Econ 120 Exam 1

For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your marginal cost of the 100th meal is:

$0

If most consumer goods and services are ______, then most income elasticities are ______.

normal, positive

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect:

the equilibrium price and quantity of pencils to fall

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically:

positive

Refer to the table below. The marginal cost of the 3rd unit of this activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225

$20

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35

If 20% increase in the price of a good leads to a 60% decrease in the quantity demanded, then what is the price elasticity of demand?

3

What might cause a demand curve to shift to the right?

An increase in the price of a substitute.

Assume that Joe is willing to produce a hamburger for $1, and Mary is willing to pay $3 for a hamburger. Which of the following is true?

Joe and Mary can make a mutually beneficial exchange.

Pat can either drive to work, which takes half an hour and uses $1.50 worth of gas, or take the bus, which takes an hour and costs $1.00. How should Pat get to work?

Pat should drive if saving half an hour is worth $0.50 or more.

Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by:

a fall in consumer income assuming corn is a normal good.

It is likely that for most people:

coffee and tea are substitutes.

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16.Given that driving to campus to buy the concert ticket was rational for Matt, Matt should:

drive to campus to buy the books because the $5 he would save is more than he saved by driving to campus to buy the concert ticket.

If two products are substitutes, then the:

cross-price elasticity of demand between them will be positive.

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the:

cross-price elasticity of demand.

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.

economic surplus; $3,000

If the price elasticity of demand for a good is greater than one, then the demand for that good is:

elastic

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case:

excess demand will lead the price of oranges to rise

The marginal benefit of an activity is the

extra benefit associated with an extra unit of the activity

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:

greater than $4.50 but no more than $5.00

If demand is ______ with respect to price, a price increase will ______ total revenue.

inelastic; increase

If the demand for a good decreases as income decreases, then the good is a(n):

normal good

Jody has purchased a non-refundable $75 ticket to attend a Miley Cyrus concert on Friday night. Subsequently, she is asked to go to out dinner at no expense to her. If she uses cost-benefit analysis to choose between going to the concert and going out to dinner, the opportunity cost of going out to dinner should include:

only the entertainment value of the concert

The price elasticity of demand for a good measures the responsiveness of:

quantity demanded to a one percent change in price of that good.

Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that:

the cross-price elasticity between plane tickets and train tickets is positive.

When Joe's Gas raises its price for regular unleaded gasoline, total revenue from regular unleaded gas falls to zero. It must be the case that

the demand for Joe's regular unleaded gasoline is perfectly elastic.

The tendency for consumers to purchase more of a good or service as its price falls is captured by:

the law of demand

When a market is in equilibrium:

their is neither excess demand nor excess supply

Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value of Pat spending more time with the kids is greater than:

$13,000 per year

You won a free ticket to see the latest Star Trek movie this Friday night (which you can costlessly resell for its face value of $15). Your favorite band is also performing on Friday and is your only alternative activity. Friday is your last chance to see either the movie or the band. Tickets to see your favorite band cost $30, and on any given day, you would be willing to pay as much as $50 for a ticket. Based on this information, what is your opportunity cost of going to see the Star Trek movie on Friday?

$35

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending Elite U is:

$70,000

Frank owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the table below. Hours in East Orchard Number of Apples Per Hour Hours in West Orchard Number of Apples Per Hour 1 40 1 10 2 32 2 10 3 25 3 10 4 20 4 10 What is the marginal benefit to Frank of the 2nd hour he spends picking in the east orchard?

24 apples

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his economic surplus by attending:

States College

Shelly purchases a leather purse for $400. One can infer that:

her reservation price was at least $400.

If the local slaughterhouse gives off an unpleasant stench, then the equilibrium quantity of meat will be _____ the quantity that maximizes total economic surplus.

higher than

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

inelastic

Suppose two demand curves intersect and so have a point in common. At that point, demand shown by the steeper curve will be _______ the flatter curve.

less elastic than

If consumers completely cease purchasing a product when its price increases by any amount, then demand is:

perfectly elastic

The economic surplus of an action is:

the difference between the benefit and cost of taking an action