AAEC 1005 Test 1 study guide

According to the demand curve below, at which of the following prices and quantities is revenue maximized? A P = 40; Q = 0. B P = 30; Q = 5. C P = 20; Q = 10. D P = 0; Q = 20.

C

If I tell you that Nutella and Smuckers are SUBSTITUTES to me, then which of the following could be the value of the cross-price elasticity of demand for good Smuckers? A -1. B -2. C Neither A nor B. D Both A and B.

C

If a new french fry-cutting machine works twice as fast as the old machine, McDonald's would: A be willing to produce and sell fewer french fries at every price. B be making less profit. C be willing to produce and sell more french fries at every price. D lose customers. E pay its employees more.

C

Refer to the accompanying diagram. An increase in the number of buyers would cause the demand curve to: A shift from D2 to D3. B remain at D1. C shift from D1 to D2. D shift from D2 to D1. E shift from D2 to D3.

C

An example of a direct negative incentive is

threatening to fire those who do not perform well.

Economics is the study of how society manages its

unlimited wants and resources

What is the opportunity cost to Supertown of increasing the production of machines from 200 to 300?

300 cups

Inefficient production is represented by which point(s)?

B

Which of the following does NOT affect the magnitude of own-price elasticity of demand? A The length of the time horizon over which we are looking at the change in consumer behavior. B The availability (or lack thereof) of close substitutes for the good in question. C The amount by which quantity supplied will change as price changes. D All of the above affect the own-price elasticity of demand.

C

Which of the following would cause the demand curve to shift to the right? A Income decreases for an inferior good. B Income decreases for a normal good. C Tastes and preferences decrease. D The price of a substitute decreases. E The price of a complement increases.

Income decreases for an inferior good.

Where can an economy not produce?

Outside its production possibilities frontier

Kim attends the Blacksburg's farmer's market every Saturday. On her last visit, she notices that all of the green apples sold by the many different farmers have roughly the same price. Which statement best explains why the prices are so similar?

The farmer's market in Blacksburg is a competitive market so neither the consumer nor the producer has a large influence on the price, allowing for the market to set the price.

Suppose this economy is producing at point B. Which of the following statements would best explain this situation?

There is widespread unemployment in the economy.

If a demand curve is VERTICAL, then own-price elasticity of demand for this good is equal to:

Zero

An expectation of a lower price in the future will:

decrease current demand.

The overriding reason why households and societies face many decisions is that

resources are scarce

When a hurricane rips through Florida, the price of oranges rises because the:

supply curve shifts to the left.

Refer to the table below. The equilibrium price and quantity in this market is:

$4.00 and 40 units.

Which of the quantity (Q) and price (P) combinations in the accompanying figure represents the market at competitive equilibrium?

(22, $8)

Jiyeon raised his quantity demanded of hockey pucks from 100 to 150 when the price fell from $5 to $3 per puck. Using the midpoint method, his price elasticity of demand is:

-0.80

Jong wins the lottery, increasing his by 60%. He used to buy 10 blocks of cheese per month and now he buys 12. HIs income elasticity of demand for cheese is __________, making it a(n) __________ good.

0.33; necessity

Assume that the market for nachos has only two suppliers: Firm 1 and Firm 2. According to this table, if the price of nachos is $6, the market will supply:

10 nachos.

The opportunity cost of moving from point S to point R is

2 tractors

The opportunity cost of this economy moving from point C to point D is

20 dryers

If own-price elasticity of demand equals 0.3 in absolute value, then what percentage change in price will result in a 6% decrease in quantity demanded? (Hint: Make %ΔP the subject of the formula and then solve.)

20%

Suppose that a 2% increase in price results in a 6% decrease in quantity demanded. The price elasticity of demand for this product is equal to:

3%

Refer to the table below: Assume that the market for iPods has only two consumers: Chuck and Ryan. According to the table above, if the current market price of an iPod is $100, then the market demands ___.

6 iPods.

What is the own-price elasticity of demand as price decreases from $8 per unit to $6 per unit? Use the mid-point formula in your calculation.

7

If this economy devotes all of its resources to the production of dryers, then it will produce

80 dryers and 0 washers.

