ECON EXAM 1 [HOMEWORKS]

Assume that Qd = 80-2P and Qs = 2P-20. Equilibrium price and quantity are respectively $10, 20 $60, 40 $15, 10 $25, 30 $20,10

$25, 30

(Table: Apple Company Survey) The table shows the results of Apple Company's market survey. If the market price of Apple computers is $1,200 each, how much total consumer surplus (in $) are the four consumers earning? $380 $345 $5,145 $415

$380

(Check your book for an explanation of double counting costs) Consider Diego's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Diego's cost of going to college is $33,800. $42,600. $49,800. $57,000.

$42,600

Suppose that the demand for good Y is given by the equation: Qdy = 40- 2Py + Px, where Px is the price of good X and Py is the price of good Y. If Py is $10 , and Px is $4 , what is the consumer surplus in market Y? $16 $128 $8 $64

$64

Scenario 5-2 Suppose the demand function for good X is given by Qdx = 15-0.5Px-0.8Py where Qdx is the quantity demanded of good X, Px is the price of good X, and Py is the price of good Y, which is related to good X. Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $5 and the price of good Y decreases from $5 to $2, the cross price elasticity of demand is about -2.29, and X and Y are complements. -0.29, and X and Y are complements. -2.9, and X and Y are complements. -0.29, and X and Y are substitutes.

-0.29, and X and Y are complements.

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is -0.71, and X and Y are complements. -1.40, and X and Y are substitutes. -0.71, and X and Y are substitutes. -1.40, and X and Y are complements.

-0.71, and X and Y are complements.

In the table above the income elasticity for coffee is _______ and coffee is found to be _________. -1/3, an inferior good we don't have enough information to determine income elasticity for coffee 1.5, a normal good 3, an inferior good -1.5, an inferior good

-1/3, an inferior good

Refer to Figure 5-1. Between point B and point A, the slope is equal to -2/3, and the price elasticity of demand is equal to 3/2. -1/4, and the price elasticity of demand is equal to 3/2. -1/4, and the price elasticity of demand is equal to 2/3. -3/2, and the price elasticity of demand is equal to 1/4.

-1/4, and the price elasticity of demand is equal to 3/2.

Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is -0.43, and good Y is an inferior good. -2.33, and good Y is an inferior good. 2.33, and good Y is a normal good. -0.43, and good Y is a normal good.

-2.33, and good Y is an inferior good.

The following table contains a demand schedule for a good. If the law of demand applies to this good, then Q1 could be 0. 200. 100. 400.

0

Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $2. The consumer will choose a consumption bundle where the marginal rate of substitution is 2. 1/3. 1. 2/3.

1

Ronda's cake store earned $3,750 in total revenue last month when it sold 125 cakes. This month it earned $3,600 in total revenue when it sold 90 cakes. The price elasticity of demand for Ronda's cake store is 0.88. 1.14. 7.98. 0.33.

1.14

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about 0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue. 1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue. 1.29, and a decrease in price from $200 to $160 results in an increase in total revenue. 0.78, and a decrease in price from $200 to $160 results in an increase in total revenue.

1.29, and a decrease in price from $200 to $160 results in an increase in total revenue.

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about 1.43, and an increase in the price will cause hotels' total revenue to decrease. 1.43, and an increase in the price will cause hotels' total revenue to increase. 0.70, and an increase in the price will cause hotels' total revenue to increase. 0.70, and an increase in the price will cause hotels' total revenue to decrease.

1.43, and an increase in the price will cause hotels' total revenue to decrease.

Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $5 and $6? 0.60 1.57 1.67 0.64

1.57

Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is 2. 1/3. 2/3. 1/2

1/2

What is the income elasticity of demand for tea? -0.56 -0.66 -2.5 2.5 1.5

2.5

If the equation of a line is: Y= 200 -3X. What is the value of Y when X=0?

200

Solve the following 2 equation system for X and Y: Y=2X+1 X=7-2Y The value of Y is:

3

Suppose that demand is given by the equation: Qd = 180-3P And supply is given by the equation: Qs = P-20 Question Using the midpoint formula, calculate the elasticity for demand when the price changes from $50 to $40 -0.22, and elastic 0.67, and inelastic -3, and inelastic 3 , and elastic

3 , and elastic

Refer to Figure 21-5. In graph (a), what is the price of good X relative to the price of good Y (i.e., PX/PY)? 4 1/4 3 1/3

4

Refer to Table 4-1. If the market consists of Michelle, Laura, and Hillary and the price falls by $1, the quantity demanded in the market increases by 2 units. 5 units. 3 units. 4 units.

5 units.

