Microeconomics Exam 1 (Multiple Choice Section)

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does the coffee shop receive when Kevin purchases the latte?

$1

If Canadian consumers expect the value of the Canadian dollar to rise against the US dollar, what impact would we expect this to have on Canadians' demand for American made products?

The demand for American-made items would rise.

How will the supply of clothing change if the forecast is that clothing prices will fall in the next few months?

The supply of clothing will increase in the market today

The cost-benefit principle states that _____ are the incentives that shape decisions.

costs and benefits

When using the marginal principle, a seller has to

decide whether to supply one more unit of the item.

An equilibrium price is:

determined by the intersection of the demand and supply curves.

The interdependence principle:

implies that buyers decisions are affected by many factors other than the price of an item.

The opportunity cost principle states that the true cost of something is the

next best alternative you have to give up to get it.

The market supply is the

total quantity produced by all sellers in the market at each price.

Why does the demand curve slope downwards?

It slopes downward due to the law of demand.

The Rational Rule for Buyers

compares the benefit of buying an additional unit of the item to the cost of that item.

The price of coffee at a local coffee shop is $2.50. Cheryl is willing to pay $8 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase?

Three

Substitutes-in-production

allows a business to have alternative uses of its resources by manufacturing other products using the same inputs.

Fast food is a good example of

an inferior good.

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item.

equal to

It is a beautiful afternoon, and you are considering taking a leisurely stroll through the park. Your alternatives to walking are streaming a movie that you value at $5, taking a nap that you value at $7, or reading a new book that you value at $12. What is the opportunity cost to you of taking the stroll through the park?

$12

What happens to the equilibrium price and quantity when demand decreases and at the same time supply increases, but the relative size of the shifts are not known?

The equilibrium price falls, and the change in the equilibrium quantity is ambiguous.

Diane Jacobs is a student studying economics and is currently working on her class schedule for next semester. She considers the fact that a popular class may fill up if she does not act quickly, she is acknowledging the dependencies that exist

between people or businesses in the same market.

As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will:

fall, due to a rise in supply.

Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal:

benefit of purchasing one more coffee equals the marginal cost.

Asking "One more?" allows the _____ principle to be analyzed as a simple question.

marginal

Vincent Pearson makes dining tables, and he is trying to decide how many tables to produce. He can sell each dining table for $3,000. The cost of the first table is $1,000, for the second it's $1,500. For each additional table he produces, the marginal cost of each table increases by $500. How many dining tables should Vincent produce, and what is the total cost of his production?

He will produce five tables at a cost of $10,000.

Consider the decision to read your economics textbook. Which of the four core principles of economics applies to the notion that reading this textbook will help you to establish a solid foundation of understanding economics, which will be beneficial for future courses?

Interdependence principle

Sarah Sandoval is a coffee farmer trying to decide how many tons of coffee to produce. She can sell each ton of coffee for $1,500. The cost of producing her first ton of coffee is $300, and the second ton costs $500. Each additional ton of coffee costs $200 more to produce. How many tons of coffee should Sarah produce, and what is the total cost of her coffee production?

She will produce seven tons at a total cost of $6,300.

Anderson windows and doors imports wood from Canada. What would happen to the supply curve of Anderson if the value of the U.S. dollar rises against the Canadian dollar?

The supply curve will shift to the right.

Economists use money equivalents to compare costs and benefits because money is

a common measuring stick.

Rising marginal costs imply

an upward-sloping supply curve.

Surpluses always occur

at prices above the equilibrium price.

Jonathan Mendez is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of dinner at the fancy restaurant on the way to the concert is ____ in the calculation of his opportunity cost and represents a _____ cost.

included; financial

Shifts in supply

lead to price and quantity to move in opposite directions.

Nerida Kyle can either commute to work using a bus or purchase a new car. The bus fare each way is $2. Nerida works five days a week for 50 weeks a year. Based solely on the benefit of avoiding the cost of her bus tickets, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

less; $20

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 because of the weather the surcharge is twice the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost.

take an Uber; more

Juan McDonald is willing to pay $650 for a new iPad. He offers to pay $600 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 not; only Juan

The market supply curve is upward-sloping because a higher price implies that (i) individual sellers can increase the output supplied. (ii) more sellers can supply to the market. (iii) the government supplies goods and services to the market.

(i) and (ii)

A seller at a farmer's market wants $10 for a bag of 10 apples. You think his price is too high, so you counter with an offer of $6 for the bag. The seller then offers you a much smaller bag of five apples for $6. You bargain again, and the seller lets you buy the 10 apples for $8. This scenario is an example of:

a market in action.

Graphically, shortages will always occur:

at prices below the equilibrium price.

Harry Watson is an engineering student taking an economics elective in his senior year. He has the option after college to work as a petroleum engineer or to design rollercoasters. He is using concepts he learned in his economics course to help with this decision. He thinks many engineers would prefer to design rollercoasters and expects a lower salary in this field. With this analysis, he is acknowledging the dependencies that exist

between people or businesses in the same market.

An upward-sloping supply curve shows that

there is a positive relationship between price and quantity supplied.

Equilibrium is the

point at which there is no tendency for change.

A seller in a perfectly competitive market cannot

raise the market price of a product.

On a hot sweltering day, you feel thirsty and buy an ice-cold soft drink, which you gulp down. Whether you buy the second drink or not, will depend on

the marginal benefit from the second soft drink and if it will outweigh the price of the soft drink.

Rose Riley'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 the following EXCEPT

the ski lift ticket her parents have already purchased for her.

A market economy is an economy where

each individual makes his or her production and consumption decisions and buys and sells in markets.