Micro Econ Exam 1

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Allocative efficiency can only occur at points on the Production Possibilities Frontier. (a) True (b) False

(A) True

If Marsha's demand curve for brownies is defined by the equation Qd = -2P + 4, what is her marginal benefit of a 3rd brownie? (a) $0.50 (b) $0.80 (c) $1.00 (d) $1.50

(A) $0.50

If Marsha's demand curve for brownies is defined by the equation Qd = -2P + 4, at what price will revenues in the brownie market be maximized? (a) $1 (b) $2 (c) $4 (d) $8

(A) $1

Use the information below to answer the following question: Kyle owns a factory that can produce cars or boats. He can produce 20 cars at a cost of $1,000 each, or 10 boats at a cost of $3,000 each. The market price for cars is $5,000, and the market price for boats is $15,000. Suppose a buyer offers Kyle $100,000 to purchase his factory. The opportunity cost of producing boats is now: (a) $130,000 (b) $110,000 (c) $100,000 (d) $30,000

(A) $130,000

Luna recently graduated from college and is looking for a job. She has received three job offers. A job in Denver pays $90,000, but does not include health benefits. Her second job offer is in Atlanta, which pays $84,000, and does include health benefits. The final job offer is in Chicago, paying $77,000, and includes health benefits. Health benefits are valued at $12,000, and moving expenses are $8,000 for each of the three jobs. What is Luna's opportunity cost of taking the job in Atlanta? (a) $90,000 (b) $82,000 (c) $89,000 (d) $77,000

(A) $90,000

The following question uses the information below: The price of Coca-Cola falls from $2 to $1. As a result the quantity of Coca-Cola demanded rises from 1000 to 1500, the quantity of Pepsi demanded falls from 1000 to 750, the quantity of ice cream demanded rises from 100 to 110, and the quantity of Coca-Cola supplied falls from 1750 to 1500. 1. The price elasticity of demand for Coca-Cola is ___, meaning demand for Coca-Cola is ___. (a) 0.6, inelastic (b) 1, unit elastic (c) 1.667, elastic (d) None of the above

(A) 0.6, inelastic

The following table lists different points on an economy-wide production possibility frontier (PPF) for bed knobs and broomsticks. Use it to answer the next two questions. Bed knobs Broomsticks: (See table C) What is the marginal cost of the 6th bed knob? (a) 4 broomsticks (b) 8 broomsticks (c) 11 broomsticks (d) 19 broomsticks

(A) 4 Broomsticks

At a price of $2.50, the demand for chocolate bars is 100. When the price increases to $2.75, the quantity demanded falls to 80. According to this information, the price elasticity of demand for chocolate bars is equal to ______________ in this range, so demand is ________________. (a) 7/3 = 2.33; elastic (b) 7/3 = 2.33; inelastic (c) 4/5 = 0.8; elastic 4/5 = 0.8; inelastic

(A) 7/3 = 2.33; elastic

Which of the following would increase the demand for orchids? (a) An increase in the price of tulips, substitutes in consumption for orchids (b) An increase in the supply of orchids (c) A decrease in the price of orchids (d) A decrease in income, assuming orchids are normal goods

(A) An increase in the price of tulips, substitutes in consumption for orchids

You get a $500 bonus from your job. As a result, you buy 10 more cups of coffee and 5 fewer packages of instant ramen. What can we say about coffee and ramen? (a) Coffee is a normal good, ramen is an inferior good. (b) Coffee is an inferior good, ramen is a normal good. (c) Coffee and ramen are substitutes. (d) Coffee and ramen are complements.

(A) Coffee is a normal good, ramen is an inferior good

Suppose almonds are used for baking biscotti. What happens to the equilibrium price of biscotti if the price of almonds increases? (a) Equilibrium price increases (b) Equilibrium price decreases (c) Equilibrium price does not change (d) Equilibrium price is indeterminate

