Microeconomics Exam 1

Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value to Pat spending more time with the kids is greater than:

$13,000 per year

Refer to the accompanying table below. The marginal cost of the 3rd unit of this activity is:

$20

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State NoName U is:

$20,000

The accompanying table below shows how total donations, average donations, total 47) labor costs and average labor costs vary depending on the number of employees State Uhires for its fundraising activities. The marginal benefit (in terms of extra donations) of the 2nd employee is:

$21,213

When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the 46) price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what isthe price elasticity of demand for hot dogs?

0.2

If 20 percent increase in the price of a good leads to a 60 percent decrease in the 48) quantity demanded, then what is the price elasticity of demand?

1/6

Refer to the accompanying table. Corey's opportunity cost of delivering a pizza is making:

2 pizzas

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. What is the opportunity cost to Cathy of making a cake?

2/3 of a pie

Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. Dusty can buy a maximum of ________ loaves of bread or a maximum of ________ jars of peanut butter

20; 10

The accompanying graph depicts demand. The price elasticity of demand at point B is:

4/3

The marginal utility of the 6th pizza is:

5

Refer to the accompanying figure. For Pat, the opportunity cost of removing on bag of trash is planting:

5 bulbs

Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9th bonbon is

7

Refer to the accompanying table. _______ has the comparative advantage in making pizza, and ______ has the comparative advantage in delivering pizza

Corey; Pat

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore:

Gertie should buy the grans because the price is less than her reservation price

Joe is shopping for a new computer. A computer can be delivered to Joe's home for $1,200. Alternatively, Joe can pick up the same computer at the warehouse for $1,000. How should Joe buy the computer?

Joe should drive to the warehouse if his cost of driving to the warehouse is less than $200

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?

Lewis should specialize in pie, and Cathy should specialize in cakes

Lou and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The accompanying table shows the number of rooms they can each clean and the number of meals they can each cook in an hour. If Alex and Lou work out an efficient arrangement for these two chores, then under that arrangement:

Lou would do all of the cleaning, while Alex would do all of the cooking

Moe has a big exam tomorrow. He considered studying this evening, but decided to hand out with Curly instead. IF neither activity involves any explicit costs, and Moe always chooses rationally, it must be true that:

Moe gets more benefit of spending time with Curly than from studying

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Should you go to the concert instead of working Saturday?

No, the benefit of going to the concert is less than the cost

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. Should you use the frequent flyer coupon to go to Miami?

No, your benefit is less than your cost

The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts. The maximum number of dresses that Becky can make in a day is represented by point:

W

In a market in which the government has set a price ceiling below the equilibrium price:

a black market might develop

"As the price of personal computers continues to fall, demand increases." This headline is inaccurate because:

a falling price of personal computers increases the quantity demanded, not demand

If a demand curve is horizontal at P=$5, then the price elasticity of demand is

infinite

At the price of $3, there will be:

an excess demand of 5 units

The price of bananas will increase in response to:

an excess demand of bananas

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:

at least $1.75 but less than $2

You are trying to whether to purchase the latest Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time that ordering a book on line. Regardless of how you get the book, its benefit to you is the same. If the cost of the book online is $13, then you should:

borrow the book from the library if the cost of doing so (in terms of extra time it takes) is less than $13

According to the accompanying table, Julia has the absolute advantage in making:

both pies and cakes

Suppose that a new drug has been approved to treat a life-threatening disease. The 41) demand for that drug is shown on the accompanying graph. Prior to approval of thisdrug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph. The manufacturer of the over-the-counter pain reliever would ________ total revenue by increasing the price from $15 to $16.

decrease

It is impossible for a total utility to be _____ when marginal utility is _____

decreasing; positive

Refer to the accompanying figure. Growing 1,000 bushels of wheat and no bushels of corn each year is:

efficient and attainable

When Lorenzo eats 1 slice of pizza for lunch, his total utility is 23, and when he eats 2 slices of pizza for lunch, his total utility is 42. Assuming that Lorenzo's marginal utility from eating pizza is always positive, we can infer that his total utility from eating 3 slices of pizza at lunch is:

greater than 42 and less than 61

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. Your total utility ________ with the first three pies you ate.

increased

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

inelastic

On a given linear demand curve, as price increases demand becomes:

more elastic

Pat's total utility after eating 99 Reese's Peanut Butter Cups was greater than his total 49) utility after eating 100 Reese's Peanut Butter Cups. Therefore, Pat's marginal utilityfrom the 100th peanut butter cup was:

negative

If the demand for steak increases as income increases, then steak is a(n):

normal good

Alex wants to maximize his utility. At his current level of consumption, Alex's 45) marginal utility from an additional cup of coffee is 15 utils, and his marginal utilityfrom an additional can of soda is 11 utils. If the price of a cup of coffee is $3 and theprice of a can of soda is $2, Alex should:

reallocate his spending away from coffee and towards soda

The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:

specialization by pitchers, infielders, and outfielders has made it harder for batters to hit

If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are:

substitutes

The Scarcity Principle tells us ________, and the Cost-Benefit Principle tells us 50) ________.

that choices must me made; how to make good choices

Suppose the columns in this table reflect demand and supply. If the current market price is $50, then you would expect:

the market price to rise

If consumers reposing to a 10% price reduction by buying twice as much of a particular good, we would conclude that:

the place elasticity of demand at the original price was greater than one

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that:

the wage of teachers is that district is lower than the equilibrium wage

If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th cup is 15, then:

there is evidence of diminishing marginal utility

Refer to the accompanying figure. If the price of this good is initially $3, and price falls by a few cents, then what will happen to total expenditure on this good?

total expenditure will fall

If the percentage change is the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is:

unit elastic

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ________ because it generates a ________ economic surplus.

wash clothes; bigger