Micro Econ Final Exam
The law of supply refers to the:
positive relationship between price and quantity supplied.
In the markets for grocery and household items, some consumers have more elastic responses than others. Stores recognize this and often offer price reductions in the form of coupons. The price elasticity of demand for people who use coupons is _____ elastic than for other consumers because coupon users _____. less; have higher incomes than the average consumer more; are willing to search for a low-cost alternative more; have higher incomes than the average consumer less; are willing to search for a low-cost alternative
more; are willing to search for a low-cost alternative
If the income elasticity of demand for a good is _____, the good is said to be _____.
negative; inferior
Henderson Lumber is a lumber mill that produces both boards used in construction and sawdust, a byproduct of the board production, used in agriculture. When the housing market collapses, causing house prices along with the prices of boards used to build houses to fall, Henderson Lumber's _____ will likely _____. supply of sawdust; decrease quantity of boards supplied; increase supply of sawdust; increase quantity of sawdust supplied; increase
supply of sawdust; decrease
The marginal cost of an additional worker is:
the additional cost of hiring one more worker.
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:
the demand for such containers to decrease.
In your media studies class, you learn that Westerns were once a staple of network television but are now less common. If the production costs per episode of Westerns are comparable to those of other scripted shows, the most likely explanation for their disappearance is that, over time:
the market demand curve for Westerns shifted to the left.
The efficient quantity prevails in a market when:
the market yields the largest possible economic surplus.
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
An equilibrium in a market occurs:
when quantity supplied equals quantity demanded
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.
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 _____ occur because _____ would be better off due to the transaction.
will; both Juan and Apple
Shifts in the market demand curve occur:
because of all the factors that shift individual demand curves, along with changes in the types and number of buyers.
The price of chicken breast rises from $3.30 per pound to $3.63 per pound. In response to this price change, the quantity demanded for chicken breast falls by 40%. The absolute value of the price elasticity of demand for chicken breast is _____, and the price elasticity of demand is _____.
4.2; elastic
An externality is NOT:
A price change
Which benefit could a company gain from using internal markets?
Better allocation of its resources and more accurate predictions.
Suppose you manage a convenience store. If macaroni and cheese is an inferior good, what do you suppose would happen to the price and quantity sold of macaroni and cheese as incomes fall during a recession?
Both the price and quantity would increase.
In the immediate afteraftermath of Hurricane Katrina, a surge in demand for drinking water caused the price of bottled water to rise above $5 per bottle. Supporters of price ceilings on bottled water after a natural disaster argue that:
Bottled water is inelastically supplied.
The government is considering taxing e-cigarettes to both discourage the use of e-cigarettes and raise revenues for public health and education programs. To maximize revenues from the tax, the government should tax e-cigarette:
Buyers, sellers, or manufacturers; it doesn't matter which.
The demand curve for meals at a local Chick-fil-a will shift to the left if:
Chick-fil-A offers a free sandwich to people who sign up for their new rewards app.
Collectively, people in nations that engage in international trade are likely to:
Consume more than they could consume in the absence of trade.
Which statement BEST illustrates the law of demand?
Consumers buy more iPhones because prices have fallen.
A price ceiling is:
a maximum price sellers are allowed to charge for a good or service.
In the market for organic beef, what would cause a price increase?
a rise in the prices of grass and organic corn.
Cornell can type reports faster and more accurately than Alice, so Cornell has a(n) _____ in typing reports.
absolute advantage
When there is a shortage of highly skilled workers in a particular region:
highly skilled workers can negotiate higher salaries.
Chantelle grows tomatoes and sells them at the farmer's market. Because the price of tomatoes rises, she is encouraged to grow and sell more. This is an example of price functioning as a(n):
incentive
Along a supply curve, a rise in the price of a good will:
increase producer surplus.
The opportunity cost of a good is:
the value of the next best alternative given up to acquire the good.
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
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 attending the game?
$85
If income rises by 10% and the quantity demanded of an item falls by 30%, the income elasticity of demand for this item is:
-3
It takes Marla 4 hours to cook lasagna and 3 hours to cook chicken curry. It takes Jason 3 hours to cook lasagna and 1 hour to cook chicken curry. Marla's opportunity cost of making lasagna is _____, and Jason's opportunity cost is _____.
