Econ final
The price of bananas will increase in response to:
an excess demand for bananas.
Refer to the figure below. At a price of $9, there will be:
an excess supply of 5 units.
The table below shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. What is the marginal cost of the 5th car wash each month?
$15
When the firm uses 9 employee-hours, its total cost each day is:
$176
Which of the following factors will lead to a decrease in the current supply of a good?
A belief that the price of a good or service will go up in the future
To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is:
experiencing diminishing returns.
The Cost-Benefit Principle tells us that a firm should continue to expand production as long as:
price of the good is greater than its marginal cost.
Total revenue minus both explicit and implicit costs defines a firm's:
profit.
According to the Cost-Benefit Principle, you should go see the latest Star Wars movie with your friends this week-end if:
the benefits of seeing the movie are greater than the costs of seeing the movie.
The price elasticity of demand is a measure of:
the change in quantity demanded of a good that results from a change in its price
A rational seller will sell another unit of output:
if the cost of making another unit is less than the revenue gained from selling another unit.
According to the textbook, government price controls fail because:
legislation cannot alter basic economic incentives.
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
Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______:
lower
If supply increases and demand decreases, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.
lower; uncertain
If the demand for a good is highly elastic, that good is likely to have:
many close substitutes.
The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.
marginal cost
In general, perfectly competitive firms maximize their profit by producing the level of output at which:
marginal cost equals price.
If a production process exhibits diminishing returns, then as output rises:
marginal cost will eventually increase.
If the demand curve for a good is a vertical line at Q = 1, then a decrease in the price of that good will:
not change the quantity demanded.
You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. What is your opportunity cost of seeing a movie this afternoon?
$12
Refer to the table below. The marginal benefit of the 6th unit of activity is:
$2
John's benefit from his first hour cleaning windows is:
$14
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. Assume the minimum that Matt would be willing to accept to drive to campus is equal to the $4 he saved on the concert ticket. What would his economic surplus be if he bought his textbooks at the university bookstore rather than online?
$1
What is the lowest price per window that would induce John to spend at least one hour per day cleaning windows?
$1
You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is:
$1
Refer to the figure below. If Laura and Chris are the only two consumers in this market, then the market demand for hamburger will be 9 pounds per week when the price of hamburger is:
$1.00 per pound
Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the seller's surplus from this transaction was:
$10
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.
The following table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase.The marginal cost of upgrading from a 2.5GHz to 3.0GHz computer is:
$200.
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
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
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.The benefit to Matt of driving to campus to buy the concert ticket last week was:
$4
Refer to the table below. The average cost of 5 units of activity is:
$6
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 average cost for a meal is:
$6.
If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:
0.3.
Refer to the figure below. When P = 4, the price elasticity of demand for the demand curve D1 is ______ and D2 is ______.
1/3; 2/3
When the price of a doughnut is 25 cents, what is the market demand for doughnuts?
16 doughnuts
Refer to the table below. To increase output from 33 to 66 units requires ______ extra employee-hour(s); to increase output from 66 to 99 units requires ______ extra employee-hour(s).
1; 2
The table below shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. How many times a month should you get your car washed?
2
If the absolute value of the price elasticity of demand for tickets to a football game is 2, then if the price increases by 1%, quantity demanded decreases by:
2%.
Suppose that at a price of 25 cents per orange, 500 consumers each demand 4 oranges, and at a price of 20 cents per orange, 750 consumers each demand 5 oranges. Therefore, the market demand for oranges is ______ at a price of 25 cents per orange and ______ at a price of 20 cents per orange.
2000; 3750
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. What is the marginal benefit to Frank of the 2nd hour he spends picking in the east orchard?
24 apples
Refer to the figure below. The absolute value of the slope of the demand curve D1 is ______, and the absolute value of the slope of demand curve D2 is ______.
2; 1/2
Fran is one of the students whose demand curve for ice cream is shown above. When price is $4.00, Fran demands ______ scoops a week, and when price is $2.00, Fran demands ______ scoops.
2; 6
A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. If the firm sells each computer for $625, then how many hours a day should the firm employ Pam to maximize its net benefit from her employment?
3 hours
If the price elasticity of demand for pineapples is 0.75, then a 4% increase in the price of pineapples will lead to a:
3% decrease in the quantity of pineapples demanded.
If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then Chris should make ______ mugs per day.
4
Refer to the information below. It is clear that diminishing returns sets in after ______ workers per day.
4
Refer to the figure below. At the original market equilibrium:
40 cups are sold per hour at a price of $2.00 each.
The price elasticity of demand at point A is:
5/2.
Refer to the figure below. If Mallory and Rick are the only two consumers in this market and the price of soda is $0.75 per can, then what will be the market demand for soda each month?
