EC-201 Exam #1

If demand is _____, a higher price yields _____ total revenue. inelastic; lower elastic; higher elastic; no change in inelastic; higher

inelastic; higher

Diminishing marginal benefit: is when buying an additional item yields a larger marginal benefit than the previous item. is when buying an additional item yields a smaller marginal benefit than the previous item. is not important in determining a consumer's purchase decision. is when consumers do not follow the rational rule.

is when buying an additional item yields a smaller marginal benefit than the previous item.

The __________ suggests, decisions about quantities are best made incrementally. marginal principle opportunity cost principle interdependence principle cost-benefit principle

marginal principle

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 Kevin gain when he purchases the latte? $6 $2 $4 $1

$4

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is: -2. -0.5. 0.5. 2.

0.5.

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle. interdependence opportunity cost cost-benefit marginal

interdependence

The price of milk at the local grocery store is cut by 15%, and the quantity of milk demanded increases by 10% in response. What is the absolute value of the price elasticity of demand for milk? 0.67 -0.67 1.5 -1.5

1.5

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs? 2 2.7 0.37 0.5

2.7

When the absolute value of the price elasticity of demand is less than 1, demand is: elastic. unit elastic. perfectly elastic. inelastic.

inelastic

Paint and paintbrushes are complements. If the price of paint rises, we can expect: the demand for paintbrushes to increase. the quantity demanded of paint to increase. the quantity demanded of paintbrushes to remain unchanged. the demand for paintbrushes to decrease.

the demand for paintbrushes to decrease.

The United Kingdom plans to end the use of gas-powered and diesel-powered cars by the year 2040. At the same time, car manufacturers, such as General Motors and Nissan, are increasing the number of electric car models they produce. Based on this information, which of the following statements is/are correct?(i) If the supply of new electric cars is greater than the demand for new electric cars, then the price of electric cars will fall in the future.(ii) The demand for gasoline will fall in the future.(iii) The demand for electricity will rise in the future.(iv) The demand for diesel will rise in the future. (i) and (ii) (ii) and (iv) (i), (ii), and (iii) only (i)

(i), (ii), and (iii)

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____. -2; substitutes 1.5; complements 2; substitutes 0.5; substitutes

2; substitutes

How is the economic surplus generated by a decision calculated? It is the sum of costs arising from the decision. It is the sum of benefits arising from the decision. It is the total benefits minus total costs arising from the decision. It is the total benefits plus total costs arising from the decision.

It is the total benefits minus total costs arising from the decision.

Which of the following are correct about fixed costs?(i) They do not change with the level of production in the short run.(ii) They include variable costs.(iii) They are present even when the firm is producing zero units.(iv) They are irrelevant to marginal cost. (i), (ii), (iii), and (iv) (i), (iii), and (iv) (i), (ii), and (iii) (ii) and (iv)

(i), (iii), and (iv)

When there is a shortage of highly skilled workers in a particular region: unemployment rises among highly skilled workers. there is a corresponding surplus of low-skilled workers in the region. the incomes of highly skilled workers fall. highly skilled workers can negotiate higher salaries.

highly skilled workers can negotiate higher salaries.

Suppose that you have a pumpkin stall at a farmer's market, and the Halloween season arrives. You know that your customers will want to buy many pumpkins to decorate their houses and make pumpkin pies. Which of the following is a likely result of this scenario? You will take fewer pumpkins to the market to sell. You can charge a higher price per pumpkin. You will be able to sell only the highest-quality pumpkins. You will wind up with many unsold pumpkins.

You can charge a higher price per pumpkin.

A normal good is: a good for which higher income causes an increase in demand. a good which is only purchased by high-income consumers. a good for which higher income causes a decrease in demand. a good which is normally purchased by many consumers.

a good for which higher income causes an increase in demand.

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 centrally planned market. a shortage. perfect competition. a market in action.

a market in action.

