Micro Exam 1

Suppose that demand is inelastic within a certain price range. For that price range,... a. an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price. b. an increase in price would decrease total revenue because the decrease in quantity demanded is proportionately greater than the increase in price. c. a decrease in price would increase total revenue because the increase in quantity demanded is proportionately smaller than the decrease in price. d. a decrease in price would not affect total revenue.

a. an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price.

Scenario 5-4: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. The change in equilibrium price will be... a. greater in the milk market than in the beef market. b. greater in the beef market than in the milk market. c. the same in the milk and beef markets. d. Any of the above could be correct.

a. greater in the milk market than in the beef market.

To determine whether a good is considered normal or inferior, one could examine the value of the... a. income elasticity of demand for that good. b. price elasticity of demand for that good. c. price elasticity of supply for that good. d. cross-price elasticity of demand for that good.

a. income elasticity of demand for that good.

Scenario 5-4: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. The equilibrium price will... a. increase in both the milk and beef markets. b. increase in the milk market and decrease in the beef market. c. decrease in the milk market and increase in the beef market. d. decrease in both the milk and beef markets.

a. increase in both the milk and beef markets.

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is... a. inelastic. b. unit elastic. c. elastic. d. highly responsive to changes in income.

a. inelastic.

One thing economists do to help them understand how the real world works is... a. make assumptions b. ignore the past c. try to capture every aspect of the real world in the models they construct d. All of the above are correct

a. make assumptions

If two goods are substitutes, their cross-price elasticity will be... a. positive. b. negative. c. zero. d. equal to the difference between the income elasticities of demand for the two goods.

a. positive.

The slope of a line is equal to... a. rise divided by run b. run divided by rise c. rise minus run d. rise plus run

a. rise divided by run

When quantity demanded decreases at every possible price, the demand curve has... a. shifted to the left b. shifted to the right c. not shifted; rather, we have moved along the demand curve to a new point on the same curve d. not shifted; rather, the demand curve has become flatter

a. shifted to the left

Suppose the U.S. has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that... a. the U.S. should produce more pork than it requires and export some of it to Mexico b. the U.S. should produce a moderate quantity of pork and import the remainder of what is required from Mexico c. the U.S. should refrain altogether from producing pork and import all of what it requires from Mexico d. Mexico has nothing to gain from importing U.S. pork

a. the U.S. should produce more pork than whit it requires and export some of it to Mexico

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of... a. the availability of close substitutes in determining the price elasticity of demand. b. a necessity versus a luxury in determining the price elasticity of demand. c. the definition of a market in determining the price elasticity of demand. d. the time horizon in determining the price elasticity of demand.

a. the availability of close substitutes in determining the price elasticity of demand.

When two variables have a negative correlation, a. they tend to move in opposite directions b. they tend to move in the same direction c. one variable will move while the other remains constant d. the variables' values are never positive

a. they tend to move in opposite directions

As the price elasticity of supply approaches infinity, very small changes in price lead to... a. very large changes in quantity supplied. b. very small changes in quantity supplied. c. no change in quantity supplied. d. None of the above is correct.

a. very large changes in quantity supplied.

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is... a. 0. b. 1. c. 6. d. 36.

b. 1.

Suppose a gardener producers both tomatoes and squash in his garden. If he must give up 8 bushels of squash to get 5 bushels of tomatoes, then his opportunity cost of 1 bushel of tomatoes is... a. 0.63 bushels of squash b. 1.6 bushels of squash c. 3 bushels of squash d. 5 bushels of squash

b. 1.6 bushels of squash

Refer to Table 3-3: Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is... a. 8 units of cheese and 10 units of wine b. 24 units of cheese and 15 units of wine c. 40 units of cheese and 20 units of wine d. 48 units of cheese and 30 units of wine

b. 24 units of cheese and 15 units of wine

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 60 bushels of corn and 400 bushels of oats. If each country made a decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by... a. 280 bushels of corn and 450 bushels of oats b. 340 bushels of corn and 500 bushels of oats c. 360 bushels of corn and 520 bushels of oats d. 360 bushels of corn and 640 bushels of oats

b. 340 bushels of corn and 500 bushels of oats

New oak table are normal goods. What would happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables, and the price of the glue used in the production of the new oak tables increased? a. Price will fall, and the effect on quantity is ambiguous b. Price will rise, and the effect on quantity is ambiguous c. Quantity will fall, and the effect on price is ambiguous d. Quantity will rise, and the effect on price is ambiguous

b. Price will rise, and the effect on quantity is ambiguous

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would... a. be negative, and your roommate's would be positive. b. be positive, and your roommate's would be negative. c. be zero, and your roommate's would approach infinity. d. approach infinity, and your roommate's would be zero.

