Econ midterm multiple choice
Which of the following statements best describes the concept of consumer surplus?
"I was going to pay $200 for new sunglasses that I had seen at the Oakley store but I ended up paying only $140 for the same sunglasses."
Juanita goes to the Hardware Emporium to buy a new circular saw. She is willing to pay $120 for a new saw, but finds saws on sale for $85. Juanita's consumer surplus from the purchase is
$35
Demand and supply in a market are described by the equations Qd = 66-3P Qs = -4+2P Solve for the equilibrium price p*
14.00
A movement along the demand curve for toothpaste would be caused by
A change in the price of toothpaste
If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as
A decrease in quantity demanded
Which of the following would shift the supply for MP3 players to the right?
A decrease in the price of an input used to produce MP3 players
Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?
A decrease in the price of corn
The phrase 'demand has increased' means that
A demand curve has shifted to the right
The production possibilities frontier model can be applied to
A firm, an individual, and the whole economy
If an increase in income leads to an increase in the demand for peanut butter, then peanut butter is
A normal good
Comparative advantage means
A producing unit can produce a good or service at a lower opportunity cost than any other producing unit
What is the difference between an 'increase in supply' and an 'increase in quantity supplied'?
An 'increase in supply' means the supply curve has shifted to the right while an 'increase in quantity supplied' refers to a movement along a given supply curve in response to an increase in price.
Which of the following would cause a decrease in the supply of milk?
An increase in the price of product that producers might produce instead of (substitute for producing) milk
If an increase in income leads to a decrease in the demand for popcorn, then popcorn is
An inferior good
Which of the following is the correct way to describe equilibrium in a market?
At equilibrium quantity demanded equals quantity supplied
Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?
At least $125,000
An increase in the demand for bananas will NOT be caused by
Buyers switching to a more healthy diet
You have absolute advantage whenever you
Can produce more of something than others with the same resources
You have comparative advantage whenever you
Can produce something at a lower opportunity cost than others
The ____ model demonstrates the roles played by households and firms in the market system
Circular flow
If the price of gasoline doubles while your income is constant
Consumer purchasing power has decreased and consumers buy less of everything
If a demand curve shifts to the right, then
Demand has increased
Assume that you own a small boutique hotel. In an attempt to raise revenue you reduce your rates by 20 percent. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?
Demand is inelastic.
If there are many substitutes available for a product demand for that good is likely to be
Elastic
Economists use the concept of __________ to measure how one economic variable, such as quantity demanded response to a change in another economic variable, such as price
Elasticity
Which of the following is a consequence of minimum wage laws?
Employers will be reluctant to offer low-skill workers jobs with training
Why do we set the equations of the lines for Qd and Qs equal in order to solve for the equilibrium price and quantity? Correct!
Equilibrium is the price where Qd and Qs are equal
The natural resources used in production are made available in the
Factor market
If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.
False
The demand for heating oil in the short run is more elastic than the long run demand for heating oil
False
True or False: If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase
False
True or false: scarcity is defined as the situation that exists when the quantity demanded for a good is greater than quantity supplied
False
Which of the following could explain why the demand for table salt is inelastic?
Households devote a very small portion of their income to salt purchases.
The production possibilities frontier shows that
If all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good
Which of the following statements is true?
If the price of a good is raised and total revenue increases, demand is inelastic.
Which of the following describes the difference between "scarcity" and "shortage"?
In the economic sense, almost everything is scarce. A shortage of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price.
A good for which demand increases when income decreases is called
Inferior good
A demand curve that is horizontal indicates that the commodity:
Is perfectly demand elastic
Consider the following equation for demand: Qd = 66-3p. What does the minus sign before 3p tell us? You Answered
It expresses the negative relationship of price and Qd
The existence of a shortage in a market will cause
Market price to rise and quantity supplied to increase
When you purchase a new pair of jeans you do so in the
Product market
As the average age of the population of the United States gets older, the demand for
Retirement homes will increase
Which of the following statements is true about scarcity?
Scarcity refers to the situation in which unlimited wants exceed limited resources
The supply curve for watches
Shows the relationship between the price of watches and the quantity of watches supplied
Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?
Some consumers will be unable to obtain digital music players at the market price, and will have an incentive to offer to buy the product at a higher price
When the price of a good falls, consumers buy a larger quantity because of the ______ effect and the _______ effect
Substitution; income
If the price of automobiles were to increase, then
The demand for gasoline would decrease
Refer to the table below. Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Select the correct implication from your work. Table Price Quantity $35 40 $25 50
The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.
