econ 201 exam 1 w/o graphs and charts

A field experiment at an all‐you‐can‐eat pizza restaurant shows that a 50% discount on the price of the meal led customers to consume 27.9% less pizza. In other words, when people have to pay a higher price for their meal, they want to "get their money's worth" by eating more pizza. This actually does not fit with what we have learned about rational decision making and how people make decisions on the margins. Why? A) The customers are not accounting for the opportunity cost of eating pizza instead of another meal B) The marginal cost of a slice of pizza is zero for all customers, so all customers (whether or not they are receiving a discount) should consume until the point where the marginal benefit of the last slice of pizza is zero. This means that the price paid should not affect consumption C) The marginal cost of a slice of pizza is greater for customers paying the higher price. This means that marginal benefit will equal marginal cost at a lower quantity, so consumers paying a higher price should eat less pizza. D) All‐you‐can‐eat pizza restaurants have bad pizza, and rational people would never go to that type of restaurant

. B Option A is incorrect as it's not about how another meal is not being considered. Option C is also incorrect as the marginal cost is the same for everyone. Option D is incorrect as it neglects the fact that people can have different preferences

To keep the local professional football team from leaving, the city of San Diego proposed a tax on hotel rooms that would be used to fund a new football stadium. Many people are opposed to using tax revenues to fund sports stadiums. The mayor argued that, because the tax would be paid by out‐ of‐town visitors, the new stadium would be "free" for residents. Which of the following statements is most accurate? A) The mayor is correct B) The mayor is forgetting about the opportunity cost of having a football team instead of having another sports team C) The mayor is forgetting about the opportunity cost of spending the tax revenue on a new stadium instead of on something else D) The mayor is forgetting about the marginal benefits residents receive from the football stadium

. C Even if the hotel tax raises money at zero cost to the citizens, once the money is raised, it could be spent on anything. The opportunity cost of spending this money on a new stadium is the best option not chosen. If the best way the money could be spent, other than a stadium, is to build new schools, then the opportunity cost of a new stadium are the schools that could have been built. The mayor's statement neglects this opportunity cost.

Ray is deciding how to spend the next four hours. He will use the time to play Fortnite or to study for his math test, or to do some combination of the two. Each hour that Ray studies will improve has score by 5 percentage points. Ray has decided he is indifferent between a 5 percentage point score increase and 500 points of XP. How should Ray spend his next 4 hours? A) Spend 4 hours studying B) Spend 1 hour playing Fortnite and 3 hours studying C) Spend 2 hours playing Fortnite and 2 hours studying D) Spend 3 hours playing Fornite and 1-hour studying

. C Observe that the marginal benefit from an additional hour of playing is higher than 500 XP only for the first two hours. Try drawing a third column for marginal benefit, the entries are 1000 (1000-0), 750 (1750-1000), 250 (2000-1750) and 200 (2200-2000) respectively. Since the third hour of playing brings 250 XP, which is lower than 500 XP, Ray would prefer to get a 5 percentage point score increase rather than playing.

Which of the following is definitely an example of someone not acting in their self‐interest? A) A drug addict using heroin B) A criminal robbing a bank C) A person buying an expensive car D) None of the above; each of these could be an instance where someone is acting rationally and in their own best interest.

. D We have noted in class that for an individual to be acting in their self-interest, they only must believe that what they are doing is in their own best interest. The fact that they are doing some activity means that they think that activity is in their own best interest.

A field experiment at an all‐you‐can‐eat pizza restaurant shows that a 50% discount on the price of the meal led customers to consume 27.9% less pizza. In other words, when people have to pay a higher price for their meal, they want to "get their money's worth" by eating more pizza. Suppose the regular price of the buffet is $10 and the discounted price is $5. Once a customer has paid for the buffet, what is the marginal cost of eating another slice of pizza? (Assume the only costs are monetary costs.) A) $0 B) $5 C) $10 D) It depends on whether the customer is getting a discount.

A The additional cost of a slice of pizza is zero. Like with Netflix, once you've paid to get into the buffet, you can eat as much as you want for free.

You are binge watching Stranger Things on Netflix and have one episode left in the first season. Which of the following would be describe the marginal benefit of watching that last episode? A) The enjoyment you get from watching the last episode B) The total enjoyment you received from the first season C) The hour that you could have spent studying economics (your best possible alternative use of the time, of course)

A The marginal benefit of something is the amount of enjoyment you get out of the last unit consumed.