b. be positive, and your roommate's would be negative.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because... a. buyers tend to be much less sensitive to a change in price when given more time to react. b. buyers tend to be much more sensitive to a change in price when given more time to react. c. buyers will have substantially more real income over a ten-year period. d. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

b. buyers tend to be much more sensitive to a change in price when given more time to react.

Any point on a country's production possibilities frontier represents a combination of two goods that an economy... a. will never be able to produce b. can produce using all available resources and technology c. can produce using some portion, but not all, of its resources and technology d. may be able to produce in the future with more resources and/or superior technology

b. can produce using all available resources and technology

A leftward shift of a supply curve is called a(n)... a. increase in supply b. decrease in supply c. decrease in quantity supplied d. increase in quantity supplied

b. decrease in supply

Refer to Figure 4-10: The movement from Point A to Point B represents a(n)... a. shift in the supply curve b. decrease in the quantity supplied c. increase in quantity supplied d. Both a and b are correct

b. decrease in the quantity supplied

Scenario 5-4: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. The change in equilibrium quantity will be... a. greater in the milk market than in the beef market. b. greater in the beef market than in the milk market. c. the same in the milk and beef markets. d. Any of the above could be correct.

b. greater in the beef market than in the milk market.

For a competitive market... a. a seller can always increase her profit by raising the price of her product b. if a seller charges more than the going price, buyers will go elsewhere to make their purchases c. a seller often changes less than the going price to increase sales and profit d. a single buyer can influence the price of the product but only when purchasing from several sellers in a short period of time

b. if a seller charges more than the going price, buyers will go elsewhere to make their purchases

Refer to Figure 4-16: The shift from S to S^1 could be caused by an... a. increase in the price of a good b. improvement in production technology c. increase in incomes d. increase in input prices

b. improvement in production technology

Scenario 5-4: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Total consumer spending on milk will... a. increase, and total consumer spending on beef will increase. b. increase, and total consumer spending on beef will decrease. c. decrease, and total consumer spending on beef will increase. d. decrease, and total consumer spending on beef will decrease.

b. increase, and total consumer spending on beef will decrease.

When studying how some event or policy affects a market, elasticity provides information on the... a. equity effects on the market by identifying the winners and losers. b. magnitude of the effect on the market. c. speed of adjustment of the market in response to the event or policy. d. number of market participants who are directly affected by the event or policy.

b. magnitude of the effect on the market.

In any economic system, scarce resources have to be allocated among competing uses. Market economies harness the forces of... a. government to allocate scarce resources b. supply and demand to allocate scarce resources c. credit cards to allocate scarce resources d. nature to allocate scarce resources

b. supply and demand to allocate scarce resources

The market for diamond rings is closely linked to the market for high-quality diamonds. If a large quantity of high-quality diamonds enters the market, then the... a. supply curve for diamond rings will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity b. supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity c. demand curve for diamond rings will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity d. demand curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity

b. supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity

A key determinant of the price elasticity of supply is... a. the ability of sellers to change the price of the good they produce. b. the ability of sellers to change the amount of the good they produce. c. how responsive buyers are to changes in sellers' prices. d. the slope of the demand curve.

b. the ability of sellers to change the amount of the good they produce.

