Econ - Test 1

If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is:

following the Cost-Benefit Principle.

Larry has a comparative advantage over his classmates in writing term papers if he:

has a lower opportunity cost of writing term papers than his classmates.

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

On a graph of a production possibilities curve, if a point is attainable, then it:

might or might not be efficient.

As the price of a good rises:

more firms can cover their opportunity cost of producing the good.

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

Refer to the accompanying table below. The marginal benefit of the 5th unit of 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

$10

Refer to the accompanying table below. The marginal benefit of the 6th unit of activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $2 $12 2 $6 $22 3 $12 $30 4 $20 $36 5 $30 $40 6 $42 $42 7 $56 $43

$2

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 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. What is the opportunity cost of going to the concert?

$36

Jack has a ticket to see the Foo Fighters for which he paid $30 yesterday. He takes an unpaid day off from work to get ready for the concert. When he arrives at the concert, five different people offer him $70 for his ticket. Jack decides to keep his ticket. At the time he makes this decision, his opportunity cost of seeing the Foo Fighters is

$70.

Refer to the accompanying table. Corey's opportunity cost of delivering of a pizza is making: Pizzas Made Per Hour Pizzas Delivered Per Hour Corey 12 6 Pat 10 15

2 pizzas.

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.

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore:

Gertie should buy the jeans because the price is less than her reservation price.

Which of following is NOT true of the equilibrium price?

It is fair in the sense that everyone It is fair in the sense that everyone can afford basic goods and services

During times of high unemployment, colleges often observe an increase in enrollment even if tuition remains unchanged. Why?

The opportunity cost of attending college is lower when unemployment is high.

Refer to the accompanying figure. A decrease in demand is represented by a shift from

curve D to curve C.

If a nation can produce a more computers per year than any other nation, that nation has a(n) ______ advantage in the production of computers.

absolute

Refer to the accompanying figure. Assume the market is originally at point W. Movement to point Y is the result of:

an increase in supply and an increase in quantity demanded.

When the supply of a good decreases, there will be a(n):

decrease in the quantity demanded.

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

The marginal benefit of an activity is the:

extra benefit associated with an extra unit of the activity.

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.

An implication of scarcity is that:

people must make trade-offs.

Refer to the accompanying table. Based on their comparative advantage, Martha should specialize in making _______ while Julia should specialize in making _______. Time to Make a Pie Time to Make a Cake Martha 60 minutes 80 minutes Julia 50 minutes 60 minutes

pies; cakes

Suppose a retail store was offering 10 percent off list prices on all goods. The benefit of the 10 percent savings is:

positively related to the list price of the good.

Economists believe the Cost-Benefit Principle is:

a simple but useful model of how people should make choices.

Which of the following would not be studied in microeconomics?

Whether the federal budget should be balanced.

You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10 percent off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15 percent savings. Should you drive downtown to buy the TV?

Yes, because you will save more than $20

Refer to the accompanying figure, which shows the market for cups of coffee. If all buyers' reservation prices increase by $1.00, then the equilibrium price of coffee would:

increase by less than $1.00.

At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n):

increase in the demand for apartments.

Suppose Colin brews beer and makes cheese. If Colin can increase his production of beer without decreasing his production of cheese, then he is producing at an:

inefficient point.

According to the textbook, government price controls fail because:

legislation cannot alter basic economic incentives.

Moe divides his time between studying Physics and studying Economics. His production possibilities curve for his final grade in each class is shown in the accompanying figure. The Principle of Increasing Opportunity Cost is reflected in the fact that the opportunity cost going from 70 to 80 in economics is:

lower than the opportunity cost of going from 80 to 90 in economics.

The slope of a production possibilities curve is ______ because ______.

negative; producing more of one good requires producing less of the other

Refer to the accompanying figure. If this economy were currently operating at point D, then in order to make more movies:

the first productive resources to switch to making movies should be those with the highest opportunity cost of making milk.

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

A seller's reservation price is generally equal to

the seller's marginal cost.

