Microeconomics TH1

Assume that the demand curve for oranges is downward-sloping and the supply curve for oranges is upward-sloping. If the government imposes an excise tax of 10¢ per orange, then the total price (including the tax) that demanders must pay for an orange

rises by less than 10¢ per orange.

A doubling of all prices has the same effect on the budget line as reducing income by half.

true

A farmer has a comparative advantage at growing wheat if his cost of growing wheat is less than the cost of another farmer growing wheat.

true

If each person specializes in his area of comparative advantage and then trades for the goods he wants to have, everyone will be made better off.

true

If marginal value is constant, then the consumer's indifference curves are straight lines.

true

If the marginal value of beef is $8 per pound, then the consumer is willing to pay at most $8 for an additional pound of beef.

true

The consumer's income has no effect of the slope of the consumer's budget line.

true

The equilibrium price of a good will rise in response to either a rise in demand or a fall in supply.

true

To an economist, a cost is a forgone opportunity.

true

When the law of supply holds, an increase in the price of a product will cause producers to increase the quantity they wish to sell.

true

Suppose there are only two goods: guns and roses. In Los Angeles, the absolute price of roses is 50 dollars per dozen. If the relative price of roses in terms of guns is 1 guns per dozen roses, then the absolute price of guns is

50 dollars per gun

Demand for a product is given by Q = 200 - P and supply is given by Q = 0.5P - 10. If the quantity demanded rises by 10 units at every possible price, then the equilibrium quantity will be

60 units

Kelly has received a $50 check from her Grandparents to help with her expenses at college. She has narrowed her choices of how to spend the money to three: a new backpack, a dinner out with a friend, a fleece vest. Of these she likes the vest best and the backpack least. What is her cost of buying the fleece vest?

A dinner out with a friend.

For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. Refer to Goods X and Y. Which of the following can cause a parallel, outward shift in the budget line?

A rise in the consumer's income.

Suppose there are only two goods: food and clothing. What does it mean for the U.S. to have a comparative advantage in food production?

The U.S. sacrifices less clothing production to grow a given amount of food than do other nations.

Assume toys are produced using only labor and wood. Which of the following best describes the cost of producing toys?

The alternative uses that could be found for the labor and wood.

If both demand and supply rise, which of the following must be true?

The change in the equilibrium price is indeterminate

If demand rises and supply falls, which of the following must be true

The change in the equilibrium quantity is indeterminate.

New safety regulations increase manufacturers' costs of producing insulation. What happens in the market for insulation?

The supply falls, resulting in a higher equilibrium price and lower equilibrium quantity.

Suppose there are only two goods: lettuce and grapes. In California, a head of lettuce sells for 50¢ and a bunch of grapes sells for $1. In Nebraska, 25¢ must be added to these absolute prices to cover transportation costs. How do these transportation costs affect the relative prices of lettuce and grapes?

The transportation costs raise the relative price of lettuce but lower the relative price of grapes.

If all absolute prices increase by 10%, then the economy's relative prices will remain unchanged.

True

When suppliers are not satisfied, they lower their prices to attract more demanders.

True

For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. Refer to Goods X and Y. Suppose the consumer is spending all of his income buying some of both goods. If the marginal value of X is greater than the relative price of X, how can the consumer improve his level of satisfaction?

By purchasing more of good X and less of good Y.

An increase in the price of wheat will cause a rise in the supply of wheat.

False

As defined by economists, the supply of corn refers to the number of bushels of corn that farmers bring to the market.

False

Which of the following is the most likely to cause the price of air travel to rise?

Higher airplane fuel costs.

Which of the following could decrease the equilibrium price but increase the equilibrium quantity of apples?

Many new apple orchards are planted

The absolute price of a commodity is the amount of

currency needed to purchase one unit of the commodity

If the wages of loggers went up, the supply of logs would:

fall, shifting to the left

A farmer has a comparative advantage at growing wheat if his cost of growing wheat is smaller than his cost of growing any other crop.

false

Along a convex indifference curve, the marginal value of a good rises as the quantity of the good rises.

false

An increase in the price of gasoline would shift the demand curve for gasoline to the left.

false

If the consumer's income doubles, then his optimal purchases of all goods will double.

false

Relative prices cannot fall when absolute prices are rising.

false

For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. Refer to Goods X and Y. How would a budget line be affected if income and both prices all simultaneously doubled?

it would not be affected

A fall in supply is illustrated by

shifting the supply curve to the left

For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. Refer to Goods X and Y. If the marginal rate of good X in terms of good Y is large, then the indifference curve will be

steep

Suppose we observe that the price of gasoline has been rising, even though the quantity of gasoline sold has been falling. We can conclude that

the supply of gasoline must have fallen.

To be as well off as possible, a nation should produce

whatever good it can produce at a cost lower than that incurred by other nations

If inflation causes the absolute prices of all commodities to double, then the relative prices

will be unchanges

If the price and quantity exchanged of a good simultaneously rise, then the law of demand has been violated.

false

The supply curve for a commodity will shift to the right when the costs of production rise.

false

Which of the following would shift the supply curve for coffee to the right?

An innovation in agricultural techniques that allows growers to produce coffee less expensively.

The price of wine has risen from $7 to $9 per bottle and the price of cheese has fallen from $6 to $5 per pound, while Anne's income has stayed fixed at $46 per week. Since the price changes, Anne has been buying 4 bottles of wine and 2 pounds of cheese per week. We can conclude that

Anne is worse off after the price changes.

If demand rises and supply falls, which of the following must be true?

The equilibrium price will rise.

If both demand and supply rise, which of the following must be true?

The equilibrium quantity will rise

The difference between an absolute price and a relative price is that:

absolute prices are in terms of currency, relative prices are in terms of another good.

The absolute price of beef in Japan is $10.00 per pound and the absolute price of tuna is $5.00 per pound then the relative price of tuna in terms of beef is

one-half

The prices typically studied in microeconomics are

relative prices

The observation that consumer purchases of pecans decline as the price rises reflects:

the law of demand

For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. Refer to Goods X and Y. The relative price of good X in terms of good Y is always equal to

the magnitude of the slope of the budget line

A simultaneous increase in both the demand for computers and the supply of computers must increase

the number of computers bought and sold.

If the demand curve for gasoline is relatively steep, then

the price of gasoline has relatively little effect on drivers' decision to buy gasoline.

At the equilibrium point of a market,

the quantities supplied and demanded are equal.