(A) Equilibrium price Increases

The following three questions use the information below: Stella is trying to choose which college to attend. She has been accepted to Harvard, Stanford, and Purdue. She values a Harvard education at $500,000, a Stanford education at $400,000, and a Purdue education at $300,000. The total cost of attending Harvard will be $200,000, the cost of attending Stanford will be $150,000, and the cost of attending Purdue will be $80,000. (Assume cost is tuition plus a cost of living adjustment, so it removes all irrelevant/redundant components.) 1. Where should Stella go to college? (a) Harvard (b) Stanford (c) Purdue (d) Not enough information given 2. What is the opportunity cost of attending Stanford? (a) $500,000 (b) $450,000 (c) $300,000 (d) -$50,000 Stella also needs to consider not going to college at all. If she doesn't go to college, she can work for $40,000 per year, earning $160,000 over the next four years she would be attending college. Also assume her cost is $0. 3. What is the new opportunity cost of attending Stanford? (a) $610,000 (b) $450,000 (c) $300,000 (d) -$50,000

(A) Harvard (B) $450,000 (B) $450,000

Inferior goods have which of the following attributes? (a) Income elasticity is negative. (b) Price elasticity of demand is negative. (c) Income effects are always larger than substitution effects, so a price decrease of a substitute good results in a consumption decrease for the inferior good. (d) More than one of these are correct.

(A) Income elasticity is negative

John builds tables and chairs. The following 4 questions use the information in table A: 3. Producing 30 tables and 400 chairs would be _____, while producing 70 tables and 400 chairs would be _____. (a) Inefficient; Unattainable (b) Unattainable; Inefficient (c) Productively efficient, Allocatively efficient (d) Allocatively efficient; productively efficient

(A) Inefficient; Unattainable

A good for which demand rises when income falls and demand falls when income rises is called a(n) _______________. (a) inferior good (b) normal good (c) substitute in consumption complement in consumption

(A) Inferior Good

Which of the following is an incorrect definition of a factor of production? (a) Land - The physical land used in things like farming and construction (b) Labor - The physical and mental efforts people devote to production. (c) Capital - Tools, instruments, buildings, and other man-made constructions used in production. (d) Entrepreneurship - The skill of organizing land, labor, and capital into production.

(A) Land - The physical land used in things like farming and construction

The supply curve is the same as the ___________. (a) Marginal Cost Curve (b) Demand Curve (c) Total Cost Curve (d) Expected Market Supply Curve

(A) Marginal Cost Curve

At quantities below the equilibrium quantity, (a) Marginal benefit is greater than marginal cost (b) Marginal benefit is less than marginal cost (c) Marginal benefit is equal to marginal cost (d) Allocative efficiency is achieved.

(A) Marginal benefit is greater than marginal cost.

Given the following equations for demand and supply of movie tickets, answer the following question: Qd = 30 - 2P Qs = 3P - 15 What are the equilibrium price (P*) and quantity (Q*) of movie tickets? (a) P*= $9; Q*=12 (b) P*= $15; Q*=20 (c) P*= $5; Q*=20 (d) P*= $8; Q*=10

(A) P^*= $9; Q^*=12

Consider the market for backpacks as characterized below, and use this information to answer the following questions Demand: 𝑄𝑑=240−2𝑃 Supply: 𝑄𝑠=𝑃−30 What are the equilibrium price (P*) and quantity (Q*) of backpacks? (a) P*=90, Q*=60 (b) P*=70, Q*=40 (c) P*=70, Q*= 100 (d) P*=90, Q*=70

(A) P^*=90, Q^*=60

Microchips, used in cell phone production, became considerably cheaper due to technological progress. Thus, more companies started producing cell phones. What happened to the equilibrium price and quantity of cell phones if demand for cell phones remained unchanged? (a) price decreased; quantity increased (b) price increased; quantity increased (c) price decrease; quantity decreased (d) price increased; quantity decreased

(A) Price decreased; Quantity increased

Every point on a PPF (a) satisfies production efficiency (b) satisfies allocation efficiency (c) satisfies neither production nor allocation efficiency (d) both a and b

(A) Satisfies production Efficiency

Use the information below to answer the following question. Coffee is a normal good. Coffee and milk are complements in consumption. Coffee and cocoa are substitutes in production. If the price of both milk and cocoa increase, which of the following will occur? (a) Supply of coffee decreases, demand for coffee decreases. (b) Supply of coffee increases, demand for coffee decreases. (c) Supply of coffee decreases, demand for coffee increases. (d) Supply of coffee increases, demand for coffee does not change.

(A) Supply of coffee decreases, demand for coffee decreases

1. Which of the following would cause a consumer's budget line for Good A and Good B to move? (a) The price of Good A doubles. (b) The prices of Good A and Good B fall by 50%, and income falls by 50%. (c) The consumer develops stronger preferences for Good A. (d) Both (a) and (b).

