Principles of Microeconomics Exam1 Review Questions Ch 1-4

b

An inferior good is a. a good whose demand increases when income rises. b. a good whose demand decreases when income rises. c. an item that is only bought by rich people. d. an item that is purchased by very few people.

a

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 a. not sell any milk. b. sell more milk than the other farmers. c. sell the same amount of milk as she did when she charged $0.15 per gallon. d. increase her profitability by $0.10 per gallon.

a

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

c

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? a. The demand for gyms will not change. b. People will reduce their purchases of exercise equipment. c. The demand for exercise machines and/or gyms will increase. d. The demand for exercise equipment will not be affected.

c

Rising input costs lead to a. decreased profitability for a seller. b. increased supply of the item in the market. c. rising marginal costs for a seller. d. lower opportunity costs of producing the item.

b

Taryn is buying shirts online and has to decide how many shirts to buy. She should buy another shirt if the a. marginal benefit of the next shirt is less than the price of the shirt. b. marginal benefit of the next shirt is at least as high as the price of the shirt. c. total benefit when purchasing one more shirt is less than the total cost of the shirts. d. total benefit when purchasing one more shirt is at least as high as the total cost of the shirts.

c

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. a. only (i) b. (i) and (ii) c. (i), (ii), and (iii) d. (ii) and (iv)

cost-benefit

consider the cost and benefits of a choice when evaluating a decision

a

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

a

A business manages to become more efficient. As a result of this improved efficiency, it will a. shift its supply curve to the right. b. reduce the quantity that it supplies to the market. c. shift its supply curve to the left. d. automatically charge higher prices for its product.

b

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? a. The supply of flour will increase in the market. b. The supply of flour will decrease in the market. c. The supply of flour will remain unchanged in the market. d. Suppliers of flour will switch to supplying grain.

d

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? a. The equilibrium price rises, and the equilibrium quantity falls. b. The equilibrium price falls, and the equilibrium quantity rises. c. The equilibrium price falls, and the change in the equilibrium quantity is ambiguous. d. The change in both the equilibrium price and quantity is ambiguous.

b

According to the cost-benefit principle, framing effects or how a choice is described, should a. affect a decision. b. not affect a decision. c. be considered costs. d. be considered benefits.

b

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? a. $10 b. $6 c. $4 d. $3

d

An equilibrium price is a price where the a. demand curve is identical to the supply curve. b. amount that buyers are willing to buy is equal to the amount that buyers are able to buy. c. quantity demanded no longer changes. d. quantity demanded equals the quantity supplied.

a

An individual supply curve is a. the marginal cost curve. b. the same as the total market supply curve. c. positively sloped because of technological advancement. d. lower than the marginal cost of producing an item.

b

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? a. Cost-benefit principle b. Opportunity cost principle c. Marginal principle d. Interdependence principle

a

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. a. less; $150 b. less; $170 c. greater; $150 d. greater; $170

c

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? a. $700 b. $600 c. $200 d. $100

a

For normal goods a. a tax cut on consumer income will lead to a rise in their demand. b. a tax cut on consumer income will lead to a fall in their demand. c. changes in consumer income do not affect their consumption. d. most consumers will choose to purchase the good regardless of income changes.

d

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are a. goods with a congestion-effect. b. goods with a network-effect. c. inferior goods. d. normal goods.

a

How will the demand for Gucci shoes change today, if the government decides to tax designer shoes next year? a. The demand for Gucci shoes will shift to the right today. b. There will be no impact on the demand for Gucci shoes today. c. People will stop buying Gucci shoes today. d. The demand for Gucci shoes will shift to the left today.

b

If Tesla cars become less expensive, what will happen in the market for other electric cars? a. The quantity demanded of Teslas will fall. b. The demand for other electric cars will fall. c. The demand for other electric cars will rise. d. The quantity demanded of Teslas will not change.

d

If a seller expects prices to rise in the future a. there will no change in the seller's actions today. b. the quantity supplied will increase today. c. the supply will increase today. d. it will stock up today and sell the goods when the price rises.

a

If the price of jet fuel rises, the a. supply of airline flights decreases. b. supply of jet fuel decreases. c. supply of jet fuel increases. d. quantity supplied of jet fuel falls.

c

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

e

In competitive markets, who controls the equilibrium price (P*)? a) buyers always control price b) buyers mostly control price c) sellers always control price d) sellers mostly control price e) combination of buyers and sellers - neither side "controls" the price

