TEST 1 STUDY Questions
12.The UT bookstore decides to raise the price of "Bevo" t-shirts from $20 to $25. Sales of t-shirts decrease from 600 (last year) to 400(this year). Determine whether demand is elastic or inelastic.
$20 x 600 = $12000$25 x 400 = $10000 Since P increased and TR fell, demand is elastic.
24. Match the statements on the left with the correct answer on the right by drawing a line between them: Match these A. The price decreases B. The price of a complement falls C. A firm receives a subsidy D. The cost of labor rises With These 1. The supply curve shifts in 2. Slide along the demand curve 3. The demand curve shifts out 4.The supply curve shifts out
A --> 2 B--> 3 C --> 4 D --> 1
11. Which of the following is most likely to increase the equilibrium price charged and increase the equilibrium quantity of customers at Dunkin Donuts? A)An increase in prices at Starbucks, a competitor one block away. B)A new technology that makes it cheaper to mass-produce donuts. C)An increase in the rent paid by Dunkin Donuts. D)Starbucks decides to renovate, expand and offer a better experience at lower prices.
A) An increase in prices at Starbucks, a competitor one block away.
3. Cars and bicycles are substitutes. Which of the following is most likely to cause an increase in demand for bicycles(shift the curve to the right)? A)An increase in the price of cars. B)A decrease in the cost of the frames used in making bicycles. C)A decrease in the cost of the brakes used in making bicycles. D)A decrease in the price of bicycles.
A) An increase in the price of cars.
23. In the supply and demand model which of the following is an endogenous factor? A) Quantity B) The price of related goods C) Income D) Technology
A) Quantity
3.Choose the most INELASTIC good. A) The airplane ticket you buy to attend your grandmother's funeral B) a brand new SUV you are thinking of purchasing C) the new stereo system you buy for your car D) a vacation you are planning a year in advance.
A) The airplane ticket you buy to attend your grandmother's funeral
27. If the U.S. government enacts a new tariff (a tax) on the tortillas imported from Mexico, what will happen to the price of tortillas made in the United States? A) The price of tortillas made in the U.S. will rise. B) The price of tortillas made in the U.S. will fall. C) The price of tortillas made in the U.S. will not change. D) The price of tortillas made in the U.S. will fall if the economy is in a recession but rise if the economy is in an expansion
A) The price of tortillas made in the U.S. will rise.
21. Due to new regulations an oil company is forced to meet stricter refining standards, how will these regulations change the market price and quantity? A) The price will rise and the quantity will fall. B) The price will fall and the quantity will rise. C) The price and quantity will both rise. D) The price and quantity will both fall.
A) The price will rise and the quantity will fall.
7. The latest attendance figures at a theme park reveal that visitor numbers increased at the same time as the average ticket price went up. How could this have possibly happened? A) There was an increase in demand and no change in supply. B) There was a decrease in demand and an increase in supply. C) There was no change in demand and an increase in supply. D) There was a decrease in demand and no change in supply. E) This violates the law of demand. The number of visitors should fall when ticket prices rise.
A) There was an increase in demand and no change in supply.
4. If the price of popcorn increases, what would you expect would happen to the market for popcorn? A) There would be an upward movement along the demand curve. B) There would be a downward movement along the demand curve. C) The demand curve would shift to the left. D) The demand curve would shift to the right.
A) There would be an upward movement along the demand curve.
14. Which of the following scenarios would result in consumers having a more inelastic demand for the product described? A) You are on vacation and your car breaks down. B) You are considering buying new furniture for your apartment. C) You are shopping for some jewelry to purchase for a loved one this coming Christmas. D) You want to buy a new home.
A) You are on vacation and your car breaks down.
2.Once-in-a-lifetime experiences have: A) inelastic demand. B) elastic demand. C) elastic demand for poor people, but inelastic demand if you are wealthy. D) inelastic demand for wealthy people, but elastic demand if you are poor.
A) inelastic demand.
26. Answer the following questions about a market that is perfectly competitive: A)If the price is above the equilibrium price, would there be a shortage or a surplus? B)What will happen if the price is below the equilibrium price? C)During a shortage, how does the market respond until it once again reaches equilibrium?
A)If the price is above the equilibrium price there would be a surplus, because at prices above the equilibrium price there is more quantity supplied than demanded. B)If the price is below the equilibrium price there would be a shortage, because at prices below the equilibrium price there is more quantity demanded than supplied. C)A shortage in the market means that more quantity is demanded than is being supplied. This causes upward pressure on price because there are consumers who are willing to pay a higher price. To meet this demand, additional firms that are willing to supply the good at a higher price will enter the market. This cycle will continue until the equilibrium price is reached.
6. A car insurance company is willing to offer accident-free drivers a discount. This is an example of A)a positive incentive. B)a negative incentive. C)an opportunity cost D)a comparative advantage.
A)a positive incentive.
