Econ 202 tamu Meer Exam 1

A bakery can produce either cakes or cookies. If the price of cookies rises, then A) the supply curve of cake shifts leftward. B) there is a movement downward along the supply curve of cakes. C) the supply curve of cake shifts rightward. D) there is a movement upward along the supply curve of cakes.

A

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases: A) the opportunity cost of buying sweaters increases. B) the opportunity cost of buying shirts increases. C) the opportunity cost of buying sweaters decreases. D) There is no change in the opportunity cost of consuming either good.

A

If labor supply is low relative to labor demand, then we can expect the equilibrium wage to be A) relatively high. B) Relatively low C) demand-determined. D) neither high nor low, but very volatile.

A

In the market for magazines, the "income effect" means that A) an increase in the price of magazines will reduce the total purchasing power of magazine readers, making them able to afford fewer magazines. B) a decrease in the price of a substitute product like books will make magazine readers feel a little poorer than they were before. C) an increase in the price of magazines will raise the relative price of magazines to books, causing magazine readers to read more books and fewer magazines. D) magazines are usually purchased by people with higher than average incomes.

A

Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. Maria should choose to: A) drive, as it will save her $120. B) drive, as it will give her a real saving of $150. C) travel by train, because it is quicker. D) travel by train, as it will save her $30 in travel time.

A

Soo Jin shares a one-bedroom apartment with her classmate. Her share of the rent is $700 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics student, you rightly conclude that A) Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250. B) Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $950. C) the cost of having one's own space outweighs the benefits. D) Soo Jin did not have a choice; her roommate was a slob.

A

Suppose that you are spending two hours a day studying economics, and your grade is 85 percent. You want a higher grade and decide to study for an extra hour a day. As a result, your grade risesto 90 percent. Your marginal benefit is the A) 5 point increase in your grade. B) 5 point increase in your grade minus the opportunity cost to you of spending the hour studying. C) extra hour per day you spend on studying. D) three hours per day you spend on studying.

A

There is a technological advance in the production of a good and simultaneously also an increase in the expected future price. Which of the following will happen? A) The technological improvement shifts the supply curve rightward while the increase in the expected future price shifts the supply curve leftward. The net effect is not known. B) The equilibrium price will rise because the supply curve shifts rightward. C) The demand curve shifts rightward and the supply curve does not shift. D) The equilibrium price falls because the supply curve shifts leftward.

A

What does a firm use to decide how much labor to hire at a particular wage? A) marginal revenue product of labor B) marginal product of labor C) price of output D) marginal cost

A

Which of the following statements is true? A) Rational economic agents maximize more than just monetary income. B) It is not necessary to consider the risks of a particular alternative while making an optimal decision. C) An individual does not require information to make optimal decisions. D) The principle of optimization is only accurate when it comes to making monetary decisions.

A

All else equal, when the supply of workers is plentiful, we can expect market wages to be A) above the equilibrium wage. B) relatively low. C) demand-determined. D) relatively high.

B

Beth is a college student looking for summer employment. She has two options. Firm X is employing lifeguards to patrol the beaches at an exclusive resort in Cancun, Mexico, while Firm Yoffers her a job working in an office filing paper work and assisting with the ordering of office supplies. Given this information, A) Firm X may pay a wage that is higher than that of Firm Y because the work at Firm X is not very interesting. B) Firm X may pay a wage that is lower than that of Firm Y because the job at Firm X has more desirable working conditions. C) Firm Y will pay a wage that is higher than that of Firm X because more individuals will apply for jobs at Firm Y. D) none of the above

B

Floor Lamp Inc. is a perfectly competitive firm that currently employs 100 workers. The marginal revenue product of the 90th worker is $7.00 per hour. The wage rate is $8.00 per hour. To increase profits, this firm should A) increase employment until the MRP of labor equals $8.00. B) decrease employment until the MRP of labor equals $8.00. C) increase the price of lamps so that the marginal revenue product increases to $8.00 per hour. D) continue hiring 100 workers because the firm earns a surplus of $1.00 on each worker hired

B

If demand for Farmer John's maple syrup is inelastic, then when Farmer John raises the price of maple syrup, his total revenue will A) decrease. B) increase. C) stay the same. D) probably change, but more information is needed to determine if the total revenue increases, decreases, or stays the same.

