Microeconomics Exam 1

*Homework*(Figure: Graph) Refer to the graph to answer the question. The movement from point M to point N represents: an increase in quantity demanded. a decrease in demand. an increase in demand. a decrease in quantity demanded.

An increase in quantity demanded

Graphically, shortages will always occur: when the quantity supplied exceeds the quantity demanded. at prices above the equilibrium price. at the equilibrium price. at prices below the equilibrium price.

At prices below the equilibrium price

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: cost of purchasing one more coffee is positive. benefit of purchasing one more coffee is positive. benefit of purchasing one more coffee equals the marginal cost. benefit of purchasing one more coffee is less than the marginal cost.

Benefit of purchasing one more coffee equals the marginal cost.

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 The opportunity cost principle The cost-benefit principle The marginal principle

Diminishing marginal product

*Homework*(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 Graph B Graph D Graph C

Graph B

Variable costs are the costs that stay fixed with the quantity of output produced. are independent of the amount of output produced. vary with the quantity of output produced. are incurred to build factories and assembly plants.

Vary with the quantity of output produced

Dependencies between your own choices reflect the fact that: resources are spread across varying markets. resources can be spread across time. you have limited resources. society has limited resources.

You have limited resources

*Homework*Use the table to answer the question.What is the equilibrium price in this market? $3 $9 $7 $11

$9

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. only (i) (i), (ii), and (iii) (ii) and (iv) (i) and (ii)

(i), (ii), and (iii)

The cost-benefit principle states that _____ are the incentives that shape decisions. incomes framing effects opportunity costs costs and benefits

Costs and benefits

*Homework*(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 A Graph B Graph C Graph D

Graph C

Which of the following is NOT a factor that can shift supply? The market price of a product. The price of a substitute-in-production. The expected future price of a product. The price of a complement-in-production.

The market price of a product

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it? The interdependence principle. The cost-benefit principle. The marginal principle The opportunity cost principle.

The opportunity cost principle

*Homework*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 125 cans 45 cans 99 cans

148 cans

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? $1 $6 $2 $4

4

Paint and paintbrushes are complements. If the price of paint rises, we can expect: the quantity demanded of paint to increase. the demand for paintbrushes to decrease. the demand for paintbrushes to increase. the quantity demanded of paintbrushes to remain unchanged.

The demand for paintbrushes to decrease.

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? A new study finds that the benefits of eating chocolate are not as great as previously thought. The supply of cacao beans, used to produce chocolate, has fallen around the world. Consumers are now purchasing fewer M&Ms compared to other types of chocolates. A new robot has been installed at the Mars chocolate company that reduces the time needed to produce M&Ms by half.

The supply of cacao beans, used to produce chocolate, has fallen around the world

*Homework*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? 14 million gallons per week 30 million gallons per week 20 million gallons per week 42 million gallons per week

20 million gallons per week

*Homework*Use the table to answer the question.What is the equilibrium quantity in this market? 100 units 240 units 330 units 300 units

300 units

*Homework*(Figure: Graph) Refer to the graph to answer the question. In the graph, the movement from point W to point P represents: an increase in quantity demanded. a decrease in demand. an increase in quantity demanded. an increase in demand.

A decrease in demand

A normal good is: a good for which higher income causes a decrease in demand. a good for which higher income causes an increase in demand. a good which is only purchased by high-income consumers. a good which is normally purchased by many consumers.

A good for which higher income causes an increase in demand.

Which of the following lists only the factors that would cause a decrease in the supply of an item? A fall in input prices; an increase in productivity; a fall in the price of a substitute-in-production. 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. A decrease in the number of sellers in the market; a fall in the price of a complement-in-production; an increase in productivity. A rise in the price of a substitute-in-production; a rise in the price of a complement-in-production; an expectation that the price of the item will rise in the future.

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

Quantity demanded is on the horizontal axis when you plot a demand curve and shows the: amount where opportunity cost is equal to the marginal benefit. amount of a good that a seller is willing to sell at a particular price. amount of a good that a person is willing to buy at each price. amount of a good that a person actually buys at the market price.

Amount of a good that a person is willing to buy at each price

The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is: less than the marginal cost. greater than or equal to the marginal cost. greater than or equal to the marginal benefit. less than the marginal benefit.

Greater than or equal to the marginal cost

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 greater than greater than or less than less than

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: rise, due to a fall in supply. rise, due to a rise in demand. fall, due to a rise in supply. fall, due to a fall in demand.

Fall, due to a rise in supply

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; less go; greater not go; less not go; greater

Go; greater

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. marginal cost-benefit opportunity cost interdependence

Interdependence

A shortage occurs when: when there is insufficient demand. quantity supplied exceeds quantity demanded. there is excess production. quantity demanded exceeds quantity supplied.

Quantity demanded exceeds quantity supplied

*Homework*(Figure: Shift in Supply 1) Use the figure to answer the question. 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 a decrease in the size of the market a natural disaster that causes a shutdown of production increased taxation of raw materials used by producers

Technological advance in production techniques

An individual demand curve is a graph: that plots the quantity of an item that someone plans to buy, at each price. that plots the quantity of an item that someone plans to buy, at one single price point. that plots the market price of a product at different points in time. that plots the quantity of an item that a seller plans to sell, at each price.

That plots the quantity of an item that someone plans to buy, at each price

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

Keep buying a product until marginal benefit equals price.

*Homework*The accompanying table provides data for five different oatmeal cookie sellers. Out of the sellers listed, who all are following the law of supply? Ken and Ben Len, Ren, and Jen Ren only Len, Ken, Ren, and Ben

Len, Ren, and Jen

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. greater; $150 less; $75 less; $150 greater; $75

Less; 150

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), (ii), (iii), and (iv) (ii) and (iv) (i), (ii), and (iii) (i), (iii), and (iv)

(i), (iii), and (iv)

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. perfect competition. a shortage. a centrally planned market.

