ECON 414 Exam 1

Suppose the demand for good X is given by Q d x = 10 + a xP x + a yP y + a MM. If a y is positive, then:

goods y and x are substitutes.

The additional cost incurred by using an additional unit of the managerial control variable is defined as the:

marginal cost.

To maximize profits, a firm should continue to increase production of a good until:

marginal revenue equals marginal cost.

The value of the firm is the:

present discounted value of all future profits.

If a shortage exists in a market, the natural tendency is for:

price to increase.

The law of supply states that, holding all else constant, as the price of a good falls:

quantity supplied falls.

In a competitive market, the market demand is Q d = 60 - 6P and the market supply is Q s = 4P. A price ceiling of $3 will result in a

shortage of 30 units.

If you put $1,000 in a savings account at an interest rate of 10 percent, how much money will you have in one year?

$1,100

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. The equilibrium price is:

$19.

Consider a market characterized by the following demand and supply conditions: P X = 15 - 2Q X and P X = 3 + 2Q X. The equilibrium price and quantity are, respectively,

$9 and 3 units

If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is:

0.4

Suppose market demand and supply are given by Q d = 300 - 4P and Q S = -50 + 3P. The equilibrium quantity is:

100

What is the marginal cost of producing the fifth unit? No. units produced Total Revenue Total Costs 0 0 0 1 100 50 2 180 110 3 250 180 4 290 270 5 310 380

110

Suppose the demand for good X is given by Q d x = 10 - 2P x + P y + M. The price of good X is $1, the price of good Y is $10, and income is $100. Given these prices and income, how much of good X will be purchased?

118.

If the interest rate is 7 percent, $500 received at the end of nine years is worth how much today?

500/(1 + .07) 9

The own price elasticity of demand for apples is −1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

It will increase 6 percent.

Suppose there is a simultaneous increase in demand and decrease in supply, what effect will this have on the equilibrium price?

It will rise

As more firms enter an industry:

economic profits decrease

If the interest rate is 5 percent, what is the present value of $10 received one year from now?

$9.52

The demand for good X has been estimated by Q x d = 12 − 3P x + 4P y. Suppose that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity.

-0.6

Consider a market characterized by the following inverse demand and supply functions: P X = 10 - 2Q X and P X = 2 + 2Q X. Compute the number of units exchanged and the price at which those units will be exchanged when there is an $8 per unit price floor.

1 unit and $8 per unit.

If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100, what is the absolute value of the own price elasticity at a price of $7 using the arc formula?

1.2

What is the total benefit associated with producing four units of the control variable, Q (identify point A in the table)? Control variable Total Benefits Total Costs Net Benefits Marginal Benefit Marginal Cost Marginal Net Benefit Q B(Q) C(Q) N(Q) MB(Q) MC(Q) MNB(Q) 0 0 0 0 - - - 1 900 100 800 900 100 800 2 1,700 300 C 800 200 600 3 2,400 600 1,800 700 E 400 4 A 1,000 2,000 600 400 200 5 3,500 1,500 2,000 500 500 F 6 3,900 2,100 1,800 D 600 -200 7 4,200 2,800 1,400 300 700 -400 8 4,400 B 800 200 800 -600 9 4,500 4,500 0 100 900 -800 10 4,500 5,500 -1,000 0 1,000 -1,000

3,000

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. The equilibrium quantity is:

62.

Suppose Q x d = 10,000 − 2 P x + 3 P y − 4.5M, where P x = $100, P y = $50, and M = $2,000. How much of good X is consumed?

950 units

Suppose the demand for good X is given by Q d x = 10 + a xP x + a yP y + a MM. If a M is negative, then good y is:

An Inferior Good

If the cross-price elasticity between goods A and B is negative, we know the goods are:

Complements

If the price of good X becomes lower, then the level of consumer surplus becomes

Higher

When the own price elasticity of good X is −3.5, then total revenue can be increased by:

Decreasing the Price

Which of the following would not shift the demand for good A?

Drop in the price of good A

If apples have an own price elasticity of −1.2 we know the demand is:

Elastic

Suppose the demand for a product is lnQ x d = 12 − 3 ln P x. Then product x is:

Elastic

Which of the following is an implicit cost to a firm that produces a good or service?

Foregone profits of producing a different good or service

Which of the following is an implicit cost of going to college?

Forgone Wages

Which of the following pairs of goods are probably complements?

Hamburgers and Ketchup

The elasticity that measures the responsiveness of consumer demand to changes in income is the:

Income Elasticity

As we move down along a linear demand curve, the price elasticity of demand becomes more:

Inelastic

Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

Infinite

Suppose both supply and demand increase. What effect will this have on the equilibrium price?

It may rise or fall.

The difference between marginal benefits and marginal costs is the:

Marginal Net Benefits

Suppose that supply increases and demand decreases. What effect will this have on price and quantity? Price will decrease and quantity will decrease. Price will increase and quantity may rise or fall. Price will decrease and quantity will increase. None of the statements associated with this question are correct.

None of the statements associated with this question are correct.

If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession?

Price and quantity would both decrease.

Suppose you produce wooden desks, and government legislation protecting the spotted owl has made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price and quantity of wooden desks?

Price will increase but quantity will decrease.

Which of the following are signals to the owners of scarce resources about the best uses of those resources?

Profits of businesses

The supply function for good X is given by Q x s = 200 + 4P X - 3P Y - 5P W, where P X is the price of X, P Y is the price of good Y and P W is the price of input W. If P X = 500, P Y = 250, P W = 30, then the supply curve is

Q x s = -700 + 4P x.

Technological advances will cause the supply curve to:

Shift to the right

Other things held constant, the greater the price of a good

The lower the consumer surplus

A price elasticity of zero corresponds to a demand curve that is:

Vertical

If good A is an inferior good, an increase in income leads to:

a decrease in the demand for good A.

The demand curve for a good is horizontal when it is:

a perfectly elastic good.

Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to

an increase in the demand of good X.

The law of demand states that, holding all else constant:

as price falls, quantity demanded rises.

Changes in the price of a good lead to:

changes in the quantity supplied of the good.

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:

cross-price elasticity.

If A and B are complementary goods, a decrease in the price of good A would:

lead to an increase in demand for B.

The short-run response of quantity demanded to a change in price is usually:

less than the long-run response.

Suppose the demand for good X is given by Q d x = 10 + a xP x + a yP y + a MM. From the law of demand we know that a x will be:

less than zero.

The optimal amount of studying is determined by comparing:

marginal benefit and the marginal cost of studying.

We would expect the demand for jeans to be:

more elastic than the demand for clothing.

Lemonade, a good with many close substitutes, should have an own price elasticity that is:

relatively elastic.

In a competitive market, the market demand is Q d = 60 - 6P and the market supply is Q s = 4P. A price floor of $9 will result in a

surplus of 30 units.

Marginal benefit refers to:

the additional benefits that arise by using an additional unit of the managerial control variables

Other things held constant, the lower the price of a good

the greater the consumer surplus.

When quantity demanded exceeds quantity supplied

the price is below the equilibrium price.

Demand shifters do not include

the price of the good.

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. If a price ceiling of $15 is imposed,

there will be a shortage of 20 units.

Accounting Profits are:

total revenue minus total cost.

Economic profits are:

total revenue minus total opportunity cost.

Suppose the demand for a product is lnQ x d = 10 − ln P x, then product x is:

unitary elastic.

Suppose Q x d = 10,000 − 2 P x + 3 P y − 4.5M, where P x = $100, P y = $50, and M = $2,000. What is the own price elasticity of demand?

−0.21