For Ford Motor Company's factory, the opportunity cost of producing 1 truck is 2 cars. If the factory devotes all its resources to making cars, it will make 100 cars. For this factory, producing 80 cars and 10 trucks is A) Attainable and efficient B) Attainable but not efficient C) Not attainable

A the opportunity cost of 10 trucks is 20 cars. So, producing 80 cars and 10 trucks requires the same resources as producing 100 cars and 0 trucks. We know that producing 100 cars is attainable and efficient, so producing 80 cars and 10 trucks is also attainable and efficient

You are interested in learning whether increasing sales taxes would benefit the economy of East Lansing. This would be best described as: A) Microeconomics B) Macroeconomics

A the statement is best described as microeconomics since only a local economy is being studied, and sales taxes are local taxes.

Summary: 20 tablespoons of cocoa powder 1 tablespoon per chocolate cupcake 2 tablespoons per double-chocolate cupcakes If LeBron makes 8 chocolate cupcakes, how many double-chocolate cupcakes can he make? A) 6 B) 10 C) 12

A) 6

Which of the following is true: A) E(d) always negative because of the law of demand B) E(d) is always negative because price changes are always negative C) E(d) is always positive because of the law of demand D) E(d) will be positive if the good is inferior

A) E(d) always negative because of the law of demand

If a good has lots of available substitutes, we expect demand for that good to be A) Elastic B) Inelastic

A) Elastic

Suppose Netflix is at a point where decreasing its prices would increase revenues. This means that demand is: A) Elastic B) Inelastic C) Unit Elastic

A) Elastic

Last class, when deciding how big of a house to build, which was true: A) I kept making my house bigger as long as marginal benefit was greater than marginal cost B) I chose the house size that maximized marginal benefit C) I chose the largest house size available

A) I kept making my house bigger as long as marginal benefit was greater than marginal cost

You saved up $500 from working this summer to attend concerts this year. You planned to attend 7 concerts. However, the concerts sold out before you were able to buy tickets. You had to purchase the tickets on Stubhub for a much higher price than you had planned on paying. As a result, you only attend 5 concerts. A) Income Effect B) Diminishing Marginal Utility C) Substitution Effect

A) Income Effect

Suppose the price had been $3.10 instead of $2.96. Which is true: A) Less than 24 million gallons would have been consumed B) Exactly 24 million gallons would have been consumed (no change) C) More than 24 million gallons would have been consumed

A) Less than 24 million gallons would have been consumed

If the price of oil $57 per barrel, ExxonMobil produces 6 million barrels per day. When the price of oil decreases, we expect the quantity produced to be: A) Less than 6 million B) More than 6 million

A) Less than 6 million

For each topic, determine if it is best categorized as microeconomics or macroeconomics: The impact of a federal income tax cut on employment and wages A) Macroeconomics B) Microeconomics

A) Macroeconomics

If two goods are compliments, cross-price elasticity will be A) Negative B) Positive C) Zero

A) Negative

Suppose that all the air pollution in New York comes from Pennsylvania. New York citizens are willing to pay $400 million for clean air. Overall, the total net benefit to Pennsylvania from pollution is $200 million. New York is given property rights to the air in its state. What do we expect to happen to the air in New York: A) No money changes hands and there is no pollution B) Pennsylvania pays New York and pollutes C) New York pays Pennsylvania and there is no pollution D) No money changes hands and there is pollution

A) No money changes hands and there is no pollution

The MSU basketball team has an excellent start to the season, leading to more fans wanting to attend basketball games. Regarding demand for basketball tickets, this is a A) Outward shift of the demand curve B) Inward shift of the demand curve C) Movement "up" along the demand curve D) Movement "down" along the demand curve

A) Outward shift of the demand curve

The cross-price elasticity of Netflix and Disney+ is likely A) Positive B) Negative C) Zero

A) Positive

Smokestack Industries has the property rights to all air in the Smogton. Polluting has a marginal benefit to Smokestack Industries of $100 and a marginal cost to the residents of Smogton of $120. According to the Coase theorem, what will happen? A) Smogton residents will pay Smokestack Industries and there will be no pollution. B) Smokestack Industries will pay the Smogton residents and pollute C) No money will change hands and there will be pollution D) No money will change hands and there will be no pollution

A) Smogton residents will pay Smokestack Industries and there will be no pollution.