50
For which of the following products is demand likely to be least elastic with respect to price?
Food
Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true?
Forest has to make trade -offs.
Which of the following is NOT a characteristic of rent controls?
Greater availability of apartments.
The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. Why?
Higher gas prices increased the cost of driving a SUV.
Which of following is NOT true of the equilibrium price?
It is fair in the sense that everyone can afford basic goods and services.
The fact that the average price of a gallon of gasoline is much higher in England than in the U.S. leads to which of the following predictions?
Large cars with poor gas mileage will be less popular in England than in the U.S. References
Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true?
Last semester's grades were lower than your overall GPA.
Which of the following is NOT a characteristic of a market in equilibrium?
Neither buyers nor sellers want the price to change.
Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not?
No single person's benefit from cleaning the park exceeds that person's cost of cleaning it.
Every time you go to the grocery store, you try to wait in the shortest line. But the lines always seem to be roughly the same length. Why?
Other people are trying to choose the shortest line too.
Suppose quantity demanded is given by Qd=100-P, and quantity supplied is given by Qs=20+3P. In this case, equilibrium price, P*, and equilibrium quantity, Q*, are as follows:
P*=20, Q*=80
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.
Assume the demand for coffee increases and the supply of coffee decreases. Which of the following outcomes is certain to occur?
The equilibrium price of coffee will rise.
Refer to the figure below. If the government imposed a price ceiling of $40, what would happen in this market?
The price ceiling would have no effect.
Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?
The size of the seating area.
Which of the following is NOT a determinant of the demand for gasolin
The supply of gasoline.
Which of the following would not be studied in microeconomics?
Whether the federal budget should be balanced.
Satellite TV is a close substitute for cable TV. In the 1990's, small satellite TV units were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to:
become more elastic.
When two people agree to a price in a negotiation, we can assume that:
both parties will benefit.
When the current price of a good is below the equilibrium price:
buyers have an incentive to offer to pay sellers more than the current price.
It is likely that for most people:
coffee and tea are substitutes.
If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are:
complements
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.
Refer to the figure below. An increase in demand is represented by a shift from:
curve C to curve D.
If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:
decrease by 3%.
Suppose that the equilibrium price of T-shirts increases and the equilibrium quantity of T-shirts decreases. This is best explained by a(n):
decrease in the supply of T-shirts.
The demand for a good is elastic if the price elasticity of demand is:
greater than one.
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
The Cost-Benefit Principle indicates that an action should be taken if, and only if:
its benefits exceed it costs.
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:
keeps the price of her lemonade the same and increases the output.
A market equilibrium:
leaves no unexploited opportunities for individuals.
A study that deals with the salaries of university professors would be considered:
microeconomics
If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ______.
negative; complements
During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durable goods are:
normal goods.
An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of:
normative economics.
One thing that distinguishes normative economic principles from positive economic principles is that:
normative principles tell us how people should behave, and positive principles tell us how people will behave.
The law of demand indicates that as the cost of an activity:
rises, less of the activity will occur.
Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss. If the price of each unit of output is $1.50, then, in the short run, it's clear that this firm:
should not shut down if its total variable cost is less than $750.
Efficiency occurs if the:
socially optimal quantity of goods and services is being produced.
If cross-price elasticity of demand between two goods is positive, the two goods are:
substitutes.
Refer to the figure below. Suppose the solid line shows the current demand for coffee. In response to a news story explaining that coffee causes heart disease, you should expect:
the demand curve to shift to D(A) because some people will stop drinking coffee.
"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying:
the demand curve.
If fast food is an inferior good then:
the demand for fast food will fall as income rises.
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
Refer to the figure below. If demand shifts from D1 to D2, and at the same time, supply shifts from S1 to S2, then according to the figure:
the equilibrium quantity will increase and the equilibrium price will increase.
Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph. Demand for the new drug is ______ while demand for one brand of the over-the-counter pain relievers is ______.
the line labeled A; the line labeled B
Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. If Casey's decision to change careers did not affect the price of vegetables at the farmers market, then this suggests that:
the market for vegetables is perfectly competitive.
Macroeconomics differs from microeconomics in that macroeconomics focuses on:
the performance of national economies and ways to improve that performance.
If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that:
the price elasticity of demand at the original price was greater than one.
A seller's reservation price is generally equal to:
the seller's opportunity cost of producing an additional unit.
As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:
the substitution effect of a price change.
Suppose that the price of doughnuts decreases. Given that doughnut-holes are a by-product of producing doughnuts, one would expect:
the supply of doughnut holes to decrease.