5.If the demand curve for a product is horizontal, then A)demand is perfectly elastic. B)consumers are not responsive to price changes. C)its price elasticity of demand is equal to 0. D)consumers will buy a specific amount no matter what the price.
A)demand is perfectly elastic.
5. If society decreases its savings rate, the current production possibilities curve will A)remain the same. B)shift out, more than in the past. C)shift out during expansions, and in during contractions. D)shift in
A)remain the same.
14. Deltra was willing to purchase a dozen cookies for $60that Deirdre was willing to sell for anything more than $32. If they agreed on a price of $36, how much total value was created in this exchange?
ANSWER: In this example, Deltra is better off by $24 ($60 -$36) and Deirdre is better off by $4($36-$32), so the total value created to Deltra and Deirdre sums to $28.
7. Whataburger decides to raise the price of their Green Chile Double sandwich from $3 to $4. The company sees that sales of the sandwich decrease from 2000 to 1500 per month. Calculate the price elasticity of demand.
Answer: -1
19. On the following graph show (either by drawing an arrow along the existing supply curve or drawing a new supply curve) how an increase in the price of gasoline affects the current supply of boots.
Answer: An increase price of gasoline (an input used to deliver boots to market) shifts the supply curve to the left (inward).
18. Use the following information to answer the questions below .Suppose that Oscar and Felix are roommates, and they want to find a way to divide up household chores—cooking meals and doing laundry. It takes Oscar 45 minutes to make a meal and 90 minutes to do a load of laundry. It takes Felix 60 minutes to make a meal and 60 minutes to do a load of laundry. (a) Who has the absolute advantage in making meals?
Answer: Because Oscar takes less time to make a meal than Felix (45 minutes vs. 60 minutesterm-35), Oscar has the absolute advantage in making meals.
18. Use the following information to answer the questions below. Suppose that Oscar and Felix are roommates, and they want to find a way to divide up household chores—cooking meals and doing laundry. It takes Oscar 45 minutes to make a meal and 90 minutes to do a load of laundry. It takes Felix 60 minutes to make a meal and 60 minutes to do a load of laundry. (d) If Oscar and Felix want to specialize, Oscar should_________ and Felix should ________.
Answer: Each roommate should specialize in the good for which he has the lowest opportunity cost. Felix should do the laundry because he would give up making only one meal, but Oscar would give up two meals. Because Felix does the laundry, Oscar should cook the meals.
18. Suppose the U.S. government introduces a new anti-drug policy that 1) imposes stiffer penalties on individuals who sell and manufacture drugs in the United States and 2) stems the flow of illegal drugs from other countries into the United States. b. Under what conditions will this new policy reduce total expenditures on drugs?
Answer: In order for this policy to reduce total expenditures, the elasticity of demand must be less than -1.
What is the best description of the demand for tennis balls, given that the quantity demanded of tennis balls drops by 72% when incomes increase by 48%?
Answer: Inferior goods see their quantity demanded increase as incomes decrease and the quantity demanded decrease as incomes increase. The negative value of the income elasticity of demand points to this negative relationship.
18. Suppose the U.S. government introduces a new anti-drug policy that 1) imposes stiffer penalties on individuals who sell and manufacture drugs in the United States and 2) stems the flow of illegal drugs from other countries into the United States. Given that most drugs are addictive, briefly explain whether you think this assumption is likely to hold.
Answer: Most drugs are addictive, suggesting that the price elasticity of demand will be low, between 0 and -1. Thus, it's unlikely that this policy will reduce expenditures on drugs.
18. Suppose the U.S. government introduces a new anti-drug policy that 1) imposes stiffer penalties on individuals who sell and manufacture drugs in the United States and 2) stems the flow of illegal drugs from other countries into the United States. d. If the government were to instead introduce a new anti-drug policy that 1) educated young people about the dangers of drug use and 2) increased funding for drug rehabilitation programs, how would the total expenditure on drugs be likely to change? Carefully, explain your answer, making reference to how such a policy would affect the equilibrium price and quantity of drugs.
Answer: Such a policy would reduce the demand for drugs. Thus, it would lower both the price and quantity of drugs. This would necessarily imply that total expenditures on drugs would fall.
6.Whole Foods cuts the price of organic milk kefir from $4 to $3. Sales increase from 1000 units to 1500 units. Calculate total revenues before and after the increase in price. Is the price elasticity of demand elastic, unitary or inelastic?
Answer: TR (before) = $4 *1000 = $4000. TR (after) = $3 * 1500 = $4500. Since the lower price generated more revenue we know demand is elastic.
20. If incomes increase by 48% and the quantity demanded of tennis balls drops by 72% as a result, what is the income elasticity of demand for tennis balls? Give your answer to one decimal.
Answer: The percentage change in quantity demanded (-72%) divided by the percentage increase in income (48%) gives an income elasticity of -1.5.
