Microeconomics Unit 1-4

In January, buyers of gold expect that the price of gold will fall by February. What happens in the gold market in January, holding all else constant?

The demand curve shifts to the left.

Which of the following is an economic explanation for why most college-aged movie stars do not attend college.

the opportunity cost in terms of reduced income is too great

Figure 7-4 Refer to Figure 7-4. Which area represents consumer surplus at a price of P2?

d. AFG

A market supply curve shows how the total quantity supplied of a good varies as

d. price varies.

Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

Refer to the below diagram. If price falls from $10 to $2, total revenue:

falls from A + B to B + C and demand is inelastic.

Price floors and price ceilings:

interfere with the rationing function of prices.

A country can CONSUME some combination of goods outside its production possibilities curve by:

specializing and engaging in international trade

Refer to the below figure. When the price is P1, area B+C represents ________________ .

total surplus.

Which of the following most closely relates to the idea of opportunity costs?

tradeoffs.

Refer to the below diagram. The combination of computers and bicycles shown by point G is:

unattainable, given currently available resources and technology.

Figure 2-5 Refer to Figure 2-5. Suppose this economy is producing at point D. Which of the following statements would best explain this situation?

There is widespread unemployment in the economy.

College-age athletes who drop out of college to play professional sports

are well aware that their opportunity cost of attending college is very high.

In drawing a production possibilities curve we hold constant:

both technology and resource supplies

The point on the production possibilities curve that is most desirable can be found by:

comparing marginal benefits and marginal costs

Refer to the below diagram. The movement down the production possibilities curve from point A to point E suggests that the production of:

computers, but not bicycles, is subject to increasing opportunity costs.

Refer to the below diagram. This production possibilities curve is:

concave to the origin because of increasing opportunity costs.

The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair. As a result,

d. All of the above are correct.

If the supply of product X is perfectly elastic, an increase in the demand for it will increase:

equilibrium quantity but equilibrium price will be unchanged.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact:

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

An increase in price causes an increase in total revenue when demand is

inelastic.

An exception to the advice "go to college, stay in college, and earn a degree" occurs when:

the opportunity cost of attending college is extraordinarily high.

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

the same price and higher total revenue from marijuana sales.

A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?

Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen

Figure 7-22 Refer to Figure 7-22. If 110 units of the good are bought and sold, then

b. the marginal cost to sellers is greater than marginal value to buyers.

Figure 7-22 Refer to Figure 7-22. If 40 units of the good are bought and sold, then

b. the marginal value to buyers is greater than the marginal cost to sellers.

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

b. the price is below the equilibrium price.

Refer to the below tables. Suppose that technology and the quality of resources are the same in both countries. We can conclude that:

Herbania has more resources than Duckistan

Refer to the below tables. Suppose that the amount and quality of resources are the same in both countries. We can conclude that:

Herbania is technologically superior to Duckistan in producing civilian goods

Suppose that coffee growers sell 200 million pounds of coffee beans at $2 per pound in 2007, and sell 240 million pounds for $3 per pound in 2008. Based on this information we can conclude that the:

demand for coffee beans has increased.

The optimal point on a production possibilities curve is achieved where:

each good is produced at a level where marginal benefits equal marginal costs.

Refer to the below diagram. If actual production and consumption occur at Q2:

efficiency is achieved.

A price floor means that:

government is imposing a minimum legal price that is typically above the equilibrium price.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.Refer to the Scenario above. The change in equilibrium price will be

greater in the aged cheddar cheese market than in the bread market.

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to the Scenario above. The change in equilibrium quantity will be

greater in the beef market than in the milk market.

The law of increasing opportunity costs states that

if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so.

If two goods are complements, their cross-price elasticity will be:

negative.

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates:

opportunity costs

Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:

opportunity costs.

For which pairs of goods is the cross-price elasticity most likely to be positive?

pens and pencils

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

scarcity and opportunity costs.

Refer to the below tables. Suppose that Duckistan and Herbania are each producing 14 units of civilian goods and 2 unit of military goods. Then:

Duckistan is fully employing its resources but Herbania is not

Refer to the below figure. Which demand curve is perfectly elastic?

D

Refer to the below production possibilities curve. At the onset of the Second World War the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point:

a to point b.

Refer to the below diagram. If actual production and consumption occur at Q1:

a welfare loss (or deadweight loss) of b + d occurs.

Figure 4-26 Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for wedding cakes resulting from a decrease in the number of pastry chefs?

a. Point C to Point D

Figure 4-25 The graph below pertains to the supply of paper to colleges and universities. ​Refer to Figure 4-25. All else equal, a major paper manufacturer filing for bankruptcy and shutting down as a result of an IRS tax evasion investigation would cause a move from

a. SB to SA.

Figure 4-27 Refer to Figure 4-27. Panel (d) shows which of the following?

a. a decrease in quantity demanded and a decrease in supply

An decrease in the price of oranges would lead to a(n)

a. a movement down and to the left along the supply curve for oranges.

A likely example of substitute goods for most people would be

a. apple juice and orange juice.

Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of

a. crystal to increase.

Suppose you like to make, from scratch, pies filled with banana cream and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would

a. decrease.

Figure 4-19 Refer to Figure 4-19. If price in this market is currently $14, then there would be a(n)

a. excess supply of 40 units. The law of supply and demand predicts that the price will fall from $14 to a lower price.

A seller's willingness to sell is

a. measured by the seller's cost of production. b. related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. c. less than the price received if producer surplus is a positive number. d. All of the above are correct. D

Figure 4-22 Refer to Figure 4-22. At a price of $12, there is a

a. shortage of 4 units.

Suppose chocolate-dipped strawberries are currently selling for $30 per dozen, but the equilibrium price of chocolate-dipped strawberries is $20 per dozen. We would expect a

a. surplus to exist and the market price of chocolate-dipped strawberries to decrease.

A surplus of a product will arise when price is:

above equilibrium with the result that quantity supplied exceeds quantity demanded.

A rational decision maker takes an action only if the

marginal benefit is greater than the marginal cost.

Refer to the below diagram. At quantity Q1:

maximum willingness to pay exceeds minimum acceptable price.

Refer to the below diagram. At quantity Q3:

minimum acceptable price exceeds maximum willingness to pay.

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as:

rational self-interest, because he attempting to increase his own income by identifying and satisfyingsomeone else's wants.

Refer to the below diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost:

will be 4 units of bicycles.

Refer to the below diagram. If society is currently producing the combination of bicycles and computers shown by point D, the production of 2 more units of bicycles:

will cost 1 unit of computers.

A improvement in production technology will shift the

b. supply curve to the right.

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

0.5, and supply is inelastic.

Refer to the below diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be:

0F and 0C respectively.

Refer to the below diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1and demand D0, then

0F represents a price that would result in a shortage of AC.

Suppose that the supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to the Scenario above. The price elasticity of supply for bread could be

1.5.

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:

20 percent reduction in price.

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about

6% in the short run and 24% in the long run.

Figure 2-16 Refer to Figure 2-16. It is possible for this economy to produce

90 gadgets and 30 widgets.

Refer to the below diagram. Total revenue at price P1 is indicated by area(s):

A + B.

Refer to the below figure. If the price were P3, consumer surplus would be represented by the area: ___

A.

Refer to the below figure. Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna's demand for gas is represented by demand curve

A.

In recent years the economy of Japan has grown, despite the fact that the population of Japan has declined. Which of the following would best explain Japan's economic growth despite having a smaller population?

Advancements in technology that make labor more productive.

Figure 2-2 Refer to Figure 2-2. If households are sellers in the markets represented by Box D of this circular-flow diagram, then

All of the above are correct.

Refer to the below diagram. If price falls from P1 to P2, total revenue will become area(s):

B + D.

Refer to the below figure. At equilibrium, producer surplus is represented by the area: ___

D+H+F.

several studies have shown promising links between green tea consumption and cancer prevention. How does this affect the market for green tea?

The demand for green tea curve shifts to the right because of a change in tastes and preferences in favor of green tea.

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal benefit of going to Spain increases.

Farmers can plant either corn or soybeans in their fields. Suppose that a new technology for converting corn into liquid fuel increases the demand for corn. Which of the following is most likely to occur?

The supply of soybeans will decrease.

Refer to the below diagram. The area that identifies the maximum sum of consumer surplus and producer surplus is:

a + b + c + d.

Refer to the below diagram. Assuming equilibrium price P1, consumer surplus is represented by areas:

a + b.

A movement along the demand curve for Aquafresh toothpaste is caused by

a change in the price of Aquafresh toothpaste.

Refer to the below diagram. If actual production and consumption occur at Q3:

an efficiency loss (or deadweight loss) of e + f occurs.

In the market for oil in the short run, demand

and supply are both inelastic.

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

assuming that the demand for university education is inelastic.

Figure 7-10 Refer to Figure 7-10. Which area represents producer surplus when the price is P1?

b. BCG

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market?

b. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Refer to Figure 4-27. Which of the four panels illustrates a decrease in quantity supplied?

b. Panel (b)

Refer to Figure 4-25. All else equal, an increase in the price of the pulp used in the paper production process would cause a move from

b. SB to SA.

If toast and butter are complements, then which of the following would increase the demand for toast?

b. a decrease in the price of butter

Figure 4-8 Refer to Figure 4-8. Suppose the figure shows the market demand for coffee. Suppose the price of tea, a substitute good, increases. Which of the following changes would occur?

b. a shift from D2 to D1

If mayonnaise and Miracle Whip are substitutes, then which of the following would increase the demand for Miracle Whip?

b. an increase in the price of mayonnaise

Refer to Figure 4-1. The movement from point A to point B on the graph shows a(n)

b. increase in quantity demanded.

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

b. willingness to pay.

Figure 4-25 The graph below pertains to the supply of paper to colleges and universities. ​Refer to Figure 4-25. All else equal, the return of college students to campus in the fall would cause a move from

b. x to y.