Suppose that the demand is given by the equation: Qd = 200 - 2P. if the market price is 20, what is the consumer surplus? 8,100 6,400 81,000 64,000

6,400

According to the table above, if the economy is currently producing at point F, the opportunity cost of one additional unit of clothing is approximately 7 units of food. 1/7 units of food. 1/5 units of food. 5 units of food. 35 units of food

7 units of food

Refer to Figure 21-16. The price of X is $20, the price of Y is $5, and the consumer's income is $40. Which point represents the consumer's optimal choice? D A B C

A

Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The substitution effect can be illustrated as the movement from D to C. C to E. D to E. E to D.

D to C

Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from D to E. C to E. E to D. D to C.

D to E

Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the largest elasticity? D3 D1 All of the above are equally elastic. D2

D1

Refer to Figure 21-17. When the price of X is $6, the price of Y is $24, and income is $48, Paul's optimal choice is point C. Then the price of Y decreases to $6. Paul's new optimal choice is point A. D. B. E.

E

If there is an increase in the price of McDonalds (McD) this will impact the demand curve for Burger King (BK), what graphs represent how the market demands for McD and BK react to this increase in the price of McD? Figure C Figure A Figure D Figure B

Figure A

An economy that produces only bread and petroleum jelly, has an improvement in the bread and petroleum Jelly production. Which of the graphs in the figure above depicts the resulting shift of the PPC? Figure C Figure B Figure A The PPC does not shift

Figure C

Suppose that the demand for good Y is given by the equation: Qdy = 200- 2Py + 3Px, where Px is the price of good X and Py is the price of good Y. Based on this equation we can conclude that: Good X and good Y are substitute goods When the price of X goes up the quatity demanded of Y goes down Good X and good Y are complementary goods When the price of X goes down the quatity demanded of Y goes up

Good X and good Y are substitute goods

Refer to Figure 21-18. Bundle D represents a point where MRSxy > Py/Px. MRSxy < Px/Py. MRSxy = Px/Py. MRSxy < Py/Px.

MRSxy < Px/Py.

Which of the following examples demonstrates the law of demand? Sally buys fewer Snickers at $0.80 per Snickers after the price of Milky Ways falls to $0.50 per Milky Way. Lisa buys fewer muffins at $1.00 per muffin than at $1.50 per muffin, other things equal. After Sam got a raise at work, he bought more pretzels at $2.50 per pretzel than he did before his raise. Matt buys less donuts at $0.80 per donut than at $0.25 per donut, other things equal.

Matt buys less donuts at $0.80 per donut than at $0.25 per donut, other things equal.

Figure 21-20 The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: Refer to Figure 21-20. Assume that the consumer depicted the figure has an income of $50. Based on the information available in the graph, which of the following price-quantity combinations would be on her demand curve for chocolate chips if the price of marshmallows is $2.50? P=$2.50, Q=10 P=$5.00, Q=5 P=$5.00, Q=3 P=$2.50, Q=6

P=$2.50, Q=10

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for orange juice of an announcement by the American Heart Association that orange juice is good for your heart? Point D to Point A Point A to Point D Point A to Point B Point C to Point D

Point A to Point D

Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000. She should replace the carpeting but not replace the roof she should make both improvements to her house she should replace the roof but not replace the carpeting She should not make either improvement to her house

She should replace the carpeting but not replace the roof

After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break 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 Cancun increases. The marginal cost of going to Cancun decreases. The marginal benefit of going to Ft. Lauderdale decreases. The marginal cost of going to Ft. Lauderdale decreases.

The marginal cost of going to Ft. Lauderdale decreases.

Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February. If the consumer's income has remained constant, then what has happened to prices between January and February? The price of Y has fallen, but there could not have been a change in the price of X. The price of Y has fallen, and the price of X has risen. The price of X has fallen, but there could not have been a change in the price of Y. The price of X has fallen, and the price of Y has risen.

The price of X has fallen, and the price of Y has risen.

When you calculate your true costs of going to college, what portion of your room-and-board expenses should be included? Your full room-and-board expenses should always be included. None of your room-and-board expenses should ever be included. You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college. You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college.

You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college.

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 an increase in the demand for energy drinks a decrease in the supply of energy drinks a decrease in the demand for energy drinks no change in the demand for energy drinks

a decrease in the demand for energy drinks

A Giffen good is a good for which an increase in the price decreases the quantity demanded. Both a) and b) are correct. the substitution effect outweighs the income effect. a decrease in the price decreases the quantity demanded.

a decrease in the price decreases the quantity demanded.

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of the definition of a market in determining the price elasticity of demand. a necessity versus a luxury in determining the price elasticity of demand. the time horizon in determining the price elasticity of demand. the availability of close substitutes in determining the price elasticity of demand.

a necessity versus a luxury in determining the price elasticity of demand.

