Eco 3335 Test 1 (Chapters 1-3)

Substitute

A good that can be used in place of another good.

Complement

A good that is used in conjunction with another good.

17) The price of cereal rises. As a result, people have cereal for breakfast on fewer days and eat eggs instead. This behavior is an example of A) a decrease in the quantity demanded of cereal because of the substitution effect. B) an increase in the quantity demanded of eggs because of the income effect. C) a decrease in the quantity supplied of cereal because of the substitution effect. D) an increase in the quantity supplied of eggs because of the income effect.

A) a decrease in the quantity demanded of cereal because of the substitution effect

32) The figure below shows the market for candy. People become more concerned that eating candy causes them to gain weight, which they do not like. As a result, the A) demand curve shifts from D2 to D1 and the supply curve does not shift. B) demand curve shifts from D1 to D2 and the supply curve shifts from S1 to S2. C) demand curve shifts from D2 to D1 and the supply curve shifts from S2 to S1. D) demand curve does not shift and the supply curve shifts from S1 to S2.

A) demand curve shifts from D2 to D1 and the supply curve does not shift

23) Which of the following is true? A) for an inferior good, when income increases, the demand curve shifts leftward. B) the demand curve for a good shifts leftward when the price of a substitute rises. C) If consumers expect the price of a good will rise in the future, the demand curve shifts leftward. D) an increase in population shifts the demand curve for most goods leftward.

A) for an inferior good , when income increases, the demand curve shifts leftward

36) If the price of a video rental is below its equilibrium price, there will be a _______ of video rentals and the price will _______. A) shortage; rise B) shortage; fall C) surplus; rise D) surplus; fall

A) shortage; rise

4) Which of the following is a microeconomic topic? A) the reasons why Kathy buys less orange juice. B) the reasons for a decline in average prices. C) the reasons why total employment decreases. D) the effect of the government budget deficit on inflation.

A) the reasons why Kathy buys less orange juice

30) A bakery can produce either cakes or cookies. If the price of cookies rises, then A) the supply curve of cake shifts leftward. B) the supply curve of cake shifts rightward. C) there is a movement downward along the supply curve of cakes. D) there is a movement upward along the supply curve of cakes.

A) the supply curve of cake shifts leftward

12) In terms of dollars, the marginal benefit of working five days a week instead of four days a week is A) the wages received for the fifth day of work. B) the wages received for 5 days of work. C) the wages received for 4 days of work. D) none of the above answers are correct.

A) the wages received for the fifth day of work

13) A lawn service is deciding whether to add an additional employee to its summer crew. The marginal cost of hiring this worker depends on the A) total amount paid to only the new worker. B) total amount paid to all previously hired workers. C) the total amount paid to all the workers, both the new one and the previously hired workers. D) the additional revenue created by having a additional worker minus the cost of hiring the worker.

A) total amount paid to only the new worker

Firm

An organization that converts inputs (factors of production) into outputs (goods and services) that it can sell or distribute.

Market

Any arrangement that allows buyers and sellers to transact their business.

24) Which of the following shifts the demand curve for movie downloads rightward? A) a decrease in the price of downloading a movie. B) a 10 percent increase in people's income if movie downloads are a normal good. C) a decrease in the price of cable television service. D) an increase in the quantity and quality of programming included in the basic cable television service package.

B) a 10 percent increase in people's income if movie downloads are a normal good

31) The figure below shows supply curves for soft drinks. Suppose the economy is at point a. A movement to point c could be the result of A) a decrease in technology. B) a decrease in the relative price of a soft drink. C) an increase in the relative price of a soft drink. D) an increase in the money price of a soft drink.

B) a decrease in the relative price of a soft drink

37) Ticket scalpers at the NBA playoff series between the Spurs and Clippers this year charged prices high above the printed ticket price. This observation is evidence of A) a surplus at printed ticket prices. B) a shortage at printed ticket prices. C) the tournament not being televised. D) the tournament getting too much television exposure.

B) a shortage at printed ticket prices

9) Which of the following is NOT an investment in human capital? A) a business student takes a seminar in using a laptop computer B) a student purchases a laptop computer C) a computer science student learns how to repair a laptop computer D) a computer science student takes a course on programming a laptop computer

B) a student purchases a laptop computer

11) Today, you attend your 10am economics class. If you hadn't gone to class, you would have gone out to brunch with friends. You had other less preferred options, you could have worked or slept in. Your opportunity cost of going to class is the A) income you gave up. B) brunch you gave up. C) sleep you gave up. D) income, pleasure, and sleep you gave up.

B) brunch you gave up

34) The above figure shows the market for french fries at fast food joints. If the price of potatoes rises and simultaneously people become concerned that french fries can cause hear attacks the A) demand curve for french fries shifts from D2 to D1 and the supply curve of french fries does not shift. B) demand curve for french fries shifts from D2 to D1 and the supply curve of french fries shifts from S2 to S1. C) demand curve for french fries shifts from D2 to D1 and the supply curve of french fries shifts from S1 to S2. D) demand curve for french fries does not shift and the supply curve of french fries shifts from S1 to S2.