B

In the summer 2012 the lobster catch in Maine was especially large, but instead of celebrating the fisherman were suffering from a lower total revenue. (Source: New York Times, July 28, 2012) Despite the larger quantity of lobster caught, the total revenue of the fisherman decreased. This fact means that the demand for lobster is A) elastic. B) inelastic. C) perfectly elastic. D) unit elastic.

B

Oatmeal is a normal good and cold cereal is a substitute for oatmeal. Raisins are a complement for oatmeal. Which of the following increases the demand for oatmeal? A) an increase in the price of raisins B) an increase in the price of cold cereal C) a decrease in population D) a decrease in income

B

Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. If the opportunity cost of time increases to $80 per hour, which of the following statements is true? A) Maria should choose to drive as it saves her $10. B) Maria should choose to travel by train as it saves her $10. C) Maria should choose to travel by train as it saves her $150. D) Maria should choose to drive as it saves her $150.

B

Which of the following is NOT an example of an opportunity cost? A) Because David used all of his vacation time to paint his house, he was unable to visit the Caribbean last year. B) Because Mary is now being paid a higher wage, she can afford to buy a new car even though she is moving into a bigger apartment. C) By choosing to attend college, Jean was not able to continue working as an electrician; as a result, she gave up more than $85,000 in earnings while she was in college. D) By spending Thursday night studying for an economics exam, a student was unable to complete a homework assignment for calculus class.

B

Which of the following is a reason why it is difficult to estimate the extent of economic discrimination in the labor market? A) Employers who discriminate pay an economic penalty. B) Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences. C) Ultimately, employers who discriminate cannot remain profitable. D) Employers who discriminate are likely to do so in overt ways such as awarding some workers with benefits-in-kind.

B

Which of the following is an example of a compensating wage differential? A) Popular movie stars like George Clooney command much higher salaries than other talented but lesser-known actors. B) Workers in a radioactive uranium mine receive higher wages than if they worked in other jobs that require the same level of skills. C) In the market for lawyers, top graduates from the top programs earn starting salaries that are significantly higher than the starting salaries earned by lower-ranked graduates from the lower-ranked programs. D) Nurse anesthetists are paid less than anesthesiologists (who have medical degrees).

B

Which of the following statements is true? A) Optimizers with the lowest opportunity cost of time push up the rental price of apartments with the lowest commute time. B) As the rental prices of downtown apartments rise, only workers with the highest opportunity cost of time will be willing to rent them. C) As the rental prices of downtown apartments rise, only workers with the lowest opportunity cost of time will be willing to rent them. D) Optimizers with the highest opportunity cost of time push up the rental price of apartments with the highest commute time.

B

A student is studying for an exam 2 hours a day and is debating whether to study an extra hour. The student's marginal benefit A) is greater than the student's marginal cost. B) depends on the grade the student earns on the exam. C) is the benefit the student receives from studying the extra hour. D) is the benefit the student receives from studying all 3 hours.

C

At a local ice cream parlor, when the price of half-gallons of chocolate ice cream was lowered by fifty cents per half-gallon, total revenue from the sale of chocolate ice cream decreased. This result indicates that A) there are more people who like vanilla ice cream than there are people who like chocolate ice cream. B) the demand for chocolate ice cream is elastic. C) the demand for chocolate ice cream is inelastic. D) None of the above answers is correct.

C

During the past twenty years, the prices of prescription drugs, relative to the prices of other goods, have risen, yet Americans buy more prescription drugs than ever. This might be because A) more new firms entered the pharmaceutical industry each year, which caused a rightward shift in the supply curve of prescription drugs. B) with higher incomes and more older Americans, we have moved rightward along our demand curve for drugs. C) with higher incomes and more older Americans, the demand curve for prescription drugs has shifted rightward. D) Both answers A and C are correct.

