Micro Econ Final Exam Module 1 and 2

Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is the marginal cost of moving up from the 1-color application to the 3-color application?

$40

Suppose that the price of a money clip increases from $0.50 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.

.39

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.

.6

The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by

15 percent.

If consumers believe the price of LCD televisions will decrease in the future, this will cause the demand for LCD televisions to increase now.

False

Which of the following is an example of spending on factors of production in the circular flow model?

The "Suds Bucket" car wash buys new squeegees for all its employees.

Technological advancements have led to lower prices and an increase in the sale of digital cameras. How does this affect the digital photo printing paper market?

The demand curve for digital photo printing paper shifts to the right.

If the price of gasoline decreases, what will be the impact in the market for public transportation?

The demand curve for public transportation shifts to the left.

How does the decreasing use of traditional cameras affect the market for traditional camera film?

The demand curve for traditional camera film shifts to the left.

When voluntary exchange takes place, both parties gain from the exchange.

True

You have an absolute advantage whenever you

can produce more of something than others with the same resources.

Income elasticity measures how a good's quantity demanded responds to

change in buyers' incomes.

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are

complements in consumption.

Tesla Motors manufacturers its cars at a plant in Fremont, California. At this plant, Tesla is able to take advantage of the high level of technical training possessed by its American workers, but it also sacrifices the ability to pay lower wages had it chosen to open its plant in a low-wage country such as Mexico, India, or China. In deciding to open the Fremont plant, Tesla

faced a trade-off between higher cost and lower precision.

In a centrally planned economy, the households and firms decide how economic resources will be allocated.

false

The payment received by suppliers of entrepreneurial skills is called wages.

false

Productive efficiency is achieved when

firms produce goods and services at the lowest cost.

Suppose that when the price of hamburgers decreases, the Ruiz family increases their purchases of ketchup. To the Ruiz family,

hamburgers and ketchup are complements.

The price elasticity of an upward-sloping supply curve is always positive because

suppliers want to supply more when the price increases.

If the price of automobiles was to increase, then

the demand for gasoline would decrease

Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore

the demand for salt is relatively inelastic.

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

true

A college must decide if it wants to offer more Internet-based classes. This decision involves answering the economic question of "what to produce."

true

An economic model is a simplified version of reality used to analyze real-world economic situations.

true

Scarcity refers to a situation in which unlimited wants exceed the limited resources available to fulfill those wants.

true

To increase gas mileage, automobile manufacturers make cars small and light. Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage. These facts suggest that a negative relationship exists between safety and gas mileage.

true

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is

unit elastic

Adam Smith's behavioral assumption about humans was that people

usually act in a rational, self-interested way

A successful market economy requires

well-defined property rights and an independent court system to adjudicate disputes based on the law

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?

2.5 percent

What is the difference between an "increase in supply" and an "increase in quantity supplied"?

An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

Demand is likely to be relatively inelastic.

An outward shift of a nation's production possibilities frontier represents

Economic Growth

How are the fundamental economic questions answered in a market economy?

Households and firms interact in markets to decide the answers to these questions

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

It is elastic at high prices and inelastic at low prices.

Suppose there is no unemployment in the economy and society decides that it wants more of one good. Which of the following statements is true?

It will have to give up production and consumption of some other good.

Which of the following is a normative economic statement?

Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Technological advances have resulted in lower prices for digital cameras. What is the impact of this on the market for traditional (non-digital) cameras?

The demand curve for traditional cameras shifts to the left.

The production possibilities frontier model assumes which of the following?

The economy produces only two products.

Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long-run price elasticity of supply for oil?

The elasticity coefficient is likely to be higher in the long run than in the short run.

How are the fundamental economic decisions determined in North Korea?

The government decides because North Korea is a centrally planned economy.

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price?

The more elastic the supply curve, the smaller the price increase.

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. Which of the following statements accurately predicts the resulting decrease in price?

The more inelastic the supply curve, the greater the price decrease.

Which of the following explains why a firm would be interested in knowing the price elasticity of demand for a good it sells?

The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.

The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services. How does this affect the digital photo printing market?

The supply curve for digital photo printing services shifts to the right.

Suppose that in October, market analysts predict that the price of platinum will fall in November. What happens in the platinum market in October, holding everything else constant?

The supply curve shifts to the right.

If the United States placed an embargo on Swedish products, what would happen in the U.S. market for Swedish furniture?

The supply curve would shift to the left.

Which of the following statements is true?

The supply of oil is very inelastic over short time periods but becomes more elastic over time. A given shift in supply results in a smaller increase in the price of oil when the supply is more elastic

According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at -0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low?

There are few close substitutes for toothpaste.