18. Use the following information to answer the questions below. Suppose that Oscar and Felix are roommates, and they want to find a way to divide up household chores—cooking meals and doing laundry. It takes Oscar 45 minutes to make a meal and 90 minutes to do a load of laundry. It takes Felix 60 minutes to make a meal and 60 minutes to do a load of laundry. (e) If Oscar and Felix trade, one load of laundry should trade for more than ____ meal(s) but fewer than ____ meal(s).
Answer: The terms of trade depend on each person's opportunity cost. For trade to be mutually beneficial, the price of one load of laundry should fall between each person's opportunity cost. Therefore, the price of one load of laundry should be between one and two meals.
16.The market for Snickers has a demand function, Qd= 10 -7P and supply function, Qs= -1 + 4P. Determine the equilibrium price and quantity sold in this market.
Answer: p=1 and q=3
15. If we define an equation for demand, Qd= 240 -12P and a equation for supply, Qs= 60 + 6P. Determine the equilibrium price and output in the market.
Answer:240 -12P = 60 + 6Pso 180 = 18Pand P = 10 Double checking by plugging P-10 into Qd and Qs: 240 -(12 * 10) = 120and 60 + (6 * 10) = 120
Match these suffixes: A.The price increases B.Cowboy boots are the in thing C. A new technology is developed D. The cost of labor rises With these 1. The supply curve shifts out 2. Slide along the demand curve 3. The supply curve shifts in 4.The demand curve shifts out
A→2, B→4, C→1,D→3
7. Your friend offers you a free ticket to the next home UT football game. On the same date and at the same time, Post Malone is playing in Austin. The Post Malone tickets are $45 but you would have been willing to pay $75. If there are no costs of getting to either place, what is the opportunity cost of going to the UT game? A) $0.00 B) $ 30.00 C) $ 45.00 D) $75.00
B) $ 30.00
29.You are considering going from El Paso to Dallas to visit friends. A round trip plane ride takes 3hours and costs $300. A round trip bus ride takes 25 hours and costs $100. At what hourly rate would you be indifferent between taking the bus and the plane? A) $10.00/hour B) $ 9.09/hour C) $11.11/hour D) $ 8.00/hour
B) $ 9.09/hour
4.Which curve is the most ELASTIC? A) Short run demand B) Long run demand C) Immediate run demand D) The demand curve can never be elastic
B) Long run demand
11. In the following ad for umbrellas is IKEA's pricing strategy consistent with what we learned about the price elasticity of demand. Sunny day: $4.99 Rainy day special: $2.50 A)Yes, IKEA knows its economics. B)No, this is completely backwards.
B) No, this is completely backwards.
16. Some restaurants close during the afternoon and reopen for dinner. A logical economic reason to do this would be that A) in the afternoon, the marginal benefit of staying open is greater than the marginal cost. B) in the afternoon, the marginal cost of staying open is greater than the marginal benefit. C) in the afternoon, the marginal benefit of staying open has dropped to zero. D) the marginal benefit of staying open is greater in the morning than the afternoon. E) the marginal cost of staying open is greater in the afternoon than in the morning.
B) in the afternoon, the marginal cost of staying open is greater than the marginal benefit.
11. Since money does not grow of trees, it ___________. A) is free B) is scarce C) is devalued D) has a high marginal cost
B) is scarce
9. If the price elasticity of demand is -0.4,this tells us that demand is: A) relatively elastic. B) relatively inelastic. C) perfectly elastic. D) perfectly inelastic.
B) relatively inelastic.
20. The following picture shows a case of Bud Light with ping pong balls being sold nearby. If the price of Bud Light rises, what will happen to the demand for ping pong balls? A) the demand for ping pong balls will increase B) the demand for ping pong balls will decrease C) the demand for ping pong balls will increase on hot days D) the demand for ping pong balls will decrease because you don't have any paddles to use.
B) the demand for ping pong balls will decrease
8. Which one of these is NOT scarce? A)A Selena Gomez autographed t-shirt B)Gravity C) Drinking water D) Armadillos
B)Gravity
28. What happens to the demand for U.S. produced salsa if the U.S. places a 25% tariff on all Mexican products? A)The demand decreases B)The demand increases C)We slide along the U.S. salsa demand curve, since the tariff only affects Mexican salsa producers.
B)The demand increases
4. This term refers to the specific components that are left out of (not determined within) a model. A)endogenous B)exogenous C)caveat emptor D)ceteris paribus
B)exogenous
9. A production possibilities frontier graphically represents the maximum quantities of two products produced when all resources in the economy are being used efficiently. If an economy operates at a point inside its production possibilities frontier A)it lacks the resources necessary to produce at full employment. B)it is utilizing some resources inefficiently. C)it does not confront the problem of scarce goods relative to unlimited wants. D)it does not exist in the real world since it is impossible for an economy to operate inside its production possibilities curve.
B)it is utilizing some resources inefficiently.
