Practice Exam 1 ECON

An inefficient point is

necessarily an attainable point

Choosing to study for an exam until the extra benefit (improved score) equals the extra cost (mental fatigue) is

an application of the cost-benefit principle

Suppose that both the equilibrium price and quantity of mustard rise. The most consistent explanation for these observations is

an increase in demand for mustard with no change in supply.

A graph with price on the vertical axis and quantity on the horizontal axis depicting a positive relationship between price and quantity is a

supply curve

The demand curve illustrates that consumers

tend to purchase more of a good as its price falls

57. Two recent studies conclude that increased fiber in the diet does not reduce the risk of developing colon cancer. The likely result will be that the

demand for fiber will decrease

To say that an individual possesses an absolute advantage in the production of software means that

he can produce more and/or higher quality software in a given amount of time

Shelly purchases a leather purse for $400. One can infer that

her reservation price was at least $400.

A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is termed a(n)

production possibilities curve

As the price of cookies increases, firms that produce cookies will

Increase the quantity of cookies supplied

Another name for the marginal benefit of an activity is the:

Reservation price

The principle of scarcity applies to

everyone; consumers, firms, governments, and nations.

Dean decided to play golf rather than prepare for his exam in economics that is day after tomorrow. One can infer that

the economic surplus from playing golf exceeded the surplus from studying

The scarcity principle indicates that

With limited resources having more of "this" means having less of "that

A market is comprised of

both suppliers and demanders

In general, to make optimal decisions one needs information on the

marginal benefits and marginal costs

Productions Possibility Frontier

shows all combinations of good we can produce with current technology and resources

Economic Models

simplifications of reality based on assumptions

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

Falling prices for personal computers increase quantity demanded, not demand

Assume the demand for 7200 RPM hard disks increases while the supply decreases. Which of the following outcomes is certain to occur? A) The equilibrium price of 7200RPM hard disks will rise. B) The equilibrium quantity of 7200RPM hard disks will rise. C) The equilibrium price of 7200RPM hard disks will fall. D) The equilibrium quantity of 7200RPM hard disks will fall. E) Neither the equilibrium price nor the equilibrium quantity of 7200 RPM hard disks can be predicted.

A) The equilibrium price of 7200 RPM hard disks will rise.

Ian paid $475 for an airline ticket to fly to Acapulco, Mexico for a spring break vacation. Unfortunately, he fell ill and could not go to Acapulco. When he called the airline to cancel the ticket, he was reminded that the ticket was non-refundable, but that he could exchange it for another ticket within one year if he pays a $75 fee at the time of the exchange. Several months later he is deciding whether to exchange the ticket for a ticket of the same price to Acapulco. The opportunity cost of go to Acapulco would equal the:

$75 exchange fee, if he has no other trip that he will take with in the year.

Low-Hanging Fruit Principle

...

An economic naturalist is described as someone who

Applies economic insights into everyday life

Unattainable

Area above the line/curve

Attainable

Area under the line

Assume the demand for 16 MB graphics cards decreases while the supply increases. Which of the following outcomes is certain to occur? A) The equilibrium price of 16MB graphics cards will rise. B) The equilibrium quantity of 16MB graphics cards will rise. C) The equilibrium price of 16MB graphics cards will fall. D) The equilibrium quantity of 16MB graphics cards will fall. E) Neither the equilibrium price nor the equilibrium quantity of 16 MB graphics cards can be predicted.

C) The equilibrium price of 16 MB graphics cards will fall.

The marginal cost of an activity is the

Change in the costs of the activity divided by the change in the level of the activity

Which of the following will not cause a shift in the demand curve for Athlon processors? A) An increase in the price of memory. B) A decrease in the price of Pentium III processors. C) A decrease in the price of motherboards. D)A decrease in the price of Athlon processors. E) An increase in consumers' incomes.

D. A decrease in the price of Athlon processors.

Which of the following statements is true? A) An unattainable point is inefficient. B) An efficient point may or may not be attainable. C) An inefficient point must be unattainable. D) An efficient point must be attainable. E) An attainable point must be efficient.

D. An efficient point must be attainable.

Joe has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home at a cost of $250, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $245. Last week he drove to campus to buy a concert ticket because they offered 20 percent off the regular price of $20.

It would be rational for Joe to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket.

In a two-person economy, Little Joe can trap a maximum of 6 rabbits or catch 10 fish a week, while his father can trap 12 rabbits or catch 15 fish per week. If their family wants to consume 20 fish per week while maximizing their joint production:

Little Joe should specialize in producing only fish, and his father should produce both fish and rabbits

The reservation price of a particular good or service is the

Maximum amount you would be willing to pay for it

A cost that cannot be recovered at the time a decision is being made is termed a(n)

Sunk cost

With ATM machines it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, say, 9 am to 3 pm. The difference is because

The cost of providing 24 hour a day service is much lower today.

The economic surplus of a particular action is

The difference between the benefit and the cost of the action

The opportunity cost of any activity is defined as

The value of the next best alternative activity forgone

If, when the price of X increases, the demand for Y decreases one can conclude that

X and Y are complements

The entire group of demanders and suppliers of a particular good or service defines

a market

Production Efficiency

a situation in which we cannot produce more of one good or service without producing less of something else

Any combination of goods that can be produced with currently available resources defines a(n)

attainable point

If Jane can produce 3 pairs of shoes hourly, while Bob can produce 2, then one can infer the __________ advantage belongs to __________.

comparative; either, either, or both; insufficient information to say

Deciding to pursue an activity as long as the extra benefits are at least equal to the extra costs defines the

cost-benefit principle

Any cost that is independent of the amount of activity is classified as a(n)

fixed cost

The Low-Hanging Fruit Principle means that if one want to gather apples,

one will start by collecting the ones closest to the ground and proceed up

A surplus exists when

quantity supplied exceeds quantity demanded

For many students, the opportunity cost of taking an 8:00 am Monday, Wednesday, and Friday class is the value of one hour's worth of

sleeping

The cost-benefit principle:

states that an action should be taken only if the extra benefit is at least as great as the extra cost

59. Dillion purchased his nonrefundable, nontransferable ticket to see the M.C. Hammer/Vanilla Ice Career Revival show for $30 last week while Bob has yet to buy his ticket but wants to go. In deciding whether to go to the show, the price of the ticket is a __________ to Dillion and a __________ to Bob.

sunk cost; variable cost

Forest is a mountain man living in complete isolation in Montana. He is completely self sufficient through hunting, fishing, and farming. He has not been in the city to buy anything in five years. One can infer

the scarcity principle still applies because more hunting means less fishing and so on

If a campus organization provides a free lunch to all students who show up, then

the scarcity principle still applies to the decision to allocate the time to go and eat

A positively sloped production possibilities curve

would violate the principle of resource scarcity