The key to using the cost-benefit principle is to think about _____ aspects of a decision. only financial only nonfinancial neither financial nor nonfinancial both financial and nonfinancial

both financial and nonfinancial

Quantity demanded is on the horizontal axis when you plot a demand curve and shows the: amount of a good that a person actually buys at the market price. amount where opportunity cost is equal to the marginal benefit. amount of a good that a person is willing to buy at each price. amount of a good that a seller is willing to sell at a particular price.

amount of a good that a person is willing to buy at each price.

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 is less than the marginal cost. benefit of purchasing one more coffee is positive. cost of purchasing one more coffee is positive. benefit of purchasing one more coffee equals the marginal cost.

benefit of purchasing one more coffee equals the marginal cost.

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is attempting to decide how many more episodes to watch. Kathleen should continue watching episodes as long as the marginal: benefit of watching another episode is less than the marginal cost. benefit of watching another episode is positive. cost of watching another episode is positive. benefit of watching another episode exceeds the marginal cost.

benefit of watching another episode exceeds the marginal cost.

Diane Jacobs is a student studying economics and currently working on her class schedule for next semester. She considers the fact that more and more data is available every day and that data interpretation skills are learned by taking additional economics courses in her course selection. This acknowledgment highlights the dependencies that exist: between people or businesses in the same market. through time. between her own individual choices. between markets.

between markets.

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction. only the buyer neither the buyer nor the seller only the seller both the buyer and the seller

both the buyer and the seller

The cost-benefit principle states that _____ are the incentives that shape decisions. incomes opportunity costs costs and benefits framing effects

costs and benefits

When there is a shortage of highly skilled workers in a particular region, the: demand for skills education increases. demand for highly skilled workers increases. demand for skills education decreases. supply of jobs for highly skilled workers increases.

demand for highly skilled workers increases.

The cross-price elasticity of demand measures how responsive the: demand for one good is to a change in the price of another good. supply of one good is to a change in the price of another good. demand for one good is to a change in the demand for another good. price of a good is to a change in the price of another good.

demand for one good is to a change in the price of another good.

When the absolute value of the price elasticity of demand is greater than 1, demand is: perfectly inelastic. unit elastic. inelastic. elastic.

elastic

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item. less than equal to greater than or less than greater than

equal to

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 fall in demand. rise, due to a rise in demand. fall, due to a rise in supply. rise, due to a fall in supply.

fall, due to a rise in supply.

Which of the following five scenarios illustrate markets in action?(i) You rent a book at the university bookstore.(ii) You bargain at a street stall.(iii) You mow your own lawn.(iv) You get a manicure at a nail salon.(v) You grow your own vegetables and consume them yourself. (i), (ii), and (iv) (i), (iii), and (v) (i), (ii), and (iii) (iii) and (v)

(i), (ii), and (iv)

The price of product A is cut by 30%. As a result, the quantity demanded of product B rises by 40%. The cross-price elasticity of demand between product A and product B is _____, and they are _____. -1.25; complements -0.75; substitutes -1.33; complements 1.25; complements

-1.33; complements

The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____. 2.5; inelastic 0.4; inelastic 0.4; elastic 2.5; elastic

0.4; inelastic

Which of the following lists only the factors that would cause a decrease in the supply of an item? A rise in the price of a substitute-in-production; a rise in the price of a complement-in-production; an expectation that the price of the item will rise in the future. A fall in input prices; an increase in productivity; a fall in the price of a substitute-in-production. A decrease in the number of sellers in the market; a fall in the price of a complement-in-production; an increase in productivity. A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.

A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.

Which of the following scenarios depicts a seller who is following the Rational Rule for Sellers? American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250. Andy's Diner finds that the marginal cost of a fish and chips meal is $7 and lists the item for sale at $6.50. An auto-rickshaw driver in New Delhi, India, calculates a trip to have a marginal cost of 350 rupees and accepts a ride request for 315 rupees. Mindy sets up a lemonade stand and calculates the cost of an additional cup of lemonade at 50 cents, and sells it for 25 cents.

American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250.

A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate? The cost-benefit principle The marginal principle Diminishing marginal product The opportunity cost principle

Diminishing marginal product

What is quantity supplied? It is the amount of an item that a seller is willing to sell at a particular price. It is a graph that plots the quantities of an item that a seller plans to sell at different prices. It is a graph that plots how much a seller produces at different points in time. It is the amount of an item that a buyer is willing to buy at a particular price.