(A) The price of Good A doubles

Sharlene bought a beautiful ring from an antique shop for $25. After wearing it for a week, she discovers a hidden inscription on the side of the ring. With this new discovery, Sharlene goes to a new antique shop to have the ring re-evaluated. The owner of the new antique shop offered to buy the ring from her at a price of $300 right away. Given Sharlene's new offer, what is her opportunity cost of keeping the ring? (a) $325 (b) $300 (c) $275 (d) $25

(B) $300

The following question use the information below: The price of Coca-Cola falls from $2 to $1. As a result the quantity of Coca-Cola demanded rises from 1000 to 1500, the quantity of Pepsi demanded falls from 1000 to 750, the quantity of ice cream demanded rises from 100 to 110, and the quantity of Coca-Cola supplied falls from 1750 to 1500. 4. The cross-price elasticity of demand of ice cream, with respect to Coca-Cola, is ___, meaning Coca-Cola and ice cream are ___. (a) -7, complements (b) -.142, complements (c) .142, substitutes (d) 7, substitutes

(B) -.142 complements

The following question use the information below: The price of Coca-Cola falls from $2 to $1. As a result the quantity of Coca-Cola demanded rises from 1000 to 1500, the quantity of Pepsi demanded falls from 1000 to 750, the quantity of ice cream demanded rises from 100 to 110, and the quantity of Coca-Cola supplied falls from 1750 to 1500. 5. The elasticity of supply for Coca-Cola is ___, meaning Coca-Cola has ___ supply. (a) 0, perfectly inelastic (b) .231, inelastic (c) 1, unit elastic (d) 4.333, elastic

(B) .231, inelastic

The following question uses the information below: The price of Coca-Cola falls from $2 to $1. As a result the quantity of Coca-Cola demanded rises from 1000 to 1500, the quantity of Pepsi demanded falls from 1000 to 750, the quantity of ice cream demanded rises from 100 to 110, and the quantity of Coca-Cola supplied falls from 1750 to 1500. 3. The cross-price elasticity of demand of Pepsi, with respect to Coca-Cola, is ___, meaning Coca-Cola and Pepsi are ___. (a) 2.333, substitutes (b) .429, substitutes (c) 0, unrelated goods (d) -.429, complements

(B) .429 substitutes

Based on the information in the problem above, the price elasticity of demand when price rises from $2 to $3 is equal to (a) 1 (b) 1.25=5/4 (c) 0.26 = 13/50 (d) 5

(B) 1.25=5/4

Use the information below to answer the following question. Coffee is a normal good. Coffee and milk are complements in consumption. Coffee and cocoa are substitutes in production. If the price of milk decreases, which of the following will occur? (a) Supply of coffee increases. (b) Demand for coffee increases. (c) Demand for coffee decreases. (d) Quantity demanded for coffee decreases.

(B) Demand for coffee increases

How would an increase in demand for orchids affect equilibrium in the market for orchids? (a) Equilibrium price increases and equilibrium quantity decreases (b) Equilibrium price increases and equilibrium quantity increases (c) Equilibrium price decreases and equilibrium quantity increases (d) Equilibrium price decreases and equilibrium quantity decreases

(B) Equilibrium price increases and equilibrium quantity increases

The United States is an example of a command economy, where prices and production are chosen by an appointed central planning board. (a) True (b) False

(B) False

When a good's price permanently decreases by 50% relative to its original price, demand increases. (a) True (b) False

(B) False

Which of the following is a microeconomic question? (a) How will the Dollar-Euro exchange rate be impacted by increased federal spending? (b) How will an increase in the minimum wage impact firms' hiring decisions? (c) How will a bond-buying program by the Federal Reserve affect the inflation rate? (d) All of these are solely macroeconomic questions

(B) How will an increase in the minimum wage impact firms' hiring decisions?

Which of the following describes the concept of the invisible hand? (a) Through small nudges, the government can push markets to achieve allocative efficiency. (b) Individuals acting in their rational self-interest cause society to achieve allocative efficiency. (c) A command economy, carefully planned, will achieve allocative efficiency. (d) The invisible hand is unrelated to allocative efficiency.

