ECON 2005 - Practice Questions for Exam 1

Yes, the exchange would occur. Roger has a surplus of $25000 and Donna has a surplus of $10000. The total surplus is $35000

Roger has inherited his grandmother's home, which he values at $150,000. He decides that he might be willing to sell it, so he lists it on Zillow as for sale by owner for $185,000. Donna is interested in the home and willing to pay $175,000 for it. Would Roger and Donna want to voluntarily engage in this exchange? How much economic surplus is created for each of them as a result of this exchange? What is the total surplus?

Buyers will flock to purchase these items, and the excess demand will cause prices to rise.

A hurricane is expected to hit the Carolinas. Why might the prices of batteries, candles, and bottled water rise? Sellers will lower the supply of these items, which causes prices to rise. Buyers will flock to purchase these items, and the excess demand will cause prices to rise. Sellers will hold back the supply of these items to induce a rise in prices. The government will raise taxes on these products and cause the prices to rise.

(i) To calculate the equilibrium price, set Qd = Qs, and solve for P. Therefore, 90 - 3P = 10 + P. Thus, 80 = 4P. Solving for P yields the equilibrium price of $20. (ii) To calculate the equilibrium quantity, this price can now be substituted back into either the demand equation or the supply equation. Thus, the equilibrium quantity is 30 units. (iii) A surplus would occur. Surpluses occur when price is above equilibrium. (Note, if you couldn't remember this, you could show this mathematically). (iv) Either demand would need to increase or supply would need to decrease.

A market is described by these two equations: Qd = 90 - 3P, and Qs = 10 + P. Using this information, answer the following questions. (i) Calculate the equilibrium price. (ii) Calculate the equilibrium quantity. (iii) What would happen if a price of $25 was set in this market instead of the price you found in (i)? Explain. (iv) What changes would have to happen in this market for a price of $25 to exist instead of what you found in (i)?

marginal

Asking "One more?" allows the _____ principle to be analyzed as a simple question. marginal interdependence cost-benefit opportunity cost

normal goods.

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are normal goods. inferior goods. goods with a congestion-effect. goods with a network-effect.

GraPh A

In 2017, Kenya banned the use of disposable plastic shopping bags due to concern over plastics pollution. Which graph depicts what happened in the country's market for reusable cloth bags? Graph D (supply curve does not move, demand shifts left) Graph A (supply curve does not move, demand shifts right) Graph C (supply shifts right, demand does not move) Graph B (supply shifts left, demand does not move)

costs and benefits

The cost-benefit principle states that the full set of _____ should be evaluated when making any choice. costs and benefits opportunity costs interdependencies economic surpluses

$11

Use the table to answer the question. Price Qd Qs $3 250 40 $5 220 80 $7 190 120 $9 160 160 $11 130 200 $13 100 240 $15 70 280 At what price does this market experience a surplus of 70 units? $11 $9 $7 $15

a premium computer (Luxury goods have the highest elasticities.)

You are told that good M has an income elasticity of demand of 5. Which of the following items might good M be? a hot dog a hamburger a used, 1999 budget four-door sedan a premium computer

Economic surplus; increased

_____ is a measure of how much your decision has _____ your well-being. Willingness to pay; improved Willingness to pay; reduced Economic surplus; decreased Economic surplus; increased

Graph D

(Figure: Market for Stevia) Stevia is a natural sweetener that is used as a sugar substitute. Which of the following graphs illustrates the impact of a rise in the price of Stevia on the demand for sugar? Graph C (Up the demand curve, price increases and quantity decreases) Graph B (Down the demand curve, price decreases and quantity increases) Graph A (Demand curve shifts left) Graph D (Demand curve shifts right)

equal to

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

..

Graphically illustrate how the supply curve for electric vehicles will be affected in each of these cases below. (i) Producers of electric vehicles now face increased taxes on imported parts (from other countries) used to produce the vehicles. (ii) Producers of electric vehicles are now able to produce the vehicles more efficiently due to advances in production techniques. (iii) Producers of electric vehicles now get new production subsidies from the government. (iv) The cost of production of electric vehicles falls.

at prices below the equilibrium price.