A market in action

Which of the following scenarios depicts a seller who is following the Rational Rule for Sellers? Mindy sets up a lemonade stand and calculates the cost of an additional cup of lemonade at 50 cents, and sells it for 25 cents. An auto-rickshaw driver in New Delhi, India, calculates a trip to have a marginal cost of 350 rupees and accepts a ride request for 315 rupees. American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250. Andy's Diner finds that the marginal cost of a fish and chips meal is $7 and lists the item for sale at $6.50.

American Airlines determines the marginal cost of an extra passenger to be $75 and sells a discount seat for $250

The key to using the cost-benefit principle is to think about _____ aspects of a decision. only nonfinancial both financial and nonfinancial neither financial nor nonfinancial only financial

Both financial and nonfinancial

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction. only the seller neither the buyer nor the seller both the buyer and the seller only the buyer

Both the buyer and the seller.

An equilibrium price is: the price that occurs when there is a surplus. determined by the intersection of the demand and supply curves. the price that prevails when quantity supplied is less than quantity demanded. the price that prevails when there is a shortage.

Determined by the intersection of the demand and supply curves

*Homework*(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 B Graph D Graph A Graph C

Graph A

*Homework*(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 C Graph A Graph D Graph B

Graph D

*Homework*(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 B Graph D Graph C Graph A

Graph D

When there is a shortage of highly skilled workers in a particular region: the incomes of highly skilled workers fall. unemployment rises among highly skilled workers. there is a corresponding surplus of low-skilled workers in the region. highly skilled workers can negotiate higher salaries.

Higher skilled workers can negotiate higher salaries

The interdependence principle: implies that consumers depend on each other to make purchase decisions in the market. implies that buyers decisions are affected by many factors other than the price of an item. is the same as the cost-benefit principle. refers to the marginal benefit of consuming additional units of an item.

Implies that buyers decisions are affected by many factors other than the price of an item

Diminishing marginal benefit: is when buying an additional item yields a larger marginal benefit than the previous item. is when buying an additional item yields a smaller marginal benefit than the previous item. is when consumers do not follow the rational rule. is not important in determining a consumer's purchase decision.

Is when buying an additional item yields a smaller marginal benefit than the previous item

What is quantity supplied? It is a graph that plots the quantities of an item that a seller plans to sell at different prices. It is the amount of an item that a seller is willing to sell at a particular price. It is the amount of an item that a buyer is willing to buy at a particular price. It is a graph that plots how much a seller produces at different points in time.

It is the amount of the an item that a seller is willing to sell at a particular price

How is the economic surplus generated by a decision calculated? It is the total benefits minus total costs arising from the decision. It is the total benefits plus total costs arising from the decision. It is the sum of benefits arising from the decision. It is the sum of costs arising from the decision.

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. A research company finds that the more expensive a particular brand of a designer handbag, the more that consumers are willing to purchase the brand. John likes to drink spring water. At $2 he buys four bottles of water, and at $1.50 he still buys four bottles of water. Francis does not care about the price of coffee at the coffee shop - he must buy two cappuccinos every day, regardless of the price.

Kathleen eats more steak when the price is low, and less when the price is high

The __________ suggests, decisions about quantities are best made incrementally. interdependence principle cost-benefit principle marginal principle opportunity cost principle

Marginal principle

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you: take the individual supply of one supplier. take one-tenth of the individual supply of each supplier and add it up. multiply the individual supply of one of the suppliers by ten. find the average quantity produced by the ten suppliers.

Multiply the individual supply of one of the suppliers by ten

When you calculate marginal costs, they should include: both the variable and fixed costs. only variable costs. the market price of the product. only fixed costs.

Only variable costs

Decisions should reflect the _____ costs, rather than just the _____ costs. opportunity; nonfinancial nonfinancial; financial opportunity; financial financial; marginal

Opportunity; financial

The opportunity costs of attending college include the: cost of room and board. effort and hard work. cost of clothes to wear at school. potential income that could be earned working.

Potential income that could be earned working.

Graphically, the equilibrium quantity can be identified as the: maximum quantity that buyers are willing to buy. quantity corresponding to the intersection of the demand curve and the price axis. quantity corresponding to the intersection of the demand and supply curves. maximum quantity that sellers are willing to sell.

Quantity corresponding to the intersection of the demand and supply curves

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. There is a surplus of the item. New sellers are offering the same product. There is decreased demand for the item.

There is a shortage of the item

A downward-sloping demand curve implies: there is no relationship between price and quantity demanded. there is a positive relationship between price and quantity demanded. buyers are willing to buy less when prices are lower. there is an inverse relationship between price and quantity demanded.

There is an inverse relationship between price and quantity demanded.

Why are supply curves typically upward-sloping? They slope upward due to the law of demand. They slope upward because sellers demand more when prices are lower. They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services. They slope upward because sellers prefer to sell more when prices are lower.

They slope upward because higher prices lead individual businesses to supply larger quantity and more businesses are willing to supply goods and services

An equilibrium in a market occurs: at the halfway point on the price axis. when the quantity supplied equals the quantity demanded. at the halfway point on a demand curve. when suppliers have sold all the goods and services that they have produced.

When the quantity supplied equals the quantity demanded

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. You will take fewer pumpkins to the market to sell. You will wind up with many unsold pumpkins. You will be able to sell only the highest-quality pumpkins.

You can charge a higher price per pumpkin