Econ Midterm #1 Review Questions (practice exam)
A friend comes up to you and offers you a free ticket to a Dodgers game that night, and you decide to attend the game. The game takes five hours and costs you $25 for transportation. If you had not attended the game, you would have worked at your part-time job for $12 an hour. What is the cost to you of attending the game? The cost is zero—the ticket is free. $85 $60 $55
85
Facebook is subject to network effects because: it yields negative externalities. its value to an individual declines when the number of other people using it increases. its value to an individual increases when the number of other people using it increases. its value is determined only by its marginal private benefit.
its value to an individual increases when the number of other people using it increases.
Which of these items is a normal good? instant noodles canned food third-hand cars steak
steak
The marginal cost of an additional worker is:
the additional cost of hiring one more worker.
In a typical week, Cheyenne buys four lattes at Starbucks. If the price of lattes doubles, what is the MOST likely number of lattes she will buy? five two four eight
two
Rose's parents have booked and paid for a family trip to Aspen, Colorado, during her spring break. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose needs to decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her friends on the trip to Destin include each of these EXCEPT: her parents' anger if she skips the family trip to Aspen. her contribution to gas money for the drive to Destin. the ski lift ticket her parents have already purchased for her. the hotel costs she will split with her friends in Destin.
the hotel costs she will split with her friends in Destin.
Dependencies over time reflect the fact that: you have limited resources. society has limited resources. resources are spread across varying markets. resources can be spread across time.
you have limited resources
Shifts in the market demand curve occur: only because of changes in the types and number of buyers. only because of the same factors that shift individual demand curves. because of all the factors that shift individual demand curves, along with changes in the types and number of buyers. only because of changes in income and preferences, along with changes in the types and number of buyers.
because of all the factors that shift individual demand curves, along with changes in the types and number of buyers.
The interdependence principle states that your best choice today depends on all of these EXCEPT past decisions you have made. expectations about the future. other decisions you are currently making. decisions others are currently making.
past decisions you have made.
A central and fundamental theme in economics is that:
resources are limited and cannot satisfy all the ways a society wants to use them.
Juan is willing to pay $900 for a new iPad. He offers to pay $800 for an iPad at the Apple store. It costs Apple $700 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occurs because _____ would be better off due to the transaction. will; neither Juan nor Apple will; both Juan and Apple will not; only Juan will not; only Apple
will; both Juan and Apple
A doctor has worked as a general practitioner for several years, earning an annual salary of $150,000. They are now deciding whether they want to open their own private practice or continue as a team member in the existing office. One-time start-up costs for the practice would be $100,000. If they open their own practice, they will receive a salary of $50,000 from the business annually until the practice is well-established. They anticipate the practice will take two years to become fully established. They paid $200,000 for medical school. They should open their own practice if the future benefits exceed: $300,000. $200,000. $500,000. $400,000.
300,000
Which statement BEST illustrates the law of demand? An increase in food prices encourages more individuals to buy more food, owing to scarcity. Tesla produces more cars as prices increase. Consumers buy more iPhones because prices have fallen. Fewer people visit Disneyland because incomes have fallen.
Consumers buy more iPhones because prices have fallen.
Vincent makes handcrafted dining tables, and he is trying to decide how many tables to produce. He can sell each dining table for $1,000. The cost of the first table is $900, for the second it's $1,100. For each additional table he produces, the marginal cost of each table increases by $200. How many dining tables should Vincent produce, and what is the total cost of his production? Vincent will not make any tables. He will produce one table at a cost of $900. He will produce two tables at a cost of $2,000. He will produce three tables at a cost of $3,300.
He will produce one table at a cost of $900.
Why might you underestimate the increase in market quantity demanded when you lower your price? Some of your current customers may switch to a rival's product, so a drop in price doesn't produce any additional sales. You may not take into account potential new customers attracted by the lower price. Lowering the price only increases the quantity demanded for inferior goods. A price reduction increases the quantity demanded for individuals but not for the entire market.
You may not take into account potential new customers attracted by the lower price.
Antonio has a cell phone, and his service provider is AT&T. When he calls his wife, Erika, who is also an AT&T customer, he does not have to pay for those minutes. The more AT&T customers there are in the market, the greater the benefit Antonio receives. This is: a technology spillover. a Pigouvian subsidy. a network effect. the Coase theorem.
a network effect.
Over the past several years, sushi has become increasingly popular among consumers. This means that the _____ has _____. demand for sushi; increased quantity of sushi demanded; decreased demand for sushi; decreased quantity of sushi demanded; increased
demand for sushi; increased
The cost-benefit principle evaluates _____ costs and benefits, and willingness-to-pay considerations quantify _____ costs and benefits. both monetary and nonmonetary; only nonmonetary only monetary; both monetary and nonmonetary only nonmonetary; only monetary both monetary and nonmonetary; only monetary
both monetary and nonmonetary; only nonmonetary
If the price of paint rises, we can expect the: quantity of paint demanded to increase. demand for paintbrushes to increase. demand for paintbrushes to decrease. quantity of paintbrushes demanded to remain unchanged.
demand for paintbrushes to decrease
You're the manager of an independent coffee bar with a loyal customer base, and you have accurate information about your current customers' demand curves. You lower the price on your lattes, but the new total quantity demanded for your lattes far exceeds your estimate. What is the MOST likely explanation? You neglected to factor in new customers entering your market due to the lower price. Incomes have fallen, and your latte is a normal good. The price of bubble tea, which many of your customers see as a substitute for lattes, fell. In response to your move, your competitors lowered their prices to remain competitive.
