ECON Exam 1 Sample Test 1

When you are willing to pay $5 for a hamburger but you pay $4 for it, your consumer surplus for the hamburger is:

$1

What are the total gains from trade at the free market equilibrium?

$1,000

If Maria is willing to pay $50 for a sweatshirt, how much consumer surplus does she earn if the market price for sweatshirts is $27.50 each?

$22.50

Firms are willing and able to sell 100 guitars per day at a price of $250 per guitar. What price will firms require to sell 100 guitars per day if there is a tax of $15 per guitar?

$265

What is the producer surplus at a price of $2 per unit?

$5

When the demand curve shifts from D0 to D1, the equilibrium price rises to:

$8 and the equilibrium quantity rises to 140.

At a quantity of 80 units, it costs sellers _____ to produce the last unit, but buyers value this last unit at _____.

$80; $20

The value of wasted resources at a quantity of 80 units is:

$900

The elasticity of demand for oil is about 0.5, and the elasticity of supply is about 0.3. If the Arctic National Wildlife Refuge (ANWR) were drilled and the world supply of oil increased by 3%, what would be the estimated percentage change in the world price of oil?

-3.75%

The price elasticity of supply between point A and point B is:

1

​ The price elasticity of supply between point C and point D is:

1

The equilibrium quantity (in units) is:

16

The elasticity of demand for a good is -0.75. A 4% increase in price will cause

3% decrease in quantity demanded.

Mark considers 3-D archery and shooting trap substitute activities for each other. As the price of shooting trap increases, Mark's demand to participate in:

3-D archery increases.

The elasticity of demand for watermelons is -1.5. A 4% increase in the price will cause a

6% decrease in quantity demanded.

The equilibrium price is:

8

What is the equilibrium price per pound in the diagram?

8

In the market for fertilizer, an:

advance in technology will increase the supply of fertilizer

Which of the following choices correctly illustrates how changes in opportunity costs affect supply?

A farmer produces corn and wheat. The price of wheat rises, so he shifts his resources toward wheat and the supply of wheat rises.

Which statement is TRUE regarding the figure?

At a price of $6 per unit, consumers are willing and able to buy 10 units.

Which of the following is TRUE about demand curves?

Demand curves are negatively sloped.

The United Nations estimates that Earth's population growth rate will slow down by the year 2050, at which time population may start to decrease. If technological change allows the supply of oil to increase at a constant rate, and nothing else changes, what effect will a slowdown in population growth have on the price of oil?

Demand will increase more slowly during this period, but since supply is growing at a constant rate, the rate of price increase will fall, and ultimately the price of oil may begin to fall.

Suppose there is an increase in demand in a market and no change in supply. What will happen to the market equilibrium price and quantity?

Equilibrium price will rise; equilibrium quantity will rise.

If prices rise, what happens to producer surplus (all other things being equal)?

It rises because each producer is getting more surplus per good sold.

Joe runs a landscape business. He knows that providing landscaping services costs him $100 per hour on average, while the cost of providing such services is $150 per hour after 5 pm (due to overtime pay, reduced productivity, and the added wear and tear on his equipment). A potential client offers Joe $130 per hour to provide services but needs him to provide the services after 5 pm due to circumstances at the property.

Joe should decline the job, since he would lose $20 per hour worked.

In the figure, the initial demand curve is D1 and the initial supply curve is S1. Resource prices in this market increase; at the same time, the consumer population declines as migration causes an outflow of population to other regions. What happens to the supply curve and/or demand curve?

S1 shifts to S2, and D1 shifts to D2. ​

If a market has a surplus, how will the market respond?

The price will fall and the quantity supplied will fall.

What effect did the 1997 East Asian recession in countries such as South Korea, Indonesia, and Thailand have on the oil market?

The recession decreased income and reduced the demand for oil and oil prices.

Five new sellers enter a market (that previously had seven) and begin producing a good. Which of the following choices explains what happens to the equilibrium Q and P?

The supply curve will shift to the right, the equilibrium P will fall, and the equilibrium Q will rise.

What will happen in the market for cotton as a result of a severe drought?

The supply of cotton will decrease, causing the equilibrium price to rise and equilibrium quantity to fall.

It costs suppliers $1 to produce each additional widget, and widgets sell for $2. Some consumers are not willing to pay $2 for a widget but are nevertheless willing to pay more than $1. Which of the following statements is TRUE?

There are unexploited gains from trade

If the government institutes a tax on suppliers of Cheesy-Poofs, the market for 22. If the government institutes a tax on suppliers of Cheesy-Poofs, the market for Cheesy-Poofs will see:

a decrease in supply, a decrease in quantity demanded, and an increase in price.

