ECON- Exam 1 Study Guide
if the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are:
complements
As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:
the substitution effect of a price change
Shelly purchases a leather purse for $400. One can infer that:
her reservation price was at least $400
Economics is best defined as the study of
how people make choices in the face of scarcity and the implications of those choices for society as a whole.
The extra benefit that results from carrying out one additional unit of an activity is the ______ of the activity.
marginal benefit
The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.
marginal cost
If the demand for a good decreases as income decreases, then the good is a(n)
normal good
If the demand for steak increases as income increases, then steak is a(n):
normal good
Refer to the table below. The marginal benefit of the 5th unit of this activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225
$10
The table below shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. what is the marginal benefit of the third car wash each month?
$12
For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your marginal cost of the 100th meal is:
$0
Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case: A) excess supply will lead the price of broccoli to fall B) excess demand will lead the price of broccoli to fall C) excess supply will lead the price of broccoli to rise D) excess demand will lead the price of broccoli to rise
A) excess supply will lead the price of broccoli to fall
Suppose the equilibrium price and quantity of ketchup fall. The most likely explanation for these changes is: A. a decrease in the demand for ketchup B. an increase in the demand for ketchup C. a decrease in the supply of ketchup D. an increase in the supply of ketchup
A. a decrease in the demand for ketchup
If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:
Goods X and Y are complements.
Which branch of economics is most likely to study differences in countries' growth rates?
Macroeconomics
"As the price of computers continues to fall, demand increases" this headline is inaccurate because
a falling price of personal computers increases the quantity demanded, not demand
all else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has
a higher opportunity cost of taking the day off work.
What might cause a demand curve to shift to the right?
an increase in the price of a substitute
If all the world's resources were to magically increase a hundredfold, then:
people would still have to make trade-offs.
If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:
the costs will be understated.
"All else constant, consumers will purchase more of a good as the price falls." this statement reflects the behavior underlying:
the demand curve
The entire group of buyers and sellers of a particular good or service makes up:
the market
Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to the movie. The opportunity cost of going to the beach is:
the value she places on seeing the movie.
When a market is in equilibrium
there is neither excess demand nor excess supply
Economists recognize that because people have limited resources:
they have to make trade-offs
suppose that when the price of broccoli is $4 per pound, buyers wish to $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. in this case:
when demand goes down and supply goes up the price of the good goes down; surplus
a rational person is someone
with well-defined goals who tries to fulfill those goals as best as he or she can.
an increase in the quantity of tea demanded occurs if
the price of the tea falls
an increase in the quantity of tea demanded occurs if:
the price of the tea falls
Refer to the table below. The marginal cost of the 3rd unit of this activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225
$20
The following table shows the relationship between the speed of the computers CPU and its benefits and costs. assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase. The marginal benefit of upgrading from a 2.0GHz computer to a 2.5GHz computer is:
$400
Jack has a ticket to see Daughtry for which he paid $30 yesterday. He takes an unpaid day off from work to get ready for the concert. When he arrives at the concert, five different people offer him $70 for his ticket. Jack decides to keep his ticket. At the time he makes this decision, his opportunity cost of seeing Daughtry is:
$70
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending Elite U is:
$70,000 If Larry attends Elite U, he not only has to pay $50,000 in out-of-pocket expenses, but he also has to give up the value his next-best option. To determine the value of his next best option, note that the value to Larry from attending State College (net of tuition) is $40,000 - $20,000 = $20,000. And, his value from attending NoName U (net of tuition) is $15,000 - 0 = $15,000. Since going to State College is his next best option, and his opportunity cost of going to Elite U is $50,000 + $20,000 = $70,000.
Refer to the table below. According to the Cost-Benefit principle, how many units of this activity should be carried out? Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225
3
Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:
5
You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is: A. $0 B. $1 C. $35 D. $65
B. $1
Which of the following is NOT true of a demand curve? A. it has a negative slope B. it shows the amount consumers want to buy a various prices C. it relates the price of an item to the quantity demanded of that item D. it reflects sellers' reservation prices
D. it reflects sellers' reservation prices
Moe has a big exam tomorrow. He considered studying this evening, but decided to hang out with Curly instead. If neither activity involves any explicit costs, and Moe always chooses rationally, it must be true that:
Moe gets more benefit from spending time with Curly than from studying
Tennis rackets and tennis balls are
complements
Washing machines and dryers are
complements
Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:
an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.
When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:
at least $1.75 but less than $2.
When the price of a good changes, The amount of that good that buyers wish to buy changes:
because of both the substitution and the income effects.
you are trying to decide whether to purchase the latest harry potter book online or borrow it from the library. there is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. regardless of how you get the book, it's benefit to you is the same. if the cost of buying a book online is $13, then you should:
borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13.
Ice cream and chocolate are
both complements and substitutes
To understand how the price of a good is determined in a free market, one must account for the interests of
buyers and sellers
As the price of flour (an input into the cookie production process) increases, firms that produce cookies will:
decrease the supply of cookies.
One reason that demand curve slopes ____ is that as prices fall ____
downward; more people find that the price is now less than their reservation price
suppose the cost to tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the cost-benefit principle Tim should
drink a third glass of soda if the benefit of doing so is positive
Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.
economic surplus; $3,000
If the price is above the equilibrium price, then there will be
excess supply
the marginal benefit of an activity is the
extra benefit associated with an extra unit of the activity.
A decrease in the price of pizza will lead to a(n):
increase in the quantity of pizza demanded.
If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n)
inferior good
if the demand curve for bologna shifts to the right as income falls then bologna is a(n):
inferior good
the cost-benefit principle indicates that an action should be taken if, and only if
its benefits exceed its costs.
Buyers in the market for CDS learn of a decrease in the price of CDS the demand curve ___
remains unchanged
Buyers in the market for CDS learn of an increase in the price of CDS The demand curve ____
remains unchanged
Buyers in the market for pizza read A study linking pepperoni consumption to cancer the demand curve ___
shifts to the left
The income of buyers in the market for Adirondack vacations decreases. The demand curve ___
shifts to the left
buyers in the market for CDS learn of a decrease in the price of downloadable MP3's (a substitute for CDS) The demand curve ___
shifts to the left
buyers in the market for pizza read a study linking pepperoni consumption to heart disease. The demand curve ____
shifts to the left
Buyers in the market for CDs learn of an increase in the price of downloadable MP3s (a substitute for CDs). The demand curve ____
shifts to the right
The income of buyers in the market for Adirondack vacations increase. The demand curve ____
shifts to the right
Cloth diapers and disposable diapers are
substitutes
according to the cost-benefit principle, you should spend an additional hour studying for an exam if, and only if
the benefits of studying for an additional hour exceed the costs of studying for an additional hour.
Microeconomics differs from macroeconomics in that microeconomics focuses on
the choices made by individuals the implications of those choices.
Dean should play golf instead of preparing for tomorrow's exam in economics if:
the economic surplus from playing golf is greater than the economic surplus from studying.
You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as:
the income effect of a price change
refer to the figure below. if the current market price were $20
the market would be at equilibrium
the opportunity cost of an activity includes the value of
the next-best alternative that must be foregone.
Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then:
the opportunity cost of attending State U. includes the money Alex could have earned working for four years.