exam 1
Of these three price changes, which would, through its impact on sales, generate a revenue increase for the store?
Sofas and rugs
A local furniture store recently introduced price changes for several of the items that it carries. Use the table below to answer the following questions: For sofas, the price elasticity of demand is ____ Demand for sofas is ____ For lamps the price elasticity of demand is ____ Demand for lamps is _____ For rugs the price elasticity of demand is _____ Demand for rugs is ______
-0.67 Inelastic -1.0 Unit elastic -1.4 Elastic
You have been invited to play a 4-hour round of golf that has a value to you of $70. The total price to play the round of golf is $45. The net benefit of the round of golf is $____ Now assume that you have a job that pays you $6 per hour. Would you be optimizing to accept the invitation to play golf? To optimize, you should ____ golf
25 play
Your total benefits from spending time with your spouse are shown in the following table. Alternatively, you have the option of working as many hours as you want, earning $11 per hour. Assume this is the next best use of your time. Use the marginal principle to find your optimal number of hours to spend with your spouse per day. The optimal amount of time for you to spend with your spouse is ____ hours per day
3
In which of the following situations is optimization a good description of behavior? A. Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable. B. Rita watches movies late at night. The next day, she wakes up late causing her to be late to her exam. C. Kat, the MIT business management graduate, starts his first business and incurs huge financial losses despite graduating from MIT. D. John is careless and irresponsible causing him to make a lot of mistakes in his work.
A
Suppose the university is trying to determine the most efficient way to allocate the rooms such that those who value the rooms the most get them. Which of the following would you suggest as the most efficient? A. Auctioning the rooms to the highest bidders. B. Allocating rooms based on grades, with students with the highest GPAs getting first choice. C. Using a random lottery to allocate rooms, with each student having equal odds of receiving a room. D. Allocating rooms based on seniority. Seniors get first choice, then juniors, and so on.
A
You should collect ____ amount of data to create ____ to test the ____ indicated by the economic model
A large Empirical evidence Hypotheses
Economists study ____ therefore the unifying feature of economics is a focus on ____
All human behavior Choice
In which of the following areas will taking an economics course help benefit you throughout your life? A. It will help you analyze and predict human behavior in a variety of situations. B. It will give you the logic behind using cost-benefit analysis when evaluating decisions. C. It will instill the concept that what activity is given up by a decision plays an important role when making choices. D. All of the above.
All of the above
Which of the following statements regarding the principle of optimization is true? A. It applies only in the case of monetary and financial matters. B. It means always choosing the best feasible option. C. It takes into account and evaluates multiple trade-offs. D. It is the unifying principle that connects various seemingly unrelated decisions.
C and D
Given the supply and demand curves on the right, when the price of the good is $20, we say that the market is in ____. At this price we know that the quantity supplied is ____ the quantity demanded. If the only change in the market was that the price increased to $30 then we know that the quantity supplied will be _____ the quantity demanded resulting in _____ which is also known as ____. Suppose instead that the price of the good dropped below the competitive equilibrium price to a price of $15 per unit.. If this were to occur then the quantity supplied would be ____ the quantity demanded resulting in _____ which is also known as _____
Competitive equilibrium Equal to Greater than An excess supply A surplus Less than An excess demand A shortage
According to economists, the process of optimal decision making by consumers typically yields total benefits well above the amount paid for the goods. These market-created benefits are referred to as ____ and using the graph to the right are represented by area ____.
Consumer surplus B
Everything else the same, as the price of the good increases, quantity demanded ____
Decreases
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. What tool would you employ to analyze the relationship between gasoline prices and consumer behavior?
Economic models
The three principles of economics include optimization, equilibrium, and empiricism.
Empiricism describes a situation where economists use data to analyze what is happening in the world Optimization describes a situation where people weigh costs and benefits when making a decision Equilibrium describes a situation where no one would benefit from changing his or her behavior
When economists test their theories using evidence-based analysis, they are most likely using
Empiricism through the use of data
For a market to be in equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions. The amount produced by sellers must be ____ the amount purchased by buyers. The costs of making a product must be ____ the final price at which the product sells. Buyers must place a value on the uses of the product that is _____ the cost of buying the product.
Equal to Less than Greater than
For economists the "buyer's problems" refers to ____.
How consumers arrive at a choice as to what to purchase
The demand curve shows _____
How the quantity demanded responds to changes in the price of the good
An example of causation is ____
If you work fewer hours you will earn less money
Suppose now that the market price falls. According to the graph, the excess of total benefits over the total amount spent by consumers will _____
Increase
Suppose you are on a date with an economics major, and you want to impress them by asking good economic questions. Two characteristics of a good economic question are: 1 _____ 2 ____
It is important to individuals or society It can be answered
Suppose apartments are in four locations: Location A, Location B, Location C, and Location D. Location A is in the city, where your job is. Location B is 10 minutes farther from your job than Location A. Location C is 10 minutes farther from your job than Location B, and Location D is 10 minutes farther than Location C. In turn, similar apartments in Location B rent for $145 less per month than apartments in Location A, apartments in Location C rent for $145 less than in Location B, and apartments in Location D rent for $145 less than in Location C. Suppose the value of your time is $20 per hour and you work 21 days per month, with each day requiring a round-trip commute from your apartment to work. For simplicity, assume rent and the opportunity cost of your time commuting to work are the only factors influencing the location in which to rent an apartment. You should rent an apartment in ____ Suppose you currently rent an apartment in Location C. By moving to optimize, you change your net benefit by $ ____
Location D 5
Which of the following is not a characteristic of a market? A. Markets are physical locations where trading occurs B. Voluntary exchanges between economic agents C. Flexible prices D. There are rules and arrangements for trading
Markets are physical locations where trading occurs
Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $100 and his marginal benefit from an additional slice of pizza is $110. If the price of a soft drink is $1 and the price of a slice of pizza is $2, is Charley maximizing his total benefits?
No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits
The goal of optimization for an individual is to maximize ____
Overall well-being
The Law of Demand states that as the price of a good increases, ceteris paribus, the _____ decreases. This can be shown graphically with _____ demand curve or numerically in a table using a _____. The relationship that exists between these two variables can be described as _____.
Quantity demanded A downward-sloping Demand schedule Negatively related
Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that ____________.
Quantity demanded would exceed the quantity supplied, resulting in a shortage
The Law of Supply states that as the price of a good increases, ceteris paribus, the ____ of that good increases. This can be shown graphically with ____ supply curve or numerically in a table using a ____. The relationship that exists between these two variables can be described as ____.
Quantity supplied An upward-sloping Supply schedule Positively related
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. In your first presentation to management, how would you describe your planned methodology to perform the analysis?
Scientific method
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client has requested that your consulting team expatiate on the factors that impact gasoline prices. One of the members of your team, Debbie, states that she has noticed that gasoline prices seem to rise in years when a National League baseball team wins the World Series. You ____ include this observation in your report because it is _____ In this case, correlation does not equal causation most likely due to _____
Should not Correlation not causation Omitted variables
During the process of optimization economists believe that people are considering _________.
The feasibility of a choice, given the information available at the time
Utility measures _____
The happiness or satisfaction that comes from consuming a good
Causation implies ____
a causes b if because a, b has occurred
