ECO 210 Test 1

Situation: The price of coffee, a complement for creamer increases in price. There huge drought in the area where the creamer producers have their dairy farms, which limited the grass to feed the cattle. (Product of interest: creamer) Explain in words the changes of the the demand and supply (increase/decrease) as well as the overall impact of the equilibrium price and quantity.

If coffee and creamer are complements, then an increase in the price of good A (coffee in this case) would lead to a decrease of good B (creamer in this case). Supply and demand would both decrease as a result. Given the decrease in demand for creamer, the equilibrium price and quantity would reduce. We would end up with an indeterminate equilibrium price and a decrease in equilibrium quantity (we could also deduce that quantity would decrease given the drought the dairy farms are experiencing). **8 pts

An entrepreneur already has two locations for his florist business. He desires to open another florist location. List his marginal costs and marginal benefits (two of each) of opening another store.

Marginal costs: 1) Lack of time (having to manage another location; total of three) 2)Burnout from working so much 3)No fun (would not have time to enjoy his family or friends) 4) More expenses (3 locations) Marginal benefits: 1)More money income 2)Be more involved in the entrepreneur world (managing three businesses, more innovations) 3) Advancement work wise 4) Feel more accomplished (more progress) **4 pts

Given the statement below, determine if the statement is true or false. If the statement is false, explain why the statement is false. "When there is a shortage, demand is greater than supply."

True, if there is a shortage then there is not enough supply yet the demand for it could be greater **4 pts

Which of the following is an example of a public good? A) A weather warning system B) A sofa C) A television set D) A bottle of soda

A) A weather warning system **3 pts

Ben says that "an increase in the tax on beer will raise its price." Holly argues that "cases should be increased on beer because college students drink too much." We can conclude that: A) Holly's statement is normative, but Ben's is positive B) Ben's statement is normative, but Holly's is positive C) Both statements are positive D) Both statements are normative

A) Holly's statement is normative, but Ben's is positive **3pts

Which of the following is an example of a market failure? A) Successful public schools provide benefits to the students who attend them, as well as to the community as a whole including those who don't go to those public schools B) The price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and procedures C) Extensive decreases in the prices of electronic equipment resulted in large numbers of bankruptcies in the computer industry D) There are not enough tickets available to concerts of extremely popular performers and artists

A) Successful public schools provide benefits to the students who attend them, as well as to the community as a whole including those who don't go to those public schools **3pts

Which of the following best describes the invisible-hand concept? A) The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest. B) The market system is the best system for overcoming the scarce resources-unlimited wants problem C) The non substitutability of resources creates a conflict between private and public interests and calls for government intervention D) Central direction by the government will improve resource allocation in a capitalistic economy

A) The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest. **3 pts

Which of the following would most likely increase the demand for gasoline? A) The expectation by consumers that gasoline prices will be higher in the future B) A widespread shift in car ownership from SUVs to hybrid sedans C) A decrease in the price of public transportation D) The expectation by consumers that gasoline prices will be lower in the future

A) The expectation by consumers that gasoline prices will be higher in the future **3pts

The rationing function of prices refers to the: A) capacity of a competitive market to equalize quantity demanded and quantity supplied B) tendency of supply and demand to shift in opposite directions C) ability of the market system to generate an equitable distribution of income D) fact that ration coupons are needed to alleviate wartime shortages of goods

A) capacity of a competitive market to equalize quantity demanded and quantity supplied **3 pts

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: A) inferior goods B) substitute goods C) complementary goods D) normal goods

A) inferior goods **3pts

Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to: A) reduce the demand for soda and increase the demand for tacos B) reduce the demand for tacos and increase the demand for soda C) increase the demand of both soda and tacos D) reduce the demand for both soda and tacos

A) reduce the demand for soda and increase the demand for tacos **3pts

Which of the diagrams illustrates the effect of a governmental subsidy on the market for AIDS research? A) B only B) C only C) D only D) A only

B) C only **3pts

Suppose an economists says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that: A) one cannot generalize about the relationship between the price of bananas and the quantity purchased B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant C) the quantity of bananas purchased determines the price of bananas D) economists can conduct controlled laboratory experiments

B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant **3 pts

If one person's consumption of a good does not preclude another's consumption, the good is said to be: A) excludable B) nonrival in consumption C) nonexcludable D) rival in consumption

B) nonrival in consumption **3pts

Refer to the diagram. The equilibrium price and quantity in this market will be : A) $0.50 and 130 B) $1.60 and 130 C) $1.00 and 200 D) $2.00 and 290