When we move along a given demand curve, income and price are held constant. only price is held constant. all determinants of quantity demanded are held constant. all nonprice determinants of demand are held constant.

all nonprice determinants of demand are held constant.

Refer to Figure 2-10, Panel (a) and Panel (b). A shift of the economy's production possibilities frontier from Panel (a) to Panel (b) could be caused by unemployment. an improvement in sofa production technology. an improvement in tractor production technology. an improvement in both sofa and tractor production technology.

an improvement in tractor production technology

Mario buys eight units of good X when his income is $2,000 a month. When his income increases to $2,700 per month, he buys only six units of good X. For Mario, good X is: a good with few substitutes. a normal good. an inferior good. a good of high value.

an inferior good.

When two variables have a positive correlation: b. they tend to move in the same direction. a. they tend to move in opposite directions. c. one variable will move while the other remains constant. d. the variables' values are never negative.

b. They tend to move in the same direction

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would approach infinity and your roommate's would be zero. be zero and your roommate's would approach infinity be positive and your roommate's would be negative. be negative and your roommate's would be positive.

be negative and your roommate's would be positive.

Bundle J contains 10 units of good X and 5 units of good Y. Bundle K contains 5 units of good X and 10 units of good Y. Bundle L contains 10 units of good X and 10 units of good Y. Assume that the consumer's preferences satisfy the four properties of indifference curves. The price of X is $1, the price of Y is $2, and the consumer has an income of $20. Which bundle will the consumer choose? bundle L bundle J bundle K either bundle J or bundle K

bundle J

A consumer has preferences over two goods, X and Y. Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves) and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis. At the consumer's current consumption bundle, the consumer is spending all available income, and the marginal rate of substitution is greater than the slope of the budget constraint. We can conclude that the consumer could increase satisfaction by consuming more X and less Y. could increase satisfaction by consuming less X and more Y. is currently maximizing satisfaction subject to the budget constraint. could purchase more X and more Y and increase total satisfaction.

could increase satisfaction by consuming more X and less Y.

Refer to Figure 4-1.2 The figure shows the demand curve for chocolates. The movement from point A to point B on the graph is caused by a(n) increase in the price for chocolates. increase in income. decrease in the price for chocolates. decrease in the price of a substitute good.

decrease in the price for chocolates.

An increase in the price of books will decrease demand for books. shift the demand for books increase quantity demanded for books. decrease quantity demanded for books increase demand for books.

decrease quantity demanded for books

If the demand for bananas is elastic, then an increase in the price of bananas will There is not enough information to answer this question. not change total revenue of banana sellers. increase total revenue of banana sellers. decrease total revenue of banana sellers.

decrease total revenue of banana sellers

If an indifference curve is bowed in toward the origin, the marginal rate of substitution is not likely to reflect the relative value of goods. likely to be constant for all bundles along the indifference curve. different for each bundle along the indifference curve. likely to be identical to the price ratio for each bundle along the indifference curve.

different for each bundle along the indifference curve.

If the equation of a line is: Y= 200 -3X This line is downward sloping upward sloping vertical horizontal

downward sloping

Scenario 5-4 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. The change in equilibrium quantity will be greater in the milk market than in the beef market. Any of the above could be correct. greater in the beef market than in the milk market. the same in the milk and beef markets.

greater in the beef market than in the milk market.

When the government changes a policy, people are likely to respond to such policy change only if they think the policy is a good one. only if the policy change changes their costs. only if the policy change changes their benefits. if the policy changes either their costs or benefits.

if the policy changes either their costs or benefits

A movement downward and to the right along a demand curve is called a(n) increase in demand. decrease in demand. decrease in quantity demanded. increase in quantity demanded.

increase in quantity demanded.

If a good is normal, then an increase in income will result in a(n) movement down and to the right along the demand curve for the good movement up and to the left along the demand curve for the good increase in the demand for the good decrease in the demand for the good

increase in the demand for the good

All of the following are properties of typical indifference curves except indifference curves are downward sloping. indifference curves do not cross. higher indifference curves are preferred to lower ones. indifference curves are bowed outward.

indifference curves are bowed outward.

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is unit elastic. elastic. highly responsive to changes in income. inelastic.

inelastic

Giffen goods have positively-sloped demand curves because they are inferior goods for which the substitution effect outweighs the income effect. normal goods with no substitution effect. inferior goods for which the income effect outweighs the substitution effect. inferior goods with no substitution effect.

inferior goods for which the income effect outweighs the substitution effect.