You neglected to factor in new customers entering your market due to the lower price.
The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of: inefficiency. equilibrium. inequity. scarcity.
scarcity
How is the economic surplus generated by a decision calculated?
It is the total benefits minus total costs arising from the decision.
You are a small business owner preparing to launch your first ad campaign to attract new customers, and must decide whether to learn about advertising yourself or hire a professional to launch the campaign. The campaign will last three months. If you hire a professional, you'll have to pay them a lump sum of $1,000 for the entire campaign. But if you decide to do it yourself, you'll take a course that costs $200 to introduce you to the skill. You'll also pay an employee $340 per month to work some of the hours you normally work while you manage the campaign. Would it be better to hire a professional rather than doing the campaign yourself? Yes, because your economic surplus is $220. Yes, because your full set of costs is only $540. No, because the benefit of not having to do it yourself is greater than the cost of the professional. No, because you can increase your economic surplus if you do it yourself.
Yes, because your economic surplus is $220.
You just moved into your new apartment, which has washer and dryer hookups, but your apartment complex doesn't provide washers and dryers. You don't want to go to a laundromat. You can rent a washer and dryer set from an appliance rental company for $30 per month. Alternatively, you could buy a set for $1,100, which you could sell after one year for $700, or $600 after two years. You plan to stay in this apartment for two years, since it's near your job. Should you buy or rent the set? You should rent the set because renting earns $40 worth of economic surplus. You should rent the set because renting earns $400 worth of economic surplus. You should buy the set because buying earns $220 worth of economic surplus. You should buy the set because buying earns $500 worth of economic surplus.
You should buy the set because buying earns $220 worth of economic surplus.
Which of these scenarios depicts a rational buyer? John walks into a grocery store and purchases monthly groceries without paying attention to the prices of groceries. Mary values a bag of salad at $2, but she buys the bag of salad even when the price is $4. Darwin buys a can of shoe polish at $4.50 when his marginal benefit from it is $3.75. Damien buys a sandwich for $5 when the marginal benefit of the sandwich to him is $7.
Damien buys a sandwich for $5 when the marginal benefit of the sandwich to him is $7.
On a hot sweltering day, you feel thirsty and buy an ice-cold soft drink, which you gulp down. Whether you buy a second drink or not will depend on: whether the marginal benefit of the second soft drink exceeds the price of the drink. how you feel about soft drinks. the price of the soft drink. the total quantity of soft drinks you have consumed that week.
whether the marginal benefit of the second soft drink exceeds the price of the drink.
Following the Rational Rule, the maximum economic surplus occurs when:
marginal benefits equal marginal costs.
Charles is a manager at a coffee shop, and he has to decide how many workers to hire. One worker can make 25 drinks that sell for $5 on average in one hour. A second worker can make another 20 drinks in one hour. The marginal benefit of each additional worker decreases by five drinks, with each additional hire. Given that workers are paid $15 per hour and have eight-hour shifts, how many employees should Charles hire for each hour? three four five six
five
An investor is franchising a new type of fitness studio that will be the first in the city and must determine how many locations to open. For each location, they will hire a manager for a salary of $4,000 per month and two part-time employees who will earn $2,000 each per month. The investor values their time spent overseeing each location at $7,500 per month. Additional operating costs, including rent and utilities, will be $6,000 per month at each location. The investor projects that when the business gains traction, the first location will have 1,000 members. The second location will bring in 900 members. The third and fourth locations will bring in 300 and 200 members, respectively. The monthly membership fee will be $70 per member. The investor has decided to definitely open two locations. Should they open a third location? Yes, because marginal benefit would exceed marginal cost. Yes, because marginal cost would exceed marginal benefit. No, because marginal cost would exceed marginal benefit. No, because marginal benefit would exceed marginal cost.
No, because marginal cost would exceed marginal benefit.
The opportunity cost of a good is:
the value of the next best alternative given up to acquire the good.
It is a rainy day, and you are considering taking an Uber one mile to meet some friends. You have decided you are willing to pay $20 to avoid getting wet from the rain. The trip would normally cost you $8, but due to the weather the surcharge is triple the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost. walk; less walk; more take an Uber; less take an Uber; more
walk ; less
The demand curve for meals at a local Chick-fil-A will shift to the left if: the price of a meal at Chick-fil-A rises. incomes increase, and Chick-fil-A meals are a normal good. Chick-fil-A offers a free sandwich to people who sign up for their new rewards app. the price of gasoline falls in the area.
Chick-fil-A offers a free sandwich to people who sign up for their new rewards app.
Recent research suggests that certain refillable plastic water bottles may leech cancer-causing particles into the containers with repeated usage. As a result of this research being made public, one would expect: no effect. the quantity demanded of such containers to increase. the price of the containers to change because of a movement along the demand curve. the demand for such containers to decrease.
the demand for such containers to decrease.
