Microeconomics 101 Exam 1

Suppose a parent is thinking of attending his or her daughter's last day of school pizza party. The parent currently earns $19 an hour and will have to take two hours off work to attend. The cost of admission to the party is $5. The opportunity cost of attending the pizza party is

a. $43 b. $33 c.$5 d. $23 a

Suppose that an increase in the price of carrots from $1.30 to $1.50 per pound raises the amount of carrots that carrot farmers produce from 1.3 million pounds to 1.7 million pounds. Using mid-point method, what would be the price elasticity of supply?

a. 0.53 b. 0.63 c. 1.87 d. 2.05 c

Suppose there is a 3 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. The price elasticity of demand for X is

a. 2 b. 3 c. 6 d. infinite a

Which of the following would shift the supply curve for gasoline to the right?

a. An increase in the price of oil, an input into the production of gasoline. b. An increase in the demand for gasoline. c. A decrease in the price of oil, an input into the production of gasoline. d. An increase in the price of gasoline. a

Which of the following events could cause an increase in the supply of ceiling fans?

a. Consumers' income increases. b. There is an increase in the price of the motor that powers ceiling fans. c. The number of sellers of ceiling fans increases. d. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. c

Which of the following statements is true?

a. Few economic models incorporate assumptions. b. Good economic models should attempt to mimic reality as is. c. Different economic models employ different sets of assumptions. d. Economic models, to be accepted, must incorporate realistic assumptions.

What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold?

a. Price will stay exactly the same. b. The price change will be ambiguous. c. Price will fall. d. Price will rise. b

Which of the following is NOT a positive statement?

a. The minimum wage creates unemployment among young and unskilled workers. b. If the price of a product decreases, people's willingness to buy that product will increase. c. Higher gasoline prices will reduce gasoline consumption. d. Equity is more important than efficiency. d

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

a. The relevant time horizon is short. b. There are many close substitutes for this good. c. The good is a necessity. d. The market for the good is broadly defined. b

Which of the following reasons would most likely explain why a wealthy family flies rather than drives to get to their favorite vacation spot?

a. Time is valuable and driving involves large time costs. b. The opportunity cost of driving is low. c. Driving imposes pollution on other drivers. d. The out of pocket cost of driving is low. a

Which of the following is likely to cause the market demand curve for good A to shift?

a. a change in the price of an input used to make good A b. a change in consumers' taste for good B, a substitute for good A c. a new technology for producing good A d. a change in the price of good A b

If a study by the AMA found that brown sugar caused weight loss while white sugar caused weight gain we would see

a. a decrease in the demand for white sugar, but no change in the demand for brown sugar. b. an increase in demand for brown sugar and a decrease in demand for white sugar. c. an increase in demand for brown sugar, but no change in the demand for white sugar. d. no change in either demand because weight loss is not a nonprice determinant of demand. Feedback b

Suppose buyers of computers and printers regard those two goods as complements. Then an increase in the price of computers will cause

a. an increase in the demand for printers. b. a decrease in the demand for printers. c. a decrease in the supply of printers. d. an increase in the supply of printers. b

For an inferior good, a decrease in average income in the market area will

a. cause the price of the good to decline. b. cause the market supply curve to shift to the right. c. cause the demand curve to shift to the right. d. cause the demand curve to shift to the left. c

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

a. compare the total cost of your education to the total benefits of your education. b. compare the cost of staying one more semester to the benefits of staying one more semester. c. compare the total cost of your education to the benefits of staying one more semester. d. compare the total benefits of your education to the cost of staying one more semester. b

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world making 25 percent more, but has decided to stay in teaching. Her decision would not change unless the marginal

a. cost of teaching decreased. b. benefit of teaching increased. c. cost of teaching increased. d. cost of a corporate job increased. c

Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue and your job is on the line. If the demand for sandwiches is elastic, you

a. could not determine what to do with price until you determine whether supply is elastic or inelastic. b. should not change the price of sandwiches. c. should increase the price of sandwiches. d. should decrease the price of sandwiches. d

For an economist, the idea of making assumptions is regarded generally as a

a. good idea, since economic analysis without assumptions leads to complicated results that the general public finds hard to understand. b. good idea, since doing so helps to simplify the complex world and make it easier to understand. c. bad idea, since doing so leads to the omission of important ideas and variables from economic models. d. bad idea, since doing so invariably leads to data-collection problems. b

Which of the following would NOT be a determinant of demand?

a. income b. cost of production c. the price of related goods d. tastes c

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg

a. increases. b. remains constant, but we observe a movement downward and to the right along the demand curve. c. remains constant, but we observe a movement upward and to the left along the demand curve. d. decreases. a

Economists understand that people respond to

a. laws. b. incentives. c. threats more than rewards. d. positives, but not negatives. b

Economic models

a. must incorporate all aspects of the economy if those models are to be useful. b. cannot be useful if they are based on unrealistic assumptions. c. can be useful, even if they are not particularly realistic. d. were once thought to be useful, but that is no longer true. b

You have driven 1,000 miles on a vacation and then you notice that you are only 50 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include

a. neither the cost of driving the first 1,000 miles nor the cost of driving the next 50 miles. b. both the cost of driving the first 1,000 and the next 50 miles. c. the cost of driving the first 1,000 miles, but not the cost of driving the next 50. d. the cost of driving the next 50 miles, but not the cost of driving the first 1,000. d

If, at the current price, there is a shortage of a good,

a. quantity demanded equals quantity supplied. b. the price is below the equilibrium price. c. sellers are producing more than buyers wish to buy. d. the market must be in equilibrium. b

If, for two goods, the cross-price elasticity of demand is 1.25, then

a. the demand for one of the goods conforms to the law of demand and the demand for the other good violates the law of demand. b. the two goods are luxuries. c. one of the goods is normal and the other good is inferior. d. the two goods are substitutes. d

You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought, and that this will cause the price of peanuts to double by the end of the year. As a result,

a. your demand for peanut butter decreases as you look for a substitute good. b. your demand for peanut butter shifts left today. c. your demand for peanut butter increases today. d. your demand for peanut butter will increase, but not until the end of the year. c