ECO 201 Exam 1-3

Use the graph below for the Production Possibilities Frontier (PPF) for the production of Cars and Boats. Point ______ is efficient in production, but point ________ is not efficient in production. The economy cannot produce point ________ with the resources and technology currently available. (Pick one letter that satisfies the statement)

D A G

A university student faces the difficult decision of how to spend one hour tonight. She could babysit her professor's child at an hourly wage of $10; she could work at the college library at a wage of $12; or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to: $0 $12 $6 $18

$12

Equilibrium price and quantity in this market are, respectively: $15 and 200 unit $25 and 400 units. $35 and 200 units. $25 and 600 units.

$25 and 400 units.

Sam runs a flower shop and is looking over the account books to try and decide what is the profit maximizing amount of flower arrangements to sell and how many employees to hire. The table below captures the relevant information. Using the Rational Rule from class, how many workers should Sam hire to maximize the company's profit (i.e. economic surplus)?

0

Sam runs a flower shop and is looking over the account books to try and decide what is the profit maximizing amount of flower arrangements to sell and how many employees to hire. The table below captures the relevant information. What is the marginal cost of the fifth worker?

125

Bill goes to buy a car at the used car lot. He finds a 2 year old Toyota Camry that he likes. He is willing to pay up to $10,000 for this car. The dealer is willing to sell the car for as low as $6000. The agreed upon price for the sale was $7,000. What is the economic surplus of the entire market (both buyer and seller)?

4,000

The graph shows how supply and demand might shift in response to specific events. Suppose a heat wave destroys one-quarter on the nation's potato crop. Which panel BEST illustrates how this event will affect the market for French fries? A C D B

C

The figure shows how supply and demand might shift in response to specific events. Suppose a spring frost destroys one-third of the nation's avocado crop. Which panel BEST illustrates how this event will affect the market for tortilla chips, which is a complement of avocados? C A D B

D

Which of the following lead to an increase in demand? (Check all that apply) Decrease in the price of a substitute Future prices are expected to increase Future prices are expected to decrease Decrease in the price of a complementr Increase in the price of a substitute Tastes change such that the marginal benefit of each unit decreases Income decreases for a normal good Income decreases for an inferior good Tastes change such that the marginal benefit of each unit increases Increase in the price of a complement

Future prices are expected to increase Decrease in the price of a complementr Increase in the price of a substitute Income decreases for an inferior good Tastes change such that the marginal benefit of each unit increases

Which of the following graphs shows what will happen in the market for printing paper if the price of printing paper rises? Graph A Graph B Graph D Graph C

Graph D

Because of the shift in supply graphed in the figure below, did... Quantity demanded increased None of the other answers are correct Demand decreased Demand increased Quantity demanded decreased

Quantity demanded decreased

Suppose that, next period, demand for this good decreases and, at the same time, supply of the good decreases. What would happen in the market for the good? a. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. b. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. d. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

a. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

At a price of $35, a. an excess supply would exist and the price would tend to fall from $35 to a lower price. b. a shortage would exist and the price would tend to rise from $35 to a higher price. c. an excess demand would exist and the price would tend to fall from $35 to a lower price. d. a surplus would exist and the price would tend to rise from $35 to a higher price.

a. an excess supply would exist and the price would tend to fall from $35 to a lower price.

Carolyn Bates is a junior in college studying economics. She has created a new software application that applies the four principles of economic decision making to any potential decision that a user faces. She is considering leaving school after this academic year to pursue further development of her app. Carolyn should ignore all of the following costs when calculating the opportunity costs of leaving college EXCEPT the a. skills she may gain from her final year of economics courses. b. 90 credit hours she has already completed for her degree. c. time she will spend working on the app instead of studying. d. tuition costs she has already paid to her college.

a. skills she may gain from her final year of economics courses.

You go to Starbucks and see that the price of your favorite tall vanilla latte has gone up by 25 cents. All sizes of the vanilla lattes are now more expensive. As a result of this price increase, you would expect to see a a. fall in the demand for vanilla lattes. b. fall in the quantity demanded of vanilla lattes. c. rise in the quantity demanded of vanilla lattes. d. rise in the demand for vanilla lattes.

b. fall in the quantity demanded of vanilla lattes.

The graph below is consistent with (Pick one): a. Price of a substitute decreased b. Price of a complement increased c. All answers fit (except None) d. Income decreased for a normal good e. Expectation that future prices will increased f. None of the answers fit

e. Expectation that future prices will increased

If the market price is above the equilibrium price, then the market _________ and market price will _________. None of the other answers is correct is in surplus; increase to clear the market is clearing; will not change. is in surplus; fall to clear the market is in shortage; increase to clear the market is in shortage; decrease to clear the market

is in surplus; fall to clear the market

At a price of $15, a. there would be a surplus of 400 units. b. here would be a shortage of 200 units. c. there would be a shortage of 600 units. d. there would be a shortage of 400 units.

there would be a shortage of 400 units.

Below is the production possibilities frontier (PPF) for Healthcare and Education. What is the opportunity cost of one more unit Education at point B on the PPF (in terms of units of Healthcare)?

3

Below is the production possibilities frontier (PPF) for Healthcare and Education. What is the opportunity cost of one more unit Healthcare at point A on the PPF (in terms of units of Education)?

3

Sam runs a flower shop and is looking over the account books to try and decide what is the profit maximizing amount of flower arrangements to sell and how many employees to hire. The table below captures the relevant information. What is the marginal benefit of the fourth worker?