B) demand curve for french fries shift from D2 to D1 and the supply curve of french fries shifts from S2 to S1

26) Which of the following explains why supply curves slope upward? A) prices and income. B) increasing marginal cost. C) resources and technology. D) substitutes in production and complements in production.

B) increasing marginal cost

28) Which of the following explains why supply curves slope upward? A) prices and income B) increasing marginal cost C) resources and technology D) substitutes in production and complements in production

B) increasing marginal cost

1) Scarcity is a situation in which A) people cannot satisfy all their wants. B) most people can get only bare necessities. C) people can satisfy all their wants. D) some people can get all they want and some cannot.

B) most people can get only bare necessities

18) People buy more of good 1 when the price of good 2 rises. These goods are A) complements B) substitutes C) normal goods D) inferior goods

B) substitutes

6) Which of the following is NOT a factor of production? A) vans used by a bakery company for deliveries B) a person developing a production schedule for a new product C) 175 shares of Microsoft stock D) wilderness areas that have yet to be developed

C) 175 shares of Microsoft stock

20) A change in which of the following shifts the demand curve for hamburgers? A) an increase in the price of the meat used to produce hamburgers. B) an increase in the price of a hamburger. C) a fall in the price of french fries, a complement for hamburgers. D) an increase in the number of hamburger restaurants.

C) a fall in the price of french fries, a complement for hamburgers

33) The above figure shows the market for gasoline. When a hurricane destroys a major refinery that refines oil as gasoline, the A) demand curve for gasoline shifts from D1 to D2 and the supply curve of gasoline does not shift. B) demand curve for gasoline shifts from D1 to D2 and the supply curve of gasoline shifts from S2 to S1. C) demand curve from gasoline does not shift and the supply curve of gasoline shifts from S2 to S1. D) demand curve for gasoline does not shift and the supply curve of gasoline shifts from S1 to S2.

C) demand curve for gasoline does not shift and the supply curve of gasoline shifts from S2 to S1

22) If consumers but not producers expect that the price of soda will rise in November, the A) supply of soda in October will increase. B) demand for soda in October will decrease. C) demand for soda in October will increase. D) supply of soda in October will decrease.

C) demand for soda in October will increase

15) The "Law of Demand" is illustrated by a A) rightward shift of the demand curve. B) leftward shift of the demand curve. C) movement along the demand curve. D) both answers A and B are correct.

C) movement along the demand curve

3) Economics is the study of A) the distribution of surplus goods to those in need. B) affluence in a morally bankrupt world. C) the choice we make because of scarcity. D) ways to reduce wants to eliminate the problem of scarcity.

C) the choice we make because of scarcity

35) If a market is NOT in equilibrium, then which of the following is likely to occur? A) the demand curve will shift to bring the market to equilibrium. B) the supply curve will shift to bring the market to equilibrium. C) the price will adjust to bring the market to equilibrium. D) both A and B are correct.

C) the price will adjust to bring the market to equilibrium

14) The "Law of Demand" states that changes in A) demand are related directly to changes in supply. B) the quantity demanded of a good are not related to changes in the quantity supplied. C) the quantity demanded of a good are inversely related to changes in its price. D) demand are inversely related to changes in supply.

C) the quantity demand of a good are inversely related to changes in its price

25) The "Law of Supply" refers to the fact that, all other things remaining the same, when the price of a good rises A) the supply curve shifts leftward. B) the supply curve shifts rightward. C) there is a movement up along the supply curve to a larger quantity supplied. D) there is a movement down along the supply curve to a smaller quantity supplied.

C) there is a movement up along the supply curve to a larger quantity supplied

27) The "Law of Supply" refers to the fact that, all other things remaining the same, when the price of a good rises A) the supply curve shifts leftward. B) the supply curve shifts rightward. C) there is a movement up along the supply curve to a larger quantity supplied. D) there is a movement down along the supply curve to a smaller quantity supplied.

C) there is a movement up along the supply curve to a larger quantity supplied

29) Which of the following shifts the supply curve rightward? A) an increase in the population. B) a positive change in preferences for the good. C) a decrease in the price of the good. D) a decrease in the price of a factor of production used to produce the good.

D) a decrease in the price of a factor of production used to produce the good

21) Oatmeal is a normal good and cold cereal is a substitute for oatmeal. Raisins are a complement for oatmeal. Which of the following increases the demand for oatmeal? A) an increase in the price of raisins. B) a decrease in income. C) a decrease in population. D) an increase in the price of cold cereal.

D) an increase in the price of cold cereal

2) Economists point out that scarcity confronts A) neither the poor nor the rich. B) the poor but not the rich. C) the rich but not the poor. D) both the poor and the rich.

