ECON 2105 Midterm 1 UGA

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte?

$4

Natasha starts a small software company, but finds it difficult to hire good software developers since she has a very large competitor half a mile away. This is best explained by which of these interdependencies?

Dependencies between people or businesses

Paint and paintbrushes are complements. If the price of paint rises, we can expect:

The demand for paintbrushes to decrease

Agron is struggling to determine how many hours he should work. Which of these principles should he use first in order to break the issue down into the simpler question, "Should I work one more hour?"

The marginal principle

Which of the following is NOT a factor that can shift supply?

The market price of a product

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?

The opportunity cost principle

You're shopping online, and you place an item in your virtual cart. Two days later, you return to the virtual cart to check out and find that the item is now more expensive. Assuming that the market is competitive, what could explain the price increase?

There is a shortage of the item

Why are supply curves typically upward-sloping?

They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services.

The individual supply curve follows the law of supply. This means which of the following?

When the price of the good rises, its quantity supplied rises

PPF (Production Possibilities Frontier)

a curve that shows the maximum quantity of one good that can be produced for each possible quantity of another good produced

A normal good is

a good for which higher income causes an increase in demand.

A seller at a farmer's market wants $10 for a bag of 10 apples. You think his price is too high, so you counter with an offer of $6 for the bag. The seller then offers you a much smaller bag of five apples for $6. You bargain again, and the seller lets you buy the 10 apples for $8. This scenario is an example of:

a market in action

Quantity demanded is on the horizontal axis when you plot a demand curve and shows the:

amount of a good that a person is willing to buy at each price.

Graphically, shortages will always occur:

at prices below the equilibrium price.

Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal:

benefit of purchasing one more coffee equals the marginal cost

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is attempting to decide how many more episodes to watch. Kathleen should continue watching episodes as long as the marginal:

benefit of watching another episode exceeds the marginal cost.

The cost-benefit principle states that _____ are the incentives that shape decisions.

costs and benefits

When there is a shortage of highly skilled workers in a particular region, the:

demand for skills education increases.

An equilibrium price is

determined by the intersection of the demand and supply curves.

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item.

equal to

The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:

greater than or equal to the marginal cost

When you calculate marginal costs, they should include:

only variable costs

The opportunity costs of attending college include the:

potential income that could be earned wroking

When plotting a demand curve

price is on the vertical axis

Graphically, the equilibrium quantity can be identified as the:

quantity corresponding to the intersection of the demand and supply curves.

A shortage occurs when

quantity demanded exceeds quantity supplied

Jamal is an engineer working at a large lithium-ion battery producer. He recently made a breakthrough causing the production cost of lithium-ion batteries used in smartphones to go down. In the market for smartphones, this innovation will cause the equilibrium quantity to _____ and the equilibrium price to _____.

rise; fall

Which of the following events would lead to a shift of the supply curve from Old supply to New supply? (to the right)

technological advance in production techniques

The Rational Rule for Sellers is important but does NOT:

tell sellers how to set the price against the competitors.

The law of supply refers to

the positive relationship between price and quantity supplied

Many factors may shift an individual demand curve EXCEPT a change in:

the price of the goods

An equilibrium in a market occurs when

when the quantity supplied equals quantity demanded

When your suppliers increase the prices of your inputs, they increase your _____, and this will shift your supply curve to _____.

marginal costs; the left

When your suppliers decrease the prices of your inputs, they decrease your _____, and this will shift your supply curve to _____.

marginal costs; the right

The __________ suggests, decisions about quantities are best made incrementally.

marginal principle

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:

multiply the individual supply of one of the suppliers by ten.

If a manager offers a potential employee $45,000, but the employee would be willing to work for $40,000, and the manager will make $65,000 from the work that the employee does, what is the employee's economic surplus?

$5,000

The United Kingdom plans to end the use of gas-powered and diesel-powered cars by the year 2040. At the same time, car manufacturers, such as General Motors and Nissan, are increasing the number of electric car models they produce. Based on this information, which of the following statements is/are correct?(i) If the supply of new electric cars is greater than the demand for new electric cars, then the price of electric cars will fall in the future.(ii) The demand for gasoline will fall in the future.(iii) The demand for electricity will rise in the future.(iv) The demand for diesel will rise in the future.

1, 2, 3

Which of the following would be considered in a cost-benefit analysis to decide if a person should cycle to work or ride the subway?(i) The air pollution that the cyclist has to breathe.(ii) The cost of subway tickets.(iii) The time it takes to cycle to work versus the time it takes to ride the subway to work.(iv) The cost per gallon of gasoline.

1, 2, 3

Which of the following five scenarios illustrate markets in action?(i) You rent a book at the university bookstore.(ii) You bargain at a street stall.(iii) You mow your own lawn.(iv) You get a manicure at a nail salon.(v) You grow your own vegetables and consume them yourself.

1, 2, 4

Which of the following are correct about fixed costs?(i) They do not change with the level of production in the short run.(ii) They include variable costs.(iii) They are present even when the firm is producing zero units.(iv) They are irrelevant to marginal cost.

