Micro exam 1
Graphically, shortages will always occur:
at prices below the equilibrium price.
A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:
multiply the individual supply of one of the suppliers by ten.
Diminishing marginal benefit:
is when buying an additional item yields a smaller marginal benefit than the previous item.
The relationship between price expectations and demand is
positive; when future prices are expected to rise, current demand will rise.
The opportunity costs of attending college include the:
potential income that could be earned working.
Graphically, the equilibrium quantity can be identified as the:
quantity corresponding to the intersection of the demand and supply curves.
When plotting a demand curve
quantity demanded is on the horizontal axis.
A shortage occurs when
quantity demanded exceeds quantity supplied
Opportunity cost arises from the fundamental economic problem of
Scarcity
It is a beautiful afternoon, and you are considering taking a leisurely stroll through the park. Your alternatives to walking are streaming a movie that you value at $5, taking a nap that you value at $7, or reading a new book that you value at $12. What is the opportunity cost to you of taking the stroll through the park?
$12
Dr. Chang is willing to pay $700 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $600. It costs Apple $400 to produce this iPad. How much economic surplus does Apple receive if Dr. Chang purchases this iPad?
$200
Amanda Mendez goes to a local café and orders a sandwich. Her willingness to pay for that sandwich is $10. The price of the sandwich is $4. The cost to the cafe to produce that sandwich is $1. How much economic surplus does Amanda receive when she purchases the sandwich?
$6
You are thinking of starting a tutoring service. You already have a part-time job on campus that pays $10 per hour. You think you can tutor fellow students for five hours each Saturday at $25 per hour. If you were not tutoring, you could work another five hours at your campus job. How much economic surplus will you generate each week if you start tutoring?
$75
Use the table to answer the question. What is the equilibrium price in this market?
$9
Sunk costs are costs that ____.
are incurred in the past and cannot be reversed.
The table contains the monthly demand for soda cans for four students. If these four students make up the entire market, what is the total monthly market demand for soda at $1.50 per can?
148 cans
Consider the data in the table. The price of gasoline is $3.99 per gallon at the gas station. If Rexhall Fuel Supplies is a rational seller, how many gallons of gasoline should this seller be willing to sell?
20 million gallons per week
What is the equilibrium quantity in this market?
300 units
A seller at a farmer's market wants $10 for a bag of 10 apples. You think his price is too high, so you counter with an offer of $6 for the bag. The seller then offers you a much smaller bag of five apples for $6. You bargain again, and the seller lets you buy the 10 apples for $8. This scenario is an example of:
A market in action
Which of the following lists only the factors that would cause a decrease in the supply of an item?
A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.
When a market for a good/service is in equilibrium,
A)buyers can buy as much of the product they want, if they pay price P*. b) sellers can produce as much of the product they want, if they receive price P*. c) there are no forces on price to rise or fall. d) the amount of the good demanded by consumers exactly equals the amount of the good supplied by sellers.
Which of the following scenarios depicts a seller who is following the Rational Rule for Sellers?
American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250.
What happens to the equilibrium price and quantity when demand decreases and at the same time supply increases, but the demand shift is relatively larger than the supply shift?
Both equilibrium price and quantity will fall
What happens to the equilibrium price and quantity when demand decreases and at the same time supply increases, but the demand shift is larger than the supply shift?
Both the equilibrium price and the equilibrium quantity fall.
The cost-benefit principle states that _____ are the incentives that shape decisions.
Costs and benefits
. _____ is a measure of how much your decision has _____ your well-being.
Economic surplus; increased
(Figure: Demand for Bus Rides) The city of Vaughan in Ontario, Canada, opened a new subway line that extended the existing subway system between the greater Toronto area and the city of Vaughan. The route previously only had bus service. Which of the following graphs depicts the effect you would expect to see on the demand for bus rides on this route after the introduction of the subway?
Graph A (old demand down to new demand) (quantity at far right)
Figure: Market for Coffee) A coffee shop opens next to an existing coffee shop. Which of the following graphs shows the effect of this new coffee shop on the market supply curve for coffee in this area?
Graph A (old supply to new supply, lines now leading right)
(Figure: Market for Printing Paper) Which of the following graphs illustrates what we expect to see in the market for printing paper if the price of printing paper rises?
Graph C (one line of demand, x-axis to the left and y-axis up)
(Figure: Market for sugar) Stevia is a natural sweetener that is used as a sugar substitute. Which of the following graphs illustrates the impact of a rise in the price of Stevia on the demand for sugar
Graph D (old demand to new demand) (quantity)
(Figure: Market for Apple Computers) Dell and Apple are competitors in the computer market. Which graph illustrates the effect of a rise in the price of Dell computers on the demand for Apple computers?
Graph D (old demand up to new demand)
(Figure: Market for Luxury SUVs) Which of the following graphs shows what will happen to the supply curve for luxury SUVs, if economists predict an increase in demand for these vehicles?