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

less; $150

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 less; $150 less; $75 greater; $75

The supply of drawing paper will decrease.

Paper producers can manufacture both printing and drawing paper. What effect would rising prices for printing paper have on the market for drawing paper? The supply of drawing paper will decrease. The supply of drawing paper will increase. The supply of drawing paper will double as compared to before. The quantity supplied of drawing paper will increase.

-44

Theo starts a business selling comic books he has made. He can sell them for $2 each. He has to pay a license to the city of Blacksburg in order to open his business, and he spends some money in the collegiate times to advertise his new venture. He incurs these costs whether he sells zero comics or a million, and these add up to $40. If he sells 28 comic books, he has costs of $60 for paper, crayons, and staples. Of course, he pays none of these if he doesn't make or sell any comics. What is his profit for selling that many comic books? Enter it in the space below. On a separate piece of paper, explain whether or not he should sell comic books once he has paid the $40.

$50

Use the table to answer the question. Price Qd Qs $25 450 200 $30 420 220 $35 390 240 $40 360 260 $45 330 280 $50 300 300 $55 270 320 $60 240 340 What is the equilibrium price in this market? $60 $45 $35 $50

$5

Use the table to answer the question. Price Qd Qs $3 250 40 $5 220 80 $7 190 120 $9 160 160 $11 130 200 $13 100 240 $15 70 280 At what price does this market experience a shortage of 140 units? $3 $13 $15 $5

$11.

Use the table to answer the question. Price Qd Qs $3 250 40 $5 220 80 $7 190 120 $9 160 160 $11 130 200 $13 100 240 $15 70 280 At what price does this market experience a surplus of 70 units? $11 $7 $15 $9

demand curves that are steeper at lower quantities and flatter at higher quantities.

As consumers consume more units of an item, the marginal benefit of each additional unit decreases at an increasing rate. This can be seen through: demand curves that are vertical. demand curves that are flatter at lower quantities and steeper at higher quantities. demand curves that are positively sloped. demand curves that are steeper at lower quantities and flatter at higher quantities.

lower his profitability by $5 per ton.

Frank is a barley farmer in a perfectly competitive market. The market price of barley is $250 per ton. If Frank charges $245 per ton, he will lower his profitability by $5 per ton. sell less barley than other farmers. not sell any barley. raise his profitability by $5 per ton.

0.12 0.25 1 1.3 2.5

Rank these absolute values of price elasticity of demand from most inelastic demand to most elastic demand: 0.25, 2.5, 1.3, 0.12, 1.

regardless of which decision is made.

Sunk costs are costs that are incurred if a particular decision is made. regardless of which decision is made. only for some decisions. if a particular decision is not made.

more elastic

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

dryer sheets

You are given some data for four different products — dryer sheets, shampoo, soap, and laundry detergent. The absolute value of the price elasticity of demand for dryer sheets 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 elastic demand? soap dryer sheets laundry detergent shampoo

(a) G to Z is a movement to the right along the demand curve (an increase in quantity demanded), which is caused by an decrease in price. (b) O to F is a shift of the demand curve to the right, which is caused by an increase in demand. (c) R to N is a decrease in the demand curve. When the price of a complement increases, the quantity demanded of the complement (reels) decreases and the demand for the good (rods) decreases.

(Figure: Graph) Use the graph to answer the following questions. (a) What change caused the movement from point G to point Z? Explain.(b) What change caused the movement from point O to point F? Explain.(c) Fishing rods and fishing reels are complementary goods. In which direction did the price of fishing rods change to cause the shift from point R to point N in the demand for fishing reels? Explain,

A rise in the price of a product that is a complement-in-production.

(Figure: Shift in Supply 1) Use the figure to answer the question. (Supply curve shifts right) ​ Which of the following market changes would lead to a shift of the supply curve from Old supply to New supply? A fall in the price of a product that is a substitute-in-production. A decrease in production efficiency. A rise in the price of a product that is a complement-in-production. A rise in the price of a product that is a substitute-in-production.

else might my decision affect and what else might affect my decision?