1, 3, 4

Which of the following lists only the factors that would cause a decrease in the supply of an item?

A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.

Which of the following scenarios depicts a seller who is following the Rational Rule for Sellers?

American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250.

A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate?

Diminishing marginal product

Matthew has been diagnosed with cancer and doctors estimate that he has roughly 5 months to live. From an economic standpoint, which best explains why Matthew might be more likely than a healthy person to take a risky experimental drug?

His opportunity cost is lower than that of other people

A wildly popular but aging rock band announces that their upcoming tour will be the last one before they retire. What effect will this likely have in the market for this band's concert tickets?

Increase in demand

What is quantity supplied?

It is the amount of an item that a seller is willing to sell at a particular price.

How is the economic surplus generated by a decision calculated?

It is the total benefits minus total costs arising from the decision.

Which of the following scenarios illustrates the law of demand?

Kathleen eats more steak when the price is low, and less when the price is high.

Tatyana owns a retail store with 24 employees. Because she is not sure whether a 25th employee would improve her economic surplus, she hires another employee and notices that her total costs have increased by $800 and her total revenue has increased by $1,750. Which of these would be the best course of action for Tatyana?

Keep the 25th employee and experiment by hiring an additional employee

Paul owns a bakery and has two employees. Because he is not sure whether he should hire a third worker, he would like to try hiring this worker and monitor his business. After hiring the third worker, Paul then notices that his total costs have increased by $1,100, and his total revenue has increased by $1,350. What decision should Paul make?

Keep the third worker and experiment by hiring a fourth worker

Lisa has a stand at the local farmer's market where she sells honey from her farm. Every week, Lisa sells out of honey while still having people waiting in line to buy some. What is happening in the market for Lisa's honey?

Quantity demanded exceeds quantity supplied, creating a shortage.

Suppose you are a manager at a local coffee shop. You notice that every day by 8AM you are entirely sold out of bagels, but have at least 20 people ask for bagels later in the day. Which of the following decisions would result in the best outcome for your shop?

Raise the price of bagels

You eat M&Ms every day. When you go to the store to buy some, you find that M&Ms are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive?

The supply of cacao beans, used to produce chocolate, has fallen around the world.

Your willingness to pay for a pair of jeans is $50. According to the cost-benefit principle, when should you avoid buying a pair of jeans and instead opt to keep your money?

When the price of the jeans exceeds $50.

The key to using the cost-benefit principle is to think about _____ aspects of a decision.

both financial and nonfinancial

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction.

both the buyer and the seller

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.

less; $150

As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will:

fall, due to a rise in supply

You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost.

go; greater

When there is a shortage of highly skilled workers in a particular region:

highly skilled workers can negotiate higher salaries.

Rational Rule

if something is worth doing, keep doing it until your marginal benefit equals your marginal cost.

Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost.

included; nonfinancial

When you get hired for a well-paying job, you will most likely view older used cars as

inferior goods

Ayalon owns a fast food restaurant that is open 18 hours a day. He is considering the idea of having his restaurant remain open 24 hours a day, but he realizes that the success of this plan may be affected by the changing hours of his competitors. Ayalon is taking into account the _____ principle.

interdependence

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.

interdependence

Diminishing marginal benefit

is when buying an additional item yields a smaller marginal benefit than the previous item.

A rational buyer will

keep buying a product until marginal benefit equals price.

Diana is a student studying economics and currently working on her class schedule for next semester. She decides to enroll in a course on economic data analysis because she knows that data analysis is a highly sought-after skill from employers in her career field. Weighing what may affect her in the future opportunities demonstrated dependency:

through time

Suppose a shoe store has fixed costs of $100. Its marginal cost for the first pair of shoes is $10, for the second is $20, and for the third is $30. How many shoes will it supply if the price is $20?

two pairs

Variable costs are costs that

vary with the quantity of output produced.

Suppose that you have a pumpkin stall at a farmer's market, and the Halloween season arrives. You know that your customers will want to buy many pumpkins to decorate their houses and make pumpkin pies. Which of the following is a likely result of this scenario?

you can charge a higher price per pumpkin

Dependencies between your own choices reflect the fact that:

you have limited resources

Decisions should reflect the _____ costs, rather than just the _____ costs.

opportunity; financial

Amancio is going into his fourth year of school when he is offered a prestigious position at a software company. Instead of applying the opportunity cost principle to see if he should quit school and take the job, he decides to stay in school, because he has already spent so much time and money on furthering his education. Amancio's hasty decision has been negatively affected by:

sunk costs

An individual demand curve is a graph

that plots the quantity of an item that someone plans to buy, at each price.

When plotting a supply curve

the quantity supplied goes on the horizontal axis.

A down-ward sloping demand curve implies

there is an inverse relationship between price and quantity demanded.

If a store runs a sale on a product to clear out its stock, we can conclude that:

there was a surplus of the product in the store