If the price of milk rose to $6 per gallon, consumers would purchase fewer gallons of milk than if the price were $2 per gallon. If the price of chocolate fell to $1.50 per piece, consumers would purchase more chocolate than if the price were $5 per piece. These relationships illustrate the difference between normal and inferior goods. law of supply. law of demand. difference between substitute and complement goods.

law of demand

Sally is planning her activities for a hot summer day. She would like to go to the beach and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that her friends are going to the beach she can only choose one activity. This illustrates the basic principle that people respond to incentives. rational people think at the margin. people face tradeoffs. improvements in efficiency sometimes come at the expense of equality.

people face tradeoffs.

Which of the following is not held constant in a demand schedule for coffee? tastes expectations price of tea price of coffee income

price of coffee

If price elasticity of demand = |-1.5| and price decreases by 10 percent, then quantity demanded will increase by 1.5 percent quantity demanded will increase by 15 percent total revenue will decrease total revenue will remain unchanged demand will increase by 15 percent

quantity demanded will increase by 15 percent

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should lower the price of the cinnamon rolls. leave the price of the cinnamon rolls unchanged. reduce costs. raise the price of the cinnamon rolls.

raise the price of the cinnamon rolls.

If quinoa farmers know that the demand for quinoa is inelastic, in order to increase their total revenues they should plant additional acres to increase their output. reduce the number of acres they plant to decrease their output. use more fertilizers and weed killers to increase their yields. Both a and b are correct.

reduce the number of acres they plant to decrease their output.

Assume that a consumer's indifference curve is a downward-sloping straight line. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution increases. decreases. remains constant. increases, then decreases.

remains constant

The market demand curve represents the sum of the prices that all the buyers are willing to pay for a given quantity of the good. is found by vertically adding the individual demand curves. represents the sum of the quantities demanded by all the buyers at each price of the good. slopes upward.

represents the sum of the quantities demanded by all the buyers at each price of the good.

An increase in demanded for burgers results in an increase in quantity demanded at every price. results in a movement upward and to the left along a demand curve. results in a movement downward and to the right along a demand curve. shifts the demand curve to the left.

results in an increase in quantity demanded at every price.

A consumer's preferences for right shoes and left shoes can be represented by indifference curves that are bowed in toward the origin bowed out from the origin straight lines right angles

right angles

Suppose the cost of flying a 400-seat plane for an airline is $250,000 and there are 6 empty seats on a flight. If the marginal cost of flying a passenger is $130 and a standby passenger is willing to pay $140, the airline should sell the ticket because the marginal benefit exceeds the marginal cost. sell the ticket because the marginal benefit exceeds the average cost. not sell the ticket because the marginal benefit is less than the marginal cost. not sell the ticket because the marginal benefit is less than the average cost.

sell the ticket because the marginal benefit exceeds the marginal cost.

Which of the following would likely be studied by a microeconomist rather than a macroeconomist? the effect of foreign direct investment on economic growth the effect of a sales tax on the cigarette industry the effect of an investment tax credit on the economy's capital stock the effect of a war on government spending

the effect of a sales tax on the cigarette industry

Theresa spends 2 hours working instead of watching TV with her friends. The opportunity cost to her of working is the salary earned working per hour. the salary earned working per hour. minus the enjoyment of watching TV. the enjoyment she would have received if she had watched TV with her friends. zero. Since Theresa chose to study rather than to watch TV, the value of studying must have been greater to her than the value of watching TV.

the enjoyment she would have received if she had watched TV with her friends.

Higher education is a normal good. If its price falls, higher education will be a Giffen good. the substitution and income effects work in opposite directions. the income effect is positive. the quantity demanded of higher education will fall.

the income effect is positive.

Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the income effect of the price decrease? the movement from point R to point T the movement from point R to point S None of the above is correct. the movement from point T to point S

the movement from point T to point S

The bowed shape of the production possibilities frontier can be explained by the fact that all resources are scarce. economic growth is always occurring. the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing. the only way to get more of one good is to get less of the other.

the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.

Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left? the cost of making Pepsi rises a new Pepsi ad campaign that increases the popularity of Pepsi the price of Coke decreases the price of Pepsi decreases

the price of Coke decreases

Ramona decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is the value of the knowledge she would have received had she attended class the $24 she could have earned if she had worked at her job those two hours the value of her nap minus the value of attending class nothing, since she valued sleep more than class attendance

the value of the knowledge she would have received had she attended class

High-school athletes who skip college to become professional athletes understand that the opportunity cost of attending college is very high obviously do not understand the value of a college education usually do so because they cannot get into college are not making a rational decision since the marginal benefits or college outweigh the marginal costs of college for high-school athletes.

understand that the opportunity cost of attending college is very high

Refer to Figure 2-10, Panel (a). The movement from point W to point Y could be caused by economic growth. unemployment. an improvement in efficiency. an advance in production technology.

unemployment