Econ final exam review

7) Which of the following is NOT a characteristic of a market in equilibrium? A) Sellers can sell as many units as they want at the equilibrium price. B) Buyers can buy as many units as they want at the equilibrium price. C) Neither buyers nor sellers want the price to change. D) There is neither excess supply nor excess demand.

7) C Neither buyers nor sellers want the price to change. Even when the market is in equilibrium, sellers would be pleased to receive a higher price and buyers would be happy to pay a lower price.

12) If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are: A) substitutes B) normal goods C) compliments D) inferior goods

A substitutes Two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the other (and a decrease in the price of one good leads to a decrease in the demand for the other).

14) 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: A) 5 B) 125 C) 375 D) 41.67

14) A 5 Marginal benefit is the increase in total benefit that results from a carrying out one additional unit of an activity. By watching the 3rd game, total benefit increases from 120 to 125, so the marginal benefit is 5.

1) According to the Cost-Benefit Principle, you should go see the latest Star Wars movie with your friends this week-end if: A) you can afford to go to the movies. B) the benefits of seeing the movie are greater than the costs of seeing the movie. C) you really like Star Wars. D) you have a free ticket.

1) B the benefits of seeing the movie are greater than the costs of seeing the movie. The Cost-Benefit Principle tells us that we should make choices by weighing the benefits of an action against its costs.

10) What might cause a demand curve to shift to the right? A) An increase in the price of a substitute. B) An increase in the product's own price. C) An increase in the price of a complement. D) A decrease in the price of a substitute.

10) A increase in the price of a substitute Two goods are substitutes if an increase in the price of one good leads to a rightward shift in the demand for the other.

11) Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, the government sets the price for prescription drugs. One can conclude that the government has: A) encouraged buyers to hoard prescription drugs. B) set the price too high. C) set the price below the equilibrium price. D) set the price above the equilibrium price.

11) C set the price below the equilibrium price If there is a shortage, then this suggests that the regulated price is lower than the equilibrium price.

15) The supply curve illustrates that firms: A) decrease the supply of a good when its price rises. B) decrease the quantity supplied of a good when input prices rise. C) increase the quantity supplied of a good when its price rises. D) increase the supply of a good when its price rises.

15) C increase the quantity supplied of a good when its price rises. The supple curve is upward sloping, reflecting the fact that as price rises, so does the quantity supplied.

16) The Cost-Benefit Principle indicates that an action should be taken if, and only if: A) its benefits are a result of its costs. B) its costs are small. C) its benefits exceed its costs. D) its benefits are positive.

16) C it's benefits exceed its costs The Cost-Benefit Principle states that an action should be taken if, and only if, its benefits exceed its costs.

17) Refer to the table below. The marginal cost of the 4th unit of activity is: A) $10 B) $5 C) $8 D) $6

17) C $8 Total cost increases from $12 to $20 when you go from 3 to 4 units, so the marginal cost of the 4 th unit is $8.

18) 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. Should you go to the concert instead of working Saturday? A) No, the benefit of going to the concert is less than the cost. B) No, because there are no benefits of going to the concert. C) Yes, the benefit of going to the concert is more than the cost. D) Yes, the benefit of going to the concert is equal to the cost.

18) A No, the benefit of going to the concert is less than the cost. The fact that you were willing to pay up to $35 to go to the concert indicates that the benefit to you of going to the concert is $35. The cost of going to the concert is the foregone value of working, which is 4 ?? ($11 - $2) or $36. [Note that we do not factor in the cost of the ticket since it???s a sunk cost.] Since the benefit of going to the concert is less than the cost, you should not go to the concert.

19) The economic surplus of an action is: A) the difference the explicit and implicit costs of taking an action. B) the benefit gained by taking an action. C) the money a person has left over after taking an action. D) the difference between the benefit and the cost of taking an action.

19) D the difference between the benefit and the cost of taking an action. Economic surplus is defined as the benefit of an action minus its cost.

20) Equilibrium price and quantity are determined by: A) government regulations. B) both supply and demand. C) supply. D) demand.

20) B both supply abs demand Equilibrium results from the interaction of buyers and sellers.

4) If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n): A) normal good. B) substitute good. C) inferior good. D) complementary good.

4) C inferior good An inferior good is a good for which an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand.

21) 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: A) the opportunity cost of attending State U. includes the money Alex could have earned working for four years. B) the opportunity cost of attending State U. includes the sum of the benefits Alex would have had from attending each of the other schools to which he was admitted. C)Alex has no incentive to study hard while at State U. D)attending State U. for four years is costless for Alex.