10. If a society saves less now than in the past, then the production possibilities curve will over time A)shift in. B)shift out but not as much as in the past. C)shift out more than in the past. D)shift in during recessions, and out during expansions.
B)shift out but not as much as in the past.
22.What would happen to price and quantity sold of Dr. Pepper(a normal good) if income decreased? A)Equilibrium price will go up and equilibrium quantity will go down. B)Equilibrium price will go up and equilibrium quantity will go up. C) Equilibrium price will go down and equilibrium quantity will go down. D) Equilibrium price will go down and equilibrium quantity will go up.
C) Equilibrium price will go down and equilibrium quantity will go down.
30. Suppose that Bianca and Rosa each own a small farm. They both produce milk and apples. Each hour, Bianca can either produce 1 gallon of milk or 1 pound of apples, and Rosa can either produce 2 gallons of milk or 4 pounds of apples. Each works 4 hours a day. f. Who has the comparative advantage in producing milk? Briefly explain.
Bianca has the CA in the production of milk because her OC of milk is lower than Rosa's.
15. Thumbelina raised her quantity demanded of disposable gloves from 100 to 150 when the price fell from $6 to $4 per glove. Using the midpoint method, her price elasticity of demand is ________. A) 0.80 B) -1.25 C) -1.00 D) 0.40 E) -0.80
C) -1.00
14. Which of these is a normative statement? A) Having roses delivered is more expensive on Valentine's Day than usual. B) More roses are delivered on Valentine's Day than any other. C) Giving roses is the best way to express your love on Valentine's Day. D) The scientific name for a rose is Rosa.
C) Giving roses is the best way to express your love on Valentine's Day.
2. Which of the following is a positive economic statement? A)Tim Berg was the top DJ in the world. B)Fade into Darkness was Avicii's best song. C)Levels has over 25,000,000 views on YouTube. D)"Oh oh sometimes I get a good feeling" is the best part of Levels.
C) Levels has over 25,000,000 views on YouTube.
7. Legislation that requires children under age two to sit in infant seats on airplanes has made air travel safer but also more expensive for families. Which of the following is an unintended consequence of the infant safety policy? A)Airlines have nowhere to store all the child seats and strollers so many flights are delayed. B)Airplanes can only show G-rated movies. C) Many families with infants now choose to drive instead of fly. D)With all the infants in diapers on the flights, the smell is terrible
C) Many families with infants now choose to drive instead of fly.
What economic concept does this meme of Dwight (from The Office) highlight? meme: "Today lunch was free") response: "False, you lost money eating lunch instead of working" A)Trade creates value B)Price elasticity of demand C)Opportunity cost D)Incentives
C) Opportunity cost
10. If the government imposes a new 25% tax on respirator sit will create______ increase in tax revenue in the short run. A) no B) a small C) a large D) an infinite
C) a large
6. Consider a market in which the market demand is given by the equation QD= 44 -3P and market supply is given by the equation QS= 2P + 4. If the price in the market is $10, there is _____________________in the market. A) an equilibrium quantity of 24 B) an equilibrium quantity of 14 C) a surplus of 10 D) a shortage of 14E) a shortage of 24
C) a surplus of 10
When deciding whether to do something, economists consider the A) marginal benefits. B) marginal costs. C) both the marginal benefits and the marginal costs.
C) both the marginal benefits and the marginal costs.
18. Which of these is ENDOGENOUS in the supply and demand model? A)income B)the price of related goods C) price
C) price
7. The Production Possibilities Frontier is bowed out because of A) the Law of Decreasing Opportunity Cost B) the fact that every point on the PPC is efficient C) the Law of Increasing Opportunity Cost D) inefficiencies in production
C) the Law of Increasing Opportunity Cost
8.Consider a demand curve for ground beef. We move along the demand curve when A)the price of hamburger buns increases B)when a news report comes out saying that ground beef cures cancer C)the price of ground beef changes D)the price of ground turkey decreases
C) the price of ground beef changes
24. The two primary determinants of the price elasticity of supply are: A) inputs and prices B) prices and time C) time and inputs D) None of these is correct.
C) time and inputs
9. Consider a demand curve for tortilla chips. If the price of salsa decreases while the price of tortilla chips stays the same, then I would consume more tortilla chips because. A) salsa is an inferior good B) salsa is a normal good C) tortilla chips and salsa are complements D) tortilla chips and salsa are substitutes
C) tortilla chips and salsa are complements
13. Apple designs the iPhone in California, it is assembled in China, and then sold in the United States. This is an example of A) unfair trade. B) a trade deficit. C) trade creating value. D) trade wars.
C) trade creating value.
24. What's the point of Jason Momoa having bodyguards? (He is big and strong enough to defend himself.) A)Trade-offs B)Opportunity cost C)Comparative advantage D)Incentives
C)Comparative advantage
2. Which of the following is a positive economic statement? A)Tim Berg was the top DJ in the world. B)Fade into Darkness was Avicii's best song. C)Levelshas over 25,000,000 views on YouTube. D)"Oh oh sometimes I get a good feeling" is the best part of Levels.