As a consumer, a certain good has few close substitutes available, then: A The demand for that good will be relatively inelastic, compared to goods for which there are many close substitutes. B The supply of that good will be relatively inelastic, compared to goods for which there are many close substitutes. C The demand for that good will be relatively elastic, compared to goods for which there are many close substitutes. D The supply of that good will be relatively elastic, compared to goods for which there are many close substitutes.

A

Consider the production possibilities frontier for an economy that produces only microwaves and blenders. When society moves from point A to point B, A the opportunity cost is the same as when society moves from point B to point C. B it is giving up blenders to get microwaves. C the opportunity cost is increasing. D it moves from an inefficient point to an efficient point.

A

It is not possible for this economy to produce at point

A

Which of these graphs represents perfectly price inelastic demand for a good?

A

Which one of the following pairs of goods is likely to have a positive cross-price elasticity of demand? A pancakes and waffles B fruit and bacon C butter and toast D potatoes and sausage E milk and coffee

A

Scott and his friend, Brianna created a handcraft business. After a month they realize that they can sell out their entire stock at $5.50 but can sell none if it raises the price to $5.55. Which graph most likely shows the price elasticity of demand?

B

Refer to the accompanying figure. When the price changes from P to P, we will see a(n): A decrease in supply from Q1 to Q2. B increase in supply from Q2 to Q1. C decrease in quantity supplied from Q1 to Q2. D increase in quantity supplied from Q2 to Q1. E shift of the supply curve.

C

Which of the following combinations of corn and rye is not currently attainable but would be attainable if there was an improvement in overall production technology? A 2,000 bushels of corn and 500 bushels of rye B 1,500 bushels of corn and 800 bushels of rye C 1,250 bushels of corn and 1,700 bushels of rye D 500 bushels of corn and 1,700 bushels of rye

C

If Benny's pizza is a normal good, then which of the following could be the value of income elasticity of demand? A 0.2. B 0.8. C 1.4 D All of the above.

D

In a typical year, Chandler's parents spend 35% of its income on housing, 20% on travel-related expenses, 10% on utilities, 25% on health care, and 5% on miscellaneous items. For which category will demand be most responsive to a change in price? A miscellaneous B health care C utilities D travel-related expenses E housing

E

Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand? A tea and coffee B soda and water C spaghetti and ravioli D tennis shoes and flip flops E coffee and cream

E

Production is possible at points..

P, Q, R, and S, but efficient only at points P, R, and S.

Suppose the state of Virginia passes a law that lowers the legal drinking age to 18. As a result, college students from North Carolina who are between 18 and 20 years old decide to cross the border to purchase and consume beer in Virginia. Which of the following principles does this best illustrate?

People respond to incentives.

Refer to the accompanying graph. If consumers expect the price of a good to decrease in the future and all else is held constant, we would assume that the demand curve would:

Shit from d1 to d3

Bill is an accomplished businessman who pays a landscaper to maintain his lawn rather than do it himself. Bill's time is worth $1,000 per hour. This is clearly more than the amount he would have to pay his landscaper for an hour of work. This scenario is an example of which principle of economics?

Trade can make everyone better off.

When the price is ___________the equilibrium price, we would expect there to be a ___________, causing the market to put ___________pressure on the price until it went back to the equilibrium price.

above; surplus; downward

The basic goal of economics is

addressing the scarcity problem created because the population's desire for goods exceeds the ability to produce them.

Imperfect markets:

always result in demand exceeding supply.

A shift of the economy's production possibilities frontier from Graph (a) to Graph (b) could be caused by

an improvement in tractor production technology.

Who benefits from voluntary trade?

buyers and sellers

If goods X and Y are COMPLEMENTS, which of the following could be the value of cross-price elasticity of demand? A 0. B 1. C -1. D All of the above could be the value of cross price elasticity of demand.

c

The price of good X increases by 25%, causing the quantity consumed of good Y to decrease by 10%. If everything else is held constant in the economy, we can say with certainty that good X and good Y are:

complements.

Opportunity cost is the ______________ alternative forfeited when a choice is made.

highest-valued

The change in equilibrium shown in the accompanying figure would be explained by a(n):

increase in the price of an input and an increase in the price of a complement.

When incomes fall by 20%, quantity demanded of specialty baked goods falls by 50%. Specialty baked goods are:

luxuries.