The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts.

unattainable.

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

Refer to the accompanying figure. Relative to point B, at point C this restaurant is:

making more pizzas and fewer salads.

Buyers and sellers of a particular good make up the:

market for the good.

If supply increases, then:

the quantity demanded will increase.

Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour Computers Per Hour Smith 100 10 Jones 120 6 The opportunity cost of making a calculator for Smith is ______ and for Jones it is ______.

0.10 computers; 0.05 computers

If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. What is Leo's opportunity cost of making a pound of fudge?

1.25 pounds of toffee

Refer to the accompanying table. Corey's opportunity cost of making of a pizza is delivering: Pizzas Made Per Hour Pizzas Delivered Per Hour Corey 12 6 Pat 10 15

1/2 of a pizza.

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars Sold Trucks Sold Larry 10 5 Joe 9 9 Ralph 3 12 Based on last month's data, Ralph's opportunity cost of selling a truck is selling:

1/4 of a car.

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. What is the opportunity cost to Cathy of making a cake?

2/3 of a pie.

Refer to the accompanying table. Pat's opportunity cost of delivering a pizza is making: Pizzas Made Per Hour Pizzas Delivered Per Hour Corey 12 6 Pat 10 15

2/3 of a pizza.

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

3

Refer to the accompanying figure. For Chris, the opportunity cost of removing one bag of trash is planting:

3 bulbs.

Refer to the accompanying table. Pat's opportunity cost of making a pizza is delivering: Pizzas Made Per Hour Pizzas Delivered Per Hour Corey 12 6 Pat 10 15

3/2 of a pizza.

Ref30 er to the accompanying figure. If this restaurant makes 75 salads in one hour, then what's the maximum number of pizzas it can make in that same hour?

30

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 $650, then how many hours a day should the firm employ Pam to maximize its net benefit from her employment?

4 hours

Refer to the accompanying figure. If this economy is currently producing at point C, then the opportunity cost of providing 100 additional units of medical care would be:

400 warheads.

if Al has an absolute advantage over Beth in preparing meals, then:

Al can prepare more meals in a given time period than Beth.

Refer to the accompanying figure, which shows the market for cups of coffee. What might cause a shift from the original demand curve to the new demand curve

An increase in consumers' tastes for coffee.

Josh wants to go to the football game this weekend, but he has a paper due on Monday. It will take him the whole weekend to write the paper. Josh decides to stay home and work on the paper. According to the Scarcity Principle, the reason Josh doesn't go to the game is that:

Josh can't go the game and finish the paper.

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Cars Sold Trucks Sold Larry 10 5 Joe 9 9 Ralph 3 12 Based on last month's data, ______ has an absolute advantage in selling cars and ______ has an absolute advantage in selling trucks.

Larry; Ralph

What might cause a decrease in current supply of a product?

New information that leads sellers to believe that the product's price will rise in the future

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 airfare is $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 $1,400. 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 airfare is $450. Should you use the frequent flyer coupon to go to Miami?

No, your benefit is less than your cost.

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.

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.

An increase in both the equilibrium price and the equilibrium quantity of DVD players is best explained by:

an increase in the demand for DVD players.

The United States was unable to maintain its dominance in the production of televisions because:

automated techniques allowed production to be outsourced to countries with less-skilled workers.

Refer to the given table. The equilibrium price in this market is: Price Per Unit Column A Units Per Year Column B Units Per Year $20 100 40 $30 95 50 $40 80 60 $50 65 70 $60 50 80

between $40 and $50.

You are trying to decide whether to purchase the latest Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should:

borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13

Economics is best defined as the study of:

choice in the face of limited resources.

If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are:

complements

If an increase in the price of good X leads to a decrease in the demand for good Y, then

good X and good Y are complements.

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

her reservation price was at least $400.

All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has:

higher opportunity cost of taking the day off work.

The Equilibrium Principle asserts that in a market equilibrium:

no unexploited opportunities exist for individuals.

A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a

production possibilities curve.