A person should consume more of something when its marginal:

benefit exceeds its marginal cost.

Refer to the below diagram. Assuming equilibrium price P1, producer surplus is represented by areas:

c + d.

Refer to the below production possibilities curve. At the onset of the Second World War the Soviet Union was already at full employment. Its economic adjustment from peacetime to wartime can best be described by the movement from point:

c to point b.

Refer to Figure 4-27. Which of the four panels illustrates an increase in quantity demanded?

c. Panel (c)

Figure 4-6 Refer to Figure 4-6. Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food (tax on the producers). We could illustrate the tax as producing a movement from

c. Point A to Point C in Panel 2.

Refer to Figure 4-11. The movement from point A to point B on the graph is caused by

c. an increase in the price of the good.

Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor, Toysorama, is mass-producing an excellent copy and plans to flood the market with their $5 doll in six weeks. Funsters should

c. increase the supply of its doll now before the other doll hits the market.

Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know doctor's visits are

c. normal goods.

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are

c. substitute goods.

A decrease in the number of sellers in the market causes

c. the supply curve to shift to the left.

If the supply of a product increases, then we would expect equilibrium price

c. to decrease and equilibrium quantity to increase.

A perfectly inelastic demand schedule:

can be represented by a line parallel to the vertical axis.

Refer to the below diagram. Points A, B, C, D, and E show:

combinations of bicycles and computers that society can produce by using its resources efficiently.

The law of increasing opportunity costs is reflected in a production possibilities curve that is:

concave to the origin.

Donald produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his producer surplus per ton is

d. $150.

Figure 4-18 Refer to Figure 4-18. At what price would there be an excess demand of 200 units of the good?

d. $20

Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is

d. $64.

Consumer surplus

d. measures the benefit buyers receive from participating in a market.

If the demand for product X is inelastic, a 4 percent increase in the price of X will:

decrease the quantity of X demanded by less than 4 percent.

PlayStations and PlayStation games are complementary goods. A technological advance in the production of PlayStations will

increase consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games.

Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would

increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips.

Refer to the below diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0to D1 might be caused by a(n):

increase in the price of complementary good Y.

Refer to the below diagram, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n):

increase in the wage rates paid to laborers employed in the production of X.

Refer to the below diagram. The decline in price from P1 to P2will:

increase total revenue by D - A.

If the demand for textbooks is inelastic, then an increase in the price of textbooks will

increase total revenue of textbook sellers.

Refer to the below tables. Opportunity costs are:

increasing in both Duckistan and Herbania.

Refer to the below figure. At the quantity Q2, the marginal benefit to buyers

is P2, and the marginal cost to sellers is P3.

Refer to the below diagram. The combination of computers and bicycles shown by point F:

is attainable, but implies that the economy is not using all its resources.

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

people face tradeoffs.

Refer to the below diagram. A binding rent controls are best illustrated by:

price A.

Refer to the below diagram. A government-set binding price ceiling is best illustrated by:

price A.

Refer to the below diagram. A government minimal price support program to aid farmers is best illustrated by:

price C.

Refer to the below diagram. A government-set binding price floor is best illustrated by:

price C.

Total surplus in a market will increase when the government

removes a binding price ceiling from that market.

The law of increasing opportunity costs exists because

resources are not equally efficient in producing various goods

The law of increasing opportunity costs exists because:

resources are not equally efficient in producing various goods.

Refer to the below diagram. The direct economic impact of the destruction and loss of lives caused by the terrorist attacks of September 11, 2001 is illustrated by the:

shift of the production possibilities curve from CD to AB.

Refer to the below tables. Opportunity costs of producing military goods are:

smaller in Duckistan than Herbania.

The larger the coefficient of price elasticity of demand for a product, the:

smaller the resulting price change for an increase in supply.

The concept of opportunity cost:

suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

Refer to the below diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then:

supply has decreased and equilibrium quantity has decreased.

Suppose that salsa manufacturers sell 2 million bottles at $3.50 in one year, and 3 million bottles at $3 in the next year. Based on this information we can conclude that the:

supply of salsa has increased.

The construction of a production possibilities curve assumes:

technology is fixed.

Refer to the below diagram. In the P1 to P2 price range, we can say:

that demand is elastic with respect to price.

Opportunity cost is best defined as:

the amount of one product that must be given up to produce one more unit of another product.

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

the answer depends on the price elasticity of demand.

If the price of SUVs increases, we would expect

the demand for gasoline to decrease.

In response to the terrorist attacks of September 11, 2001, the government decided to allocate more resources toward defense goods. The government's decision reflects their assessment that:

the marginal benefits of additional defense goods outweighed the marginal cost.

Refer to the below diagram. At quantity Q2:

the sum of consumer and producer surplus is maximized.

The production possibilities curve shows:

the various combinations of two goods that can be produced when society employs all of its scarce resources.

A production possibilities frontier can shift outward if

there is a technological improvement.

Consumers might leave a fast-food restaurant without being served because:

they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit.

The negative slope of the production possibilities curve is a graphical way of indicating that:

to produce more of one product we must do with less of another.