175

Bill goes to buy a car at the used car lot. He finds a 2 year old Toyota Camry that he likes. He is willing to pay up to $10,000 for this car. The dealer is willing to sell the car for as low as $6000. The agree upon price for the sale was $7,000. What is the economic surplus of Bill?

3,000

In the market for organic beef, what would cause a price increase? The price of chicken decreases. There is a movement in the United States toward veganism. Doctors tell patients that beef is full of saturated fat that causes heart attacks. The prices of grass and organic corn increase.

The prices of grass and organic corn increase.

Use the graph below for the Production Possibilities Frontier (PPF) for the production of Burgers and Pizza. At point C there is no free lunch (a trade-off) to get more Burgers, and at point B there is a free lunch (no trade-off) to get more Pizza.

a free lunch (no trade-off) no free lunch (a trade-off)

In the graph below, if the price stayed at the initial equilibrium price after the shift in the supply curve, will there be ...? a. neither a surplus nor shortage, the market always clears a surplus a shortage

a surplus

If the price of bananas is greater than the marginal cost of bananas, then: a. society's well-being can be improved if production increases. b. society's well-being cannot be improved by changing production. c. the market is producing too much of the good. d. society's well-being can be improved if production decreases.

a. society's well-being can be improved if production increases.

In the market for cars, you see that equilibrium price decreased and equilibrium quantity increased. This means that if only one curve shifted, then ... a. Demand increased b. Supply increased c. Demand decreased d. Supply decreased e. None of the answers fit

b. Supply increased

Suppose demand decreases and supply increases, then what happens to the equilibrium price and quantity when comparing the new equilibrium to the old equilibrium? a. Quantity decreases, and the Price decreases b. The Quantity change is unknown, and the Price decreases c. The Quantity change is unknown, and the Price change is unknown d. Quantity decreases, and the Price change is unknown e. Quantity increases, and the Price change is unknown f. The Quantity change is unknown, and the Price increases g. Quantity increases, and Price decreases h. Quantity increases, and the Price increases i. Quantity decreases, and the Price increases

b. The Quantity change is unknown, and the Price decreases

Price takers a. set their market prices. b. charge the prevailing prices and do not have any effect on the market price. c. produce only agricultural items in the market. d. can control the market prices of the products they sell.

b. charge the prevailing prices and do not have any effect on the market price.

Suppose the input costs associated with manufacturing office furniture increase over time. This would lead to a(n): a. increase in demand and higher prices. b. decrease in the supply of furniture, higher prices, and a decrease in the equilibrium quantity. c. increase in the supply of furniture, lower prices, and an increase in the equilibrium quantity. d. decrease in quantity supplied and lower prices.

b. decrease in the supply of furniture, higher prices, and a decrease in the equilibrium quantity.

In the market for jeans, you see that equilibrium price decreased and equilibrium quantity decreased. This means that if only one curve shifted, then ... a. Demand increased b. Supply increased c. Demand decreased d. Supply decreased e. None of the answers fit

c. Demand decreased

Peanut butter and peanut oil are complements-in-production. When the price of peanut butter rises, the a. quantity supplied of peanut butter will fall. b. supply of peanut oil will fall. c. supply of peanut oil will rise. d. quantity supplied of peanut butter will remain unchanged.

c. supply of peanut oil will rise.

Suppose demand decreases and supply decreases, then what happens to the equilibrium price and quantity when comparing the new equilibrium to the old equilibrium? a. The Quantity change is unknown, and the Price increases b. The Quantity change is unknown, and the Price decreases c. The Quantity change is unknown, and the Price change is unknown d. Quantity decreases, and the Price change is unknown e. Quantity decreases, and the Price increases f. Quantity increases, and the Price increases g. Quantity increases, and Price decreases h. Quantity increases, and the Price change is unknown i. Quantity decreases, and the Price decreases

d. Quantity decreases, and the Price change is unknown

How will the supply of clothing change if the forecast is that clothing prices will fall in the next few months? a. The supply of clothing will remain unchanged today. b. Suppliers will stop producing clothing and switch to an alternate item. c. The supply of clothing will decrease in the market today. d. The supply of clothing will increase in the market today.

d. The supply of clothing will increase in the market today.

The graph below is consistent with (Pick one): a. none of the answers fit b. income increases for an normal good c. the price of a complement decreased d. price of a substitute decreased e. all the answers fit (except none) f. price of a substitute increased

d. price of a substitute decreased

The graph below is consistent with (Pick one): a. income increases for an inferior good b. price of a substitute decreased c. future prices are expected to decrease d. the price of a complement increased e. the good has congestion effects and the number of users increased f. all of the answers fit (except none) g. none of the answers fit h. income decreased for an normal good

f. all of the answers fit (except none)

If the economy booms and peoples' incomes rise, then the demand curve for a normal good like a new automobile will _____, and the equilibrium quantity of new automobiles produced will _____. not shift; not change shift to the left; decrease not shift; increase shift to the right; increase

shift to the right; increase

If the price of quinoa is $10 per bushel, a _____ of _____ bushels per period will result. surplus; 8,000 shortage; 10,000 shortage; 8,000 surplus; 4,000

surplus; 8,000

Lee purchased a snow blower for the winter storm season and he values it at $450. He is thinking about selling it on Oxford Yard Sale on Facebook and he asks for a price of $600 for it. Last snow season Lindsey paid a neighbor $700 to shovel her driveway and sidewalk. She saw the ad on Facebook and would be willing to pay up to $650 for the snow blower. Would Lee and Lindsey want to voluntarily engage in trade of the snow blower at the posted price? no unknown yes

yes