C)Levels has over 25,000,000 views on YouTube.
25. Which of the following is a normative statement? A)A motorcycle has two wheels. B)A unicycle has five wheels. C)One should wear a helmet when motorcycling D)Motorcycle helmets with air vents are safer. E)None of the above statements are normative
C)One should wear a helmet when motorcycling
11. What is the opportunity cost of taking an exam? A)All of the things that you could have done by not studying. B)Each of the questions that you miss on the exam. C)The highest valued alternative that you gave up preparing for and attend the exam. D)The money you spent to buy the textbook, redacted notes, and all the other materials you used to study with.
C)The highest valued alternative that you gave up preparing for and attend the exam.
8. When someone wishes to invest in more capital goods, it is usually true that A)there will be fewer consumer goods available to her in the future B)there are no opportunity costs involved in this C)she must give up some consumer goods in the present D)she will operate inefficiently.
C)she must give up some consumer goods in the present
14. If there is a shortage of a good at the current price, we expect that A)the supply curve for the good will shift to the left. B)the demand curve for the good will shift to the right. C)the price of the good will rise. D)the price of the good will fall.
C)the price of the good will rise.
5.An example of a direct negative incentive is: A)providing a commission for sales B)awarding a promotion for hard work. C)threatening to fire those who do not perform well. D)providing an orientation for new employees.
C)threatening to fire those who do not perform well.
13. If the University of Texas announces a 10 % increase in tuition next year and enrollment falls 5%, then demand is A)Perfectly elastic B)Relatively elastic C)Unitary D)Inelastic
D) Inelastic
27. How will a reduction in the national unemployment rate affect a nation's production possibilities frontier (PPF)? A) It will cause the PPF to shift inward. B) It will cause the PPF to shift outward. C) It will move society inward, to a point farther away from the PPF. D) It will push total production closer to or on the PPF. E) It will push total production outward to a point outside the PPF.
D) It will push total production closer to or on the PPF.
10. Which of these is NOT an unintended consequence of a binding minimum wage? A) unemployment B) firms replacing low-skilled jobs with technology C) firms relocating to other countries (or states) with lower wages D) Longer hours for workers
D) Longer hours for workers
6. If a nation has a high unemployment rate, what will happen to the production possibilities frontier? A)The nation will slide down along the curve. B)The curve will shift in. C)The curve will shift out. D)None of the above is correct.
D) None of the above is correct.
2.Suppose that the price of Selena Gomez concerts increases from $45 a ticket to $80 a ticket. What will happen to the demand curve for her concerts? A)It shifts to the left. B)It shifts to the right. C)Its slope increases. D)Nothing would happen to the demand curve; only the quantity demanded would fall.
D) Nothing would happen to the demand curve; only the quantity demanded would fall.
5. Faux leather purses are considered inferior goods. What would happen to the equilibrium price and quantity of faux leather purses if income decreased and more firms started producing faux leather purses? A) The equilibrium price will go up and the equilibrium quantity will go down. B) The equilibrium price will go up and the equilibrium quantity will go up. C) The equilibrium price will go down and the equilibrium quantity will be indeterminant. D) The equilibrium price will be indeterminant and the equilibrium quantity will go up. E) The equilibrium price will go up and the equilibrium quantity will be indeterminant.
D) The equilibrium price will be indeterminant and the equilibrium quantity will go up.
12. Which of the following would cause an increase in the price of gasoline and an expansion in the equilibrium quantity? A) an increase in the price of crude oil, a key ingredient required for the production of gasoline B) the introduction of a miracle carburetor that substantially improves the gas mileage of automobiles C) a recession that substantially reduces the income of households D) an increase in the popularity and use of Sport Utility Vehicles that consume a lot of gasoline per mile driven
D) an increase in the popularity and use of Sport Utility Vehicles that consume a lot of gasoline per mile driven
3. Economists believe that trade A) causes some to lose while others win. B) unjustly benefits the privileged C) causes outsourcing of jobs, which lowers the standard of living. D) is a win-win proposition.
D) is a win-win proposition.
22. When a supplier cannot easily adjust its production process, which in turn limits its quantity supplied, the elasticity of supply is A) 0 B) 1 C) greater than 1 D) less than 1
D) less than 1
1. Demand is more ELASTIC if: A) the good is inexpensive. B) it is needed now. C) the price of the good does not matter. D) the good has many substitutes.
D) the good has many substitutes.
9. This quote from Dwight D. Eisenhower, "The cost of one modern heavy-duty bomber is this: a modern brick school in more than thirty cities. It is two electric power plants each serving a town of 60,000 people. It is two fine, fully equipped hospitals. It is some fifty miles of concrete highways. We pay for a single fighter with a half-million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people." is an example of A) absolute advantage. B)comparative advantage. C)the law of demand D)trade-offs.