It is discovered that drinking Bang energy drink makes people aggressive and more likely to start fights. What happens: A) Social supply shifts right A) Social supply shifts left B) Social demand shifts right C) Social demand shifts left

A) Social supply shifts left

A major hurricane destroys many beachfront condos. This A) decreases the supply of beachfront condos. B) increases the supply of beachfront condos. C) decreases the quantity of beachfront condos supplied. D) increases the quantity of beachfront condos supplied.

A) decreases the supply of beachfront condos.

The cross-price elasticity of peanut butter and jelly is 0.6. If the price of jelly increases by 20%, what happens to the quantity of peanut butter sold? A) Increases by 12% B) Decreases by 12% C) Increases by 33% D) Decreases by 33%

Answer: A %change in quantity demanded=0.6*20%=12%.

Who would likely have a more elastic demand for cigarettes: children who are considering smoking cigarettes, who tend to not have very much money, or adults who smoke cigarettes, who are likely addicted to smoking? A) Children B) Adults

Answer: A Children who are, presumably, not financially independent are likely to be more sensitive to price changes (in all goods) while the adults who are addicted to smoking are less price sensi

Demand for bottled water is elastic. The price of a bottle of water increases from $2.00 to $2.50. Before the price change, there were 100 bottles sold. After the price change, the number of bottles sold is: A) Less than 75 B) Between 75 and 125 C) Between 125 and 150 D) Above 150

Answer: A Demand is elastic, meaning that the absolute value of elasticity is larger than 1. %change in price is 25%, and the %change of quantity is going to be larger than 25

The price of a chicken wrap at Conrad's goes from $10 to $11. Following this change, consumption goes from 100 units to 85 units. What is the elasticity of demand? A) -1.5 B) -0.15 C) -.67 D) -0.5

Answer: A Elasticity= (-15%)/10%=-1.5

Jan has determined that her "Serenity by Jan" candles have an elasticity of demand of -0.35. Which of the following is true? A) Increasing price would increase revenues B) Demand is elastic C) A 10% decrease in price would result in a 35% increase in quantity sold D) Decreasing price would increase revenues

Answer: A Elasticity=-0.35, 1% increase in price would lead to -0.35% change in quantity demanded. Suppose originally, the revenue is p*q (since revenue=price (p) times quantity (q)). Now suppose the price increases by 1%, and the quantity demanded drops 0.35%, then the revenue would be 1.01p*0.9965q=1.006465p*q>p*q, which is the original revenue

Suppose demand is linear and downward-sloping, but not perfectly inelastic, and suppose that supply is perfectly inelastic. Initially, the price is $10. A tax of $1 per unit is placed on buyers. What is the pretax price charged by suppliers? A) $9 B) $10 C) $11 D) $20

Answer: A Since supply is perfectly inelastic, the supply curve is a vertical curve (i.e. the suppliers provide the same amount independent of prices). The suppliers will pay the full tax since the suppliers are insensitive to price changes, so the pre-tax charge by the sellers would b

A recent article in the Wall Street Journal discusses the popularity of luxury "distressed" clothing that contains holes or stains. The sweater shown below costs $2,295, and the blazer shown below costs $2,790. Suppose distressed luxury clothes have an income elasticity of demand of 0.25. Initially, Emily is spending $1,000 per year on distressed luxury clothes. If Emily's income goes from $100,000 to $140,000, how much will she now spend on distressed luxury clothes? It is not necessary to know the price of the luxury goods she is buying. It is sufficient to know that, whatever the price is before her income change, the price is the same after her income change. So, if she was buying pants that cost $100 before her income change, she is still buying pants that cost $100 after her income change - she's just buying more of them. A) $900 B) $1,100 C) $1,400 D) $2,600

Answer: B %change of income= 40%. The income elasticity of demand= %change of quantity demanded / %change of income=0.25. %change of quantity demanded=40%*0.25=10

When a good is taxed, consumers see this as a price increase. Because demand slopes down, consumers respond to this tax increase by reducing their consumption. Note that this reduced consumption limits the effectiveness of the tax, because when the good is not consumed, no taxes are collected on it. For example, a very high tax on Coca-Cola would actually raise very little revenue for the government, because people would just switch to Pepsi to avoid paying the high price for taxed Coca-Cola. All else equal, which would raise more money: A) A sales tax on a good with elastic demand B) A sales tax on a good with inelastic demand

Answer: B If a good is inelastic, then the quantity demanded is not that sensitive (relative to other elastic goods). Raising a tax on inelastic goods would not change quantity demanded significantly so it raises more tax revenu