1.33 chicken curries; three chicken curries
France must give up the production of 75 ties to produce 25 additional dress shirts. The opportunity cost of producing four dress shirts is _____ ties.
12
Over the past several years, sushi has become increasingly popular among consumers. This means that the _____ has _____.
Demand for sushi; increased
The state of Massachusetts recently saw a 10% increase in the price of electricity, which brought about a 2% fall in the quantity of electricity consumed. The price elasticity of demand is equal to _____, and demand is described as _____.
0.2; inelastic
A city economist is consulting with the public utility companies to determine an optimal pricing plan. When the price of water usage falls by 1%, the quantity demanded rises by 0.44%. The absolute value of the price elasticity of demand for water usage is _____. 0.44 44.0 2.27 1.00
0.44
Ashley Furniture sells 13,000 couches per month at a price of $800 per couch. When the price falls to $600, the quantity sold rises to 18,500. Use the midpoint formula to calculate the absolute value for price elasticity of demand for couches at Ashley Furniture.
1.22
Dental services are: A. A normal good. B. Expenses that do not change with income. C. An inferior good. D. A natural good.
A normal good.
When a popular comedian announces a tour, tickets often sell out quickly. However, it is quite common for the tour coordinator to later announce additional shows in the form of matinees and late-evening performances. Why would the tour coordinator include unpublicized additional shows in the tour schedule? Additional shows create extra capacity and increase the tour's price elasticity of supply. People who purchased a ticket consider the comedian's show to be an inferior good. The tour coordinator knows that the price elasticity of demand for tickets is perfectly elastic. Attendees to the shows consider many other comedians' performances to be close substitutes.
Additional shows create extra capacity and increase the tour's price elasticity of supply.
Which statement illustrates an environmental policy that uses cap and trade? A levy on drivers of $0.25 per a set level of emissions Paying drivers $0.20 for each 15% reduction in driving emissions Allowing drivers to buy and sell rights to emit specified levels of vehicle emissions
Allowing drivers to buy and sell rights to emit specified levels of vehicle emissions
Which of these scenarios depicts rational buyer? Mary values a bag of salad at $2, but she buys the bag of salad even when the price is 4$. John walks into a grocery store and purchases monthly groceries without paying attention to the prices of groceries. 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.
The cross-price elasticity of demand between Fanta and Dr. Pepper has been estimated at 0.61. If the price of Dr. Pepper falls by 10%, the quantity demanded of Fanta will:
Decrease by 6.1%
A tax on buyers shifts the:
Demand curve to the left or down.
The demand for disposable diapers is inelastic. Which statement would explain this phenomenon? Disposable diaper purchases consume a large portion of most parents' income. Parents have a lot of time to adjust to price changes. Disposable diapers are a necessity for most parents of infants. There are many substitutes for disposable diapers.
Disposable diapers are a necessity for most parents of infants.
Your family's business, a manufacturer of plastic containers, depends on imports of recycled plastic pellets from Asia. Your supplier offers substantial volume discounts, so the larger is your order of plastic pellets, the lower are your production costs. Your family benefits from:
Economies of scale.
For Elandra, home-brewed coffee is an inferior good, and lattes from the coffee shop are a normal good. Recently, Elandra cut back on lattes and began brewing her own coffee at home. What may have caused this change?
Elandra's income fell.
In a single year, Germany can raise 100 tons of wheat or produce 1,000 boxes of daises. In the same growing season, France can raise 50 tons of wheat or produce 750 boxes of daisies. When the two countries begin trading wheat for daisies, consumer surplus from wheat consumption will:
Fall in Germany
If a country's domestic price of a good is below the world price of the good, then with trade, the domestic quantity supplied of the good will be _____ the domestic quantity demanded.
Greater than
Which statement describes a source of comparative advantage? In general, France has an absolute advantage over Italy in the production of goods and services. Hawaii has a more favorable climate for the cultivation of tropical fruit than England has. The United States' airplane design technology is equivalent to that of India.