(B) Individuals acting in their rational self0intrest cause society to achieve allocative efficiency

If the price elasticity of demand is estimated to be 1.5, what should the firm do to increase revenue? (a) raise the price (b) lower the price (c) keep price unchanged (d) none of above

(B) Lower the price

Which of the following is NOT scarce? (a) Time (b) Pollution (c) Chickens (d) All of the above are scarce.

(B) Pollution

Use the information below to answer the following question: Kyle owns a factory that can produce cars or boats. He can produce 20 cars at a cost of $1,000 each, or 10 boats at a cost of $3,000 each. The market price for cars is $5,000, and the market price for boats is $15,000. Kyle should: (a) Produce cars. (b) Produce boats. (c) Shut down his factory. (d) None of the above.

(B) Produce Boats

Why can't the production possibility frontier (PPF) have a positive slope? (a) Since consumers are assumed to have declining marginal benefit for a good, the PPF must have a negative slope. (b) Since resources must be used to produce more of one good, the maximum amount produced of the other good must decline. (c) When resources are used where they are most highly valued, that has a positive effect on the PPF. (d) This is a trick question. The slope of a PPF can be positive.

(B) Since resources must be used to produce more of one good, the maximum amount produced of the other good must decline.

Use the information below to answer the following questions: Billy is currently buying 10 cups of coffee, at $2 per cup, and 4 donuts, at $1 per donut. Assume that, given the current prices and Billy's income, he is making his optimal purchasing decision. Also assume both coffee and donuts are normal goods. The price of coffee falls from $2 per cup to $1.50 per cup. As a result, Billy buys 14 cups of coffee and 3 donuts. In this example, coffee and donuts are _______. (a) Complements. (b) Substitutes. (c) Unrelated. (d) Cannot be determined.

(B) Substitutes

1. What would NOT happen in competitive equilibrium if every worker in the economy received higher wages? (a) Demand would increase, because people now have more money to spend (b) Supply would increase, because firms have to meet the higher demand. (c) Supply would decrease, because firms now have to pay higher labor costs (d) Equilibrium prices would increase.

(B) Supply would increase, because firms have to meet the higher demand.

Assuming the demand curve for chocolate bars is linear, what effect does an increase in the price of chocolate bars have on the price elasticity of demand? (a) The higher price makes demand less elastic (b) The higher price makes demand more elastic (c) The higher price has no effect on the price elasticity of demand since demand is linear (d) None of the above

(B) The higher price makes demand more elastic

Consider the market for backpacks as characterized below, and use this information to answer the following questions Demand: 𝑄𝑑=240−2𝑃 Supply: 𝑄𝑠=𝑃−30 If the current price in the market is $60, which of the following is true? (a) There is a surplus of 90 backpacks in the market. (b) There is a shortage of 90 backpacks in the market. (c) There is a surplus of 60 backpacks in the market. (d) There is a shortage of 60 backpacks in the market.

(B) There is a shortage of 90 backpacks in the market

Allocative efficiency is achieved when which of the following conditions are met? (a) The difference between marginal benefit and marginal cost is at its greatest. (b) Total surplus is maximized. (c) Consumer surplus is maximized. (d) More than one of the above are correct.

(B) Total Surplus is maximized

Which of the following would make the demand for taxi cab rides in Lafayette more elastic? (a) The market price for taxi cab rides has fallen in Lafayette. (b) Uber, a ride-sharing cell phone app, has recently been introduced to the city. This has increased the amount of substitute services for standard taxi cab rides (c) Lafayette has lowered local income tax rates, which has increased the income of local residents. (d) All of the above

(B) Uber, a ride-sharing cell phone app, has recently been introduced to the city. This has increased the amount of substitute services for standard taxi cab rides.

Noel has just graduated from medical school, and he has been offered a job at one of the most prestigious hospitals in town. The job would pay him $45,000 a year. However, his uncle, who runs a health care and fitness center, has also offered him a position for $35,000 a year. However, Noel wishes to enroll for a medical research program at a foreign university, which would cost him $38,000, and eventually does so. What is Noel's opportunity cost if he enrolls for the medical research program? (a) $45,000 (b) $35,000 (c) $83,000 (d) $73,000

John builds tables and chairs. The following 4 questions use the information in table A: 4. What is the opportunity cost of increasing production from 50 to 100 tables along the PPF? (a) -50 tables (b) 250 chairs (c) 150 chairs (d) $4,000

Which of the following does NOT accurately describe the relationship between supply and demand? (a) The equilibrium price and quantity are set where supply equals demand. (b) The iPhone 6 was very expensive and hard to find when it was released because there was a shortage. (c) A decrease in demand is always accompanied by a shift in supply. (d) You cannot derive the demand curve from the supply curve, and vice-versa.