D) trade-offs.
10. Which of the following is most likely to shift the demand curve for a good to the right(outward)? A)An decrease in the cost of production of the good B)The introduction of a new technology that lowers the cost of producing the good. C)A decrease in the price of the good D)An increase in the price of a substitute good
D)An increase in the price of a substitute good
3. What is ceteris paribus? A)It occurs when some of the endogenous variables in your model are incorrect. B)It is when you fail to account for the effects of the exogenous variables. C)It is when you leave out crucial endogenous variables. D)It is when the variables that are not mentioned remain constant.
D)It is when the variables that are not mentioned remain constant.
1. The most expensive private high schools in New York City cost close to $60,000 a year to attend. That is MORE than it costs to attend some elite universities. What explains why the tuition is so high at these schools? A)There is extremely high demand. B)There is a limited supply of highly prestigious schools. C)The demand is low, but supply is large. D)The demand is quite high, and the supply is quite low.
D)The demand is quite high, and the supply is quite low.
8. For which of the following goods would you expect demand to be the most elastic? A)Chewing tobacco. B)An electric generator when your power is out. C)A specialized tiller you need to harvest your cotton crop. D)The food from Maria's food truck, one of many food trucks at a concert.
D)The food from Maria's food truck, one of many food trucks at a concert.
13. If the cost of the components used to make the PS4suddenly increases what will happen to the demand curve for PS4's? A)shifts to the left B)it becomes upward sloping C)shifts to the right D)nothing happens to the demand for the PS4.
D)nothing happens to the demand for the PS4.
15. According to the law of comparative advantage, a particular task is performed most efficiently by the individual with the lowest A)wage rate B)tax liability C)net worth. D)opportunity cost.
D)opportunity cost
16. Comparative advantage implies that you will A) produce at the highest opportunity cost. B)produce a good using the most inputs. C)produce a good only when demand is high D)produce a good where you have the lowest opportunity cost.
D)produce a good where you have the lowest opportunity cost.
16. As one moves down along a linear demand curve the slope ______ and the price elasticity of demand ______. A) is constant; is constant B) decreases; is constant C) increases; is constant D) is constant; becomes more elastic E) is constant; becomes more inelastic
E) is constant; becomes more inelastic
25. If the price of Air Jordan shoes increases from $300 to $500 and the quantity of basketballs sold fall from 200 to 100, calculate the cross-price elasticity of demand.
Ec= [(100-200)/150] / ([($500-$300)/$400] = (-100/150)/($200/$400) = -2/3 / 1/2 = -4/3
23. Which of the following is true about the income elasticity of demand? A) It's negative. B) It's zero. C) It's positive. D) B and C are true. E) A and B are true .F) All of the above are possible
F) All of the above are possible.
30. Suppose that Bianca and Rosa each own a small farm. They both produce milk and apples. Each hour, Bianca can either produce 1 gallon of milk or 1 pound of apples, and Rosa can either produce 2 gallons of milk or 4 pounds of apples. Each works 4 hours a day. What is the opportunity cost to each of 1 gallon of milk?
For Bianca, the OC of 1 gallon of milk is 1 pound of apples. For Rosa, the OC of 1 gallon of milk is 2 pounds of apples.
30. Suppose that Bianca and Rosa each own a small farm. They both produce milk and apples. Each hour, Bianca can either produce 1 gallon of milk or 1 pound of apples, and Rosa can either produce 2 gallons of milk or 4 pounds of apples. Each works 4 hours a day. What is the opportunity cost to each of 1 pound of apples?
For Bianca, the OC of 1 pound of apples is 1 gallon of milk. For Rosa, the OC of 1 pound of apples is ½ of a gallon of milk.
30. Suppose that every day, Bianca and Rosa each spend 2 hours producing milk and 2 hours producing apples so that together they produce 6 gallons of milk and 10 pounds of apples. To show that this is not an efficient use of their time, find another way to divide up their time between producing milk and producing apples so that together they still can produce 6 gallons of milk but more than 10 pounds of apples.
If Bianca spends 4 hours a day producing milk and Rosa spends 1 hour a day producing milk and 3 hours a day producing apples, then together they can have 6 gallons of milk and 12 pounds of apples.
17. What is the most you can say about the relationship between the elasticity of demand at point A, point B and point C?
Let EX denote the elasticity of demand at point X. We know that E Cis more elastic than EA and EA is more elastic than EB.
15. Like a good economist, you calculated the opportunity cost of getting a college degree. Suppose that at your university, you will pay $12,000 each year for tuition, $2,000 each year for textbooks, and$10,000 per year for room and board. Before you left for college, your boss at Arby's offered you a job paying $30,000 per year. Assume that if you decided not to go to college, your parents would not let you live at home. What is your opportunity cost for four years of college?
