ECO 2305 Exam 1
The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. Why?
higher gas prices increased the cost of driving a SUV
Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of:
inconsistent reasoning; saving $20 is saving $20
The supply curve illustrates that firms:
increase the quantity supplied of a good when its price rises
A study that deals with the salaries of university professors would be considered:
microeconomics
Which of the following is NOT a characteristic of a market in equilibrium?
neither buyers nor sellers want the price to change
An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of:
normative economics
One thing that distinguishes normative economic principles from positive economic principles is that:
normative principles tell us how people should behave, and positive principles tell us how people will behave
Jody has purchased a non-refundable $75 ticket to attend a Miley Cyrus concert on Friday night. Subsequently, she is asked to go to out dinner at no expense to her. If she uses cost-benefit analysis to choose between going to the concert and going out to dinner, the opportunity cost of going out to dinner should include:
only the entertainment value of the concert
Every time you go to the grocery store, you try to wait in the shortest line. But the lines always seem to be roughly the same length. Why?
other people are trying to choose the shortest line too
"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying:
the demand curve
Macroeconomics differs from microeconomics in that macroeconomics focuses on:
the performance of national economies and ways to improve that performance
A seller's reservation price is generally equal to:
the seller's opportunity cost of producing an additional unit
As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:
the substitution effect of a price change
Economists use abstract models because:
they are useful for describing general patterns of behavior
Economists recognize that because people have limited resources:
they have to make trade-offs
The average benefit of n units of an activity is the
total benefit of n units divided by n
Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true?
forest has to make trade-offs
Shelly purchases a leather purse for $400. One can infer that:
her reservation price was at least $400
Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. Assume the minimum that Matt would be willing to accept to drive to campus is equal to the $4 he saved on the concert ticket. What would his economic surplus be if he bought his textbooks at the university bookstore rather than online?
$1
You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is:
$1
You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. What is your opportunity cost of seeing a movie this afternoon?
$12
Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value of Pat spending more time with the kids is greater than:
$13,000 per year
Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:
$35
You won a free ticket to see the latest Star Trek movie this Friday night (which you can costlessly resell for its face value of $15). Your favorite band is also performing on Friday and is your only alternative activity. Friday is your last chance to see either the movie or the band. Tickets to see your favorite band cost $30, and on any given day, you would be willing to pay as much as $50 for a ticket. Based on this information, what is your opportunity cost of going to see the Star Trek movie on Friday?
$35
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State College is:
$35,000
Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16.The benefit to Matt of driving to campus to buy the concert ticket last week was:
$4
Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450.What is the opportunity cost of using the coupon for the Miami trip?
$450
For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your average cost for a meal is:
$6
A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. If the firm sells each computer for $625, then how many hours a day should the firm employ Pam to maximize its net benefit from her employment?
3 hours
The price of bananas will increase in response to:
an excess demand for bananas
When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:
at least $1.75 but less than $2
When the price of a good changes, the amount of that good that buyers wish to buy changes:
because of both the substitution and the income effects
Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend cancelled, so you could use only two of the tickets. You sold the third ticket just outside the entrance to the concert for more than the price you had originally paid. Which transaction occurred in a market?
both the purchases at the university ticket window and the sale at the concert entrance were market transactions
When the current price of a good is below the equilibrium price:
buyers have an incentive to offer to pay sellers more than the current price
Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.
economic surplus; $3,000
Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case:
excess supply will lead the price of broccoli to fall
The Cost-Benefit Principle predicts that people will be less likely to smoke if the government:
increases taxes on cigarettes, effectively raising the price
Which of following is NOT true of the equilibrium price?
it is fair in the sense that everyone can afford basic goods and services
The Cost-Benefit Principle indicates that an action should be taken if, and only if:
its benefits exceed its costs
Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true?
last semester's grades were lower than your overall GPA
The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.
marginal cost
Pat can either drive to work, which takes half an hour and uses $1.50 worth of gas, or take the bus, which takes an hour and costs $1.00. How should Pat get to work?
pat should drive if saving half an hour is worth $0.50 or more
According to the Cost-Benefit Principle, you should go see the latest Star Wars movie with your friends this week-end if:
the benefits of seeing the movie are greater than the costs of seeing the movie
With ATMs, 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 present availability of 24-hour service has arisen because:
the cost of providing 24-hour service is much lower today
Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.
wash clothes; bigger
Excess demand occurs:
when price is below the equilibrium price
Which of the following would not be studied in microeconomics?
whether the federal budget should be balanced
You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. Should you go see a movie or work as a math tutor?
you should work as a math tutor