Which of the following would make the demand for biscotti less elastic? (a) An increase in the price of biscotti (b) The introduction of a new substitute for biscotti (c) A decrease in the proportion of income it takes to purchase biscotti (d) All of the above

An increase in the demand for tea is represented graphically by which of the following? (a) A movement along the demand curve to the right (b) A movement along the demand curve to the left (c) A shift of the demand curve to the right (d) A shift of the demand curve to the left

Why does an economy-wide PPF typically get steeper as production of the good measured on the x axis increases? (a) Because as production increases it takes a smaller amount of resources to produce an additional unit (b) Because marginal costs of production are constant (c) Because the marginal cost of production rises as production increases (d) Because the marginal cost of production falls as production increases

The cross-price elasticity of pencils and markers is -0.68. , Based on the information, we can conclude that pencils and markers are: (a) Normal goods (b) Inferior goods (c) Complements in consumption (d) Substitutes in consumption

Use the information below to answer the following question. Coffee is a normal good. Coffee and milk are complements in consumption. Coffee and cocoa are substitutes in production. If average incomes increase, which of the following will occur? (a) Supply of coffee decreases. (b) Supply of coffee increases. (c) Demand for coffee increases. (D) Demand for coffee decreases

Suppose the cross-price elasticity of demand between golf clubs and golf balls is -3.00. Given this information, what type of goods are golf balls and golf clubs? (a) Golf clubs and golf balls are substitutes in consumption (b) Golf clubs and golf balls are substitutes in production (c) Golf clubs and golf balls are complements in consumption (d) Golf clubs and Golf balls are complements in production

John builds tables and chairs. The following 4 questions use the information in table A: 2. Which point on the production possibilities frontier achieves allocative efficiency? (a) Point B. (b) Point C. (c) Not enough information given. (d) All points on the PPF achieve allocative efficiency.

Use the supply and demand equations below to answer the following question. Qd = 100 - 4P Qs = 3P + 30 Solve for equilibrium quantity and price. (a) P*=20, Q*=70 (b) P*=15, Q*=50 (c) P*=10, Q*=60 (d) This market cannot reach equilibrium.

Which of the following accurately describes the relationship in the law of demand? (a) Demand for the iPhone 6 was very high when it was released because there weren't enough for everyone to buy. (b) High-end sports cars (Ferrari, Lamborghini, etc.) are so expensive because many people have demand for them. (c) People buy many things on Black Friday because everything is much cheaper than usual. (d) Oranges are in high demand because a hurricane destroyed much of the crop in Florida.

Which of the following would you expect to have the most elastic demand? (a) Gasoline (b) Cigarettes (c) Potato Chips (d) Food (General)

Which of the following is not considered scarce? (a) Clean Drinking Water (b) Houses (c) Sunlight (d) All of these are scarce

The cross-price elasticity of pencils and markers is -0.68. Based on that same information, if the price of markers decreases, which of the following statements is true? (a) Demand for markers will increase (b) Supply of markers will decrease (c) The equilibrium quantity of pencils will increase (d) All of the above

Which of the following would increase the demand for tea? (a) Tea leaves used in production of tea become cheaper. (b) The price of tea decreases. (c) The price of coffee, a substitute in consumption for tea, increases. (d) All of the above.

When goods are substitutes in production, (a) An increase in the price of one good results in an decrease in supply of the other (b) They are also substitutes in consumption (c) They can be produced using the same resources (d) They must be normal goods

Use the information below to answer the following question: Kyle owns a factory that can produce cars or boats. He can produce 20 cars at a cost of $1,000 each, or 10 boats at a cost of $3,000 each. The market price for cars is $5,000, and the market price for boats is $15,000. The opportunity cost of producing boats is: (a) $0 (b) $30,000 (c) $100,000 (d) $110,000

(D) $110,000

The following table lists different points on an economy-wide production possibility frontier (PPF) for bed knobs and broomsticks. Use it to answer the next two questions. Bed knobs Broomsticks: (See table C) If we measure bed knobs on the x-axis and broomsticks on the y-axis, which of the following points would be considered infeasible? (a) (0 bed knobs, 25 broomsticks) (b) (2 bed knobs, 19 broomsticks) (c) (5 bed knobs, 15 broomsticks) (d) (8 bed knobs, 2 broomsticks)