Which of the following is likely to make demand for a normal good more inelastic? A) A low-priced substitute for the good is introduced B) An increase in income C) A new tax makes the good more expensive

Answer: B Options A and C would make consumers more sensitive to the price changes (hence more elastic). Option B would make consumer less price sensitive. With lower income, in response to a 10% increase in price, consumers will lower consumption more significantly compared to the case if consumers have higher income

People who support a higher minimum wage typically argue that a modest increase to the minimum wage will not have a significant impact on the number of employees that firms choose to hire. In other words, they believe that: A) Labor demand is elastic B) Labor demand is inelastic C) Labor supply is elastic D) Labor supply is inelastic

Answer: B The argument "will not have a significant impact on the number of employees that firms choose to hire" means that firms are not sensitive to changes in wages. For example, firms will not higher less people in response to increasing minimum wage, so the labor demand is inelastic

Suppose that light bulbs have unit-elastic demand. Initially, price is $2 and quantity demanded is 30. Price decreases to $1. What is the new quantity demanded? A) 30 B) 31 C) 45 D) 60

Answer: C %change of price=-50% and elasticity=-1, so the %change of quantity demanded=-50%*-1=50%. 30*1.5=45

If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by A) 20%. B) 0.5%. C) 5%. D) 0.05%.

Answer: C Elasticity =-0.5; Given a 10% decrease in price (i.e. the denominator is -10%), the percentage change of quantity demanded would be (-10%) *(-0.5) =+5%

A recent article estimated the effect that the Australian wildfires would have on milk production and prices. The article estimates that global milk exports will decrease 0.6% as a result of the fires. The article assumes that the own-price demand elasticity of milk is -0.2. However, the article does not explain that its basis for this assumption. Suppose this assumption is wrong, and the demand elasticity is actually -0.1. Suppose the original price of milk was $2.00 per gallon. What would the post-wildfire price be? Note: To solve this problem, you need to assume things happen in a different order than we typically have seen. Namely, instead of a change in price causing quantity demanded to change, we will think of a change in quantity supplied causing price to change. In this case, this seems to be a reasonable assumption. Milk cannot be easily stored for long periods of time, so whatever is produced must be consumed immediately. Furthermore, it is not easy for dairy farmers to quickly adjust their production. A) $1.88 B) $2.06 C) $2.12 D) $2.24

Answer: C Following the hint, elasticity=-0.1, %change in supply=-0.6%, as a result, the %change in price=- 0.6%/-0.1=6%. 2*1.06=2.12.

Digital cameras have a linear demand curve. When price is $100, digital cameras have unit demand elasticity. If price increases to $200, the absolute value of demand elasticity is: A) Less than 1 B) 1 C) Greater than 1 D) It cannot be determined from the information given

Answer: C Since the demand curve is linear, change in price/change in quantity is fixed (note that it's change in units and dollars instead of %change). The basic idea is that for a fixed (e.g. one dollar) change in price, it would represent a smaller %change in price at $200 than at $100; similarly, for a fixed amount of change (e.g. in response to a dollar change in price) in quantity, it would be a greater %change in quantity at $200 than at $100 (since the quantity demanded at $200 is lower than at $100). At $100, the elasticity=-1=%change in quantity/%change in price. At $200, the elasticity=- (larger/smaller) <-1. For a more concrete example, consider a 10% increase in price at $100, the quantity demanded would decrease by 10%. Consider now a $10 increase in price at $200, the %change in price would be 5% (smaller than that at $100). On the other hand, the quantity demanded would decrease by more than 10% by similar argument. Hence, at $200 the absolute value of demand elasticity would be larger than 1

When the price of a product increases from 100 to 105, quantity sold decreases from 200 to 195. Demand is: A) Elastic B) Unit elastic C) Inelastic D) Fantastic

Answer: C The price increases from 100 to 105, which is a 5% increase (since (105-100)/100=5%). As a result, the quantity demanded drops from 200 to 195, which is a 2.5% decrease (since (195-200)/200=-2.5%). Now following the definition of elasticity, the elasticity would be -2.5%/5%=-

The cross-price demand elasticity of good X and good Y is equal to zero. The price of good X goes up. Which of the following statements accurately describes what happens: A) Consumption of good Y goes up, because the goods are compliments B) Consumption of good Y goes up, because the goods are substitutes C) Consumption of good Y goes down, because the goods are compliments D) Consumption of good Y is unchanged