Hawaii has a more favorable climate for the cultivation of tropical fruit than England has.
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.
During the coronavirus pandemic, global supply chain issues caused the supply of new cars to shift left. Which role did price play in the new car market? Price was a(n):
Message to potential buyers that the marginal cost of manufacturing new cars is rising.
Gasoline prices have been rising. As time passes, people will adjust to the higher price, and the demand for gasoline becomes:
More elastic.
You pay a plumber to install a new dishwasher in your home. Which statement is FALSE? You experience gains from trade because you received a service. The plumber experiences gains from trade because they earned income. Markets orchestrated the gains from trade in this transaction. Only the plumber experiences gains from trade because they received money.
Only the plumber experiences gains from trade because they received money.
External benefits are generated by garden supplies that are used to beautify gardens and yards in neighborhoods. In equilibrium, the market will:
Price garden supplies at less than the marginal social benefit.
Georgia-Pacific, one of the world's largest manufacturers and distributors of paper products, operates multiple paper mills throughout the United States. The process of converting wood pulp into paper releases air pollutants. However, if new technology enabled zero-emission paper production, the marginal:
Private cost would equal the marginal social cost.
Suppose the cross-price elasticity of demand for apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is -0.80. This means that apple sauce and avocados are _____, whereas soda and oranges are _____.
Substitutes; complements
A tax on sellers shifts the:
Supply curve to the left or up.
The likely result of a binding price floor is a _____ of the good at a price _____ the equilibrium price.
Surplus; above
The job creation argument for protection against free trade is:
That restricting imports allows for greater domestic production.
Why does Apple design the iPhone in California but assemble the iPhone in China?
The United States has a comparative advantage in iPhone design.
A familiar example of a negative externality is loud music in a busy park on a weekend. In principle, it should be possible to solve this externality by permitting park visitors to negotiate rights to play music in particular locations or at specific times. The most likely reason these negotiations do NOT occur is that:
The bargaining costs of identifying and establishing communications between all affected parties would be high.
Consider the market for iPads. What happens if a fantastic new alternative tablet is developed by Samsung and, at the same time, a factory that makes iPads catches fire, destroying 3 million iPads?
The change in price is indeterminate and quantity decreases.
The incidence of a tax is:
The division of the economic burden of a tax between buyers and sellers.
Your artisan candle stick manufacturing business is doing well domestically, so you decide to expand it to other countries. As you would like to make many international sales, you hope:
The dollar will depreciate against other countries.
If drivers for ridesharing services like Uber and Lyft successfully negotiate for higher pay, and parking lot operators in the city raise parking rates, what can you conclude about the new equilibrium in the ridesharing market?
The equilibrium price will rise, but the impact on quantity is unclear.
The marginal social cost of a unit of pollution is:
The marginal private cost plus marginal external cost from one extra unit of pollution.
The International Monetary Fund advises Colombia to reduce its unusually high minimum wage to mitigate the negative effects of its current minimum wage on employment. Which of these is likely to occur as a result?
The wage paid to low-skilled workers will fall.
HelloFresh is a service that provides subscribers with recipes and all the necessary ingredients to prepare meals at home, delivered to their door once per week. Holding other things constant, what would happen if the company found a more efficient way to keep food fresh and safe during shipment?
There would be a movement down the market demand curve.
On camping trips, Katie is much faster than her husband, Brett, at putting up a tent and starting a fire. Who should do each task if they want to maximize their time sitting around the campfire?
They should first focus on that task in which they have a comparative advantage. When one finishes the assigned task, they can help the other.
When economic efficiency increases, the _____, and the benefits _____ be spread across all people.
Total gains exceed the costs; may or may not
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.
If you and your group partners assign various tasks for a project in the most efficient way possible, then it is likely that:
You got a task in which you have a comparative advantage.
Why might you underestimate the increase in market quantity demanded when you lower your price?
You may not take into account potential new customers attracted by the lower price.
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.
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 buy the set because buying earns $220 worth of economic surplus.
In which scenario are you NOT part of a market transaction? You take a photo of flowers in bloom in a city park. You pay $5 to pick apples at a pick-your-own apples orchard. You buy meat and produce from a local farmer. You sell vegetables at a local fruit and vegetable stand.
