Econ Exam 1

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 approximate absolute value of the price elasticity of demand for cheddar cheese? a. -1.5 b. 0.8 c. -0.8 d. 1.5

1.5

. If a good is an inferior good, what would we expect to happen in the market for that good if incomes increase? a. Price decreases; quantity decreases b. Price increases; quantity decreases c. Price decreases; quantity increases d. Price increases; quantity increases

A

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: a. 2.5. b. -2.5. c. 0.8. d. 0.4

A

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are a. normal goods. b. inferior goods. c. goods with a network-effect. d. goods with a congestion-effect

A

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. a. will not; only Juan b. will; both Juan and Apple c. will not; only Apple d. will; neither Juan nor Apple

A

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 a. benefit of watching another episode is equal to the marginal cost. b. benefit of watching another episode is positive. c. benefit of watching another episode is less than the marginal cost. d. cost of watching another episode is positive

A

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? a. dryer sheets b. shampoo c. laundry detergent d. soap

A

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item. a. greater than b. equal to c. less than d. greater than or less than

B

Rafael wants to go to Mahahual, Mexico on vacation. The cost of airfare is $600, the cost of a hotel is $400, and the cost of spending the day at a day resort is $200. If he goes on vacation he will spend $300 on food and beverages, but if he stays home he will spend $200 on food and beverages. He will give up a week's salary if he goes on vacation which is $1000. What are Rafael's opportunity costs of going on vacation? a. $2100 b. $2300 c. $2500 d. $2700 e. $1300

B

Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes: a. steeper. b. more elastic. c. more inelastic. d. higher

B

The supply curve is upward-sloping because a. marginal benefit tends to be increasing. b. marginal costs tend to be increasing. c. the government determines the relationship between price and quantity supplied. d. the number of sellers rises as prices rise.

B

. 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? a. She will hire two workers at a total cost of $160. b. She will hire five workers at a total cost of $2000. c. She will hire four workers at a total cost of $640. d. She will hire three workers at a total cost of $480

C

A decrease in the price of a complement in production of good G will a. decrease demand for good G, raise the price of good G, and decrease the quantity sold of good G b. increase the supply of good G, raise the price of good G, and decrease the quantity sold of good G c. decrease the supply of good G, raise the price of good G, and decrease the quantity sold of good G d. increase demand for good G, raise the price of good G, and decrease the quantity sold of good G

C

A rational buyer will: a. buy the product only when the marginal benefit of consuming the product is twice as much as the price of the product. b. buy a product until the marginal benefit of consuming the product is less than the price of the product. c. keep buying a product until marginal benefit equals price. d. not consider costs versus benefits when purchasing a product

C

Paper producers can manufacture either printing and drawing paper. What effect would rising prices for printing paper have on the market for drawing paper? a. The supply of drawing paper will double as compared to before. b. The quantity supplied of drawing paper will increase. c. The supply of drawing paper will decrease.

C

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? a. The cost of the employees hired and the number of packages purchased. b. The cost of purchasing electricity, raw milk, and sugar. c. The cost of the raw milk purchased from the farmers. d. The cost of building the factory, purchasing the robotic assembly lines and industrial freezers.

D

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 a. sell less barley than other farmers. b. not sell any barley. c. raise his profitability by $5 per ton. d. lower his profitability by $5 per ton

D

You are told that good M has an income elasticity of demand of 5. Which of the following items might good M be? a. a hamburger b. a used, 1999 budget four-door sedan c. a hot dog d. a premium computer

D

Rank these absolute values of price elasticity of demand from most inelastic demand to most elastic demand: 0.25, 2.5, 1.3, 0.12, 1

Hence, answer is 0.12, 0.25, 1, 1.3, 2.5

Roger has inherited his grandmother's home, which he values at $150,000. He decides that he might be willing to sell it, so he lists it on Zillow as for sale by owner for $185,000. Donna is interested in the home and willing to pay $175,000 for it, and makes an offer of $170,000. a. Would Roger and Donna want to voluntarily engage in this exchange? b. How much economic surplus is created for each of them as a result of this exchange? C. What is the total surplus?

Yes Donna 5000 Roger 20000 25,000