Answer: D 10%*0=0 so the quantity demanded of Y is unchange

You are the fifteenth caller for a contest at your favorite radio station and win your choice of three concert tickets: Post Malone, Taylor Swift, and the Jonas Brothers. You choose Post Malone, because that is your favorite performer. Your second choice would have been the Jonas Brothers. What is the opportunity cost of the concert tickets? A) Zero, because they were free B) The Jonas Brothers tickets C) The Jonas Brothers tickets and the Taylor Swift tickets

B Opportunity cost is the value of the best option not chosen. Here, you had 3 options: Post Malone, Jonas Brothers, Taylor Swift. You chose Post Malone. We know from the question that you prefer the Jonas Brothers to Taylor Swift, so for you, the Jonas Brothers are a better option than Taylor Swift, which means the Jonas Brothers tickets were the best option not chosen.

A field experiment at an all‐you‐can‐eat pizza restaurant shows that a 50% discount on the price of the meal led customers to consume 27.9% less pizza. In other words, when people have to pay a higher price for their meal, they want to "get their money's worth" by eating more pizza. After the researchers conducted this part of the experiment, they did another analysis. They surveyed the customers after they ate and asked them to rate the taste of the pizza. Based on what we have learned about diminishing marginal benefits, who would we expect to give the pizza a higher rating? A) Customers who paid the higher price, because the pizza is worth more to them B) Customers who paid the lower price, because they didn't eat as many slices and therefore avoided the slices that gave a lower marginal utility

B Option A is incorrect. The discounts were assigned randomly, so they being assigned a discount is unrelated to how much you value the pizza.

The main reason why you cannot have everything you want is that: A) Taxes are too high B) Resources are scarce C) Opportunity costs are equal to zero

B The assumption that resources are scarce is the main reason that one cannot have everything one desires.

Jane subscribes to Netflix. She enjoys binge‐watching The Office, but finds that, because she has seen every episode several times, she gets bored of them quickly. In fact, in a given binge‐watch session, she enjoys each episode less than the one before it. Jane would subscribe to Netflix even if The Office was not available. For Jane, watching The Office on Netflix has _____ marginal benefits and _____ marginal costs. (Assume the only costs are monetary costs.) A) Decreasing; Increasing B) Decreasing: Constant C) Constant; Increasing D) Increasing; Decreasing

B The marginal benefit is decreasing since the additional benefit/utility gained from watching The Office is declining (she enjoys each episode less than the one before it). The marginal cost is constant since watching an additional episode costs Jane zero dollars; once you have paid your monthly Netflix bill, you can watch as many shows as you want for free.

Maria is deciding how big of a house to build. She gets decreasing marginal benefits from house size (so, the marginal benefit of the first square foot is greater than the marginal benefit of the second square foot and so on). The builder charges $100 per square foot. Maria decides to build a 1,700 square foot house. What if, instead, the builder offered a discount, where the first 1,000 square feet were half price ($50 per square foot)? How big of a house would Maria choose to build: A) Less than 1,700 square feet B) Still 1,700 square feet C) More than 1,700 square feet

B Without the discount, Maria chooses to build a 1700 square foot house. The marginal cost of the 1,700th square foot is $100. The marginal benefit of the 1,700th square foot must be $100 as well (otherwise, Maria would have chosen a size different from 1,700 square feet). With the discount, square feet 1 - 1,000 have a marginal cost of $50. However, the discount doesn't apply beyond the first 1,000 square feet, so for square foot number 1,700, the marginal cost is still $100. Similarly, the discount doesn't affect how much Maria enjoys additional square footage, so she still has a marginal benefit of $100 from the 1,700th square foot. Thus, the point where marginal benefit equals marginal cost is still 1,700.

This question is based a New York Times column (link). In it, a woman named Liza is deciding how often to visit her boyfriend Will and how long to stay. When she visits him, she must pay to park: Near his downtown apartment, parking was particularly nightmarish. If I got lucky and scored a spot nearby, parking cost $3.50 per hour until 4 p.m., $1.50 per hour until 10 p.m. and then nothing until morning, when, at 7, hourly rates shot up to $5.50. Liza has decided that she values her time with Will at $20 per hour when Will is awake and $4 per hour when Will is asleep. Will sleeps until 8:00 a.m. every day and leaves for work at 9:00 a.m. Suppose Liza arrives at Will's house at 1:00 p.m. About what time do we expect her to leave his house? A) 4:00 p.m. B) 7:00 a.m. C) 8:00 a.m. D) 9:00 a.m.