Harvey Rabbitt pays for monthly cable TV service. Last week the cable company informed Harvey that his monthly cable price would go down because the city council has granted approval for three new cable companies to service his area. How is the market for cable TV services affected by this?

There is an increase in the supply of cable TV service.

A college must decide if it wants to offer more Internet-based classes. This decision involves answering the economic question of "what to produce.

True

A college must decide if it wants to offer more adult literacy classes. This decision involves answering the economic question of "what to produce."

True

In the circular flow model, households supply resources such as labor services in the factor market.

True

The town of Harmonia gives away all 500 tickets to its annual Founder's Day Free Concert-in-the-Park to local residents. Each year, more than 500 people wish to attend the concert, so some of the residents who receive the free tickets sell them for as much as $75 each. Is a transaction where someone pays a resident $75 for a "free ticket" economically efficient?

Yes, it was a voluntary exchange that benefited both parties.

competition

_______ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced

a decrease in supply.

If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter is

a normal good.

An example of a factor of production is

a vintner hired by a vineyard.

Consider the following items: a. the album "Wilder Mind" by Mumford & Sons b. a Dutch horticulturalist's new method for cultivating hybrid tulips c. Rolls Royce's "Spirit of Ecstasy" hood ornament design d. the sale of Tumi luggage at a Macy's department store Which of the items listed is an example of intellectual property?

a, b, and c

Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?

a, b, and c

Which of the following would cause an increase in the supply of peanut butter?

an increase in the number of firms that produce peanut butter

Which of the following would shift the supply curve for MP3 players to the left?

an increase in the price of an input used to produce MP3 players

Which of the following would cause a decrease in the supply of milk?

an increase the price of a product that producers sell instead of milk

If the marginal cost for Dinky's Donuts to advertise one additional day each week in the local newspaper is $200, then Dinky's Donuts should advertize that additional day

as long as the marginal benefit the company receives each week is just equal to or greater than $200.

A(n) ________ is represented by a leftward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve.

decrease in demand; increase in quantity demanded

If quantity supplied increases by a proportionately larger percentage than price,

elastic

A perfectly elastic demand curve is

horizontal

Billie's Billiard Barn has seen its business slow down ever since Patti's Ping Pong Parlour opened up across the street. Since the opening of Patti's Ping Pong Palace, the opportunity cost of shooting pool at Billie's Billiard Barn has ________ for Billie's customers who also like to play ping pong.

increased

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is

inelastic

If a good has a negative income elasticity of demand, this indicates that the good is

inferior

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

inferior good

A supply schedule

is a table that shows the relationship between the price of a product and the quantity of the product supplied.

A supply curve that is vertical

is perfectly inelastic

If society decides it wants more of one good and all resources are fully utilized, then

it has to give up some of another good and incur some opportunity costs.

All of the following contributed to the downfall of the Soviet Union in 1991 except

lack of a strong dictator who could coordinate economic activities.

The demand for all carbonated beverages as a whole is likely to be ________ the demand for Dr. Pepper.

less elastic than

The demand by all the consumers of a given good or service is the ________ for the good or service.

market demand

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. Should DeShawn continue to offer the engine detailing service?

no, his marginal benefit is less than his marginal cost

In a modern mixed economy, who decides what goods and services will be produced?

only the producers only consumers only the government

The primary purpose of ________ is to encourage the expenditure of funds on research and development to create new products.

patents and copyrights

Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers who did trade in their old automobiles to take advantage of the government offer would be exemplifying the economic idea that

people respond to economic incentives.

If a supply curve is a horizontal line, supply is said to be

perfectly elastic.

If firms do not increase their quantity supplied when price changes, then supply is

perfectly inelastic.

Total revenue equals

price per unit times quantity sold.

The price elasticity of supply is usually a positive number because

quantity supplied increases in response to price increases.

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is

relatively inelastic.

Individuals must always make choices about how to use their resources because of

scarcity

Tomas increased his consumption of potato chips when the price of pistachios increased. For Tomas, potato chips and pistachios are

substitutes in consumption.

If a firm expects that the price of its product will be higher in the future than it is today, then

the firm has an incentive to decrease supply now and increase supply in the future.

The price elasticity of supply measures

the responsiveness of quantity supplied to changes in price.

Which of the following is not a determinant of a good's price elasticity of demand?

the slope of the demand curve

The process involved in bringing oil to world markets can take years. Substitutes for oil-based products such as gasoline are limited. As a result

the supply of oil is very inelastic and the demand for gasoline is inelastic over short periods of time.

Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. Should Allison continue to offer the 3-color pinstripe application?

yes, she still makes a profit by selling the 3-color application