You take a photo of flowers in bloom in a city park.
Which statement BEST describes a negative externality? Your neighbor has a honey farm, and the bees pollinate your orchard. Your neighbor has an ornamental pond that breeds mosquitoes. You can use your neighbor's pool whenever you wish.
Your neighbor has an ornamental pond that breeds mosquitoes.
A trade cost is:
an extra cost incurred as a result of buying or selling a good abroad rather than domestically.
For normal goods, an increase in income will result in:
an increase in the equilibrium price and the equilibrium quantity.
Both emissions taxes and tradable emissions permits:
are efficient cost-minimizing methods of pollution reduction
Producers have an incentive to lower the quality of a good when the government imposes:
binding price ceiling
The cost-benefit principle evaluates _____ costs and benefits, and willingness-to-pay considerations quantify _____ costs and benefits.
both monetary and nonmonetary; only nonmonetary
When trade is based on comparative advantage:
both trading partners end up better off than when there is no trade.
If the price of paint rises, we can expect the: quantity of paint demanded to increase. demand for paintbrushes to decrease. demand for paintbrushes to increase. quantity of paintbrushes demanded to remain unchanged.
demand for paintbrushes to decrease.
When the price of the last unit sold equals its marginal cost, a seller will:
earn producer surplus on all units sold except the last one.
When goods are allocated in a way that creates the largest economic surplus:
efficient allocation has been achieved.
The difference between a centralized economy and a market economy is that:
governments make production decisions in a centralized economy, and individuals make production decisions in a market economy.
Much like toilet paper, toothpaste is a necessity. The income elasticity of demand for toothpaste is likely to be _____ and _____. positive; above 1 negative; below −1 negative; close to 0 positive; close to 0
positive; close to 0
If quantity demanded responds substantially to a relatively small change in price, demand is:
price elastic
A measure of how responsive buyers are to price changes is the:
price elasticity of demand
A shortage occurs when:
quantity demanded exceeds quantity supplied
If the price of jet fuel rises, the:
quantity of jet fuel supplied will increase.
We expect that price will fall when:
quantity supplied is greater than quantity demanded.
How is the economic surplus generated by a decision calculated?
It is the total benefits minus total costs arising from the decision.
Wikipedia is a widely used, free online encyclopedia, funded entirely by donations, rather than by selling advertising or user data. Wikipedia is a:
Public good
At Trader Joe's, the price of chocolate chip cookies falls. As a result, you would expect to see a(n):
Rise in the quantity demanded of chocolate chip cookies.
Suppose the United States places a tariff on imported Brazilian ipe (a type of wood). As a result of the tariff, the domestic price of lumber will _____, consumer surplus will _____, and producer surplus _____.
Rise; fall; rise
On hot summer days, parking lots at Disneyland are usually full by early morning, even though one must pay to park there. Parking at such lots is _____ in consumption and _____.
Rival; excludable
Which statement is normative? Scientists should not make normative statements. Too much sun will damage your skin. As cell phone prices fall, people generally buy more of them. Insurance rates drop when you turn 25.
Scientists should not make normative statements.
Minglewood Hall, a music venue in Memphis, Tennessee, often hosts loud concerts that play into the night. Minglewood provides an annual allotment of free concert tickets to residents who live in the houses directly behind the venue. Which solution to the externality problem does Minglewood use?
Side payment
When a country's production mix becomes more specialized due to increased international trade based on comparative advantage:
Some industries in the country will shrink and possibly disappear.
South Korea's comparative advantage in cellular technology can be attributed to:
Specialized skills
Which of these is a source of comparative advantage?
Specialized skills
Which of these items is a normal good? A. Canned food B. Instant noodles C. Steak D. Third-hand cars
Steak
Which of these government regulations is LEAST likely to lead to market failure?
Subsidies for vaccinations.
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:
The ski lift her parents have already purchased for her.
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.