Graph D (one line and point a going up to point b)
When there is a shortage of highly skilled workers in a particular region:
Highly skilled workers can negotiate higher salaries
The United Kingdom plans to end the use of gas-powered and diesel-powered cars by the year 2040. At the same time, car manufacturers, such as General Motors and Nissan, are increasing the number of electric car models they produce. Based on this information, which of the following statements is/are correct? (i) If the supply of new electric cars is greater than the demand for new electric cars, then the price of electric cars will fall in the future. (ii) The demand for gasoline will fall in the future. (iii) The demand for electricity will rise in the future. (iv) The demand for diesel will rise in the future.
I, II, iii
The United Kingdom plans to end the use of gas-powered and diesel-powered cars by the year 2040. At the same time, car manufacturers, such as General Motors and Nissan, are increasing the number of electric car models they produce. Based on this information, which of the following statements is/are correct? (i) If the supply of new electric cars is greater than the demand for new electric cars, then the price of electric cars will fall in the future. (ii) The demand for gasoline will fall in the future. (iii) The demand for electricity will rise in the future. (iv) The demand for diesel will rise in the future.
I,II,iii
What is quantity supplied?
It is the amount of an item that a seller is willing to sell at a particular price.
What is quantity supplied?
It is the amount of an item that a seller is willing to sell at each price.
How is the economic surplus generated by a decision calculated?
It is the total benefits minus total costs arising from the decision.
Which of the following scenarios illustrates the law of demand?
Kathleen eats more steak when the price is low, and less when the price is high.
The accompanying table provides data for five different oatmeal cookie sellers. Out of the sellers listed, who all are following the law of supply?
Len, Ren, and Jen
Dr. Chang could either commute to work via Uber or purchase a new car. The average cost of his one-way Uber trip is $15. Dr. Chang works 5 days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Dr. Chang should purchase a car if the cost of the car is _____ than _____ per week.
Less; $75
Sunk costs should ____ be considered as part of the opportunity costs of a decision.
Never
If a seller expects prices to rise in the future
it will stock up today and sell the goods when the price rises.
Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are
Normal goods
According to the cost-benefit principle, framing effects or how a choice is described, should
Not affect a decision
You are thinking of going out to dinner at a restaurant with your friends. The meal is expected to cost you $30, you typically leave a 20% tip, and a round-trip Uber ride will cost you $20. You value the restaurant meal at $20, and the time spent with your friends at $30. You should ____ to dinner with your friends because the benefit of doing so is _____ than the cost.
Not go; less
Anna is a milk farmer in a perfectly competitive market where there are many milk farmers. The market price of milk is $0.15 per gallon, which is also the marginal cost per gallon of milk. If Anna charges $0.25 per gallon, she will
Not sell any milk
When you calculate marginal costs, they should include:
Only variable costs
Consider your decision to attend class each day or skip it. Which of the four core principles of economics applies to the notion that by attending class you are not doing the next best activity you would prefer to do, such as napping or going to the gym?
Opportunity cost principal
Marie Johnston is a manager at an electronics store, and she has to decide how many workers to hire. If she hires one worker, her revenue is $400 per day. If she hires another worker, she can make another $350 per day. The marginal benefit of hiring another worker decreases by $50 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 the total revenue of her store?
She will hire five workers and the revenue of the store will be $1,500.
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 $500 per day. If she hires another worker, she can make another $400 per day. The marginal benefit of hiring another worker decreases by $100 with each additional hire. Assuming that workers are paid $15 per hour and work eight hours, how many employees should Marie hire, and what will be the total revenue of her store?
She will hire four workers and the revenue of the store will be $1,400.
A business manages to become more efficient. As a result of this improved efficiency, it wil
Shift supply curve to the right
A large amount of harvested grain used to make flour grows mold due to flooding. How will this affect the supply of flour in the market?
Supply of flour will decrease in the market
Peanut butter and peanut oil are complements-in-production. When the price of peanut butter rises, the
Supply of peanut oil will rise
An individual demand curve is a graph:
That plots the quantity of an item that someone plans to buy, at each price
A new study discovers the health benefits of eating fish regularly. At the same time, some consumers decide to become vegetarians. What is the effect of these events on the equilibrium price and quantity in the fish market?
The change in both the equilibrium price and quantity is ambiguous.
If Tesla cars become less expensive, what will happen in the market for other electric cars?
The demand for other electric cars will fall
What happens to the equilibrium price and quantity when demand increases 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.
Which of the following is NOT a factor that can shift supply?
The market price of a product.
You eat M&Ms every day. When you go to the store to buy some, you find that M&Ms are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive?
The supply of cacao beans, used to produce chocolate, has fallen around the world
You're shopping online, and you place an item in your virtual cart. Two days later, you return to the virtual cart to check out and find that the item is now more expensive. Assuming that the market is competitive, what could explain the price increase?
There is a shortage of the item.
The current price of cupcakes is $4, but the equilibrium price in the market for cupcakes is $5. What will happen in this market?
There will be a shortage, but the price will gravitate up.