C

Homer changes jobs and his new job pays him a higher income. Before he changed jobs, Homer purchased 3 pounds of tuna and 2 pounds of chicken. After he changed jobs, Homer now purchases 2 pounds of tuna and 3 pounds of chicken. For Homer A) tuna is a normal good and chicken is an inferior good. B) both tuna and chicken are inferior goods. C) tuna is an inferior good and chicken is a normal good. D) both tuna and chicken are normal goods.

C

If Sara receives a pay increase from $15 to $16 an hour and she chooses to A) take more vacation, then the income and substitution effects are working in the same direction with regard to leisure because it is a normal good. B) work more, then the income effect is equal to the substitution effect. C) work more, then the substitution effect for leisure demand is stronger than the income effect. D) take more vacation, then the income effect is weaker than the substitution effect.

C

If good growing conditions increase the supply of strawberries and hot weather increases the demand for strawberries, the quantity of strawberries bought A) doesn't change and the price falls. B) doesn't change and the price rises. C) increases and the price might rise, fall or not change. D) increases and the price rises.

C

If the substitution effect of a wage change outweighs the income effect of a wage change, the labor-supply curve is A) vertical. B) backward bending. C) upward sloping. D) horizontal.

C

One year, the government boosted regulated taxi fares in New York City by 15 percent with the expectation that the total revenue from taxi rides would also increase by 15 percent. The taxi commission that authorized this fare increase must have believed that the demand for taxi service was A) elastic, but not perfectly elastic. B) inelastic, but not perfectly inelastic. C) perfectly inelastic D) unit elastic.

C

Which of the following best describes a good with perfectly elastic demand? A) The quantity demanded of the good is completely unaffected by a price change. B) For a given price change, the percentage change in quantity demanded will be less than the percentage change in its price. C) Even the smallest increase in the price of the good will cause consumers to stop consuming it completely. D) The demand curve for the good initially slopes upward, reaches its maximum, and then slopes downward.

C

Which of the following correctly identifies the trade-off that a budget constraint represents? A) The optimum combination of goods that a consumer with a given income should purchase B) The maximum amount of two goods that a consumer can purchase given his income C) The amount of one good that has to be given up to purchase an additional unit of the other good D) The amount of income that must be given up to obtain an additional unit of a good

C

Which of the following decreases the supply of restaurant meals? A) Consumers' incomes decrease and restaurant meals are a normal good. B) The price of movies, a complement to restaurant meals, falls. C) Waiters get a pay raise. D) Consumers' incomes increase and restaurant meals are a normal good.

C

You have the choice of going on vacation to Florida for one week, staying at work for the week, or spending the week doing fix-up projects around your house. If you decide to go to Florida, the opportunity cost of the trip is A) working and doing fix-up projects. B) working, because you would be giving up income. C) working or doing fix-up projects, depending on which you would have done otherwise. D) nothing because you will enjoy the trip to Florida.

C

An omitted variable is a variable that: A) does not cause other variables in a study to change when it changes. B) is removed from a study as it can lead to the problem of reverse causality. C) is purposely left out as it does not aid an economic analysis. D) has been left out, and if included, would explain why the variables considered in a study are correlated.

D

Beef is a normal good and people's incomes fall. At the same time a bumper corn crop reduces the cost of feeding steers. These changes result in A) an increase in the equilibrium quantity of beef. B) an increase in the equilibrium quantity of beef if the shift in the demand curve is larger than the shift in the supply curve. C) no change in the equilibrium quantity of beef. D) an increase in the equilibrium quantity of beef if the shift in the demand curve is smaller than the shift in the supply curve.

