ECON Exam 2
Present value is the value in today's dollars of funds to be paid or received in the future. If the current interest rate is 7%, then the present value of $1,000 to be received in 17 years is
$316.57
During the same week that the price of GameStop's stock was soaring to a record high, an article in the Wall Street Journal noted the following: "Analysts expect GameStop to post its fourth consecutive annual decline in revenue in its latest fiscal year amid declines in its core operations [of selling physical copies of video games and video game consoles in retail stores]." Why was the price of GameStop's stock greatly increasing in January 2021, when the company seemed unl
A. Speculative trades increase the volatility of stock prices in the short run but in the long run prices generally will reflect firms' profitability.
The Commerce Ministry of a country conducts regular surveys on goods and services sold within the country. Researchers at the Ministry study consumer behavior through the choices the consumers make while deciding what to buy. Their report on the industry for beverages last year indicated that the price elasticity of demand for fruit juices in the country was -0.8, while the price elasticity of demand for a particular brand called Fruit Drops was -1.2. According to the report, an average
A. Three new brands have been introduced in the market for fruit juices in the last month.
The price elasticity of supply always has
A. a nonnegative value
Are consumers only interested in making themselves as well off as possible in a material sense? Consumers are
A. also concerned with fairness as exemplified by tipping in restaurants that will never be visited again.
Consider firms selling three goods—one firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than one, and one firm sells a good with an income elasticity of demand greater than one. In a recession, sales of a good with
A. an income elasticity of demand greater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most.
How should sunk costs be used in consumer decision-making? In consumer decision-making, sunk costs should Suppose you bought a ticket to a musical. The ticket is nonrefundable (and can't be resold) and must be used on Saturday. Then, a friend calls and invites you to a basketball game on Saturday. You only have time to attend one of the events, and your friend offers to pay the cost of going to the basketball game. If you prefer basketball games over musicals, then you shou
A. be ignored basketball game
How is the price elasticity of demand measured?
A. by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price
A firm's All of the following statements are true, except
A. explicit cost is its monetary cost whereas its implicit cost is its nonmonetary opportunity cost. D. a firm maximizes profit when total cost equals total revenue.
1. What is the midpoint method for calculating price elasticity of demand? The midpoint method for calculating price elasticity of demand is: 2. How else can you calculate the price elasticity of demand? 3. What is the advantage of the midpoint method?
A. the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices. D. both a & b A. The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price.
When a consumer moves down his or her indifference curve, the gain in utility from consuming more of one good will exceed the loss in utility from consuming less of the other good.
B. FALSE
The agricultural scenario in country Almia has changed considerably over the last forty years. While the population employed in agriculture declined from 60 percent to just over 20 percent during this time, the total production of food crops more than doubled. Large farms became larger, while many small farmers who were unable to improve efficiency were driven out of the market. There was a substantial decline in the prices of most food crops during this period. With mechanization and impr
B. Food crop exports increased at a faster rate than the increase in food crop production.
An increase in a firm's stock price most likely indicates which of the following? If the price of a firm's bonds decreases, this indicates
B. optimism about the firm's profit prospects B. a higher cost of new external funds.
The Sarbanes-Oxley Act The Sarbanes-Oxley Act was passed
B. requires that CEOs of corporations certify the accuracy of financial statements. C. to promote management accountability in corporations.
For which of the following products is the price elasticity of demand (in absolute value) the largest?
C. Tide liquid detergent
The substitution effect is the change in the quantity demanded of a good that results from ______________, holding constant the effect of the price change on consumer purchasing power. The income effect causes quantity demanded to ________ when the price of a normal good decreases, and causes quantity demanded to ________ when the price of an inferior good decreases.
C. a change in price making the good more or less expensive relative to other goods A. increase; decrease
Evaluate the following argument: I would like to invest in the stock market, but I think that buying shares of stock in a corporation is too risky. Suppose I buy $10,000 of Twitter stock, and the company ends up going bankrupt. Because as a stockholder, I'm part owner of the company, I might be responsible for paying hundreds of thousands of dollars of the company's debts. This statement is
C. false because shareholders are not liable for the debts of a corporation.
When the price of a product changes,
C. it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.
Like many other cities, Denver experienced a sharp decline in construction of new houses in the years following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In addition, builders stopped buying and preparing home lots for construction. According to an article in the Wall Street Journal, by 2014, as consumers increased their demand for new homes in Denver, "New-home prices have surged over the past two years ... amid
C. smaller because supply is more elastic over time.
What is the impact of an increase in worker productivity when demand is relatively more elastic?
D. An increase in sales revenue received by the firm.
According to the U.S. Energy Information Administration, the average price of a gallon of gasoline increased from $2.24 in January 2019 to $2.85 in May. For the following questions, assume that no factor that affects the demand for gasoline, other than its price, changed during the months from January to May 2019. Source: U.S. Energy Information Administration, "Petroleum and Other Liquids, Weekly U.S. Regular All Formulations Retail Gasoline Prices," eia.gov. If ho
D. No. Given the price of gasoline rose and consumption increased, gasoline must be a Giffen good. All Giffen goods are inferior goods, so we can conclude that gasoline is not a normal good. B. No. To conclude that gasoline is an inferior good, we would have to know that less gasoline was consumed as the incomes of U.S. households rose. C. not a Giffen good because when the price rose, less was consumed.