Refer to the table below. Assume that an economist has estimated the price elasticity of demand values in the table above. Use the data in the table to select the correct statement. Estimated Price Elasticity of Demand Coca-Cola -3.0 All carbonated soft drinks -1.5 All soft drinks -0.8
The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be
If a firm expects that the price of its product will be lower in the future than it is today
The firm has an incentive to increase supply now and decrease supply in the future
Consider a market for used books that can be described by the following equations: Qd = 1000-60P Qs = 280 + 30P Why do we see the minus sign before the p variable in the Qd equation and the plus sign before the p variable in the Qs equation?
The law of demand has a negative relationship, the law of supply has a positive relationship
Which of the following explains why a firm would be interested in the knowing the price elasticity of demand for a good it sells?
The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.
A demand curve shows the relationship between
The price of a product and the quantity of the product demanded
Which of the following is evidence of a surplus of bananas?
The price of bananas is lowered in order to increase sales
One would speak of the change in the quantity of a good supplied, rather than a change in supply if
The price of the good changes
A change in all of the following variables will change the market demand for a product except which one?
The price of the product
At a product's equilibrium price
The product's demand curve crosses the product's supply curve
The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services. How does this affect the digital photo printing market?
The supply curve for digital photo printing services shifts to the right
Which of the follow is a result of imposing a rent ceiling?
There is an increase in the quantity of apartments demanded.
If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.
True
True or False: As the number of firms in a market decreases, the supply curve will shift to the left and the equilibrium price will rise
True
True or false: In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached.
True
Making optimal decisions 'at the margin' requires
Weighing the costs and benefits of a decision before deciding if it should be pursued.
A successful market economy requires
Well-defined property rights and an independent court system to adjudicate disputes based on the law
Which of the following statements is true?
When a firm lowers its price its total revenue may either increase or decrease.
A decrease in the equilibrium price for a product will result
When there is an increase in supply and a decrease in demand for the product
When ________ in a market, the total net benefit to society is maximized
a competitive equilibrium is achieved
If opportunity costs are constant, the production possibilities frontier would be graphed as
a negatively sloped straight line
The minimum wage is an example of
a price floor
A black market is a market where buying and selling take place
at prices that violate government price regulations
In a competitive market when there is no deadweight loss,
consumer surplus plus producer surplus is maximized
An outward shift of a nation's production possibilities frontier represents
economic growth
A perfectly elastic demand curve is
horizontal
If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be
inelastic
In May 2011, the average price of gasoline in the United States was $3.76 per gallon, and consumers purchased nearly 5 percent less gasoline than they had during May 2010, when the average price of gasoline was $2.79 per gallon. Based on these figures, from May 2010 to May 2011, the demand for gasoline was
inelastic
If demand is perfectly elastic, the absolute value of the price elasticity coefficient is
infinity
A supply schedule
is a table that shows the relationship between the price of a product and the quantity of the product supplied
The area above the market supply curve and below the market price
is equal to the total amount of producer surplus in a market
In a competitive market equilibrium the ________ equals the ________ of the last unit sold.
marginal benefit; marginal cost
The larger the share of a good in a consumer's budget, holding everything else constant, the
more price elastic is a consumer's demand
To affect the market outcome, a price floor
must be set above the equilibrium price.
In order to be binding (or to have immediate impact on the market), a price floor
must lie above the free market equilibrium price
Two-dimensional graphs have a horizontal and a vertical axis and are used in economics to illustrate
relationships between two economic variables
The study of economics focuses on the choices individuals/societies make. Choices arise due to
scarcity of resources
The most important determinant of the price elasticity of demand for a good is
the availability of substitutes for the good
If the absolute value of the price elasticity of demand for aspirin equals 0.8 then
the demand for aspirin is inelastic
Opportunity cost is defined as
the highest valued alternative that must be given up to engage in an activity
As gasoline prices increased throughout 2010 and into 2011, consumers began to explore alternatives to driving their cars and more people eventually ended up using public transportation. This exemplifies that for a specific product, the longer the time period involved,
the larger (in absolute value) the price elasticity of demand
A consumer is willing to purchase a product up to the point where
the marginal benefit is equal to the price of the product
If the demand for cell phone service is inelastic, then
the percentage change in quantity demanded is less than the percentage change in price (in absolute value).
Total revenue is equal to
the price of a product multiplied by the number of units of the product sold.
Deadweight loss refers to
the reduction in economic surplus resulting from not being in competitive equilibrium.
Which of the following is not a determinant of a good's price elasticity of demand?
the slope of the demand curve
If the slope of a demand curve is equal to -0.1 then
we don't know whether the demand is elastic or inelastic
The maximum price that a buyer is willing to pay for a good measures his
willingness to pay
