ECON 2301 Midterm Review
the equilibrium price and quantity, respectively, are
$3 and 50 Units
when the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantiy demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is
.67 and an increase in price will result in an increase in total revenue for good A
If this economy devotes all of its resources to the production of washers, then it will produce
0 dryers and 100 washers
a manufacturer produces 350 unites when the market price is $10 per unit and produces 460 units when the market price is $14 per unit. Using the midpoint method for this range of prices, the price elasticity of supply is about
0.81
what is the opportunity cost to supertown of increasing the production of toys from 200 to 300?
1100-600 = 500
What is opportunity cost to supertown of increasing the production of towys from 200-300
1100-600=500
Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result, the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
2.15
Using the midpoint method, if the price falls from $160 to $120, the absolute value of the price elasticity of demand is
2.33
if the price elasticity of demand for a good is 5, then a 10% increase in price results in a
50.00 percent decrease in the quantity demanded
if these are the only four buyers in the market, then the market quantity demanded at the price of 2.00 is
6+6+0+2=14
which of the following is true
Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
Which arrow represents the flow of spending by households?
a
which arrow represents the flow of spending by households
a
which of the following changes would not shift the demand curve for a good or service?
a change in the price of the good or service
which of the following changes would not shift the supply curve for a good or service
a change in the price of the good or service
The movement from point A to point B on the graph is caused by
a decrease in price
Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see
a decrease in the demand for energy drinks
which of the following is consistent with the elasticities given in Table 5-1? (A-1.9, B-.8)
a is a luxury and b is a necessity
Minimum-wage laws dictate
a minimum wage that firms may pay workers
the term market failure refers to
a situation in which the market on its own fails to allocate resources efficiently
in a circular-flow diagram, in the markets for
the factors of production, households are sellers and firms are buyers.
A shift of the economy's production possibilities frontier from Panel (a) to Panel (b) could be caused by
an improvement in DVD production technology
The shift from Da to Db in the market for pita chips could be caused by
an increase in the price of a popcorn
if the demand for a product increase, then we would expect equilibrium price
and equilibrium quantity both to increase
for which of the following goods is the income elasticity of demand likely lowest
apples
which of the following demonstrates the law of demand
ashlyn buys more donut holes at $.25 per donut hole than at $.50 per donut hole, other things equal
suppose your finance professor has been offered a corporate job with a 25% pay increase. he has decided to take the job. for him, the marginal
benefit of leaving was greater than the marginal cost
suppose there is a flood in St. Louis, Missouri, that destroys several been bottling facilities. Which of the following would not be a direct result of this event?
buyers would be willing to buy as much as before at each relevant price
the price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
Making rational decisions "at the margin" means that people
compare the marginal costs and marginal benefits of each decision
which of the following steps does an economist not take when studying the economy?
conduct a laboratory experiment in order to generate data
The line that relates the price of a good and the quantity demanded of that good is called the demand
cure, and it usually slopes downward
The line that relates the price of a good and the quantity supplied of that good is called the supply
curve, and it usually slopes upward
Central planning refers to
government guiding economic activity. Today many countries that had this system have abandoned it.
Cadence says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Cadence's
demand for cigarettes is perfectly inelastic
for which of the following goods is the income elasticity of demand likely highest
diamonds
the terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that
equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scare resources
Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?
equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous
at the equilibrium price, the quantity of the good that buyers are willing and able to buy
exactly equals the quantity that sellers are willing and able to sell
elasticity of demand is closely related to the slope of the demand curve. the more responsive buyers are to a change in price, the
flatter the demand curve will be
elasticity of demand is closely related to the slope of the demand curve. the most responsive buyers are to a change in price, the
flatter the demand curve will be
Pizza is a normal good if the demand
for pizza rises when income rises
Soup is an inferior good if the demand
for soup falls when income rises.
If China decides to trade with France, we know that
frace and china can both benefit
Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?
he should sell the car now for $3,800
a circular-flow diagram is a model that
helps to explain how the economy is organized.