It is the amount of an item that a seller is willing to sell at a particular price.

Which of the following scenarios illustrates the law of demand? John likes to drink spring water. At $2 he buys four bottles of water, and at $1.50 he still buys four bottles of water. A research company finds that the more expensive a particular brand of a designer handbag, the more that consumers are willing to purchase the brand. Kathleen eats more steak when the price is low, and less when the price is high. Francis does not care about the price of coffee at the coffee shop - he must buy two cappuccinos every day, regardless of the price.

Kathleen eats more steak when the price is low, and less when the price is high.

Which of the following is NOT a factor that can shift supply? The market price of a product. The price of a substitute-in-production. The expected future price of a product. The price of a complement-in-production.

The market price of a product.

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it? The interdependence principle. The opportunity cost principle. The cost-benefit principle. The marginal principle

The opportunity cost principle.

You eat M&Ms every day. When you go to the store to buy some, you find that M&Ms are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive? A new study finds that the benefits of eating chocolate are not as great as previously thought. Consumers are now purchasing fewer M&Ms compared to other types of chocolates. A new robot has been installed at the Mars chocolate company that reduces the time needed to produce M&Ms by half. The supply of cacao beans, used to produce chocolate, has fallen around the world.

The supply of cacao beans, used to produce chocolate, has fallen around the world.

You're shopping online, and you place an item in your virtual cart. Two days later, you return to the virtual cart to check out and find that the item is now more expensive. Assuming that the market is competitive, what could explain the price increase? New sellers are offering the same product. There is a surplus of the item. There is decreased demand for the item. There is a shortage of the item.

There is a shortage of the item.

Why are supply curves typically upward-sloping? They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services. They slope upward because sellers prefer to sell more when prices are lower. They slope upward due to the law of demand. They slope upward because sellers demand more when prices are lower.

They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services.

An equilibrium price is: the price that occurs when there is a surplus. determined by the intersection of the demand and supply curves. the price that prevails when there is a shortage. the price that prevails when quantity supplied is less than quantity demanded.

determined by the intersection of the demand and supply curves.

You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost. go; less not go; greater go; greater not go; less

go; greater

The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is: less than the marginal benefit. less than the marginal cost. greater than or equal to the marginal cost. greater than or equal to the marginal benefit.

greater than or equal to the marginal cost.

The interdependence principle: implies that buyers decisions are affected by many factors other than the price of an item. is the same as the cost-benefit principle. implies that consumers depend on each other to make purchase decisions in the market. refers to the marginal benefit of consuming additional units of an item.

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

Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost. not included; sunk included; financial included; nonfinancial not included; financial

included; nonfinancial

When you get hired for a well-paying job, you will most likely view older used cars as substitute goods. complementary goods. normal goods. inferior goods.

inferior goods.

Suppose the percentage change in newspapers demanded for any price change is infinite. The absolute value of the elasticity of demand for newspapers is _____, and demand is _____. infinity; perfectly elastic infinity; perfectly inelastic 0; perfectly elastic 0; perfectly inelastic

infinity; perfectly elastic

A rational buyer will: buy a product until the marginal benefit of consuming the product is less than the price of the product. buy the product only when the marginal benefit of consuming the product is twice as much as the price of the product. keep buying a product until marginal benefit equals price. not consider costs versus benefits when purchasing a product.

keep buying a product until marginal benefit equals price.

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week. greater; $150 greater; $75 less; $150 less; $75

less; $150

Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes: more elastic. more inelastic. steeper. higher.

more elastic.

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you: multiply the individual supply of one of the suppliers by ten. find the average quantity produced by the ten suppliers. take one-tenth of the individual supply of each supplier and add it up. take the individual supply of one supplier.

multiply the individual supply of one of the suppliers by ten.

When you calculate marginal costs, they should include: the market price of the product. both the variable and fixed costs. only variable costs. only fixed costs.

only variable costs.