D

Gary consumes 10,000 units of electricity when his income is $500. When his income increases to $1,000, his consumption of electricity increases to 18,000 units. What is Gary's income elasticity of demand for electricity? A) 2 B) 1.8 C) 0.5 D) 0.8

D

Greenaqua Corp. is the only supplier of bottled drinking water in the country Lithasia. Due to the profits the firm enjoys, new corporations are interested in entering the market. If a few morecompanies producing their own line of bottled drinking water enter the market, which of thefollowing statements will be true about Greenaqua Corp.? A) The elasticity of demand of Greenaqua Corp.'s product is likely to remain the same. B) The elasticity of demand of Greenaqua Corp.'s product is likely to decrease. C) The profit Greenaqua Corp. earns on their line of bottled drinking water is likely to increase. D) The elasticity of demand of Greenaqua Corp.'s product is likely to increase.

D

In March, the quantity of orange juice sold in the town of Jackson was 3000 cartons and the price $3. In May, the quantity of orange juice sold in the town of Jackson was 3500 cartons and the price was$3.20. This change in the price and quantity sold could have been the result of A) the after effects of a cold winter in Florida that killed half of the orange crop. B) a reduction in the number of orange juice coupons provided by local markets. C) the after effects of a warm winter in Florida that increased the orange crop yield by 50 percent. D) the release of a medical study suggesting that consuming orange juice helps prevent cancer.

D

Suppose a medical study reveals new benefits to consuming beef and at the same time a bumper corn crop reduces the cost of feeding steers. The equilibrium price of beef will A) fall. B) stay the same. C) rise. D) perhaps rise, fall, or stay the same, but more information is needed to determine which it does.

D

Taco Bell's economists determine that the price elasticity of demand for their tacos is 2.0. So, if Taco Bell raises the price of its tacos by 6.0 percent, the quantity demanded will decrease by percent. A) 6.0 B) 2.0 C) 3.0 D) 12.0

D

The demand for labor A) is a derived demand. B) depends on the demand for the output the labor can be used to produce. C) is affected by the value placed by the market on the output produced by labor. D) all of the above

D

The price of cereal rises. As a result, people have cereal for breakfast on fewer days and eat eggs instead. This behavior is an example of A) an increase in the quantity demanded of eggs because of the income effect. B) an increase in the quantity supplied of eggs because of the income effect. C) a decrease in the quantity supplied of cereal because of the substitution effect. D) a decrease in the quantity demanded of cereal because of the substitution effect.

D

Which of the following claims is most likely to suffer from reverse causality? A) Crime rate is seen to be lower in countries having a higher level of poverty. B) More hours of study is likely to lead to better results. C) Higher income increases consumption. D) Relatively wealthy people tend to be relatively healthy.

D

Which of the following factors is likely to lead to an increase in the quantity demanded of pens? A) A fall in the incomes of all consumers B) A fall in the price of paper C) A rise in the incomes of all consumers D) A fall in the price of pens

D

Which of the following leads to a movement along the demand curve for spinach but does NOT shift the demand curve for spinach? A) an increase in income for all spinach lovers B) an increase in the price of broccoli, a substitute for spinach C) a newly discovered health benefit from eating spinach D) a rise in the price of spinach

D

Which of the following statements is true A) Correlation can only arise when causation is not present. B) Causation arises when there is correlation between two variables, and can also arise even when there is no correlation. C) Causation can only arise when correlation is not present. D) Correlation arises when there is causation and can also arise even when there is no causation.

D

You want to purchase a new car. You have gone to 3 dealerships that sell the type of car you want. The price of the car is different at each of the dealerships. You have estimated that if you go to another dealership, the marginal amount you may save will be $250, but the marginal cost of going to the dealership would be $350. Which of the following statements is accurate? A) In order to determine whether or not you should go to the next dealership, you would need to know the total costs and total benefits of this action. B) You should go to the next dealership, as you would be able to save an additional $250. C) You should continue going to dealerships as long as the marginal benefit of additional search is positive. D) You should not go to the next dealership because the marginal cost of this action exceeds the marginal benefit.

D