(D) (8 bed knobs, 2 broomsticks)

(D) 14

43. If the price elasticity of demand for a commodity is estimated to be 1.5, then a decrease in price of 10% would increase the quantity demanded by (a) 50% (b) 1.5% (c) 5% (d) 15%

(D) 15%

For a particular good, if the percentage change in the quantity demanded equals the percentage change in the price, then the price elasticity of demand equals ________ and the good is said to be ____________. (a) 0; perfectly inelastic (b) 0; unit elastic (c) 1; perfectly elastic (d) 1; unit elastic

(D) 1; Unit elastic

Which of the following would NOT change the demand for tacos? (a) An increase in the price of burritos, a substitute good. (b) A decrease in population. (c) An announced sale that will occur tomorrow. (d) A shortage of beef, a factor of production.

(D) A shortage of beef, a factor of production

Coffee and cream are complements in consumption. On the other hand, cream and yogurt are substitutes in production. Suppose the price of coffee increases at the same time the price of yogurt increases. Given the information above, what should we expect to see in the market for cream? (a) Demand for cream decreases (b) Supply for cream decreases (c) The equilibrium quantity of cream decreases, and the change in the equilibrium price of cream is indeterminate (d) All of the above

(D) All of the above

The law of increasing opportunity costs means that ______. (a) The supply curve is upward sloping. (b) The slope of the production possibilities frontier grows steeper moving left to right. (c) As production of a good increases, the marginal cost of that good also increases. (d) All of the above.

(D) All of the above

Which of the following externalities will cause a market to fail to reach equilibrium? (a) A coal-burning power plant produces air pollution. (b) A volunteer organization cleans the local river. (c) Your best friend gets a new mobile phone, making it easier to contact him/her. (d) All of the above.

(D) All of the above

John builds tables and chairs. The following 4 questions use the information in table A: 1. Which point on the production possibilities frontier achieves production efficiency? (a) Point B. (b) Point C. (c) Not enough information given. (d) All points on the PPF achieve production efficiency.

(D) All points on the PPF achieve production efficiency

Use the information below to answer the following questions: Billy is currently buying 10 cups of coffee, at $2 per cup, and 4 donuts, at $1 per donut. Assume that, given the current prices and Billy's income, he is making his optimal purchasing decision. Also assume both coffee and donuts are normal goods. The price of coffee falls from $2 per cup to $1.50 per cup. As a result, Billy buys 12 cups of coffee and 5 donuts. In this example, coffee and donuts are _______. (a) Complements. (b) Substitutes. (c) Unrelated. (d) Cannot be determined.

(D) Cannon be determined

Use the information below to answer the following questions: Billy is currently buying 10 cups of coffee, at $2 per cup, and 4 donuts, at $1 per donut. Assume that, given the current prices and Billy's income, he is making his optimal purchasing decision. Also assume both coffee and donuts are normal goods. In this example, Coffee and donuts are _____. (a) Complements. (b) Substitutes. (c) Unrelated. (d) Cannot be determined.

(D) Cannot be determined

Which of the following best matches a scarce economic resource with the appropriate classification? (a) Picnic table as an example of entrepreneurship (b) Television as an example of a natural resource (c) Computer as an example of labor (d) Chairs in the dentist's office as an example of capital

(D) Chairs in the dentist's office as an example of capital

The following questions use the information below as well as table B: Steven and Tara are both consumers of video games. The following demand schedules show their quantities demanded over a 6-month period (assume their individual demand curves are linear): What is the interpretation of consumer surplus in this example? (a) Consumer surplus is the total amount consumers pay for the good. (b) Consumer surplus is the maximum amount consumers are willing to pay for the good. (c) Consumer surplus is the total benefit consumers receive from the good. (d) Consumer surplus is the maximum amount consumers are willing to pay for the good, minus the actual cost of the good.

(D) Consumer surplus is the maximum amount consumers are willing to pay for the good, minus the actual cost of the good

In the market for plastic bags, the price elasticity of demand is 0.1 and the price elasticity of supply is 3.0. Based on this information, which of the following is true? (a) Demand for plastic bags is inelastic, and supply of plastic bags is inelastic (b) Demand for plastic bags is elastic, and supply of plastic bags is inelastic (c) Demand for plastic bags is elastic, and supply of plastic bags is elastic (d) Demand for plastic bags is inelastic, and supply of plastic bags is elastic

(D) Demand for plastic bags is inelastic, and supply of plastic bags is elastic.

