Econ review test 1

As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:

the substitution effect of a price change

If supply and demand both increase, the new equilibrium price will be _________ and the new equilibrium quantity will be_________

uncertain; higher

If supply and demand both decrease, the new equilibrium price will be ________ and the new equilibrium quantity will be ________

uncertain; lower

Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then;

the opportunity cost of attending State U. includes the money Alex could have earned working for four years

Suppose that Tom bought bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the sellers surplus from this transaction was:

$10

Refer to the table below. According to the Cost-Benefit Principle, how many units of this activity should be carried out?

3

Refer to the table below. The marginal cost of the 3rd unit of this activity is:

$20

The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. Why?

Higher gas prices increased the cost of driving an SUV

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

Suppose the equilibrium price and quantity of ketchup fall. The most likely explantation for these changes is:

a decrease in the demand for ketchup

Suppose that the equilibrium price of french fries rises while the equilibrium quantity falls. The most likely explanation for these changes is:

a decrease in the supply of french fries

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

"As the price of personal computers continues to fall, demand increases". This headline is inaccurate because:

a falling price of personal computers increases the quantity demanded, not demand

If the demand for computers increases as consumers incomes rise, then computers are

a normal good

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

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

A demand curve is _________ sloping because _________

downward; fewer people are willing to buy an item at higher prices

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 both the supply of iPads and the demand for iPads decrease. one can predict that the:

equilibrium quantity will fall, but the change in equilibrium price is uncertain

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

If price is above the equilibrium price, then there will be:

excess supply

Suppose that the equilibrium price of apples decreases and the equilibrium quantity of apples increases. This is best explained by a(n):

increase in the supply of apples

Ad the price of cookies increases, firms that produce cookies will:

increases the quantity of cookies supplied

If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are:

substitues

According to the Cost-Benefit Principle, you should go see the latest Star Wars movie with your friends this weekend if:

the benefits of seeing the movie are greater than the costs of seeing the movie

Refer to the figure below. Suppose the soling line shows the current demand for coffee. In response to a news story explains that coffee causes heart disease, you should expect:

the demand curve to shift to D(A) because some people will stop drinking coffee

Refer to the figure below. Suppose the solid line shows the demand for coffee. If coffee and tea are substitutes, and the price of tea falls, then you would expect:

the demand curve will shift to D(A)

If fast food is an inferior good then:

the demand for fast food will fall as income rises