Opportunity cost is the highest valued alternative that must be sacrificed to get something else. By spending $12,000 on tuition, you give up money that you could have spent on something else. By going to college, you give up the money you could have earned at a job. The opportunity cost of going to college should include the direct costs of getting an education (tuition and books) plus the indirect costs (income you could have earned if you did not go to college). Over four years, the opportunity cost is equal to: 4 ×($12,000 +$2,000+ $30,000) = $176,000 You do not include the cost of room and board because you would incur these living expenses even if you did not go to college.
30. Suppose that Bianca and Rosa each own a small farm. They both produce milk and apples. Each hour, Bianca can either produce 1 gallon of milk or 1 pound of apples, and Rosa can either produce 2 gallons of milk or 4 pounds of apples. Each works 4 hours a day. h. Who has the absolute advantage in producing apples? Briefly explain.
Rosa has the AA in the production of apples because it takes her less time to produce apples than Bianca (or, equivalently, Rosa can produce more pounds of apples per hour than Bianca)
30. Suppose that Bianca and Rosa each own a small farm. They both produce milk and apples. Each hour, Bianca can either produce 1 gallon of milk or 1 pound of apples, and Rosa can either produce 2 gallons of milk or 4 pounds of apples. Each works 4 hours a day. g.Who has the absolute advantage in producing milk? Briefly explain
Rosa has the AA in the production of milk because it takes her less time to produce a gallon of milk than Bianca (or, equivalently, Rosa can produce more gallons of milk per hour than Bianca).
30. Suppose that Bianca and Rosa each own a small farm. They both produce milk and apples. Each hour, Bianca can either produce 1 gallon of milk or 1 pound of apples, and Rosa can either produce 2 gallons of milk or 4 pounds of apples. Each works 4 hours a day. e. Who has the comparative advantage in producing apples? Briefly explain
Rosa has the CA in the production of apples because her OC of apples is lower than Bianca's.
29. Using a supply and demand model, show what happens to the equilibrium price and equilibrium quantity in the market for bananas if, holding all else constant, a study comes out that says eating bananas causes cardiac problems.
The demand curve would decrease (shift in) and price would decline and quantity would decline.
18. Suppose the U.S. government introduces a new anti-drug policy that 1) imposes stiffer penalties on individuals who sell and manufacture drugs in the United States and 2) stems the flow of illegal drugs from other countries into the United States. a. Using a supply and demand diagram, show how this policy is likely to affect the equilibrium price and quantity of drugs in the United States. Be sure to label the y-axis, the x-axis, the supply curve, the demand curve, any shifts in either curve induced by the new policy, and the equilibrium price and quantity before and after the new policy.
This policy will reduce the supply of drugs, but it will not affect the demand for drugs.
30. Suppose that Bianca and Rosa each own a small farm. They both produce milk and apples. Each hour, Bianca can either produce 1 gallon of milk or 1 pound of apples, and Rosa can either produce 2 gallons of milk or 4 pounds of apples. Each works 4 hours a day. Are there gains from specialization and trade in this case? If not, explain why not. If so, in which good should each specialize?
Yes. There are gains from specialization and trade. Rosa should specialize in the production of apples and Bianca should specialize in the production of milk.
12. You are considering going to LA to visit friends. A round trip plane ride takes 3 hours round trip and costs $400. A round trip bus ride takes 15 hours and costs $100. At what hourly rate would you be indifferent between taking the bus and the plane?
You save $300 at a cost of 12 hours. $300/12 = $25/hour
32. Consider the market for beer. a. Use a simple supply and demand graph to show the equilibrium price (P*) and quantity (Q*) of beer. Clearly label the supply curve, the demand curve, and the axes. b. Recently, the beer industry has been hit by a shortage of hops, which are used to make beer. At the same time, consumer income has been steadily increasing. On your graph, illustrate what will happen to the equilibrium price and quantity of beer as a result of the shortage of hops and the increase in consumer income. If you need to make additional assumptions in order to answer this question, clearly state what those assumptions are additional assumptions in order to answer this question, clearly state what those assumptions are.
a .See below. b. Assume that beer is a normal good. The equilibrium price will rise, but equilibrium quantity could increase or decrease depending on the size of the shifts in supply and demand.
4.How does money make the circular flow model more efficient? A) Having a common medium of exchange, like money, eliminates the need to barter. B)Money makes the product market more important than the resource market .C) Neither the product nor resource market can exist without money. D) Money gives firms an advantage over households since they have more money.
a) Having a common medium of exchange, like money, eliminates the need to barter.