Decisions should reflect the _____ costs, rather than just the _____ costs. opportunity; financial opportunity; nonfinancial financial; marginal nonfinancial; financial

opportunity; financial

When the absolute value of the price elasticity of demand is infinite, demand is: perfectly inelastic. perfectly elastic. inelastic. elastic.

perfectly elastic.

The price elasticity of demand for a good with a vertical demand curve is: inelastic. perfectly elastic. elastic. perfectly inelastic.

perfectly inelastic.

The opportunity costs of attending college include the: potential income that could be earned working. effort and hard work. cost of room and board. cost of clothes to wear at school.

potential income that could be earned working.

Graphically, the equilibrium quantity can be identified as the: maximum quantity that buyers are willing to buy. quantity corresponding to the intersection of the demand and supply curves. quantity corresponding to the intersection of the demand curve and the price axis. maximum quantity that sellers are willing to sell.

quantity corresponding to the intersection of the demand and supply curves.

A shortage occurs when: quantity demanded exceeds quantity supplied. when there is insufficient demand. there is excess production. quantity supplied exceeds quantity demanded.

quantity demanded exceeds quantity supplied.

If an item is a necessity rather than a luxury, its demand curve will be: perfectly inelastic. relatively steep. relatively flat. perfectly elastic.

relatively steep.

Taking the absolute value of the income elasticity of demand is incorrect because it would: cause the value of the cross-price elasticity of demand to become smaller. cause the value of the cross-price elasticity of demand to become zero. remove the ability to tell whether the product is an inferior good or a normal good. remove the ability to tell whether the two products have inelastic demand or elastic demand.

remove the ability to tell whether the product is an inferior good or a normal good.

You are given data on four products — toothpaste, shampoo, soap, and laundry detergent. The absolute value of the price elasticity of demand for toothpaste is 4. The absolute value of the price elasticity of demand for shampoo is 0.2. The absolute value of the price elasticity of demand for soap is 0.5. The absolute value of the price elasticity of demand for laundry detergent is 2. Which product has the most inelastic demand? laundry detergent soap shampoo toothpaste

shampoo

An individual demand curve is a graph: that plots the quantity of an item that someone plans to buy, at each price. that plots the market price of a product at different points in time. that plots the quantity of an item that a seller plans to sell, at each price. that plots the quantity of an item that someone plans to buy, at one single price point.

that plots the quantity of an item that someone plans to buy, at each price.

When plotting a supply curve the quantity supplied goes on the horizontal axis. the price goes on the horizontal axis. the quantity supplied goes on the vertical axis. the quantity demanded goes on the vertical axis.

the quantity supplied goes on the horizontal axis.

A downward-sloping demand curve implies: there is a positive relationship between price and quantity demanded. there is no relationship between price and quantity demanded. there is an inverse relationship between price and quantity demanded. buyers are willing to buy less when prices are lower.

there is an inverse relationship between price and quantity demanded.

If a store runs a sale on a product to clear out its stock, we can conclude that: there was a surplus of the product in the store. there was a shortage of the product in the store. the product must be very close to its expiration date. the demand for the product is larger than the supply of the product.

there was a surplus of the product in the store.

Variable costs are the costs that are independent of the amount of output produced. vary with the quantity of output produced. are incurred to build factories and assembly plants. stay fixed with the quantity of output produced.

vary with the quantity of output produced.

An equilibrium in a market occurs: at the halfway point on the price axis. when suppliers have sold all the goods and services that they have produced. when the quantity supplied equals the quantity demanded. at the halfway point on a demand curve.

when the quantity supplied equals the quantity demanded.

Dependencies between your own choices reflect the fact that: you have limited resources. society has limited resources. resources can be spread across time. resources are spread across varying markets.

you have limited resources.

Graphically, shortages will always occur: at prices above the equilibrium price. when the quantity supplied exceeds the quantity demanded. at prices below the equilibrium price. at the equilibrium price.

at prices above the equilibrium price.

Mary loves avocados and must consume avocados every week, regardless of the price. Which of the following must be true? Avocados are in large supply in the market. All consumers in the market have a high demand for avocados. Mary has an inelastic demand for avocados. Mary has an elastic demand for avocados.

Mary has an inelastic demand for avocados.