more donut holes at $.25 per donut hole than at $.50 per donut hole, other things equal

suppose your finance professor has been offered a corporate job with a 25% pay increase. he has decided to take the job. for him, the marginal

benefit of leaving was greater than the marginal cost

suppose there is a flood in St. Louis, Missouri, that destroys several been bottling facilities. Which of the following would not be a direct result of this event?

buyers would be willing to buy as much as before at each relevant price

the price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

Making rational decisions "at the margin" means that people

compare the marginal costs and marginal benefits of each decision

which of the following steps does an economist not take when studying the economy?

conduct a laboratory experiment in order to generate data

The line that relates the price of a good and the quantity demanded of that good is called the demand

cure, and it usually slopes downward

The line that relates the price of a good and the quantity supplied of that good is called the supply

curve, and it usually slopes upward

Central planning refers to

government guiding economic activity. Today many countries that had this system have abandoned it.

Cadence says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Cadence's

demand for cigarettes is perfectly inelastic

for which of the following goods is the income elasticity of demand likely highest

diamonds

the terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scare resources

Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?

equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous

at the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell

elasticity of demand is closely related to the slope of the demand curve. the more responsive buyers are to a change in price, the

flatter the demand curve will be

elasticity of demand is closely related to the slope of the demand curve. the most responsive buyers are to a change in price, the

flatter the demand curve will be

Pizza is a normal good if the demand

for pizza rises when income rises

Soup is an inferior good if the demand

for soup falls when income rises.

If China decides to trade with France, we know that

frace and china can both benefit

Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?

he should sell the car now for $3,800

a circular-flow diagram is a model that

helps to explain how the economy is organized.

Microeconomics is the study of

how individual households and firms make decisions.

the "invisible hand" refers to

how the decisions of households and firms lead to desirable market outcomes

A likely example of substitute goods for most people would be

iced tea and lemonade

if the price decreased from $36 to $12, total revenue would

increase by $4800 and demand is elastic between points x and z

if the price elasticity of supply is 0.7 and price increased by 24%, quantity supplied would

increase by 16.80 %

A decrease in the price of a good will

increase in quantity demanded

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donuts sellers

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg

increases

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni

is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1

a hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. he is considering expanding his operation in order to serve more clients. should he expand?

it depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients

This economy cannot currently produce 70 washers and 70 dryers because

it does not have the resources and technology to produce that level of output

An economy's production of two goods is efficient if

it is impossible to produce more of one good without producing less of the other

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both prices and total revenues

Economists make assumptions to

make a complex world easier to understand

which of the following statements is valid when the market supply curve is vertical

market quantity supplied does not change when the price changes

suppose there are 6 bait and tackle shops that sell worms in a lakeside resort town in Minnesota. if we add the respective quantities that each shop would produce and sell at each of the 6 bait and tackle shops when the price of worms is $2 per bucket, the $2.50 and $3 per bucket, and so forth, we have found the

market supply curve

suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent of the empty rooms only if a customer is willing to pay

more than $40, because the marginal benefit will exceed the marginal cost

a competitive market is a market in which

no individual buyer or seller has any significant impact on the market price

If the price of milk rises, when is the price elasticity of demand likely to be the lowest?

one year after the price increases

another term for goods and services is

output

Where can an economy not produce?

outside its production possibilities frontier

the adage, there aint no such thing as a free lunch means

people face tradeoffs

Market power refers to the

power of a single person or small group to influence market prices

Normative statements are

prescriptive

Assume Ren buys coffee beans in a competitive market. It follows that

ren cannot influence the price of coffee beans even if he buys a large quantity of them

Fundamentally, economics deals with

scarcity

Senator Fujita argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Watson objects that this policy would benefit the rich at the expense of the poor.

senator fujita's argument is primarily about efficiency, while senator watson's argument is primarily about equality

efficiency means that

society is getting the most it can from its scarce resources

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes

Suppose sunflowers are currently selling for $45 per dozen, but the equilibrium price of sunflowers is $25 per dozen. We would expect a

surplus to exist and the market price of sunflowers to decrease

a rational decisionmaker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action

For a good that is a luxury, demand

tends to be elastic

for a good that is a luxury, demand

tends to be elastic

a baker recently has come to expect higher prices for bread in the near future. we would expect

the baker to supply less bread now that she was supplying previously

In most societies, resources are allocated by

the combined actions of millions of households and firms

if something happens to alter the quantity demanded at any given price, then

the demand curve shifts

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

the marginal benefit of going to spain increases

which of the following events could cause an increase in the supply of ceiling fans

the number of sellers of ceiling fans increases

which of the following events would cause the price of oranges to fall?

the price of land throughout florida decreases, and florida produces a significant proportion of the nation's oranges

which of the following is not held constant in a supply schedule

the price of the good

income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

the price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. if demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

the same price and higher total revenue from marijuana sales

if something happens to alter the quantity supplied at any given price, then

the supply curve shifts

Aiden and Zaria charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, six people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have six or five cars parked on their lawn does not affect their costs. From this information it follows that

they would do better charging $15 than $10

Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics?

trade can make everyone better off

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars.

true

To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.

true

Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.

true


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