B and D There are two correct answers. She can leave when marginal cost>marginal benefit (7:00 a.m.), which is what we learned in class. A few students noticed that if she stays the hour from 7-8 when he's asleep, it's worth it, because she gets so much benefit from hanging out with him when he's awake from 8- 9. Specifically, from 7:00 - 8:00, she pays $5.50 in parking and gets a benefit of $4 from being with him. So, she is $1.50 worse off than if she had just left at 7:00. However, once he wakes up, she pays $5.50 in parking and gets $20 in benefit from 8:00 - 9:00. This is a net benefit of $14.50. The $14.50 in net benefit more than makes up for the $1.50 in enjoyment she "loses" from 7:00 - 8:00

The price of a good is originally 10 and decreases to 9. As a result, quantity increases from 20 to 25. What is the price elasticity of demand? A) -0.4 B) -2.5 C) -5 D) -10

B) -2.5

Due to the popularity of streaming services like Netflix and YouTube, there has been a long-term downward trend in the number of cable television subscribers. Regarding the demand for cable television, this is A) An outward shift of the demand curve B) An inward shift of the demand curve C) Movement "up" along the demand curve D) Movement "down" along the demand curve

B) An inward shift of the demand curve

From the article: "Because binge-watching is so prevalent and easy on Netflix, viewers watch Netflix's library faster and run out of things to watch. The more hours a household watches Netflix, the faster Netflix value proposition falls and the lower the probability of subscription renewal." Over time, own-price elasticity of demand for Netflix: A) Does not change B) Becomes more elastic C) Becomes more inelastic

B) Becomes more elastic

Alex can produce either 2 tacos or 4 hamburgers. Beth can produce either 10 tacos or 30 hamburgers. Which of the following statements is true? A) Alex has a comparative advantage at making hamburgers B) Beth has a comparative advantage at making hamburgers C) Beth has a comparative advantage at making both hamburgers and tacos

B) Beth has a comparative advantage at making hamburgers

Due to a tax on dairy farms, the price of ice cream goes up. Following this price increase, you observe a reduction in the number of pies sold. This suggests that pie and ice cream are: A) Substitutes B) Compliments

B) Compliments

Suppose ramen noodles are an inferior good for John. If his income increases, the effect on his demand for ramen noodles would be: A) Increase in Demand B) Decrease in Demand C) Increase in Quantity Demanded D) Decrease in Quantity Demanded

B) Decrease in Demand

Suppose that a $4 tax was placed on buyers. What would happen: A) Demand shifts up B) Demand shifts down C) A change in quantity demanded, but no shift D) Supply shifts down

B) Demand shifts down

You pay $10 per month for one streaming service. When a new streaming service launches, you feel like you are already watching enough TV and are only willing to pay $5 per month for the new streaming service. A) Income Effect B) Diminishing Marginal Utility C) Substitution Effect

B) Diminishing Marginal Utility

The cross-price elasticity of butter and margarine is 0.6. If the price of butter increases 20%, how does the quantity of margarine change? A) Increase by 120% B) Increase by 12% C) Decrease by 12% D) Decrease by 20%

B) Increase by 12%

An advertising campaign successfully convinces consumers that Bang energy drink is healthy and delicious. How does this affect supply or demand? A) Increase in supply B) Increase in demand C) Increase in quantity demanded D) Decrease in demand

B) Increase in demand

The price of a good increases from 100 to 110. Quantity decreases from 200 to 190. Demand is A) Elastic B) Inelastic C) Unit Elastic

B) Inelastic

An increase in Vijay's income has caused the change in the graph below. The good depicted must be: A) Normal B) Inferior

B) Inferior

A mechanic can install motorcycle tires or car tires. For both types, it takes him one minute to install one tire. The mechanic works on an assembly line that can produce both cars and motorcycles. What is his opportunity cost for installing all the tires on a car? A) Installing all the tires in 1 motorcycle B) Installing all the tires in 2 motorcycles C) Installing 1 motorcycle tire D) Installing all the tires in 4 motorcycles

B) Installing all the tires in 2 motorcycles

For each topic, determine if it is best categorized as microeconomics or macroeconomics: Whether increasing the gasoline tax will result in more people bicycling to work A) Macroeconomics B) Microeconomics C) Bikeroeconomics

B) Microeconomics

At the grocery store, one checkout line has a very long line and the other has a short line. Is this an equilibrium? A) Yes B) No

B) No

If two goods are substitutes, cross-price elasticity will be A) Negative B) Positive C) Zero

B) Positive

Suppose ice cream and pies are substitutes. When the price of ice cream decreases, what will happen to the consumption of pie? A) Quantity of pie consumed increases B) Quantity of pie consumed decreases

B) Quantity of pie consumed decreases

Which of the following meets the economic definition of a shortage: A) A hurricane destroyed most of the beachfront property in North Carolina, leading to increased prices and fewer vacationers B) Rent control laws resulted in more people wanting to rent apartments than there were apartments available C) The only Super Bowl tickets available are on reseller websites, and they cost much more than face value.