Microeconomics is the study of
how individual households and firms make decisions.
the "invisible hand" refers to
how the decisions of households and firms lead to desirable market outcomes
A likely example of substitute goods for most people would be
iced tea and lemonade
if the price decreased from $36 to $12, total revenue would
increase by $4800 and demand is elastic between points x and z
if the price elasticity of supply is 0.7 and price increased by 24%, quantity supplied would
increase by 16.80 %
A decrease in the price of a good will
increase in quantity demanded
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donut sellers
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donuts sellers
Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg
increases
When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni
is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1
a hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. he is considering expanding his operation in order to serve more clients. should he expand?
it depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients
This economy cannot currently produce 70 washers and 70 dryers because
it does not have the resources and technology to produce that level of output
An economy's production of two goods is efficient if
it is impossible to produce more of one good without producing less of the other
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
lower both prices and total revenues
Economists make assumptions to
make a complex world easier to understand
which of the following statements is valid when the market supply curve is vertical
market quantity supplied does not change when the price changes
suppose there are 6 bait and tackle shops that sell worms in a lakeside resort town in Minnesota. if we add the respective quantities that each shop would produce and sell at each of the 6 bait and tackle shops when the price of worms is $2 per bucket, the $2.50 and $3 per bucket, and so forth, we have found the
market supply curve
suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent of the empty rooms only if a customer is willing to pay
more than $40, because the marginal benefit will exceed the marginal cost
a competitive market is a market in which
no individual buyer or seller has any significant impact on the market price
If the price of milk rises, when is the price elasticity of demand likely to be the lowest?
one year after the price increases
another term for goods and services is
output
Where can an economy not produce?
outside its production possibilities frontier
the adage, there aint no such thing as a free lunch means
people face tradeoffs
Market power refers to the
power of a single person or small group to influence market prices
Normative statements are
prescriptive
Assume Ren buys coffee beans in a competitive market. It follows that
ren cannot influence the price of coffee beans even if he buys a large quantity of them
Fundamentally, economics deals with
scarcity
Senator Fujita argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Watson objects that this policy would benefit the rich at the expense of the poor.
senator fujita's argument is primarily about efficiency, while senator watson's argument is primarily about equality
efficiency means that
society is getting the most it can from its scarce resources
If the cross-price elasticity of two goods is positive, then the two goods are
substitutes
Suppose sunflowers are currently selling for $45 per dozen, but the equilibrium price of sunflowers is $25 per dozen. We would expect a
surplus to exist and the market price of sunflowers to decrease
a rational decisionmaker
takes an action only if the marginal benefit of that action exceeds the marginal cost of that action
For a good that is a luxury, demand
tends to be elastic
for a good that is a luxury, demand
tends to be elastic
a baker recently has come to expect higher prices for bread in the near future. we would expect
the baker to supply less bread now that she was supplying previously
In most societies, resources are allocated by
the combined actions of millions of households and firms
if something happens to alter the quantity demanded at any given price, then
the demand curve shifts
After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?
the marginal benefit of going to spain increases
which of the following events could cause an increase in the supply of ceiling fans
the number of sellers of ceiling fans increases
which of the following events would cause the price of oranges to fall?
the price of land throughout florida decreases, and florida produces a significant proportion of the nation's oranges
which of the following is not held constant in a supply schedule
the price of the good
income elasticity of demand measures how
the quantity demanded changes as consumer income changes.
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good.
the price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good
If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. if demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in
the same price and higher total revenue from marijuana sales
if something happens to alter the quantity supplied at any given price, then
the supply curve shifts
Aiden and Zaria charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, six people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have six or five cars parked on their lawn does not affect their costs. From this information it follows that
they would do better charging $15 than $10
Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics?
trade can make everyone better off
A tax on gasoline encourages people to drive smaller, more fuel-efficient cars.
true
To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.
true
Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity.
true