BECO EXAM 1

PEoD

% change in quantity demanded / % change in price

IEOD

%change Qd/ % change I (Q2-Q1)/(I2-I1)

Which of the following is not possible?

Demand is unit elastic, and a decrease in price causes an increase in revenue.

Bill gives up his present job in Delaware to pursue a graduate school program in New York. What is the opportunity cost of his decision?

The wages that he forgoes when he quits his job

A likely example of complementary goods for most people would be

chips and salsa

A marginal change is a

small, incremental adjustment

economic profit

total revenue minus total cost, both explicit and implicit costs

accounting profit

total revenue minus total explicit cost

The quantity demanded of a good is the amount that buyers are

willing and able to purchase

Dana, who is a trained yoga instructor, spends 4 hours on Monday baking and packing 10 boxes of cookies. She sells the cookies for $10 a box. Given that she can also teach yoga for $80 an hour, what is her opportunity cost of baking cookies?

$320 4*80= $320

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

0.67, and an increase in price will result in an increase in total revenue for good A.

If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by

3.48%, and aluminum foil sellers' total revenue will increase as a result.

If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a

5 percent increase in the quantity demanded.

Which of the following demonstrates the law of demand?

Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?

Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?

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

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?

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

A construction company has built 25 houses so far this year at a total cost to the company of $7.2 million. If the company builds a 26 th house, its total cost will increase to $7.5 million. Which of the following statements is correct?

For the first 25 houses, the average cost per house was $288,000.

Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $5800. Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do?

He should sell the car now for $3800.

During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production?

Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.

A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?

Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

Price would fall, and the effect on quantity would be ambiguous.

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

The answer depends on the price elasticity of demand

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise.

What would happen to the equilibrium price and quantity of lattés if the cost of producing steamed milk, which is used to make lattés, rises?

The equilibrium price would increase, and the equilibrium quantity would decrease.

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal benefit of going to Spain increases.

Which of the following is not an example of the opportunity cost of going to school?

The money a student spends on rent for his apartment while attending school.

Which of the following demonstrates the law of supply?

When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.

Which of the following changes would not shift the supply curve for a good or service?

a change in the price of the good or service

Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes to increase if number two grade potatoes are an inferior good?

a decrease in consumer income

A decrease in demand is represented by a

a leftward shift of the demand curve

Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda

a. can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas. b. determines Bridget's willingness to pay for the third soda. c. is likely different from the marginal benefit provided to Bridget by the second soda.

f a surplus exists in a market, then we know that the actual price is

above the equilibrium price, and quantity supplied is greater than quantity demanded.

If a good is normal, then an increase in income will result in

an increase in demand for the good

A supply curve slopes upward because

an increase in price gives producers an incentive to supply a larger quantity

Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should

be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

Caroline eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

can be thought of as the total benefit Caroline enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.

3rd degree price discrimination

charging different prices to different groups of consumers with varying elasticities grouping to sell to certain group of people ex- milliners, gen z

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

compare the cost of staying one more semester to the benefits of staying one more semester.

Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding other factors constant, it follows that Shelley

considers designer jeans to be a normal good.

Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal

cost of leaving was greater than the marginal benefit.

our professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

cost of teaching increased

implicit costs

costs without cash outlay, opportunity lost cost

Suppose you like to make, from scratch, pies filled with banana cream and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would

decrease its a complement

An improvement in production technology will

decrease a firm's costs and increase its supply.

Suppose buyers of computers and printers regard the two goods as complements. Then an increase in the price of computers will cause a(n)

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

Which of the following events must cause equilibrium quantity to rise?

demand and supply both increase

Which of the following events must cause equilibrium price to fall?

demand decreases and supply increases

For which of the following goods is the income elasticity of demand likely highest?

diamonds

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between

efficiency and equality

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

elastic, and the demand curve will be horizontal.

At the equilibrium price, the quantity of the good that buyers are willing and able to buy

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

Pizza is a normal good if the demand

for pizza rises when income rises.

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

good is a necessity

If a good is normal, then an increase in income will result in a(n)

increase in the demand for the good.

Currently you purchase ten frozen pizza per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are a(n)

inferior good

explicit costs

input costs that require an outlay of money by the firm have cash outlay

opportunity cost lost

lost opportunity, foregone interest

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

negative, and the good is an inferior good.

Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is

negative, so Joan considers hamburger to be an inferior good.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

A likely example of substitute goods for most people would be

pencils and pens

John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that

people face trade-offs

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. This result is an example of which principle of economics?

people respond to incentives

1st degree price discrimination

perfect price discrimination maximum one will be willing to pay

law of supply

positive relationship between price and quantity supplied

Danita rescues dogs from her local animal shelter. When Danita's income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is

positive, and dog biscuits are a normal good

The demand curve for a good is a line that relates

price and quantity demanded

What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold?

price change will be ambiguous

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is

price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase?

price will rise

When consumers face rising gasoline prices, they typically

reduce their quantity demanded in the long run than short run

The market demand curve

represents the sum of the quantities demanded by all the buyers at each price of the good.

The market supply curve

represents the sum of the quantities supplied by all the sellers at each price of the good.

The overriding reason why households and societies face many decisions is that

resources are scarce

Holding the nonprice determinants of supply constant, a change in price would

result in a movement along a stationary supply curve.

A decrease in quantity demanded

results in a movement upward and to the left along a demand curve.

An increase in quantity supplied

results in a movement upward and to the right along a fixed supply curve.

Resources are

scarce for households and scarce for economies

Economics deals primarily with the concept of

scarcity

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

scarcity

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

sell the ticket because the marginal benefit exceeds the marginal cost.

2nd degree price discrimination

seller charges less to buyers who buy in bulk quantities, discounts

Suppose there is an increase in the price of steel. We would expect the supply curve for steel beams to

shift leftward

Matthew bakes apple pies that he sells at the local farmer's market. If the price of apples increases, the

supply curve for Matthew's pies will decrease.

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the

supply of bicycles will shift to the left.

Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the

supply of flour to increase

You have driven 500 miles on a vacation and then you notice that you are only 25 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include

the cost of driving the next 25 miles, but not the cost of driving the first 500.

Ed spends an hour studying instead of watching tv with his friends. The opportunity cost to him of studying is

the enjoyment he would have received if he had watched tv with his friends.

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is

the enjoyment she would have received had she watched the video.

People are willing to pay more for a diamond than for a bottle of water because

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

A rational decisionmaker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost of the action

When quantity demanded has increased at every price, it might be because

the price of a complementary good has decreased.

When computing the opportunity cost of attending a concert you should include

the price you pay for the ticket and the value of your time

For a horizontal demand curve,

the slope is equal to 0, and the price elasticity of demand is undefined.

Years ago, thousands of country music fans risked their lives by rushing to buy tickets for a Willie Nelson concert at Carnegie Hall. This behavior indicates

the ticket price was below the equilibrium price.

The marginal benefit Claire gets from purchasing a third pair of flip-flops is

the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops

The marginal benefit Colin gets from eating a fourth slice of pizza is

the total benefit Colin gets from eating four slices of pizza minus the total benefit Colin gets from eating three slices of pizza.

The opportunity cost of going to college is

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