According to the interdependence principle, when faced with a decision, you should ask what else might my decision affect and what else might affect my decision? past decisions might my decision affect? else might affect my decision? else might my decision affect?

time he spent cooking the dinner.

Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the amount of money he will spend at the dining hall. time it will take to walk, meet his friends, and walk back. value he places on eating dinner with his friends. time he spent cooking the dinner.

6

Albert grows coffee beans and faces a decision about how many tons to produce. He can sell each ton of coffee for $1,500. The total cost of production depends on the number of tons he decides to produce, as shown in the accompanying table. How many tons of coffee beans should Albert produce? Number of tons produced Total cost ($) 0 0 1 1000 2 2200 3 3600 4 5200 5 7000 6 9000 7 10200

rising marginal costs for a seller.

Diminishing marginal product leads to decreased profitability for a seller. lower opportunity costs of producing the item. increased supply of the item in the market. rising marginal costs for a seller.

graph A

In 2017, Kenya banned the use of disposable plastic shopping bags due to concern over plastics pollution. Which graph depicts what happened in the country's market for reusable cloth bags? Graph D (supply curve does not move, demand shifts left) Graph A (supply curve does not move, demand shifts right) Graph C (supply shifts right, demand does not move) Graph B (supply shifts left, demand does not move)

Eggs, -1.3 Salt, -1 Oranges, -0.8

Ron needs your help in calculating the price elasticity of demand for eggs, salt, and oranges. Calculate the price elasticity of demand for each of these products (using the midpoint formula). Eggs Salt Oranges P1 3 1 5 P2 2 0.5 3.5 Q1 1000 5000 300 Q2 1700 10000 400

marginal benefit of the next shirt is at least as high as the price of the shirt.

Taryn is buying shirts online and has to decide how many shirts to buy. She should buy another shirt if the marginal benefit of the next shirt is less than the price of the shirt. marginal benefit of the next shirt is at least as high as the price of the shirt. total benefit when purchasing one more shirt is less than the total cost of the shirts. total benefit when purchasing one more shirt is at least as high as the total cost of the shirts.

allows a business to produce goods together.

Complements-in-production allows a business to have alternative uses of its resources by manufacturing other products using the same inputs. use substitute inputs in production. allows a business to produce goods together. are always priced the same.

2.5.

Delilah's income rises by 8%. She decides to increase the number of movie tickets she purchases by 20%. Her income elasticity of demand for movie tickets is: 0.4. 2.5. -2.5. 0.8.

The equilibrium price falls, and the equilibrium quantity rises.

What happens to the equilibrium price and quantity when demand decreases and at the same time supply increases, and the demand shift is relatively smaller than the supply shift? Both the equilibrium price and quantity will fall. The equilibrium price rises, and the equilibrium quantity falls. The equilibrium price falls, and the equilibrium quantity rises. Both the equilibrium price and quantity will rise.

A

(Figure: Jane's Demand for Medication) It is mandatory for Jane to take several pills of a certain medication each day in order to remain healthy. The medication has no substitutes and is produced by only one pharmaceutical company. Which of the following demand curves represents Jane's demand for the medication? B (Demand is perfectly elastic) D (Demand is elastic) A (Demand is perfectly inelastic) C (Demand is inelastic)

Graph A

(Figure: Market for New Housing) Which of the graphs shows the effect on the housing market today, if the realtor association predicts new housing prices to fall in a few months? ​ Graph C (Up the demand curve, price increases and quantity decreases) Graph B (Down the demand curve, price decreases and quantity increases) Graph A (Demand curve shifts left) Graph D (Demand curve shifts right)