B) Rent control laws resulted in more people wanting to rent apartments than there were apartments available

Which of the following is not an example of an externality: A) You reheat fish in a shared microwave B) You start playing Fortnight and become addicted to it C) People walking outside of Wells Hall 115 hear my excellent jokes D) You trade your gas guzzler for a Prius

B) You start playing Fortnight and become addicted to it

Which of these would not be an issue that could arise due to your dormitory having poorly defined property rights? A) Your neighbor is too noisy when you are trying to study B) Your R.A. buys pizza for everyone in the dorm, and it all gets eaten C) The bathrooms are very messy D) Your roommate likes it warmer than you do, and there is lots of fighting over when to run the air conditioner

B) Your R.A. buys pizza for everyone in the dorm, and it all gets eaten

For Ford Motor Company's factory, the opportunity cost of producing 1 truck is 2 cars. If the factory devotes all its resources to making cars, it will make 100 cars. For this factory, producing 50 cars and 50 trucks is A) Attainable and efficient B) Attainable but not efficient C) Not attainable

C The maximum production for Ford is 100 cars. 50 cars and 50 trucks are equivalent to 50+2*50=150 cars since the opportunity cost of 1 truck is 2 cars. 150 units of cars is higher than 100, and therefore unattainable.

Jake is considering vaping. One of his friends just quit vaping and has offered Jake his Juul for free, but only if Jake is going to use it himself. If Jake does start vaping, he will spend $20 per week on Juul pods. Additionally, Jake's girlfriend will break up with him if he starts vaping. What is the opportunity cost of vaping for Jake? A) $20 per week B) Zero, because he got the Juul for free C) $20 per week and his girlfriend

C The opportunity cost of vaping for Jake includes the monetary cost ($20 per week) as well as the monetary cost (his girlfriend). The latter is an opportunity cost in this case since Jake is losing/giving up his girlfriend when he chose vaping instead of not vaping.

Summary: 20 tablespoons of cocoa powder 1 tablespoon per chocolate cupcake 2 tablespoons per double-chocolate cupcakes If LeBron only makes chocolate cupcakes, how many cupcakes can he make? A) 0 B) 10 C) 20

C) 20

A new subsidy paid to producers pushes the price of solar panels down. How does this affect the demand for solar panels? A) Demand increases B) Demand decreases C) Increase in quantity demanded D) Decrease in quantity demanded

C) Increase in quantity demanded

MSU increases the price for student football tickets. As a result, fewer students attend football games. This is a A) Outward shift of the demand curve B) Inward shift of the demand curve C) Movement "up" along the demand curve D) Movement "down" along the demand curve

C) Movement "up" along the demand curve

Which of the following is true if there is one long line and one short line? A) People in the long line will stay put. Eventually an equilibrium is reached B) People in the long line will stay put. No equilibrium is reached. C) People in the long line will move to the short line. Eventually, an equilibrium is reached D) People in the long line will move to the short line. No equilibrium is reached

C) People in the long line will move to the short line. Eventually, an equilibrium is reached

When Starbucks has a half-off promotion, you go to Starbucks instead of to Biggby Coffee A) Income Effect B) Diminishing Marginal Utility C) Substitution Effect

C) Substitution Effect

How would we expect a federal subsidy on milk to affect the supply curve of a dairy farm? A) Movement up the supply curve B) Movement down the supply curve C) Supply curve shifts out (right) D) Supply curve shifts in (left)

C) Supply curve shifts out (right)

Very few lighthouses are privately owned. Which of the following best explains this: A) The start-up costs for building a lighthouse are too high B) The marginal benefits of safe travel are smaller than the marginal costs of running a lighthouse C) There is not an effective way of ensuring only paying customers are able to use the lighthouse

C) There is not an effective way of ensuring only paying customers are able to use the lighthouse

