ECO201 U2

An outcome is socially optimal if it:

Maximizes total economic surplus.

A shortage occurs when:

Quantity demanded exceeds quantity supplied.

Jake applies the rational spending rule by purchasing 5 units of good M and 3 units of good N. His utility is maximised. Suppose now the price of N increases. One can predict that Jake will:

Reduce purchases of N and increase purchases of M.

"Efficiency occurs when: I. a market is in equilibrium II. the socially optimal quantity of goods and services is being produced. III. the individually rational quantity of goods and services is being produced. IV. the government does not interfere with market prices."

-IDK Wrong answer: III only.

Which of the following could never be a feature of an unregulated market in a state of disequilibrium?

A stable price.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be described as her:

An excess demand at the initial equilibrium price.

As consumers' incomes decreases, the demand curve for bologna sandwiches shifts to the right. Bologna sandwiches are thus:

An inferior good

In a free market, if the price of a good is below the equilibrium price, then:

Demanders, wanting to ensure they acquire the good, will bid the price higher.

The total utility ______ as additional apples are consumed, but the marginal utility always_______ with each additional apple consumed.

First increases then decreases, decreases

For most goods, as the number of units consumed increases, total utility ______, while marginal utility ______.

First increases then decreases; decreases

"If you consume less of a good as your income increases, I. your demand curve is not downward sloping for that good. II. the good must be an inferior good. III. the good must not have any close substitutes. IV. your quantity demanded changed by a movement along the demand function. "

II only.

"Efficiency is an important goal in economics because it: I. assures a fair outcome. II. assures a normative outcome. III. assures a higher level of output. IV. takes into consideration the distribution of income."

III

When the equilibrium quantity maximizes total economic surplus, it follows that:

Marginal Cost =Marginal Benefit

According to the text, government price controls fail because:

Legislation cannot repeal basic economic motives.

When all buyers have identical demand curves, we can get the market demand curve by:

Multiplying each quantity by the number of consumers

Carson's marginal utility of playing air hockey is 6 after playing 5 games. His marginal utility for Laser Tag is 15 after 3 games. If both air hockey and Leaser Tag cost $1 a game, to maximize his utility Carson should:

Play Laser Tag more and play air hockey less

If price is above the equilibrium value, then:

Producers find their inventories growing and will start to cut price.