The quantity demanded of a good is the amount that buyers are... a. willing to purchase b. willing and able to purchase c. willing, able, and need to purchase d. able to purchase

b. willing and able to purchase

Cole is refinishing an antique china cabinet and has already sent $180 on the restoration. He expects to be able to sell the cabinet for $360. Cole discovers that he needs to do an additional $200 worth of work to make the cabinet worth $360 to potential buyers. He could also sell the cabinet now, without completing the additional work, for $100. What should Cole do? a. Sell the cabinet now for $100 b. Keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360 c. Complete the additional work and sell the cabinet for $360 d. It doesn't matter which action he takes since the outcome will be the same either way

c. Complete the additional work and sell the cabinet for $360

Refer to Figure 4-6: Suppose that the federal government is concerned about obesity in the U.S. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. We could illustrate the tax as producing a movement from... a. Point A to Point B in Panal 1 b. Point B to Point A in Panal 1 c. Point A to Point C in Panal 2 d. Point C to Point A in Panal 2

c. Point A to Point C in Panal 2

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact? a. Supply curves are steeper over long periods of time than over short periods of time. b. Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. c. The number of firms in a market tends to be more variable over long periods of time than over short periods of time. d. Firms prefer to change their prices in the short run rather than in the long run.

c. The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

Refer to Figure 4-1: The movement from point A to point B on the graph shows a(n)... a. decrease in demand b. increase in demand c. decrease in quantity demanded d. increase in quantity demanded

c. decrease in quantity demanded

Which markets are represented in the simple circular-flow diagram? a. markets for goods and services and markets for financial assets b. markets for factors of production and markets for financial assets c. markets for goods and services and markets for factors of production d. markets for goods and services and markets for imports and exports

c. markets for goods and services and markets for factors of production

Refer to Figure 4-18: At a price of $35, there would be a... a. shortage of 400 units b. surplus of 200 units c. surplus of 400 units d. surplus of 600 units

c. surplus of 400 units

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour or overtime work. Her opportunity cost of working is... a.the $60 she earns working b. the $60 minus the enjoyment she would have received from going to the park c. the enjoyment she would have received had she gone to the park d. nothing, since she would have received less than $60 worth of enjoyment from going to the park

c. the enjoyment she would have received had she gone to the park

Market economies are distinguished from other types of economies largely on the basis of... a. the political affiliations of government officials b. the process by which government officials are elected or appointed c. the ways in which scarce resources are allocated d. the number of retail outlets available to consumers

c. the ways in which scarce resources are allocated

A positive economic statement such as "Pollution taxes decrease the quantity of pollution generated by firms"... a. would likely be made by an economist acting as a policy advisor b. would require values and data to be evaluated c. would require data but not values to be evaluated d. could not be evaluated by economists acting as scientists

c. would require data but not values to be evaluated (values=opinion)

Refer to Figure 2-14: If this economy devotes all of its available resources to producing apples, then it will produce... a. 0 bushels of apples and 200 sweaters b. 80 bushels of apples and 160 sweaters c. 180 bushels of apples and 200 sweaters d. 180 bushels of apples and 0 sweaters

d. 180 bushels of apples and 0 sweaters

If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is... a. 0.50. b. 1. c. 1.5. d. 2.

d. 2.

The cross-price elasticity of demand can tell us whether goods are... a. normal or inferior. b. elastic or inelastic. c. luxuries or necessities. d. complements or substitutes.

d. complements or substitutes.

Scenario 5-4: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. The equilibrium quantity will... a. increase in both the milk and beef markets. b. increase in the milk market and decrease in the beef market. c. decrease in the milk market and increase in the beef market. d. decrease in both the milk and beef markets.

d. decrease in both the milk and beef markets.

The supply of oil is likely to be... a. inelastic in both the short run and long run. b. elastic in both the short run and long run. c. elastic in the short run and inelastic in the long run. d. inelastic in the short run and elastic in the long run.

d. inelastic in the short run and elastic in the long run.

If a decrease in income increases the demand for a good, than the good is a(n)... a. substitute good b. complementary good c. normal good d. inferior good

d. inferior good

A decrease in demand is represented by a... a. movement downward and to the right along a demand curve b. movement upward and to the left along a demand curve c. rightward shift of a demand curve d. leftward shift of a demand curve

d. leftward shift of a demand curve

Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a... a. shortage to exist and the market price of rose to increase b. shortage to exist and the market price of roses to decrease c. surplus to exist and the market price of roses to increase d. surplus to exist and the market price of roses to decrease

d. surplus to exist and the market price of roses to decrease

Economics is the study of how society manages its... a. limited wants and unlimited resources b. unlimited wants and unlimited resources c. limited wants and limited resources d. unlimited wants and limited resources

d. unlimited wants and limited resources