ECO 2023 EXAM 1

If Aaliyah can produce 3 pairs of shoes per hour, while Bahjat can produce 2, then ______ has a(n) ______ advantage in producing shoes. A) Aaliyah; absolute B) Aaliyah; comparative C) Bahjat; absolute D) Bahjat; comparative

A; Absolute advantage means being able to produce more in a given time period.

A country is most likely to have a comparative advantage in the production of cars if: A) it imports most of the raw materials necessary to produce cars. B) its citizens prefer driving cars to other forms of transportation. C) it has strict environmental protection laws governing automobile emissions. D) it has a relative abundance in the natural resources needed to produce cars.

D; One source of comparative advantage is large endowments of natural resources.

If the demand for gadgets increases as a result of a decrease in the price of widgets, the widgets and gadgets are: A) complementary goods. B) substitute goods. C) normal goods. D) elastically demanded.

A; Two goods are complements in consumption if a decrease in the price of one causes an increase in demand for the other.

Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role was as a: A) consumer in both markets. B) consumer at the electronics store and a seller on e-Bay. C) consumer at the electronics store; the e-Bay transaction did not occur in a market. D) seller in both markets.

B; A market for any good consists of all buyers and sellers of that good. In the first transaction, you were a buyer, but on e-Bay you were a seller.

If the price of rubber (an input to the production of tires) increases: A) the supply of tires will increase. B) the supply of tires will decrease. C) the demand for tires will increase. D) the demand for tires will decrease.

B; An increase in the price of rubber will increase the cost of producing tires, so the supply of tires will decrease.

Jamal and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The accompanying table shows the number of rooms they can each clean and the number of meals they can each cook in an hour. Jamal 5 rooms cleaned 4 meals cooked; Alex 3 rooms cleaned 3 meals cooked If Alex and Jamal work out an efficient arrangement for these two chores, then under that arrangement: A) Alex and Jamal each would do half of the cooking and half of the cleaning. B) Alex would do all of the cleaning, while Jamal would do all the cooking. C) Jamal would do all of the cleaning and all of the cooking. D) Jamal would do all of the cleaning, while Alex would do all of the cooking.

D; Everyone does best when each person specializes in the activities in which they have a comparative advantage. Jamal's opportunity cost of cleaning a room (4/5 of a meal) is less than Alex's (1 meal). Alex's opportunity cost of making a meal (1 room) is less than Jamal's (5/4 rooms).

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that: A) there are fewer substitutes for Tyson chicken than for chicken generally. B) it takes a lot of time to adjust to a substitute brand of chicken. C) the share of income spent on "chicken" is larger than spent on "Tyson Chicken". D) there are fewer substitutes for chicken generally than for Tyson chicken.

D; There are other brands of chicken that serve as substitutes for a specific brand of chicken.

When the supply curve shifts to the left and there is no change in demand: A) the market cannot reestablish an equilibrium. B) the equilibrium price will fall. C) the equilibrium quantity will rise. D) the equilibrium price will rise.

D; When supply decreases, the equilibrium price increases.

All else equal, the price elasticity of demand for a good tends to be lower: A) if the good has few close substitutes. B) if the good represents a large share of a consumer's budget. C) in the long run. D) if the good has many close substitutes.

A; If there are few substitutes for a good, then quantity demanded will change very little in response to a change in price.

The extra benefit that results from carrying out one additional unit of an activity is the ______ of the activity. A) marginal benefit B) total benefit C) average benefit D) economic benefit

A; Marginal benefit is the additional benefit of carrying out one additional unit of an activity.

The downward slope of the production possibilities curve illustrates the: A) Scarcity Principle. B) Cost-Benefit Principle. C) Incentive Principle. D) Principle of Comparative Advantage.

A; The downward slope of the production possibilities curve shows that having more of one good means having less of the other.

Economists recognize that because people have limited resources: A) government intervention is necessary. B) they have to make trade-offs. C) they will never be happy. D) our future is bleak.

B; Economists recognize that the resources available to us are limited, so having more of one good thing means having less of another

Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is: A) elastic. B) inelastic. C) unit elastic. D) perfectly inelastic.

B; If the percentage change in quantity demanded is less than the percentage change in price, then the price elasticity of demand is less than one, implying that demand is inelastic.

The Incentive Principle states that a person: A) is more likely to take an action if its cost increases. B) is more likely to take an action if its benefit increases. C) should take an action if its cost increases. D) should take an action if its benefit increases.

B; The Incentive Principle states that a person is more likely to take an action if its benefit rises, and less likely to do something if its cost rises.

The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are: A) normal goods. B) substitutes. C) unrelated. D) complements.

B; The cross-price elasticity of demand between substitutes is positive: an increase in the price of one will lead to an increase in the demand for the other.

During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durable goods are: A) substitutes. B) normal goods. C) complements. D) inferior goods.

B; The income elasticity of demand for a good is the percentage by which quantity demanded changes in response to a 1 percent change in income. For normal goods, an increase in income leads to an increase in consumption (and a decrease in income leads to a decrease in consumption), implying that the income elasticity of demand is positive for normal goods.

If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by: A) 0.55 percent. B) 5.5 percent. C) 55 percent. D) 550 percent.

B; The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. So, if the price elasticity of demand is 0.55, and price increases by 10 percent, then quantity demanded must decrease by 5.5 (= 10 × 0.55) percent.

As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to: A) increase. B) decrease. C) stay the same. D) equal the price of pizza.

B; We generally think most activities satisfy the law of diminishing marginal utility. That is, the additional utility gained from consuming an additional unit of a good tends to diminish as consumption increases.

Suppose that the equilibrium price of T-shirts increases, and the equilibrium quantity of T-shirts decreases. This is best explained by: A) an increase in the demand for Tshirts. B) a decrease in the supply of Tshirts. C) an increase in the supply of Tshirts. D) a decrease in the demand for Tshirts.

B; When supply decreases, the equilibrium price will rise, and the equilibrium quantity will fall.

You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of the item: A) that costs the least. B) that gives you the highest average utility per dollar. C) that gives you the highest marginal utility per dollar. D) from which you already have gained the greatest total utility.

C; Buying the item that provides the highest marginal (or, additional) utility per dollar will add the most to total utility. Note that marginal utility per dollar is not the same as average utility per dollar.

If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n): A) normal good. B) complementary good. C) substitute good. D) inferior good.

D; An inferior good is a good for which an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand.

Sejal's reservation price for her economics textbook is $100. The week before the semester begins, Sejal finds a copy of her textbook online for $75. Sejal's consumer surplus from buying the textbook online is: A) $125. B) $100. C) $75. D) $25.

D; Consumer surplus is the difference between a buyer's reservation price for a product and the price actually paid, which in this case is $25 ($100 − $75).