Marginal Principle

Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

d

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? a. $0 b. $5 c. $7 d. $12

a

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. a. walk; less b. walk; more c. take an Uber; less d. take an Uber; more

a

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

b

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. a. will; neither Juan nor Apple b. will; both Juan and Apple c. will not; only Juan d. will not; only Apple

b

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? a. She will hire three workers and the revenue of the store will be $1,200. b. She will hire four workers and the revenue of the store will be $1,400. c. She will hire five workers and the revenue of the store will be $1,400. d. She will hire six workers and the revenue of the store will be $1,500.

b

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? a. She will hire four workers and the revenue of the store will be $1,300. b. She will hire five workers and the revenue of the store will be $1,500. c. She will hire six workers and the revenue of the store will be $1,650. d. She will hire seven workers and the revenue of the store will be $1,750.

b

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 a. how you feel about soft drinks. b. the total amount of soft drinks that you have consumed that week. c. the price of the soft drink. d. the marginal benefit from the second soft drink and if it will outweigh the price of the soft drink.

d

Opportunity cost arises from the fundamental economic problem of a. interdependence. b. marginal costs. c. unlimited resources. d. scarcity.

b

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

b

Peanut butter and peanut oil are complements-in-production. When the price of peanut butter rises, the a. quantity supplied of peanut butter will fall. b. supply of peanut oil will rise. c. supply of peanut oil will fall. d. quantity supplied of peanut butter will remain unchanged.

c

Substitutes-in-production a. are always priced the same. b. use substitute inputs in production. c. allows a business to have alternative uses of its resources by manufacturing other products using the same inputs. d. allows a business to produce goods together.

c

Sunk costs are costs that a. are potential costs associated with a particular decision. b. are part of the opportunity costs of a decision. c. are incurred in the past and cannot be reversed. d. should be considered in any decision.

b

Sunk costs should ____ be considered as part of the opportunity costs of a decision. a. always b. never c. sometimes d. rarely

a

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

c

The cost-benefit principle states that the full set of _____ should be evaluated when making any choice. a. opportunity costs b. economic surpluses c. costs and benefits d. interdependencies

a

The current price of cupcakes is $4, but the equilibrium price in the market for cupcakes is $5. What will happen in this market? a) There will be a shortage, but the price will gravitate up. b) There will be a surplus, but the price will gravitate down. c) There will be a shortage, but the price will gravitate down. d) There will be a surplus, but the price will gravitate up.

b

The difference between a centralized economy and a market economy is that a. the centralized economy does not have any markets for goods and services, whereas a market economy has fully functioning markets. b. governments make production decisions in a centralized economy, and individuals make production decisions in a market economy. c. governments have maximum decision-making power in a centralized economy but have zero decision-making power in a market economy. d. individuals make production decisions in a centralized economy, and the government makes production decisions in a market economy.

c

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

c

The law of demand refers to a. the positive relationship between price and quantity supplied. b. the inverse relationship between price and quantity supplied. c. the inverse relationship between price and quantity demanded. d. the positive relationship between price and quantity demanded.

a

The marginal principle says that decisions about quantities are best made a. incrementally. b. arbitrarily. c. all at once. d. in total.

b

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? a. One b. Two c. Three d. Four

c

The relationship between price expectations and demand is a. negative; when future prices are expected to rise, current demand will fall. b. negative; when future prices are expected to fall, current demand will rise. c. positive; when future prices are expected to rise, current demand will rise. d. positive; future prices are generally expected to rise.

b and d

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? a. The equilibrium price rises, and the equilibrium quantity falls. b. Both the equilibrium price and the equilibrium quantity fall. c. The equilibrium price falls, and the equilibrium quantity rises. d. Both the equilibrium price and the equilibrium quantity fall.

c

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? a. The equilibrium price rises, and the equilibrium quantity falls. b. Both the equilibrium price and quantity will rise. c. The equilibrium price falls, and the equilibrium quantity rises. d. Both the equilibrium price and quantity will fall.

c

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

e

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. e) All of the above are true.

d

When plotting a demand curve, a. quantity demanded is on the vertical axis. b. price is on the horizontal axis. c. quantity supplied is on the vertical axis. d. quantity demanded is on the horizontal axis.

b

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

d

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. a. go; greater b. go; less c. not go; greater d. not go; less

b

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? a. $125 b. $75 c. $65 d. $50

c

_____ is a measure of how much your decision has _____ your well-being. a. Willingness to pay; improved b. Willingness to pay; reduced c. Economic surplus; increased d. Economic surplus; decreased

Interdependence

other things that can affect my decision

Quantity supplied (Qs)

the amount of a good that a seller is willing to sell at each price

Economic surplus

total benefits - total costs

opportunity cost

whatever must be given up to make a choice