GrapH D

(Figure: Market for Train Rides) Use the figure below to answer the question. A major technological advancement occurs in transportation technology, which leads to faster and more efficient train systems. Which graph depicts the effect on the supply of train rides? Graph B (supply curve does not move, demand shifts left) Graph A (supply curve does not move, demand shifts right) Graph D (supply shifts right, demand does not move) Graph C (supply shifts left, demand does not move)

gRaph A

(Figure: Market for Used Books) Use the figure to answer the question. A campus bookstore sells both new and used books and rents them as well. In a particular semester, the percentage of students who opt for used books and rentals increases, and the percentage of students who opt for new books decreases. Which graph shows the new equilibrium that would result in the market for used books? Graph B (supply curve does not move, demand shifts left) Graph A (supply curve does not move, demand shifts right) Graph D (supply shifts right, demand does not move) Graph C (supply shifts left, demand does not move)

(i) $350 (ii) $350 (iii) $400 (iv) $200

(Figure: Market) Use the figure to answer the questions. (i) At what price is the market experiencing a shortage of zero units?(ii) At what price is the market experiencing a surplus of zero units?(iii) At what price is the market experiencing a surplus of 200 units?(iv) At what price is the market experiencing a shortage of 600 units?

A report is published noting that the product has adverse health effects.

(Figure: Shift in Demand 2) Use the figure to answer the question. (Demand curve shifts left) Which of the following market changes would lead to a shift of the demand curve from Old demand to New demand? A report is published noting that the product has adverse health effects. There is an improvement in production technology used by sellers. There is an increase in the number of consumers in the market for the product. There is a decrease in the price of a substitute product.

keep buying a product until marginal benefit equals price.

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

The cost of building the factory, purchasing the robotic assembly lines and industrial freezers.

Amul Food Factory in India makes ice cream and produces processed and condensed milk. In the factory, the firm's employees use raw milk and sugar. The firm runs on electricity and purchases raw milk every day. Large robotic assembly lines fill and package the ice cream containers. Large industrial freezers store the ice cream. Based on this scenario, can you identify the fixed costs for Amul Food Factory? The cost of the raw milk purchased from the farmers. The cost of purchasing electricity, raw milk, and sugar. The cost of the employees hired and the number of packages purchased. The cost of building the factory, purchasing the robotic assembly lines and industrial freezers.

20 million gallons per week

Consider the data in the table. The price of gasoline is $3.99 per gallon at the gas station. If Rexhall Fuel Supplies is a rational seller, how many gallons of gasoline should this seller be willing to sell? Marginal cost per gallon Millions of gal/week $1.99 10 $2.99 14 $3.99 20 $4.99 30 $5.99 42 30 million gallons per week 20 million gallons per week 14 million gallons per week 42 million gallons per week

Cost-benefit principle

Consider the decision to read your economics textbook regularly. Which of the four core principles of economics applies to the notion that reading this textbook will require time and effort but that doing so will improve your grade in this course? Marginal principle Interdependence principle Opportunity cost principle Cost-benefit principle

you have limited resources.

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

1.41

Ellie gets utility from consuming waffles and lattes. Her marginal utility from the last waffle she ate is 68 utils and waffles cost $2. Her marginal utility from her last latte was 48. If Ellie is efficiently allocating her budget, what is the current price of a latte? Round to the nearest penny. (MU1/P1) = (MU2/P2)

.

For each of the four scenarios below, draw supply curves to illustrate the effects of the factor that is changing.(i) The demand for rice falls. What happens to the supply of rice?(ii) The demand for electric vehicles rises in Canada. What happens to the supply curve for electric vehicles in Canada?(iii) The Canadian dollar weakens against the U.S. dollar. In Canada, what happens to the supply of Canadian products that are made using U.S. inputs?(iv) The U.S. dollar strengthens against the Canadian dollar. In the United States, what happens to the supply of U.S. products that are made using Canadian inputs?

a tax cut on consumer income will lead to a rise in their demand.

For normal goods a tax cut on consumer income will lead to a rise in their demand. most consumers will choose to purchase the good regardless of income changes. changes in consumer income do not affect their consumption. a tax cut on consumer income will lead to a fall in their demand.