The term ______________ means "additional."

marginal

Demand is almost always more price elastic in the long run because:

more options become available and people can make different choices.

The cost of a trade-off is known as the ______________ of that decision.

opportunity cost

The production possibilities frontier provides an illustration of the principle that

people face trade-offs.

Sellers of bottled water find that whether the price falls or rises, the quantity bought by consumers remains unchanged every week. The price elasticity of demand for bottled water is: (in terms of elasticity)

perfectly inelastic.

Actions and activities are encouraged with which type of incentive?

positive

Price elasticity of demand measures the change in:

quantity demanded due to the change in price.

According to the law of demand, ceteris paribus,

quantity demanded falls when the price rises, and the quantity demanded rises when the price falls.

If the cost of flour increases from $3 to $5 a bag, you could predict the supply curve for bagels to:

shift to the left.

Jazmine is a renowned college-level math tutoring. She knows that during the two weeks before exams at the Emporium, she can charge more for an hour of private tutoring. Expecting this price increase, Jazmine will:

supply less tutoring now, shifting supply to the left.

A technological advancement for Good A will shift the ___________curve of Good A to the ___________, making the equilibrium price ___________.

supply; right; decrease.

As a rational decisionmaker you will

take an action only if the marginal benefit of that action exceeds the marginal cost of that action.

An economy's production of two goods is efficient if

the economy is producing at a point on the production possibilities frontier.

After getting an A in AAEC 1005, you decide to start a economics tutoring business. When the price of an hour of tutoring increases,

the quantity demanded for tutoring decreases.

According to the figure below, at the price of $5:

the quantity demanded is 500.

You calculated the price elasticity of demand for hot dog rolls to be -1.25. This tells you that demand is __________ and price is __________ to you. A inelastic; less important than the quantity B elastic; more important than the quantity C unitary elastic; on the same level as quantity D perfectly inelastic; everything E perfectly elastic; meaningless

B

Suppose that a fall in the price of a good from $10 to $8, causes total expenditure on the good to decrease. Which of the following could be the absolute value of the PED, in this price range? A 1.6. B 2.3. C Both A and B. D Neither A nor B.

D

Which of the following will shift both the supply and demand curves? A the number of firms in an industry B tastes and preferences C income changes D expectations of future prices E the number of buyers F price of the product

D

You have an internship at the local skating rink. On your first day, the manager gives you the pricing chart and ask you to calculate the "price sensitivity" of each class of customer if he raises prices from $10 to $20. From your calculations, you would tell him that, the price elasticity of demand for recreational skaters is ___________ than that of hockey players because ___________. A more elastic; ice skates are a normal good B less elastic; ice skates are an inferior good C the same; they both skate D more elastic; recreational skaters can substitute other activities E less elastic; hockey players need skates

D

Companies use advertising to shift consumer demand. Which of the following demand shifters do you think advertisers most often rely on? A changes in income B the price of related goods C changes in tastes and preferences D the number of buyers E expectations regarding the future price

changes in tastes and preferences

The demand curve shift shown in the figure was caused by a(n):

decrease in the number of buyers in the market for the good.

In the first few months of 2012, the price of gasoline increased by approximately 15%. Because of this increase, we would expect the ___________curve in the market for hybrid cars to ___________.

demand; shift to the right

For a market to be competitive:

each buyer and seller is small, relative to the whole market; no single decision-maker has any influence over the market price.

Gigi is a loyal Coca-Cola consumer (she even has the tattoo), whereas Tarisha can drink either Coca-Cola or Pepsi products. Gigi's demand for Coca-Cola will be relatively more __________, while Tarisha's demand will be relatively more __________.

inelastic; elastic

Breaking Bad products have an income elasticity of -1.4. Thus, these are __________ goods.

inferior

If the income elasticity of demand is -3, the good will be a(n):

inferior good.

The law of supply states that, all other things being equal,

the supply falls when the price rises, and the demand rises when the price falls.

In an effort to fund the building of a new highway, the government of Transylvania decided to impose (place) a tax on gasoline producers. Our model of supply and demand predicts that:

the supply for gasoline decreased.

The need to study economics would cease to exist if

there were enough resources to produce all the goods and services people would like to obtain.