Econ Exam 1

The price elasticity of demand for a good with a vertical demand curve is:

perfectly inelastic

A shortage occurs when:

quantity demanded exceeds quantity supplied.

Sunk costs are costs that are incurred

regardless of which decision is made.

Diminishing marginal product leads to

rising marginal costs for a seller.

The supply curve is upward-sloping because

sellers can make more profit per unit if the market prices rise.

Use the table to answer the question.At what price does this market experience a surplus of 70 units?

$11

The price of a car wash falls by 10%. In response to this price change, the quantity demanded for car washes increases by 20%. What is the absolute value of the price elasticity of demand for car washes?

2

Lyft cuts the price of a ride in New York City by 10%. Thereafter, the quantity of rides demanded rises by 25%. What is the absolute value of the price elasticity of demand for Lyft rides?

2.5

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs? (use the midpoint formula)

2.7

Consider the data in the table. The price of gasoline is $3.99 per gallon at the gas station. If Rexhall Fuel Supplies is a rational seller, how many gallons of gasoline should this seller be willing to sell?

20 million gallons per week

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

2; substitutes

(Figure: Shift in Demand 2) Use the figure to answer the question.Which of the following market changes would lead to a shift of the demand curve from Old demand to New demand?

A report is published noting that the product has adverse health effects.

(Figure: Shift in Supply 1) Use the figure to answer the question. ​ Which of the following market changes would lead to a shift of the supply curve from Old supply to New supply?

A rise in the price of a product that is a complement-in-production.

A hurricane is expected to hit the Carolinas. Why might the prices of batteries, candles, and bottled water rise?

Buyers will flock to purchase these items, and the excess demand will cause prices to rise.

(Figure: Market for New Housing) Which of the graphs shows the effect on the housing market today, if the realtor association predicts new housing prices to fall in a few months?

Graph A

In 2017, Kenya banned the use of disposable plastic shopping bags due to concern over plastics pollution. Which graph depicts what happened in the country's market for reusable cloth bags?

Graph A

(Figure: Market for Stevia) Stevia is a natural sweetener that is used as a sugar substitute. Which of the following graphs illustrates the impact of a rise in the price of Stevia on the demand for sugar?

Graph D

The fidget spinner toy fad is over, and children are not buying them with the same enthusiasm as they did earlier. Which graph depicts the situation in the market for fidget spinners?

Graph D

(Figure: Shift in Supply 1) Use the figure to answer the question.Which of the following market changes would lead to a shift of the supply curve from Old supply to New supply?

Lower costs of transportation for the producers.

Marie Johnston is a manager at an electronics store and has to decide how many workers to hire. If she hires one worker, her revenue is $800 per day. If she hires another worker, she can make another $600 per day. The marginal benefit of hiring another worker decreases by $200 with each additional hire. Assuming that workers are paid $20 per hour and work eight hours, how many employees should Marie hire, and what will be her total cost for labor?

She will hire four workers at a total cost of $640.

Amul Food Factory in India makes ice cream and produces processed and condensed milk. In the factory, the firm's employees use raw milk and sugar. The firm runs on electricity and purchases raw milk every day. Large robotic assembly lines fill and package the ice cream containers. Large industrial freezers store the ice cream. Based on this scenario, can you identify the fixed costs for Amul Food Factory?

The cost of building the factory, purchasing the robotic assembly lines and industrial freezers.

(Figure: Graph) Refer to the graph to answer the question. In the graph, the movement from point P to point Q represents

a decrease in quantity demanded

For normal goods

a tax cut on consumer income will lead to a rise in their demand

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes unless the marginal

benefit of watching another episode is equal to the marginal cost.

If demand is _____, a higher price yields _____ total revenue.

elastic; lower

According to the interdependence principle, when faced with a decision, you should ask what

else might my decision affect and what else might affect my decision?

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item.

equal to

Good M has an income elasticity of demand of -0.7. Which of the following items might good M be?

generic-brand toothpaste

A rational buyer will:

keep buying a product until marginal benefit equals price

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

less; $150

Frank is a barley farmer in a perfectly competitive market. The market price of barley is $250 per ton. If Frank charges $245 per ton, he will

lower his profitability by $5 per ton.

Asking "One more?" allows the _____ principle to be analyzed as a simple question.

marginal

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are

normal goods

Suppose supply shifts out and demand shifts back. What happens to the equilibrium price and quantity?

Price falls. The effect on quantity is uncertain.

Paper producers can manufacture both printing and drawing paper. What effect would rising prices for printing paper have on the market for drawing paper?

The supply of drawing paper will decrease

Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the

time he spent cooking the dinner.