1) Supply shifts left, demand shifts left, equilibrium shifts left Note important elements of the graph! - Correctly labeled axes - Correctly labeled curves - Prices and quantities put on the axes, not in the middle of the graph - dots going from intersection points to prices and quantities - New and old values clearly labeled (i.e., P1 and P2, D1 and D2) - A label indicating what market you are in 2. THe new price is indeterminate, but quantity decreases 3. If demand decreases instead of increase, demand for an inferior good increases. This will lead to a definite increase in price, but the effect on quantity is unknown.

In the market for gobbies, incomes have increased and the cost of cassava (a critical component of gobbies) has decreased. 1) Shown the impact of these changes on a correctly labeled graph of the market for gobbies. Assume they are inferior goods. 2) What happened to price and quantity in this market? 3) What would happen to price and quantity if, instead of incomes increasing, incomes decreased? Explain.

will not; only Juan

Juan McDonald is willing to pay $650 for a new iPad. He offers to pay $600 for an iPad at the Apple store. It costs Apple $700 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction. will not; only Juan will; both Juan and Apple will not; only Apple will; neither Juan nor Apple

benefit of watching another episode is equal to the marginal cost.

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes unless the marginal benefit of watching another episode exceeds the marginal cost. benefit of watching another episode is positive. cost of watching another episode is positive. benefit of watching another episode is equal to the marginal cost.

She will hire four workers at a total cost of $640.

Marie Johnston is a manager at an electronics store and has to decide how many workers to hire. If she hires one worker, her revenue is $800 per day. If she hires another worker, she can make another $600 per day. The marginal benefit of hiring another worker decreases by $200 with each additional hire. Assuming that workers are paid $20 per hour and work eight hours, how many employees should Marie hire, and what will be her total cost for labor? She will hire five workers at a total cost of $2000. She will hire four workers at a total cost of $640. She will hire two workers at a total cost of $160. She will hire three workers at a total cost of $480.

1.25

The price of cheddar cheese increases from $2.50 per pound and is now $3.50 per pound. In response to this price change, the quantity demanded for cheddar cheese falls by 50%. What is the absolute value of the price elasticity of demand for cheddar cheese? -0.8 1.25 -1.25 0.8

sellers can make more profit per unit if the market prices rise.

The supply curve is upward-sloping because sellers can make more profit per unit if the market prices rise. the government determines the relationship between price and quantity supplied. the number of sellers rises as prices rise. it follows the law of demand.

Milk, -0.71 Cheese, -0.92 Sour Cream, -0.43

Using the midpoint formula, calculate the price elasticity of supply for the following three products. Milk Cheese Sour Cream P1 1 3 2 P2 1.5 5 2.5 Q1 400 950 550 Q2 300 500 500

1) When the price of boats is $52,000, Qd=2500 and Qs=3000. There is a surplus of 500 boats (note: using numbers would be an important element of this answer). 2) If the price of boats decreases, the quantity demanded of boats increases and the demand for its complement sunscreen increases. A change in the price of a goods complement changes that goods entire demand curve.

You are provided with the following table, which shows price and quantity demanded data for boats. Price of boats Qd of boats $37000 4000 $42000 3500 $47000 3000 $52000 2500 $57000 2000 $62000 1500 1) The current price of boats is $52,000 and sellers are willing to sell 3000 boats at this price. Is there a surplus, shortage, or does this market clear? Explain using words and calculations. 2) Boats and sunscreen are complementary goods. If the price of boats falls from $52,000 to $42,000, what happens in the market for sunscreen? Explain.

1) Supply curve shifts left, demand curve shifts left, equilibrium shifts left 2) Quantity decreases and price is indeterminate. When demand decreases, price decreases and quantity decreases, but when supply decreases price increases and quantity decreases. We know for sure what happens to quantity, but not price because these effects are acting in opposite directions.

You are studying the market for a particular brand of perfume. You notice that a couple of changes are happening in the market at the same time. The flower that creates the perfume scent has been affected by a disease. In addition, consumers begin to worry about the safety of the ingredients that are used in the perfume. 1) Create a fully labeled market graph showing the effects of these changes in economic conditions. Upload it in jpeg or png format only. 2) What happens to the price and quantity of perfume sold in this market? Explain.