Microeconomics Exam # 1

Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03. These elasticities mean that beer and spirits are ________, and spirits and wine are ________. Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03. These elasticities mean that beer and spirits are ________, and spirits and wine are ________. A) complements; luxuries B) normal goods; luxuries C) complements; substitutes D) substitutes; luxuries

A) complements; luxuries

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? (a) Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. (b) Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. (c) Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. (d) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

(a) Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

Suppose buyers of computers and printers regard those two goods as complements. Then an increase in the price of computers will cause (a) a decrease in the demand for printers and a decrease in the quantity supplied of printers. (b) a decrease in the supply of printers and a decrease in the quantity demanded of printers. (c) a decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers. (d) an increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers.

(a) a decrease in the demand for printers and a decrease in the quantity supplied of printers.

When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good (a) increases as more of the good is produced. (b)decreases as more of the good is produced. (c) does not change as more of the good is produced. (d) may increase, decrease, or not change as more of the good is produced.

(a) increases as more of the good is produced.

Price: $10, Quantity: 100 Price: $20, Quantity: ? (a) 0. (b) 50. (c) 100. (b) 150.

(b) 150.

A 10 percent increase in gasoline prices reduces gasoline consumption by about (a) 6 percent after one year and 2.5 percent after five years. (b) 2.5 percent after one year and 6 percent after five years. (c) 10 percent after one year and 20 percent after five years. (d) 0 percent after one year and 1 percent after five years.

(b) 2.5 percent after one year and 6 percent after five years.

Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity cost of 1 bushel of green beans is (a) 3/5 bushel of corn. (b) 5/3 bushels of corn. (c) 3 bushels of corn. (d) 5 bushels of corn.

(b) 5/3 bushels of corn.

Which of the following changes would not shift the supply curve for a good or service? (a) A change in technology (b) A change in the price of good or service. (c) A change in expectations about the future price of the good or service. (d) A change in input prices.

(b) A change in the price of good or service.

A leftward shift of a supply curve is called (a) An increase in supply (b) A decrease in supply (c) A decrease in quantity supplied (d) An increase in quantity supplied

(b) A decrease in supply

Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good? (a) Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. (b) Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. (c) Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. (d) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

(b) Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

A decrease in quantity demanded (a) Results in a movement downward and to the right along a fixed demand curve. (b) Results in a movement upward and to the left along a fixed demand curve. (c) Shifts the demand curve to the left. (d) Shifts the demand curve to the right.

(b) Results in a movement upward and to the left along a fixed demand curve.

In economics, capital refers to (a) the finances necessary for firms to produce their products. (b) buildings and machines used in the production process. (c) the money households use to purchase firms' output. (d) stocks and bonds.

(b) buildings and machines used in the production process.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because (a) buyers tend to be much less sensitive to a change in price when given more time to react. (b) buyers tend to be much more sensitive to a change in price when given more time to react. (c) buyers will have substantially more real income over a ten-year period. (d) the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

(b) buyers tend to be much more sensitive to a change in price when given more time to react.

At the equilibrium price, the quantity of the good that buyers are willing and able to buy (a) is greater than the quantity that sellers are willing and able to sell (b) exactly equals the quantity that sellers are willing and able to sell. (c) is less than the quantity that sellers are willing and able to sell. (d) (a) and (c) could both be correct.

(b) exactly equals the quantity that sellers are willing and able to sell.

Economists are particularly adept at understanding that people respond to (a) laws. (b) incentives. (c) punishments more than rewards. (d) rewards more than punishments.

(b) incentives.

A dress manufacturer recently has come to expect higher prices for dresses in the near future. We would expect (a)the dress manufacturer to supply more dresses now than it was supplying previously (b) the dress manufacturer to supply fewer dresses now than it was supplying previously. (c) the demand for this manufacturer's dresses to fall. (d) no change in the dress manufacturer's current supply; instead, future supply will be affected.

(b) the dress manufacturer to supply fewer dresses now than it was supplying previously.

The opportunity cost of going to college is (a) the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses. (b) the value of the best opportunity a student gives up to attend college. (c) zero for students who are fortunate enough to have all of their college expenses paid by someone else. (d) zero, since a college education will allow a student to earn a larger income after graduation.

(b) the value of the best opportunity a student gives up to attend college.

A production possibilities frontier can shift outward if (a) government increases the amount of money in the economy. (b) there is a technological improvement. (c) resources are shifted from the production of one good to the production of the other good. (d) the economy abandons inefficient production methods in favor of efficient production methods.

(b) there is a technological improvement.

An advance in production technology will (a) Increase a firm's costs and increase its supply. (b) Increase a firm's costs and decrease its supply. (c) Decrease a firm's cost and increase its supply. (d) Decrease a firm's costs and decrease its supply.

(c) Decrease a firm's cost and increase its supply.

