Microeconomics 2302-Test 1 Chapters 1-4, 5, and 7

A doctor has worked as a general practitioner for several years, earning an annual salary of $150,000. They are now deciding whether they want to open their own private practice or continue as a team member in the existing office. One-time start-up costs for the practice would be $100,000. If they open their own practice, they will receive a salary of $50,000 from the business annually until the practice is well-established. They anticipate the practice will take two years to become fully established. They paid $200,000 for medical school. They should open their own practice if the future benefits exceed:$300,000.$200,000.$500,000.$400,000.

$300,000

If income rises by 10% and the quantity demanded of an item then falls by 30%, the income elasticity of demand for this item is: 0.67 -0.33 0.33 -3

-3

The price of chicken rises from $3.30 to $3.63 per pound. In response, to this price change, the quantity demanded of chicken breasts fell by 40%. The absolute value of the price elasticity of the demand for chicken breast is ______ and the price elasticity demand is _______. 0.24;elastic 0.24;inelastic 4.2;elastic 4.2;inelastic

4.2; elastic

For Elandra, home-brewed coffee is an inferior good, and lattes from the coffee shop are a normal good. Recently, Elandra cut back on lattes and began brewing her own coffee at home. What may have caused this change?

Elandra's income fell

Vincent makes handcrafted dining tables, and he is trying to decide how many tables to produce. He can sell each dining table for $1,000. The cost of the first table is $900, for the second it's $1,100. For each additional table he produces, the marginal cost of each table increases by $200. How many dining tables should Vincent produce, and what is the total cost of his production?Vincent will not make any tables.He will produce one table at a cost of $900.He will produce two tables at a cost of $2,000.He will produce three tables at a cost of $3,300.

He will produce one table at a cost of $900

How is the economic surplus generated by decision calculated?

It is the total benefits minus the costs arising from the decision

If drivers for ridesharing services like Uber and Lyft successfully negotiate for higher pay and parking lot operators in the city raise prices, what can you conclude about the new equilibrium for the rideshare market?

The equilibrium price will rise, but the impact on the quantity is unclear

HelloFresh is a service that provides subscribers with recipes and all the necessary ingredients to prepare meals at home, delivered to their door once per week. Holding other things constant, what would happen if the company found a more efficient way to keep food fresh and safe during shipment?

There will be a movement down the market demand curve

Dental services are: a normal good expenses that do not change with income an inferior good a natural good

a normal good

In the market for organic beef, what would cause a price increase?

a rise in the prices for grass and organic corn

For normal goods, an increase in income will result in:

an increase in the equilibrium price and quantity

The cost-benefit principle evaluates _________ costs and benefits, and willingness-to-pay considerations quantify ______ costs and benefits.

both monetary and nonmonetary; only nonmonetary

As an equity analyst with an investment management company, you monitor market conditions in the dairy sector. Which of these would shift the market supply curve you've modeled for milk? an increase in the incomes of consumers expectations of a future decline in the price of milk an increase in population the rising popularity of milk

expectations of a future decline in the price of milk

When buyers are worried that sellers know more about a product than they do, buyers tend to make _____ purchases, which in turn creates _____. fewer; deadweight loss fewer; economic surplus more; economic surplus more; deadweight loss

fewer; deadweight loss

In a small town in Kansas, the owner of the town's only gas station claims that he will sell the same quantity of gas no matter how high or low the price. If his assertion is correct, the demand curve for gas at his station must be _____, and the price elasticity is _____. horizontal; infinite vertical; infinite horizontal; zero vertical; zero

vertical; zero

Which of these is NOT a correct demand elasticity factor? More competing products mean greater elasticity. Necessities have more elastic demand. Consumer search makes demand more elastic. Specific brands tend to have more elastic demand than categories of goods.

Necessities have more elastic demand

A friend comes up to you and offers you a free ticket to a professional baseball game that night. You decide to attend the game. The game takes five hours and costs you $15 for transportation. If you had not attended the game, you would have worked at your part-time job for $8 an hour. What is the cost to you of attending the game?