D) both the poor and the rich

19) Ham and eggs are complements. If the price of ham rises, the demand fro eggs will A) increase or decrease but the demand curve for ham will not change. B) decrease and the demand curve for ham will shift rightward. C) not change but there will be a movement along the demand curve for eggs. D) decrease and the demand curve for eggs will shift leftward.

D) decrease and the demand curve for eggs will shift leftward

10) Which factor of production earns profit? A) land B) human capital C) money D) entrepreneurship

D) entrepreneurship

16) When the price of a good falls, the income effect for a normal good implies that people buy A) less of that good because the relative price of the good has fallen. B) more of that good because the relative price of the good has risen. C) less of that good because they cannot afford to buy all the things they previously bought. D) more of that good because they can afford to buy more of all the things they previously.

D) more of that good because they can afford to buy more of all the thing they previously

8) Entrepreneurs do all of the following EXCEPT A) organize labor, land, and capital. B) come up with new ideas about what and how to produce. C) bear risk from business decisions. D) own all the other resources used in the production process.

D) own all the other resources used in the production process

7) China's population is about 1.5 billion, while the population of the United States is about 300 million. This fact means that China has much more human capital than the U.S. does. True or false? Explain your answer.

False, Labor (including both skilled and unskilled workers) is not equivalent to human capital (skilled workers).

Capital (factor of production)

Interest -Physical Capital: tools, machines, buildings... -Human Capital: skilled labor

Factors of Production

Land Labor Capital Entrepreneurship

Quantity demanded

Of a good or service is the amount that consumers plan to buy at a particular price.

Opportunity cost

Opportunity cost of something is that must be given up to get it.

Rise in the price (quantity demanded)

Other things remaining the same, brings a decrease in the quantity demanded and a movement up along the demand curve.

Fall in the price (quantity demanded)

Other things remaining the same, brings an increase in the quantity demanded and a movement down along the demand curve.

The Law of Supply

Other things remaining the same, the higher the price of a good, the greater is the quantity supplied. The lower the price of a good, the smaller is the quantity supplied.

Scarcity

Our inability to satisfy all our wants

Entrepreneurship (factor of production)

Profit -The human resource that organizes land, labor, and capital.

Demand Function

Qd = a (b*p) Dependent variable = Qd Independent variable = P

Supply function

Qs = r + (s*P) Dependent variable = Qs Independent variable = P

Land (factor of production)

Rent

5) What is the difference between scarcity and poverty?

Scarcity: our inability to satisfy all our wants. It applies to both the poor and the rich. Studying economics cannot prevent scarcity. Poverty: It applies to the poor only. Studying economics can improve poverty.

Demand curve

Shows the relationship between quantity demanded of a good and its price when all other influences on consumers' planned purchases remain the same.

The supply curve

Shows the relationship between the quantity supplied of a good and its price when all other influences on producers' planned sales remain the same.

Common Legal Firm Organizations

Sole Proprietorship Partnership Limited Liability Company (LLC) Corporation

The quantity supplied

The amount that producers plan to sell during a given time period at a particular price.

Managerial Economics

The application of microeconomic principles and tools to business problems faced by decision makers.

Marginal benefit (MB)

The benefit from pursing an additional increase in an activity, is its marginal benefit. MB is usually downward sloping.

Marginal cost (MC)

The cost from pursing an additional increase in an activity is its marginal cost. MC is usually upward sloping.

Demand decreases

The demand curve shifts leftward.

Demand increases

The demand curve shifts rightward.

Fall in price (quantity supplied)

The good brings a decrease in the "quantity supplied" and causes the movement down along the supply curve.

Rise in price (quantity supplied)

The good brings an increase in the "quantity supplied" and causes the movement up along the supply curve.

The Law of Demand

The higher the price of a good, the smaller is the quantity demanded.

Microeconomics

The study of choice that households & firms make, the way those choices interact in the market, and the influence of the government

Macroeconomics

The study of the performance of national and global economies, such inflation, unemployment, oil price, exchange rate, interest rate,...

Supply decreases

The supply curve shifts leftward

Supply increases

The supply curve shifts rightward

Complement in production

Two goods must produce together. -Positive relationship

Substitute in production

Two goods using same resources. -Negative relationship

Labor (factor of production)

Wages

Inferior good

When income increases, demand on the normal good decreases.

Normal good

When income increases, demand on the normal good increases.

Expected future price

When the expected future price of the good increases... negative related

Prices of factors of production

When the factors of production increases... decrease or negative related

Income Effect

When the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded of good or service decreases.

Substitute Effect

When the relative price of a good or service rises, people seek for substitutes for it, so the quantity demanded of the good and services decreases.

If MB>MC

Your choice is to do more of that activity.

Economic cost

accounting cost + opportunity cost