Econ Exam 1

The cost-benefit principle states that the full set of _____ should be evaluated when making any choice.

costs and benefits

Diminishing marginal product leads to

rising marginal costs for a seller.

The supply curve is upward-sloping because

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

Good X and good Y are complements in production. If the price of good X increases, then which of the following is true? Choose all that apply

supply of good Y increases, quantity supplied of good X increases

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

more elastic.

Sunk costs are costs that are incurred

regardless of which decision is made.

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

Rank these absolute values of price elasticity of demand from most inelastic demand to most elastic demand:

0.12 0.25, 1, 1.3, 2.5

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?

1.25

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.

1.41

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.

_____ is a measure of how much your decision has _____ your well-being.

Economic surplus; increased

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?

The equilibrium price falls, and the equilibrium quantity rises.

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.

Jeremy has a car he values at $5000. Tim values the same car at $8000 and is looking to buy a new car. Which of the following statements is true based on this information? Choose all that apply.

The would trade at a price of $7000, and both earn surplus from this exchange

Complements-in-production

allows a business to produce goods together.

A rational buyer will:

keep buying a product until marginal benefit equals price.

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are

normal goods.

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

time he spent cooking the dinner.

Dependencies between your own choices reflect the fact that:

you have limited resources.

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)?

(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 rememner this, you could show this mathematically). (iv) Either demand would need to increase or supply would need to decrease.

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 37 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.

-26 his profit is Total revenue - total cost = X*$2 - (Fixed costs + Variable Costs) = X*$2 - $40 - $60 You should get a negative number that is greater than -$40. If he produces nothing he has losses of -$40. Since he would lose more if he produced nothing, he should sell comics.

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) 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.

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:

2.5

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.

A hurricane is expected to hit the Carolinas. Why might the prices of batteries, candles, and bottled water rise?

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

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?

Cost-benefit principle

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 four workers at a total cost of $640.

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

You are told that good M has an income elasticity of demand of 5. Which of the following items might good M be?

a premium computer

For normal goods

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

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 at least as high as the price of the shirt.

Graphically, shortages will always occur:

at prices below the equilibrium price.

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 is equal to the marginal cost.

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 steeper at lower quantities and flatter at higher quantities.

The demand curve represents [ Select ] and the supply curve represents [ Select ] .

marginal benefit, marginal cost

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?

dryer sheets

According to the total revenue rule, when you decrease price on a price [ Select ] good, total revenue increases. For example, total revenue increases when you decrease price on a good with a price elasticity of demand of [ Select]

elastic, 2

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?

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

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

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.

Asking "One more?" allows the _____ principle to be analyzed as a simple question.

marginal