C) $1.00 and 200 **3 pts

1 2 3 4 5 Qd Qd Price Qs Qs 50 40 $10 70 80 60 50 $9 60 70 80 60 $8 50 60 90 70 $7 40 50 100 80 $6 30 40 Refer to the table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be: A) $9 and 50 units B) $10 and 60 units C) $8 and 60 units D) $7 and 50 units

C) $8 and 60 units **3pts

Refer to the graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting from the initial equilibrium (point 1), which point on the graph is most likely to be the new equilibrium if accidents with a bicycle increase, and the subsidies paid increase? A) 4 B) 5 C) 6 D) 2

C) 6 **3 pts

Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles? A) B only B) C only C) D only D) A only

C) D only **3pts

If many people in a community get flu shots, the whole community benefits including those that did not get flu shots. Therefore, not enough people may decide to get the shots. This is one illustration of: A) Supply-side market failure B) Monopoly power due to lack of competition C) Demand-side market failure D) The market allocating resources efficiently

C) Demand-side market failure **3pts

Camille is at the candy store with her grandmother, who offers to buy her $6 worth of candy. If lollipops are $1 each and candy bars $2 each , what combination of candy can Camille's grandmother buy for her? A) One lollipop and three candy bars B) Six lollipop and three candy bars C) Two lollipop and two candy bars D) Three lollipop and two candy bars

C) Two lollipop and two candy bars **3pts

In which of the following statements are the terms "demand" and "quantity demanded" used correctly? A) When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell B) When the price of ice cream rose, the demand for ice cream fell, and the quantity demanded of the ice cream toppings fell C) When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fells D) None of these statements uses the terms correctly.

C) When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fells **3pts

Economists may best be defined as the: A) empirical testing of value judgements through the use of logic B) interaction between macro and micro considerations C) social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity D) study of why people are rational

C) social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity **3pts

Non excludability describes a condition where: A) sellers can withhold the benefits of a good from those unwilling to pay for it. B) there is no potential for free-riding behavior C) there is no effective way to keep people from using a good once it comes into being D) one person's consumption of a good does not prevent consumption of the good by others

C) there is no effective way to keep people from using a good once it comes into being **3 pts

Give at least two arguments (with a minimum of 5 sentences) of why capitalism may be a better economic system than socialism (or vice versa)

Capitalism is a better economic system than socialism given socialism is based on a laziness approach on behalf of consumers. In a socialist economy, economic growth does not occur as fast as it would in a capitalism. Another reason why a socialist economy may be considered a lazy economy is because people in it are given incentives for not doing anything (not working, not producing yet they get welfare). In a capitalist economy people are rewarded for what they produce and are given "just" prices. Socialism offers prices that are "best" and not necessarily just. Among socialism there is also a substantial degree of government planning while in capitalism the market allocates resources successfully (where people want to spend their money). And so in a socialist economy there are higher taxes which cannot afford. **worth 6 points

Which of the following is associated with macroeconomics? A) A case study of pricing and productions in the textbook industry B) An examination of the incomes of Harvard Business School graduates C) A study of the trend of pecan prices since the Second World War D) An empirical investigation of the general price level and unemployment rates since 1990

D) An empirical investigation of the general price level and unemployment rates since 1990 **3pts

Which of the following statements is correct? A) If demand decreases and supply increases, equilibrium price will rise B) If demand increases and supply decreases, equilibrium price will fall C) If supply declines and demand remains constant, equilibrium price will fall D) If supply increases and demand decreases, equilibrium price will fall

D) If supply increases and demand decreases, equilibrium price will fall **3pts

If products A and B are complements and the price of B decreases, the: A) demand for A will decline and the demand for B will increase B) demand curves for both A and B will shift to the left C) amount of B purchased will increase, but the demand curve for A will not shift D) demand for A will increase and the quantity of B demanded will increase

D) demand for A will increase and the quantity of B demanded will increase **3pts

A decrease in the price of digital cameras will: A) not affect the demand for memory cards B) shift the demand curve for memory cards to the right C) cause the demand curve for memory cards to become vertical D) shift the demand curve for memory cards to the left

D) shift the demand curve for memory cards to the left **3pts

Refer to the diagram. If society is currently producing 9 units of bicycles and 4 units of computers and it now decides to increase computer output to 6, the cost: A) will be 4 units of bicycles B) of doing so cannot be determined from the information given C) will be zero because of unemployed resources are available D) will be 2 units of bicycles

D) will be 2 units of bicycles **3 pts

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A)direct; direct B)direct; inverse C)inverse; inverse D)inverse; direct

D)inverse; direct **3 pts