Suppose that, for studying economics, you have decreasing marginal benefits (in terms of your grade) and increasing marginal costs (in terms of how much you dislike studying). When you go to bed the night before your midterm, you note that, for the last hour you spent studying, the marginal benefit of studying was less than the marginal cost. Which of the following is true? A) You studied the right amount B) You should have studied more C) You studied too much

C) You studied too much

There are approximately 60 million Netflix subscribers in the U.S., and the average customer pays about $12 per month. Suppose own-price elasticity of demand for Netflix is -2.0. If Netflix cuts its price by $3 per month, how many subscribers will it add? A) 0 B) 500,000 C) 15 million D) 30 million

D) 30 million

Your favorite Japanese restaurant is running a promotion where sushi costs $1 per piece. According to what we have learned in class, how should you behave? A) Eat as much sushi as you can afford B) Choose the quantity of sushi that maximizes marginal benefit C) Choose the quantity such that the marginal benefit of the last piece eaten is zero D) Choose the quantity such that the marginal benefit of the last piece eaten is $1

D) Choose the quantity such that the marginal benefit of the last piece eaten is $1

Initially, Kroger is the only grocery store in town. Then Meijer and Whole Foods open stores. As a result of competition, prices decrease. What happens? A) Inward shift of the demand curve B) Outward shift of the demand curve C) Movement "up" along the demand curve D) Movement "down" along the demand curve

D) Movement "down" along the demand curve

Now, the residents of Smogton have the property rights to all air in the Smogton. Polluting has a marginal benefit to Smokestack Industries of $100 and a marginal cost to the residents of Smogton of $120. According to the Coase theorem, what will happen? A) Smogton residents will pay Smokestack Industries and there will be no pollution. B) Smokestack Industries will pay the Smogton residents and pollute C) No money will change hands and there will be pollution D) No money will change hands and there will be no pollution

D) No money will change hands and there will be no pollution

Other things remaining the same, an increase in the price of beachfront condos: A) decreases the supply of beachfront condos. B) increases the supply of beachfront condos. C) decreases the quantity of beachfront condos supplied. D) increases the quantity of beachfront condos supplied.

D) increases the quantity of beachfront condos supplied.

This problem concerns the market for tickets a concert. At a price of $60 per ticket, there are 15,000 people wanting to buy tickets to the concert and 18,000 people wanting to sell tickets to the concert. According to what we learned in class, what do we expect to happen? A) Price will decrease until 18,000 people are willing to buy tickets B) Price will increase until over 18,000 people are willing to sell tickets C) 15,000 tickets will be sold at a price of $60 per ticket D) Some buyers will offer to pay more than $60 per ticket E) Some sellers will offer to sell for less than $60 per ticket

E) Some sellers will offer to sell for less than $60 per ticket

Economics is based on the principle that resources are scarce and people have unlimited desires. If the federal government were to run the money‐printing presses at maximum speed and send billions of dollars in cash to every American, would that result in every American being able to obtain everything they desire? A) Yes B) No

b The statement that everyone is able to obtain everything they desire with "more money" is false. It is false because in economics it is assumed that resources are scarce and people have unlimited desires, which has nothing to do with how much money is being printed.

Initially, the price of a bicycle is $100 and 100 units are sold. The price increases by 𝑥 dollars. Price elasticity of demand is -2. How many units are sold? A) 2𝑥 B) 200𝑥 C) 100-2𝑥 D) 102+x

Answer: C The price increases by x dollars, so the %change in price=x%. Elasticity=-2, it follows that % change in quantity demanded = -2x%. Originally, the quantity demanded is 100. Option C gives % change in quantity demanded = -2x% (since (100-2x-100)/100=-2x

Michigan State University decides fine everyone who leaves an electric scooter on a walkway 20 dollars. What would we expect to happen? A) There is no change in the number of scooters left on walkways B) Fewer scooters are left in walkways, but there are still some scooters left in walkways C) No scooters are left in walkways.

B Fewer scooters are expected to be left in walkways since the cost of the action is higher. It's unlikely that undesirable actions would disappear with the additional monetary cost (think about jaywalking in the real world). People acting in their self interest may find that they would rather pay the fine than spend time finding an appropriate scooter-parking location.

P1 = 5 Q1 = 30 P2 = 3 Q2 = 32 What is the price elasticity of demand? A) -1 B) -0.17 C) -0.4 D) -6

B) -0.17

P1 = 33 Q1 = 2 P2 = 34 Q2 = 1 What is the price elasticity of demand? A) -1 B) -5 C) -16.5 D) -32

C) -16.5