21) A: the opportunity cost of attending State U. includes the money Alex could have earned working for four years. Even though Alex has no out-of-pocket costs, by attending State U Alex would be giving up on 4 years worth of earnings.

22) Refer to the figure below. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result? A) They would all make a large profit because $45 is more than the equilibrium price. B) They would all just break even because $45 is their reservation price. C) They would lower their prices because at $45 there would be excess supply. D) They would lower their prices because at $45 there would be excess demand.

22) C) They would lower their prices because at $45 there would be excess supply. At price of $45, there would be excess supply, so sellers would have an incentive lower their prices to increase sales.

23) A decrease in the price of pizza will lead to a(n): A) increase in the demand for pizza. B) decrease in the quantity of pizza demanded. C) increase in the quantity of pizza demanded. D) decrease in the number of consumers.

23) C) increase in the quantity of pizza demanded A decrease in price leads to in increase in quantity demanded, not an increase in demand.

24) Which of the following is NOT true of a demand curve? A) It has negative slope. B) It relates the price of an item to the quantity demanded of that item. C) It shows the amount consumers want to buy at various prices. D) It reflects sellers' reservations prices.

24)D) it reflects sellers reservations prices The demand curve reflects buyers' reservation prices. The supply curve reflects sellers' reservation prices.

25) Refer to the figure below. If the price is $4 today and there is no change in either supply or demand, one would expect the price in the future to be: A) $4. B) greater than $6. C) less than $4. D) greater than $4.

25) D) greater than $4 At a price of $4, the quantity demanded is greater than the quantity supplied, so price will rise.

26) 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, then it must be true that: A) Moe gets less benefit from spending time with Curly than from studying. B) the opportunity cost of studying is less than the value Moe gets from spending time with Curly. C) Moe gets more benefit from spending time with Curly than from studying. D) the opportunity cost of studying is greater than the value Moe gets from spending time with Curly.

26) C) Moe gets more benefit from spending time with Curly than from studying. If Moe rationally chooses to spend time with Curly, then his benefit of spending time with Curly must outweigh his cost. Given that neither activity involves any explicit costs, the opportunity cost of spending time with Curly equals the benefit of studying. Thus, if Moe rationally chooses to spend time with Curly, it must be the case that his benefit from spending time with Curly is greater than his benefit from studying.

27) 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: A) not an economic problem because it's an hour that Chris has no matter what he does. B) an economic problem because Chris has only one hour, and engaging in one activity means giving up the other. C) not an economic problem because neither activity costs money. D) an economic problem because the tuition Chris pays covers the cost of both the gym and the library.

27) B) an economic problem because Chris has only one hour, and engaging in one activity means giving up the other Chris has to make a trade-off: if Chris goes to the gym, Chris cannot also study and vice versa.

28) Refer to the figure below. At a price of $9, there will be: A) an excess supply of 6 units. B) an excess supply of 5 units. C) an excess demand of 1 unit. D) an excess demand of 5 units.

28) B) an excess of supply 5 units At a price of $9 buyers will want to buy 1 unit, and sellers will want to sell 6 units, a difference of 5 units.

29) 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: A) exactly $1.75. B) less than $1.75. C) exactly $2.00. D) at least $1.75 but less than $2.

29) D) at least $1.75 but less than $2 A buyer will purchase an item if, and only if, its price is less than or equal to the buyer???s reservation price. Since Moe buys a slice of pizza for $1.75, his reservation price must be at least $1.75, and since he does not buy a slice of pizza for $2.00, his reservation price must be less than $2.00.

30) The opportunity cost of an activity includes the value of: A) the next-best alternative that must be foregone. B) the chosen activity minus the value of the next-best alternative. C) all of the alternatives that must be forgone. D) the least-best alternative that must be foregone.

30) A) the next-best alternative that must be foregone. The opportunity cost of an activity is not the total value of all possible activities that you could have pursued, but only the value of the one alternative you give up, which is presumably the next-best one.

8) 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 demand will lead the price of broccoli to rise B) excess supply will lead the price of broccoli to fall C) excess demand will lead the price of broccoli to fall D) excess supply will lead the price of broccoli to rise

8) B excess supply will lead the price of broccoli to fall If the quantity that sellers wish to sell is 800 pounds per day, and the quantity that buyers wish to buy is 500 pounds per day, then there is excess supply, which will lead the price of broccoli to fall.

9) 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: A) a decrease in the buyer's reservation price. B) the income effect of a price change. C) the substitution effect of a price change. D) an increase in the buyer's reservation price

9) B the income effect of a price change The purchasing power of your $10 has now fallen due to the higher price, so you purchase less of the good.

