Econ Chapter 1-7 In-Class Problems

12. Refer to Figure 5-5. Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about (5)

0.33

9. 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 (5)

0.67, and an increase in price will result in an increase in total revenue for good A

17. Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about (5)

1.2, and X and Y are substitutes

8. Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about (5)

1.43, and an increase in the price will cause hotels' total revenue to decrease

14. Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and shepurchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about (5)

3.17, and Tess regards handbags as normal goods

2. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is (1)

315$

7. Refer to Figure 4-8. Suppose the figure shows the market demand for coffee. Suppose the price of tea, a substitute good, increases. Which of the following changes would occur? (4)

A shift from D2 to D1

8. Refer to Table 3-19. The values in the table represent the amounts of lemonade and pizzas that Alice and Betty can produce in one week without and with specialization and trade. What are Alice and Betty's gains from specialization and trade? (3)

Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of lemonade and 10 pizzas.

6. Refer to Table 4-2. Whose demand does not obey the law of demand? (4)

Carrie's

10. Both Dave and Caroline produce sweaters and socks. If Dave's opportunity cost of 1 sweater is 3 socks and Caroline's opportunity cost of 1 sweater is 5 socks, then (3)

Dave has a comparative advantage in the production of sweaters

12. Refer to Figure 5-4. If the price increases in the region of the demand curve between points A and B, we can expect total revenue to (5)

Decrease

10. Refer to Figure 5-4. Suppose the point labeled B is the "halfway point" on the demand curve and it corresponds to a price of $5. Then, between prices of 4.99 and 5.01, the price elasticity of demand is (5)

Equal to 1

13. Refer to Figure 5-4. If the price increases in the region of the demand curve between points B and C, we can expect total revenue to (5)

Increase

1. Assume Diana buys computers in a competitive market. It follows that (4)

None of the above are correct

1. Which of the following trade-offs does the production possibilities frontier illustrate? (3)

Once an economy has reached the efficient points on its production possibilities frontier, the only way of getting more of one good is to get less of the other.

1. Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that (1)

People face tradeoffs

15. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be (5)

Positive

2. The price elasticity of demand measures how much (5)

Quantity demanded responds to a change in price

1. When consumers face rising gasoline prices, they typically (5)

Reduce their quantity demanded more in the long run than in the short run

6. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good? (5)

The quantity of the good demanded decreases by 0.2 percent

9. Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that (3)

Traci has an absolute advantage in chairs

5. Which of these statements best represents the law of demand? (4)

When the price of a good decreases, buyers purchase more of the good

3. The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the (3)

amount of the other good that must be given up

7. Which of the following is likely to have the most price inelastic demand? (5)

athletic shoes

3. Demand is said to be price elastic if (5)

buyers respond substantially to changes in the price of the good

9. Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of (4)

crystal to increase

4. An increase in the price of a good will (4)

decrease quantity demanded

10. Which of the following events must cause equilibrium quantity to fall? (4)

demand and supply both decrease

2. In competitive markets, (4)

forms produce identical products, no individual buyer can influence the market price, no individual seller can influence the market price.

5. When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

inelastic

15. Necessities such as food and clothing tend to have (5)

low price of elasticities of demand and low income elasticities of demand

16. For which pairs of goods is the cross-price elasticity most likely to be positive? (5)

pens and pencils

11. When supply and demand both increase, equilibrium (4)

price may increase, decrease, or remain unchanged

11. Refer to Figure 5-4. Assume the section of the demand curve from A to B corresponds to prices between $8 and $16. Then, when the price changes between $9 and $10, (5)

quantity demanded changes proportionately more than the price

3. An example of a perfectly competitive market would be the (4)

soybean market

12. Suppose chocolate-dipped strawberries are currently selling for $30 per dozen, but the equilibrium price of chocolate-dipped strawberries is $20 per dozen. We would expect a (4)

surplus to exist and the market price of chocolate-dipped strawberries to decrease.

4. Which of the following areas of study typifies macroeconomics as opposed to microeconomics? (1)

the effect on the economy of changes in the nation's unemployment rate

3. Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is (1)

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

13. A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates (4)

the ticket price is below the equilibrium price.

2. If an economy is producing efficiently, then (3)

there is no way to produce more of one good without producing less of another good

8. The supply curve for portable charcoal grills shifts (4)

when a determinant of the supply of portable charcoal grills other than the price of portable charcoal grills changes

4. The price elasticity of demand for mobile phones (5)

will be lower if consumers perceive mobile phones to be a necessity