An article in the Wall Street Journal used the headline "Procter & Gamble, in a Strategy Shift, Moves to Raise Prices" and the sub-headline "Company would seek to push through large price increases on Pampers diapers and Bounty paper towels." Source: Sharon Terlep, "Procter & Gamble, in a Strategy Shift, Moves to Raise Prices," Wall Street Journal, July 31, 2018. a. The article notes that Pampers and Bounty are two of Procter & Gamble's (P&G's) most p
D. P&G apparently believes that the demand curves for these goods are price inelastic because raising the prices of goods that have price inelastic demand will increase the firm's total revenue. C. "Industrywide pricing moves" are price changes that are made by most firms in an industry at about the same time. Competitors' raising their prices will make the demand for Pampers and Bounty less elastic than if the competitors don't raise their prices.
In early 2015, gasoline prices in many parts of the United States had fallen to below $2.00 per gallon, which a news story called "one of the swiftest declines on record." Source: Nick Timiraos, "As Gasoline Heads Toward $2, the Benefits Start to Trickle Down," Wall Street Journal, January 22, 2015. For most people, gasoline is likely to be.... Why is your answer important for predicting how much the quantity of gasoline demanded will increase as a result of
D. a normal good because as incomes increase people drive more. increase more
An income statement shows a firm's
D. all of above
Investors use the bond ratings from Moody's, S&P, and Fitch to determine which bonds they will buy and the prices they are willing to pay for them. The rating services charge the firms and governments that issue bonds, rather than investors, for their services. Critics argue that the rating agencies may give higher ratings than are justified in order to continue to sell their services to bond issuing firms. Moody's, S&P and Fitch don't sell their services directly to investors be
D. doing so creates a "free rider" problem.
If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, demand for Red Bull is _______ in this range.
D. elastic
Behavioral economics is the study of Three mistakes consumers often make are
D. situations in which people make choices that do not appear to be economically rational. E. ignoring nonmonetary opportunity costs, failing to ignore sunk costs, and being overly optimistic about the future.
Assume a large corporation is experiencing the principal-agent problem. What could the corporation do to minimize this problem? The company could......
D. tie the salaries of top managers to the profits of the firm.
A(n) _____ is a financial security that represents partial ownership of a firm, while a _____ is a financial security that represents a promise to repay a fixed amount of funds.
D. stock, bond
The market regulator of a country is reviewing the application from a corporation to set up a stock exchange. Finex, the corporation which plans to commence equity trading, currently owns 4X, which is one of the largest currency exchange markets in the country. Regulation requires that an entity cannot hold more than 25 percent of the shareholding of a stock exchange. The remainder has to be held either by the government, the banks, or other financial institutions. The ownership s
E. 4X owns 10 percent of the proposed equity exchange.
Richard Thaler, an economist at the University of Chicago, is the person who first used the term endowment effect to describe placing a higher value on something already owned than would be placed on the object if not currently owned. According to an article in the Economist: Dr Thaler, who recently had some expensive bottles of wine stolen, observed that he is "now confronted with precisely one of my own experiments: these are bottles I wasn't planning to sell and now
E. Thaler places a higher value on bottles of wine when he owns them than when he does not own them.
Suppose you have purchased a ticket to an NFL football game for $78. The ticket is nonrefundable, cannot be resold, and must be used on Sunday afternoon, which is the only time the game will be played. Prior to the game, a friend calls and invites you to his country club to play a round of golf on Sunday afternoon. Though the cost of a round of golf is $28, your friend will pay the cost of golfing at the club. Assume you would rather play a round of golf with your friend tha
Play golf with friend C. sunk cost
A bond represents ___________ , while a share of stock represents ____________
a loan to the company, part ownership of the company
Suppose the price elasticity of demand for cereal is −1.19. If so, then the demand for cereal is__________ In another example, assume the price elasticity of demand for a particular magazine is −1.47. The demand for the magazine is __________
elastic, elastic
Suppose the owner of a Dollar General store raises the price of the merchandise in her store. In turn, total revenue at her store increases by 25 percent. The demand for the store's merchandise is
inelastic
Before the start of the 2000 baseball season, the New York Mets decided they didn't want Bobby Bonilla playing for them any longer. But Bonilla had a contract with the Mets for the 2000 season that would have obliged the Mets to pay him $5.9 million. When the Mets released Bonilla, he agreed to take the following payments in lieu of the $5.9 million the Mets would have paid him in the year 2000: He will receive 25 equal payments of $1,193,248.20 each July 1 from 2011 to 2035
lump sum
The demand for Camel cigarettes should be ___________ the demand for all cigarettes.
more elastic than