If the local bakery increases the price of biscotti from $2 to $3, their revenues decrease from $100 to $90. What does this imply about the market for biscotti? (a) Demand is perfectly elastic. (b) Demand is inelastic. (c) Demand is perfectly inelastic. (d) Demand is elastic.

(D) Demand is elastic

The market for bicycles is currently at equilibrium. If consumers think the price of a bike will decrease next month (but suppliers do NOT have this belief), how will equilibrium be affected? (a) Equilibrium price will rise, and equilibrium quantity will rise (b) Equilibrium price will rise, and equilibrium quantity will fall (c) Equilibrium price will fall, and equilibrium quantity will rise (d) Equilibrium price will fall, and equilibrium quantity will fall

(D) Equilibrium price will fall, and equilibrium quantity will fall

Which of these is a normative statement? (a) If we increase production by 10 units, our revenue will double. (b) We should raise taxes on the wealthiest 1% of individuals. (c) The inflation rate is too high. (d) More than one of these are correct.

(D) More than one of these are correct.

The following 5 questions use the information below: The price of Coca-Cola falls from $2 to $1. As a result the quantity of Coca-Cola demanded rises from 1000 to 1500, the quantity of Pepsi demanded falls from 1000 to 750, the quantity of ice cream demanded rises from 100 to 110, and the quantity of Coca-Cola supplied falls from 1750 to 1500. 2. The price elasticity of demand for Pepsi is ____, meaning demand for Pepsi is ____. (a) .429, inelastic (b) 1, unit elastic (c) 2.333, elastic (d) Not enough information is given

(D) Not enough information is given

Use the supply and demand equations below to answer the following question. Qd = 100 - 4P Qs = 3P + 30 Demand increases to Qd = 170 - 4P. This causes what changes in equilibrium price and quantity? (a) P* ↓, Q* ↓ (b) P* ↑, Q* ↓ (c) P* ↓, Q* ↑ (d) P* ↑, Q* ↑

(D) P*Up, Q* down

At a price of $30, the number of seats supplied at Mackey Arena is 14,240. If the market price rises to $70, the number of seats supplied remains at 14,240. The supply of seats at Mackey is: (a) perfectly elastic (b) elastic (c) unit elastic (d) perfectly inelastic The cross-price elasticity of pencils and markers is -0.68. Use this information to answer the next two questions.

(D) Perfectly Inelastic

Wheat cereal and wheat bread are substitutes in production, while wheat cereal and oatmeal are substitutes in consumption. What happens to the equilibrium price of wheat cereal if the price of wheat bread decreases at the same time the price of oatmeal decreases? (a) price increases; quantity decreases (b) price decreases; quantity increases (c) price is indeterminate; quantity decreases (d) price decreases; quantity is indeterminate

(D) Price decreases; quantity is indeterminate

If the price of both milk and cocoa increases, what happens to the equilibrium price and quantity for coffee? (a) Price increases, quantity decreases (b) Price increases, quantity is undetermined (c) Price is undetermined, quantity is undetermined (d) Price is undetermined, quantity decreases.

(D) Price is undetermined, quantity decreases.

Which of the following statements does NOT correctly match the given resource to its appropriate classification? (a) Oil reserves are an example of land (b) A janitor is an example of labor (c) A machine used in the production of a good is an example of capital (d) The cashier at McDonalds is an example of entrepreneurship.

(D) The cashier at McDonalds is an example of entreprenurship.

Which of the following is an example of an opportunity cost of going to college? (a) The rent you pay at your apartment. (b) The cost of groceries you buy every week. (c) The value of working at McDonald's, plus the value of being unemployed. (d) The cost of the textbook for this class.

(D) The cost of the textbook for this class.

Given the following equations for demand and supply of movie tickets, answer the following question: Qd = 30 - 2P Qs = 3P - 15 At a price of $10 in the market for movie tickets, which of the following occurs? (a) There is a shortage of 5 movie tickets (b) There is a shortage of 8 movie tickets (c) There is a surplus of 2 movie tickets (d) There is a surplus of 5 movie tickets

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