Your neighbors have offered to pay you to look after their dog while they are on vacation. It will take you one hour per day to feed, walk, and care for the dog, which you can do either before or after you go to work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after your neighbor's dog is equal to:
the value of one hour of leisure, which is greater than zero.
Economists use abstract models because:
they are useful for describing general patterns of behavior.
Economists recognize that because people have limited resources:
they have to make trade offs
The average benefit of n units of an activity is
total benefit of n units divided by n.
Refer to the figure below. If the price of a latte increases from $2.00 to $2.50:
total expenditure would decrease.
If the price elasticity of demand for a good equals one, then the demand for that good is:
unit elastic.
Individual supply curves generally slope ______ because ______.
upward; of increasing opportunity costs.
Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.
wash clothes; bigger
Excess demand occurs:
when price is below the equilibrium price.
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 State College is:
$35,000
The marginal benefit of upgrading from a 2.0GHz computer to a 2.5GHz computer is:
$400.
Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450.What is the opportunity cost of using the coupon for the Miami trip?
$450
If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $95 each, then Sarah should produce ______ cakes per day.
3
The table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. The President of State U decides to hire fundraising employees as long as their average benefit exceeds their average cost. This results in ______ employees being hired and a net benefit (total donations minus total labor costs) of ______.
5; $17,080
If Frank spends 2 hours picking apples in the east orchard and 2 hours picking apples in the west orchard, how many apples in total will Frank be able to pick today?
84
Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend cancelled, so you could use only two of the tickets. You sold the third ticket just outside the entrance to the concert for more than the price you had originally paid. Which transaction occurred in a market?
Both the purchase at the University ticket window and the sale at the concert entrance were market transactions.
You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. Should you go see a movie or work as a math tutor?
You should work as a math tutor.
If the elasticity of demand for the latest American Idol album is 1.4, this means
a 5% increase in the price leads to a 7% decrease in quantity demanded.
Refer to the table below. Relative to column C, column D represents:
a decrease in supply.
If crude oil is a variable factor of production for a firm, then an increase in the price of crude oil will lead to:
a decrease in the firm's supply.
The long run is best defined as:
a period of time sufficiently long that all factors of production are variable.
Refer to the figure below. Assume the market is originally at point W. Movement to point X is the result of:
an increase in demand and an increase in quantity supplied.
When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:
at least $1.75 but less than $2.
When the price of a good changes, the amount of that good that buyers wish to buy changes:
because of both the substitution and the income effects.
Refer to the figure below. If Mallory and Rick are the only two consumers in this market and the price of soda increases from $0.75 to $1.00 per can, the quantity of soda demanded in the market will ______ by ______ cans per month.
decrease; 40
All else equal, a decrease in the demand for oranges will lead to a(n) ______ in equilibrium price and a(n) ______ in equilibrium quantity.
decrease; decrease
Suppose a profit-maximizing firm in a perfectly competitive market is earning an economic profit of $1,345. If the firm's fixed cost increases from $200 to $300, the firm will:
earn a smaller profit.
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
Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case:
excess supply will lead the price of broccoli to fall
Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium:
excess supply will lead the price to fall.
Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of:
inconsistent reasoning; saving $20 is saving $20.
For a given seller, the figure below shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. As the market price of this good increases, the quantity produced by this seller will ______.
increase
A decrease in the price of pizza will lead to a(n):
increase in the quantity of pizza demanded.
Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its
increase production.
The supply curve illustrates that firms:
increase the quantity supplied of a good when its price rises.
Pepsi One is a close substitute for Diet Coke. When Pepsi introduced Pepsi One, the price elasticity of demand for Diet Coke ______ and Coke's ability to raise revenues through price increases ______.
increased; was reduced
The Cost-Benefit Principle predicts that people will be less likely to smoke if the government:
increases taxes on cigarettes, effectively raising the price.
If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:
inelastic.
If the demand curve for bologna shifts to the right as income falls then bologna is a(n):
inferior good.
You have found data that indicates that the income elasticity of demand for generic (unbranded) shampoo is -0.7. You should conclude that generic shampoo:
is an inferior 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.
If consumers completely cease purchasing a product when its price increases by any amount, then demand is:
perfectly elastic.
When the price of insulin is $10, consumers demand 100 units; when the price is $15, consumers demand 100 units; and when the price is $20, consumers demand 100 units. Based on this information, the demand for insulin is:
perfectly inelastic
If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:
perfectly inelastic.
When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically:
positive.
An increase in consumers' demand for espresso will lead to an increase in ______, while an increase in the number of firms producing espresso will lead to a(n) ______.
quantity supplied; increase in supply
With ATMs, it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, say, 9 am to 3 pm. The present availability of 24-hour service has arisen because:
the cost of providing 24-hour service is much lower today.
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.