A farmer finds that when he produces more pumpkins, he also has more pumpkins he can sell as decorations. To the farmer, pumpkins and decorative pumpkins are:
complements in production
Ariana bought a new pair of shoes at Nordstrom. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these shoes!" This BEST represents the concept of:
consumer surplus
In employing the marginal principle, a seller may:
decide whether to supply one more unit of a good or service.
As an equity analyst with an investment management company, you monitor market conditions in the dairy sector. Which of these would shift the market supply curve you've modeled for milk? an increase in the incomes of consumers expectations of a future decline in the price of milk an increase in population the rising popularity of milk
expectations of a future decline in the price of milk
Suppose the New York City housing market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a series of new apartment buildings has just been completed. Given these two changes, and assuming that apartment housing is a normal good, we can predict that the price of apartments will _____, and the quantity of apartments bought and sold will _____.
fall; rise or fall
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
The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:
greater than or equal to the marginal cost.
Price is functioning as a message when it:
is a line of communication between buyers and sellers in a market
A price ceiling will have no immediate effect if:
it is set above the equilibrium price.
Facebook is subject to network effects because:
its value to an individual increases when the number of other people using it increases.
During an economic downturn, a state government debates what type of economic stimulus—a tax cut or spending increase—would produce the most efficient outcome, that is, the outcome with the:
largest economic surplus
Following the rational rule, the economic surplus is maximized when:
marginal benefits equal marginal costs.
The _____ is the increase in output that is produced when a business hires an additional worker.
marginal product
The socially optimal outcome occurs where the _____ benefit equals the _____ cost.
marginal social; marginal social
To obtain a license to work as a barber, hairstylist, or cosmetologist, one must graduate from a state-approved barber or cosmetology program and pass a state exam, limiting the number of people who can practice these professions. In this scenario, market failure would arise from:
market power
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 network effect. the Coase theorem. a Pigouvian subsidy. a technology spillover.
network effect.
As long as people have different ________, everyone has a comparative advantage in something.
opportunity costs
The interdependence principle states that your best choice today depends on all of these EXCEPT:
past decisions you have made.
A prediction market is a market where:
payoffs are linked to whether an uncertain event occurs.
You run an electronics store that sells, among other items, big screen televisions. As the market price of big screen televisions decreases, the: supply of big screen televisions increases. quantity of big screen televisions supplied decreases. quantity of big screen televisions supplied increases. supply of big screen televisions decreases.
quantity of big screen televisions supplied decreases.
When plotting a supply curve, you measure:
quantity supplied on the horizontal axis.
A tariff or quota will _____ prices and _____ the consumption of the protected goods in the importing country.
raise; decrease
A central and fundamental theme in economics is that:
resources are limited and cannot satisfy all the ways a society wants to use them.
Dependencies over time reflect the fact that:
resources can be spread across time.
Diminishing marginal product leads to:
rising marginal costs for a seller.
The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of:
scarcity
When a manager uses comparative advantage to assign tasks in a workplace, then each:
task is assigned to the worker with the lowest opportunity cost for performing the task.
While attending college, you are also working as a freelance writer, writing product descriptions for catalogues for $40 per piece. You start each morning writing product descriptions when your mind is fresh. However, at a certain point, you recognize that the more product descriptions you write, the less quality time you can devote to your studies, worsening your grades and somewhat dampening your long-term income prospects. You should stop writing product descriptions when:
the perceived opportunity cost of writing another product description in terms of foregone long-term income rises above the $40 you could earn writing another product description.
Harrison is willing to buy the last ticket to the Billy Elliot play for $15, while Stefania is willing to pay $25. Harrison is first in line and buys a ticket for $15. He then resells his ticket to Stefania for $20. By reselling the ticket instead of going to the play himself, Harrison caused:
the sum of the consumer and producer surplus to increase.
Economists generally believe that a person should specialize in the production of a good or service if:
they can produce the product while forgoing fewer alternative products than any other person
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.
two
The efficiency problem that results from market power is that the market:
underproduces
In a small town in Kansas, the owner of the town's only gas station claims that he will sell the same quantity of gas no matter how high or low the price. If his assertion is correct, the demand curve for gas at his station must be _____, and the price elasticity is _____. horizontal; infinite vertical; infinite horizontal; zero vertical; zero
vertical; zero