+11) Suppose the compuny that owns the vending machines on your campus has doubled the price of a can of soda. They then notice that they are selling approximately 15% fewer sodas The price clasticity of demand for sodas from the camps vending machines, therefore, is: A) inelastic B) unit elastic C) elastic D) infinite

A) inelastic

6) "As the price of personal computers continues to fall, demand increases." This headline is inaccurate because: A) a change in the price of personal computers shifts the supply curve. B) a falling price of personal computers increases the quantity demanded, not demand. C) the statement is backwards: increased demand leads to lower prices. D) a change in the price of personal computers shifts the demand curve.

B a falling price of personal computers increases the quantity demanded, not demand. A change in price leads to a change in quantity demanded, which is represented by movement along a demand curve; a change in demand is a shift in the entire curve.

3) A seller's reservation price is generally equal to: A) the market price. B) the seller's opportunity cost of producing an additional unit. C) the seller's marginal benefit from producing an additional unit. D) the buyer's reservation price.

B the seller's opportunity cost of producing an additional unit. A seller's reservation price is the smallest dollar amount for which a seller would be willing to sell an additional unit, which is generally the same as their opportunity cost of producing an additional unit.

+29) Given the data in the table, compute the value of GDP. A) 2,400 B) 2,500 C) 2.600 D) 2,700

B) 2,700

+7) Suppose a new study highlights the health benefits of eating bacon. At the same time, suppose the cost of producing bacon falls. Given these changes, you should expect lo see: A) a decrease in the equilibrium price of bacon, but it's hard to say what will happen to the equilibrium quantity. B) an increase in the equilibrium quantity of bacon, but it's hard to say what will happen to the equilibrium price. C) an increase in both the equilibrium price and quantity of bacon. D) an increase in the equilibrium price of bacon, but it's hard to say what will happen to the equilibnum quantity.

B)increase in the equilibrium quantity of bacon, but it's hard to say what will happen to the equilibrium price.

+1) You won a free ticket to see the latest Star Trek movie this Friday night (which you can costlesly resell for its face value of S15). Your favorite band is also performing on Friday and is your only alternative activity. Friday is your last chance to sce either the movie or the band. Tickets to see your favorite band cost $30, and on any given day, you would be willing to pay as much as $50 for a ticket. Based on this information, what is your opportunity cost of going to see the Star Trek movie on Friday? A) $O B) $30 C) $35 D) $5O

C) $35

+8) Suppose Bianca buys a used a textbook from Sebastian for SSS. If Bianca's surplus from this transaction was SI0, we can infer that: A) Bianca's reservation price was $45. B) Bianca's reservation price was $60, and Sebastian's reservation price was $50. C) Bianca's reservation price was S65. D) Sebastian's rescrvation price was $45,

C) Bianca's reservation price was $65

+3) Which of the following would nor be studied in macroeconomics? A) The causes of the Great Depression. B) The growth rate of the US economy. C) How a sharp increase in gasoline prices is likely to affect SUV sales. D) The impact of government spending on the economy.

C) How a sharp increase in gasoline prices is likely to affect SUV sales.

+5) Which of the following is likely to lead to a decrease in the demand for tennis balls? A) An increase in the price of the rubber used to make tennis balls. B) An increase in the price of tennis balls. C) An increase in the price of tennis racquets. D) An increase in the expected fthture price of tennis balls.

C) an increase in the price of tennis racquets

+10) The price elasticity of demand for a good measures the responsiveness of: A) demand to a one percent change in price of that good. B) price to a one percent change in the demand for that good. C) quantity demanded to a one percent change in price of that good. D) price to a one percent change in the quantity demanded of that good.

C) quantity demanded to a one percent change in price of that good.

2) The following table shows the relationship between the speed of a computer's 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 total benefit of a 3.0GHz computer is: A) $1,650. B) $300. C) $900. D) $1,700.

D $1,700 To find total benefit of a 3.0GHz computer, add the marginal benefit of a 3.0GHz computer to the total benefit of 2.5GHz computer.

13) All else equal, a decrease in the demand for oranges will lead to a(n) ______ in equilibrium price and a(n) ______ in equilibrium quantity. A) increase; increase B) increase; decrease C) increase; decrease D) decrease; decrease

D decrease; decrease A decrease in demand will lead to a lower equilibrium price and quantity.

5) An increase in the quantity of tea demanded occurs if: A) the price of coffee rises. B) the income of tea drinkers increases. C) the population of tea drinkers grows. D) the price of the tea falls.

D the price of tea falls A fall in price of tea will lead to an increase in the quantity demanded; the other factors mentioned would change the demand for tea.

+4) Refer to the figure below. There would be an excess supply of 25 at a price of A) $20 B) $35 C) S45 D) $5O

D) $50