Holding all other things constant, a higher price for ski lift tickets would (a) Increase the number of skiers (b) Increase the price of skis (c) Decrease the number of skis sold (d) Decrease the demand for other winter recreational activities

(c) Decrease the number of skis sold

A higher price for bagels would result in a(n) (a) Increase in the demand for bagels (b) Decrease in the demand for bagels (c) Increase in the demand for muffins (d) Decrease in the demand for muffins

(c) Increase in the demand for muffins

An increase in the number of college scholarships issued by private foundations would (a) Increase the supply of education (b) Decrease the supply of education (c) Increase the demand for education (d) Decrease the demand for education

(c) Increase the demand for education

You lose your job, and as a result, you buy fewer romance novels. This shows that you consider romance novels to be a(n) (a) Luxury good (b) Inferior good (c) Normal good (d) Complementary good

(c) Normal good

If buyers today become more willing and able than before to purchase larger quantities of Vanilla Coke at each price of Vanilla Coke, then (a) We will observe a movement downward and to the right along the demand curve for Vanilla Coke. (b) We will observe a movement upward and to the left along the demand curve for Vanilla Coke (c) The demand for Vanilla Coke will shift to the right (d) The demand for Vanilla Coke will shift to the left

(c) The demand for Vanilla Coke will shift to the right

In a market economy, who makes the decisions that guide most economic activity? (a) firms only (b) households only (c) firms and households (d) government

(c) firms and households

The basic principles of economics suggest that (a) markets are seldom, if ever, a good way to organize economic activity. (b) government should become involved in markets when trade between countries is involved (c) government should become involved in markets when those markets fail to produce efficient or fair outcomes. (d) All of the above are correct.

(c) government should become involved in markets when those markets fail to produce efficient or fair outcomes.

Absolute advantage is found by comparing different producers' (a) opportunity costs. (b) payments to land, labor, and capital. (c) input requirements per unit of output. (d) locational and logistical circumstances.

(c) input requirements per unit of output.

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth (a) is more efficient and more equal for society. (b) is more efficient but less equal for society. (c) is more equal but less efficient for society. (d) is less equal and less efficient for society.

(c) is more equal but less efficient for society.

The local pizza restaurant makes such great bread sticks that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, he should (a) lower the price of the bread sticks. (b) leave the price of the bread sticks alone. (c) raise the price of the bread sticks. (d) reduce costs.

(c) raise the price of the bread sticks.

A shortage exists in a market if (a) there is an excess supply of the good. (b) the situation is such that the law of supply and demand would predict a decrease in the price of the good from its current level. (c) the current price is below its equilibrium price. (d) quantity supplied exceeds quantity demanded.

(c) the current price is below its equilibrium price.

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, (a) the price elasticity of demand for good A is 1.50, and an increase in price will result in an increase in total revenue for good A. (b) the price elasticity of demand for good A is 1.50, and an increase in price will result in a decrease in total revenue for good A. (c) the price elasticity of demand for good A is 0.67, and an increase in price will result in an increase in total revenue for good A. (d) the price elasticity of demand for good A is 0.67, and an increase in price will result in a decrease in total revenue for good A.

(c) the price elasticity of demand for good A is 0.67, and an increase in price will result in an increase in total revenue for good A.

A decrease in demand is represented by: (a) A movement downward and to the right along a demand curve. (b) A movement upward and to the left along a demand curve. (c) A rightward shift of a demand curve. (d) A leftward shift of a demand curve.

(d) A leftward shift of a demand curve.

In a certain economy, brooms and radios are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more brooms and more radios, relative to the quantities of those goods that are being produced now? (a) The economy experiences economic growth. (b) There is a technological advance in the broom industry, but the radio industry experiences no such advance. (c) There is a technological advance in the radio industry, but the broom industry experiences no such advance. (d) All of the above are correct.

(d) All of the above are correct.

A competitive market is a market in which: (a) An auctioneer helps set prices and arrange sales. (b) There are only a few sellers. (c) The forces of supply & demand do not apply. (d) No individual buyer or seller has any significant impact on the market price.

(d) No individual buyer or seller has any significant impact on the market price.

Holding all other factors constant and using the midpoint method, if a pencil manufacturer increases production by 20 percent when the market price of pencils increases from $0.50 to $0.60, then supply is (a) inelastic, since the price elasticity of supply is equal to .91. (b) inelastic, since the price elasticity of supply is equal to 1.1. (c) elastic, since the price elasticity of supply is equal to 0.91. (d) elastic, since the price elasticity of supply is equal to 1.1.

(d) elastic, since the price elasticity of supply is equal to 1.1.

People are likely to respond to a policy change (a) only if they think the policy is a good one. (b) only if the policy change changes the costs of their behavior. (c) only if the policy change changes the benefits of their behavior. (d) if the policy changes either the costs or benefits of their behavior.

(d) if the policy changes either the costs or benefits of their behavior.

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if (a) the supply of wheat is elastic. (b) the supply of wheat is inelastic. (c) the demand for wheat is inelastic. (d) the demand for wheat is elastic.

(d) the demand for wheat is elastic.