Why are supply curves typically upward-sloping?
They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services.
The price of coffee at a local coffee shop is $3. Cheryl is willing to pay $6 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase?
Two
It is a rainy day, and you are considering taking an Uber one mile to meet some friends. You have decided you are willing to pay $20 to avoid getting wet from the rain. The trip would normally cost you $8, but due to the weather the surcharge is triple the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost.
Walk; less
Juan McDonald is willing to pay $800 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $700. It costs Apple $400 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction
Will; both Juan and Apple
Suppose that you have a pumpkin stall at a farmer's market, and the Halloween season arrives. You know that your customers will want to buy many pumpkins to decorate their houses and make pumpkin pies. Which of the following is a likely result of this scenario?
You can charge a higher price per pumpkin
A normal good is:
a good for which higher income causes an increase in demand.
An inferior good is:
a good whose demand decreases when income rises.
For normal goods:
a tax cut on consumer income will lead to a rise in their demand.
Substitutes in production:
allows a business to have alternative uses of its resources by manufacturing other products using the same inputs.
Quantity demanded is on the horizontal axis when you plot a demand curve and shows the:
amount of a good that a person is willing to buy at each price.
(Figure: Graph) Refer to the graph to answer the question. The movement from point M to point N represents: (moving down the same line towards quantity in bottom right corner)
an increase in quantity demanded
Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal:
benefit of purchasing one more coffee equals the marginal cost.
Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal:
benefit of purchasing one more coffee equals the marginal cost.
The key to using the cost-benefit principle is to think about _____ aspects of a decision.
both financial and nonfinancial
In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction.
both the buyer and the seller
In competitive markets, who controls the equilibrium price (P*)?
combination of buyers and sellers - neither side "controls" the price
the cost benefit principle states that ____ are the incentives that shape decisions
cost and benefits
(Figure: Graph) Refer to the graph to answer the question. In the graph, the movement from point W to point P represents: (Switching lines downward)
decrease in demand
An equilibrium price is:
determined by the intersection of the demand and supply curves.
You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost.
go; greater
The difference between a centralized economy and a market economy is that
governments make production decisions in a centralized economy, and individuals make production decisions in a market economy
The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:
greater than or equal to the marginal cost.
The interdependence principal:
implies that buyers decisions are affected by many factors other than the price of an item.
The interdependence principle:
implies that buyers decisions are affected by many factors other than the price of an item.
The marginal principle says that decisions about quantities are best made
incrementally
The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.
interdependence
A rational buyer will:
keep buying a product until marginal benefit equals price.
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
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.
The __________ suggests, decisions about quantities are best made incrementally.
marginal principle
When you calculate marginal costs, they should include:
only variable costs
Decisions should reflect the _____ costs, rather than just the _____ costs.
opportunity; financial
If the price of jet fuel rises, the
supply of airline flights decreases.
(Figure: Shift in Supply 1) Use the figure to answer the question. A graph shows Quantity along the horizontal axis and Price along the vertical axis. A positive Old supply curve extends from the bottom-left to the top-right portion of the first quadrant. A positive New supply curve lies to the right of Old supply and extends from the bottom-left to the top-right portion of the first quadrant. Which of the following events would lead to a shift of the supply curve from Old supply to New supply?
technological advance in production techniques
Paint and paintbrushes are complements. If the price of paint rises, we can expect:
the demand for paintbrushes to decrease.
The law of demand refers to :
the inverse relationship between price and quantity demanded.
An individual supply curve is
the marginal cost curve.
A downward-sloping demand curve implies:
there is an inverse relationship between price and quantity demanded
Variable costs are the costs that
vary with the quantity of output produced
An equilibrium in a market occurs:
when quantity supplied equals quantity demanded
Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte?
$4
Which of the following are correct about fixed costs? (i) They do not change with the level of production in the short run. (ii) They include variable costs. (iii) They are present even when the firm is producing zero units. (iv) They are irrelevant to marginal cost.
I, III, IV
Rising input costs lead to
Rising marginal costs for a seller
How will the demand for Gucci shoes change today, if the government decides to tax designer shoes next year?
The demand for Gucci shoes will shift to the right today.
Recent evidence suggests exercise promotes longevity and reverses aging. Based on this information, what might happen in the market for exercise-related goods and services?
The demand for exercise machines and or gyms will increase
Paint and paintbrushes are complements. If the price of paint rises, we can expect:
The demand for paintbrushes to decrease
The cost-benefit principle states that the full set of _____ should be evaluated when making any choice
costs and benefits
A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate?
diminishing marginal product
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
As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will:
fall, due to a rise in supply.
Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?
opportunity cost principle
An equilibrium price is a price where the
quantity demanded equals the quantity supplied.
On a hot sweltering day, you feel thirsty and buy an ice-cold soft drink, which you gulp down. Whether you buy the second drink or not, will depend on
the marginal benefit from the second soft drink and if it will outweigh the price of the soft drink.
Dependencies between your own choices reflect the fact that:
you have limited resources.