A decrease in the price of one substitute good causes

a leftward shift in the demand curve for the other substitute good.

If the income elasticity of demand of a good is positive, we can conclude that the good is:

a normal good

Imagine a free market in equilibrium. After a sudden decrease in supply (but before the price can adjust), the market experiences

a shortage

In his book The Wealth of Nations, Adam Smith claimed that individuals:

are motivated by self-interest.

When the price of a good increases, demand for the good will

be unaffected

For each good produced in a free market economy, demand and supply determine:

both the price and the quantity of the good.

In a competitive market:

buyers compete with other buyers, and sellers compete with other sellers.

The movie trilogy The Lord of the Rings was hugely successful, and, as a result, the demand for fantasy novels, action figures, and online role-playing games surged. The increase in demand can be explained by a(n):

change in tastes

The main difference between Saudi Arabian oil production and U.S. oil production is the:

cost of production

According to the figure, the:

costs of producing output have increased.

4. A market can be described by the equations Qd = 50 - 3P and Qs = 2P. What are the equilibrium price and quantity in this market?

d. The equilibrium price is $10, and the equilibrium quantity is 20 units.

Compared to S1, S2 is more

elastic since quantity supplied increases more with an increase in price.

When the price of a good goes down, demand for the good goes down.

false

When markets don't align self-interest with social interest:

governments may improve the situation by changing incentives

the supply curve:

illustrates the quantity supplied at different prices.

Nobel Prize-winning economist Gary Becker suggested that prohibited drugs should be legalized and then taxed. This would _____ the seller's cost and _____ government revenue.

increase; increase

In 1980, when Iraq attacked Iran, the price of oil _____ because of a(n) _____.

increased; disruption in the supply of oil

An increase in a per unit production subsidy:

increases supply

A good is considered normal if demand for it _____ when income _____.

increases; increases

A 4% increase in the price of beer will cause a 1% decline in the quantity of beer demanded. The demand for beer is:

inelastic

Farmers can produce more milk at lower cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is:

inelastic

The long-run demand for oil _____ the short-run demand for oil.

is more elastic than

Scarcity:

is when there isn't enough to satisfy all our wants.

For suppliers to sell more than the equilibrium quantity, it would mean that:

it costs suppliers more to produce the good than its value to buyers

South Korea became much richer than North Korea as a result of:

its economic systems and incentives.

Suppose a certain business wants to encourage its employees to live healthier lives. The easiest way for the business to realize this goal is to:

pay a monthly bonus to employees who log an hour of exercise a week on a fitness tracker.

Which of the following probably has the least elastic demand?

prescription medications

A demand curve shows the relationship between:

price and quantity demanded, which are negatively related.

total revenue is:

price × quantity

The key condition for equilibrium to occur in a market is:

quantity demanded equals quantity supplied.

If the demand for a good is elastic, then:

revenues decrease when the price goes up.

When supply decreases, there is a ------- at the old equilibrium price, which puts _____ pressure on price until the market reaches the new equilibrium.

shortage; upward

If supply decreases, ceteris paribus, the quantity exchanged will be _____ at the new market equilibrium point.

smaller

In regard to the criminalization of drugs, Nobel Prize-winning economist Gary Becker suggested:

that the government should make drugs legal and then place a tax on drugs to control their usage

A free market achieves an equilibrium price and quantity due to:

the combined actions of buyers and sellers.

The better Martha Stewart is at running her business:

the higher her opportunity cost of ironing her own shirts.

The opportunity cost of a choice is:

the value of the opportunities lost.

When the price of a good equals the equilibrium price:

there are no unexploited gains from trade.

Every day, people work at serving people meals at restaurants all around the world. These people work for our benefit because:

they benefit by doing so

What area represents the value of wasted resources from trade when the price is set at J?

triangle DGK ​

At the competitive market equilibrium, the buyers who purchase the product have the highest willingness to pay.

true

If a frost destroys half of the orange crop in Florida, the equilibrium price of oranges will rise.

true

If the price of a good increases from $200 to $250 and quantity supplied increases from 200 units to 400 units, the supply will be classified as elastic

true

Similar to the elasticity of demand, the elasticity of supply tends to become more elastic in the long run.

true

The elasticity of demand measures how responsive consumers are to price changes. For example, when a small decrease in price leads to a large increase in quantity demanded, demand is considered elastic.

true

Mark Zuckerberg dropped out of college and founded Facebook. His opportunity cost of attending college was:

tuition, the cost of books, and the income from his Facebook pursuits.

An increase in demand shifts the demand curve:

up and to the right.