Microeconomics Week 3

Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip was $120 but has now increased to $150, the gain in producer surplus is equal to: A) $70 B) $90 C) $80 D) $20

A) $70

Which factor is most likely to shift the supply curve for milk to the left? A) a tax on each gallon of milk produced B) new dairy farms entering the market C) a decrease in the price of feed given to dairy cows D) an increase in household income, milk being a normal good

A) a tax on each gallon of milk produced

Stone and brick are substitutes in home construction. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Equilibrium price for bricks A) increases. B) decreases. C) may increase or decrease, but it is impossible to know for sure. D) remains constant.

A) increases.

If the technology of producing peanut butter improves, total surplus in the peanut butter market: A) will increase. B) will decrease. C) may change, but we cannot determine the change without more information. D) will not change.

A) will increase.

Suppose the market for a hotel room is as follows: The quantity demanded of rooms is 0 when the price is $90 per night and 90 when the price is $10 per night. Quantity supplied of rooms is 0 when the price is $10 and 100 when the price is $80. It will help to draw a graph of supply and demand for this question. In equilibrium, ____ rooms are occupied by guests and total surplus is ____ . A) 40; $1600 B) 50; $2000 C) 60; $2400 D) 50; $4000

B) 50; $2000

Rice and potatoes are substitutes in consumption. If the price of rice rises and there is a bumper crop of potatoes, in the market for potatoes one would expect the equilibrium price to _____ and the equilibrium quantity to _____. A) rise; fall B) fall, rise, or stay the same; rise C) rise; fall, rise, or stay the same D) fall; fall

B) fall, rise, or stay the same; rise

Consumer surplus is equal to the difference between A) the maximum price a seller is willing to accept and the market price. B) the maximum price a buyer is willing to pay and the market price. C) the minimum price a buyer is willing to pay and the market price. D) the minimum price a seller is willing to accept and the market price.

B) the maximum price a buyer is willing to pay and the market price.

Market equilibrium occurs when: A) there is no incentive for prices to change. B) there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears. C) the market clears. D) quantity demanded equals quantity supplied.

B) there is no incentive for prices to change in the market, quantity

An increase in price and an ambiguous change in quantity are most likely caused by: A) a shift to the left of the demand curve and no shift of the supply curve. B) a shift to the right of the supply curve and a shift to the left in demand. C) a shift to the left of the supply curve and a shift to the right of the demand curve. D) a shift to the left of the supply curve and no shift of the demand curve.

C) a shift to the left of the supply curve and a shift to the right of the demand curve.

Producer surplus is shown graphically as the area A) under the demand curve and below the market price. B) under the demand curve and above the market price. C) above the supply curve and below the market price. D) above the supply curve and above the market price.

C) above the supply curve and below the market price.

Determine how the equilibrium price and equilibrium quantity in the market for coffee changes if the following two occur: the price of tea, a substitute for coffee, decreases due to better weather, the price of coffee beans used to make coffee decreases Equilibrium price will ____ while equilibrium quantity ____ . A) decrease ; increase B) might increase, decrease or stay the same ; increase C) decrease ; might increase, decrease or stay the same D) increase ; might increase, decrease or stay the same

C) decrease ; might increase, decrease or stay the same

If a demand curve is downward sloping, a decrease in supply with no change in demand will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price. A) decrease; decrease B) increase; increase C) decrease; increase D) increase; decrease

C) decrease; increase

The market price of cruise ship vacations has increased recently. Some economists suggest that the price increased because of an increase in the number of retirees. In other words, they believe that: A) demand decreased. B) supply decreased. C) demand increased. D) supply increased.

C) demand increased.

Coffee and tea are substitutes in consumption. If there is an increase in the price of coffee, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus in the tea market: A) will not change. B) will decrease. C) will increase. D) may change, but we cannot determine the change without more information.

C) will increase.

When a new medical report extols the health advantages of grapefruit, assuming an upward-sloping supply curve, producer surplus in the grapefruit market: A) will decrease. B) will remain the same. C) will increase. D) may change, but we can't tell how.

C) will increase.

The number of seats in a football stadium is fixed at 70,000. The team raises the price of a ticket from $30, at which 70,000 are sold, to $40, and it sells 60,000 tickets. Assume a straight-line downward-sloping demand curve. The price change caused a change in the consumer surplus of: A) -$100,000 B) -$65,000 C) -$10 D) -$650,000

D) -$650,000

Consider the market for corn. What happens if there is an increased demand for corn tortillas and, at the same time, a new corn seed becomes available that dramatically increases the yield per acre? A) Price increases; the change in quantity is indeterminate. B) The change in price is indeterminate; quantity decreases. C) Price and quantity decrease. D) The change in price is indeterminate; quantity increases.

D) The change in price is indeterminate; quantity increases.

A beneficial technological change is developed in the production of cranberries. At the same time, scientists discover that cranberries have significant health benefits. This will result in: A) a decrease in both the equilibrium price and quantity in the cranberry market. B) a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of cranberries. C) an increase in both the equilibrium price and quantity in the cranberry market. D) an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cranberries.

D) an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cranberries.

Consider the market online music. Suppose that an economic downturn decreases household wealth and erodes consumer confidence. What would be the primary impact of this on equilibrium price? Assume that online music is a normal good. A) remains constant B) increases C) change is ambiguous D) decreases

D) decreases

You notice that the price of Blu-ray players falls and the quantity of Blu-ray players sold increases. You suspect that _____ Blu-ray players shifts to the _____. A) demand for; left. B) demand for; right. C) supply of; left. D) supply of; right.

D) supply of; right.

A shift of the demand curve for fried chicken would not be caused by a change in: A) income. B) the price of pizza. C) the popularity of fried chicken. D) the price of fried chicken.

D) the price of fried chicken.

Peanut butter and jelly are complements in consumption. Assuming that the supply curve of peanut butter is upward-sloping, if there is a decrease in the price of jelly, producer surplus in the peanut butter market: A) will not change. B) will decrease. C) may change, but it is impossible to tell whether it will increase or decrease. D) will increase.

D) will increase.