30. For each of the following, draw a diagram that illustrates the likely effect on the market for eggs. Indicate in each case the impact on equilibrium price and equilibrium quantity. a. A surgeon general warning that high-cholesterol foods can cause heart attacks. b. A decrease in the price of bacon, a complementary product. c. An increase in the price of chicken feed. d. Caesar salad becomes popular at dinner parties. (The dressing is made with raw eggs.) e. A technological innovation that reduces egg breakage during packing.
a. The risk of heart attack will cause a change in preferences. Demand will go down. This will cause a decrease in quantity as well as a decrease in price. b. A decrease in the price of a complementary good will cause an increase in demand. This causes an increase in price and quantity. c. The increase in the price of chicken feed will constitute an increase in the cost of inputs on the supply side. This will cause a decrease in supply, which in turn causes higher prices and lower quantity. d. This is a change in preferences which increases demand for eggs. Price and quantity will rise. e. This technological innovation will cause an increase in supply. In this case, there will be and increase in supply and lower prices.
31. Consider the market for high-definition televisions (HDTVs). a. Scenario 1: Using a supply and demand graph, show what will happen to the current equilibrium price and quantity of HDTVs if people expect the price of HDTVs to fall in the future. b. scenario 2: Now, using a second supply and demand graph, show instead what will happen to the equilibrium price and quantity of HDTVs if the price of streaming services declines. c. Scenario 3: You observe that the price of HDTVs increases. Can you definitively conclude that there has been an increase in demand? If not, what besides an increase in demand could explain the price increase?
a.See below. Demand will decrease because consumers will want to wait until the price drops. Supply will increase because suppliers will want to sell now while the price is high. Current equilibrium price will fall. We cannot say what will happen to equilibrium quantity. (Note: The way it's drawn in the picture below, there's a very slight drop in the equilibrium quantity.) b. See below. The demand for HDTVs will increase. Current equilibrium price and quantity will increase. c. It is possible that the price increase could also be due to a decrease in supply.
18. Use the following information to answer the questions below .Suppose that Oscar and Felix are roommates, and they want to find a way to divide up household chores—cooking meals and doing laundry. It takes Oscar 45 minutes to make a meal and 90 minutes to do a load of laundry. It takes Felix 60 minutes to make a meal and 60 minutes to do a load of laundry. (c)Felix's opportunity cost of doing a load of laundry is ___meals.
answer 1 Answer for (b) and (c): It takes 90 minutes for Oscar to do a load of laundry. In that time, he could have made two meals (90:45). Therefore, Oscar's opportunity cost of one load of laundry is two meals. It would take 60 minutes for Felix to do a load of laundry. In that time, he could have made one meal (60:60). Therefore, Felix's opportunity cost of one load of laundry is one meal.
18. Use the following information to answer the questions below .Suppose that Oscar and Felix are roommates, and they want to find a way to divide up household chores—cooking meals and doing laundry. It takes Oscar 45 minutes to make a meal and 90 minutes to do a load of laundry. It takes Felix 60 minutes to make a meal and 60 minutes to do a load of laundry. b) Oscar's opportunity cost of doing a load of laundry is__meals.
answer: 2
The graph shows two PPFs for Shiner Bock and Blue Bell Ice Cream. name 3 ways to shift the entire ppf out
better technology, more resources(such as labor, capital, time), temporarily working harder than you can sustain in the long run.
1. The New York City Subway banned dogs unless they fit in a bag. Here is the rule, "No person may bring any animal on or into any conveyance or facility unless enclosed in a container." But the rules do not say anything about the size of the animal, and as you can see from these pictures, some people got really creative in order to avoid paying a fine. This is an example of A) a shift in demand B) a shift in supply C) an unintended consequence D) comparative advantage
c) unintended consequence
31. Suppose that two siblings, Fiona and Henry, are required to help their parents around the house. Each week they are required to spend an hour vacuuming and folding laundry. Suppose it takes Fiona 10 minutes to vacuum a room and 15 minutes to fold a load of laundry, while it takes Henry 5 minutes to vacuum a room and 10 minutes to fold a load of laundry. c.What is the opportunity cost to each of folding laundry?d. What is the opportunity cost to each of vacuuming? e.Who has the comparative advantage in vacuuming? Why? f.Who has the comparative advantage in folding laundry? Why?
c. Fiona: 1.5 rooms. Henry: 2 rooms. d. Fiona: 2/3 of a load of laundry. Henry: ½ a load of laundry. e. Henry has a CA in vacuuming because her OC is lower is lower than Fiona's.
23.The graph shows a PPFs for prosciutto and red wine. Illustrate on the graph above what the new PPF will look like if a new technology is developed that makes it easier to produce red wine.
red wine would increase while prosciutto won't.
1. The graph below shows the PPF for computers and cheese in the USA. Suppose some of the US dairy farmers decide to migrate to Switzerland. Draw a new PPF that reflects this change.
the demand curve shifts left
25. On the following graph show (either by drawing an arrow along the existing supply curve or drawing a new supply curve) how a decrease in the price of cacao(an ingredient used in making chocolate) affects the current supply of chocolate.
the entire supply curve increases (moves to the right)