$65

Consumer surplus is important because it: tells you the benefits you get from buying something. helps you avoid the market failures. helps you determine the efficient quantity. helps you determine how to fairly distribute the economic benefits.

tells you the benefits you get from buying something

Suppose you manage a convenience store. If macaroni and cheese is an inferior good, what do you suppose would happen to the price and quantity sold if incomes fall?

both price and quantity will increase

Charles is a manager at a coffee shop, and he has to decide how many workers to hire. One worker can make 25 drinks that sell for $5 on average in one hour. A second worker can make another 20 drinks in one hour. The marginal benefit of each additional worker decreases by five drinks, with each additional hire. Given that workers are paid $15 per hour and have eight-hour shifts, how many employees should Charles hire for each hour? three four five six

five

The difference between a centralized economy and a market economy is that...

governments make the production decisions in a centralized economy and individuals make the decisions in a market economy

The Rational Rule for Sellers says that sellers should supply one more unit of a good if the price is:

greater than or equal to the marginal cost

When there is a shortage of highly skilled workers...

highly skilled workers can negotiate higher salaries

Any change that leads businesses to produce a larger quantity at each price is considered a(n):

increase in supply

Real-world markets do not always yield efficient outcomes, since real markets do not always involve well-informed buyers and sellers _____ in a well-functioning market with _____ competition. cooperating; limited interacting; limited interacting; perfect cooperating; perfect

interacting; perfect

Following the rational rule, the economic surplus is maximized when:

marginal benefits equal marginal costs

Gasoline prices have been rising. As time passes, people will adjust to the higher price, and the demand for gasoline becomes: more elastic more inelastic steeper higher

more elastic

A shortage occurs when:

quantity demanded exceeds quantity supplied

We measure the cross-price elasticity of demand as the ratio of the percent change in _____ to the percent change in _____ of another good. the price; the price quantity demanded; quantity demanded the price; quantity demanded quantity demanded; the price

quantity demanded; the price

We expect that price will fall when:

quantity supplied is greater than quantity demanded

When plotting a supply curve, you measure:

quantity supplied on the horizontal axis.

A central and fundamental theme in economics is that:

resources are limited and cannot satisfy all the ways society wishes to use them

Knowing the price elasticity of demand for your product allows you to forecast your own _____, as well as those of your competitors. revenues and profits marginal benefits revenues but not profits marginal costs

revenues and profits

The study of economics arises because of the necessity of choice. The necessity of choice arises due to the fundamental problem of...

scarcity

Supply is inelastic whenever the percent change in quantity supplied is: unaffected by a change in price. greater than the percent change in price. smaller than the percent change in price. equal to the percent change in price.

smaller than the percent change in price

Suppose the cross-price elasticity of demand between apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is -0.8. This means that apple sauce and avocados are _______ while soda and oranges are _________.

substitutes; compliments

Consumer surplus is: the economic surplus you get from selling something. the economic surplus you get from buying something. what occurs when a given level of output is produced at the lowest possible cost. what occurs when goods are allocated in the way that creates the most economic surplus possible.

the economic surplus you get from buying something

Producer surplus is: what occurs when goods are allocated in the way that creates the most economic surplus possible. the economic surplus you get from selling something. the economic surplus you get from buying something. what occurs when a given level of output is produced at the lowest possible cost.

the economic surplus you get from selling something

if income elasticity of demand is negative...

the good is inferior

In your media studies class, you learn that Westerns were once a staple of network television but are now less common. If the production costs per episode of Westerns are comparable to those of other scripted shows, the most likely explanation for their disappearance is that, over time:

the market demand curve for Westerns shifted to the left

If the price of chocolate chip cookies falls, then

there will be a rise in the quantity of chocolate chip cookies demanded

It is a rainy day, and you are considering taking an Uber one mile to meet some friends. You have decided you are willing to pay $20 to avoid getting wet from the rain. The trip would normally cost you $8, but due to the weather the surcharge is triple the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost.

walk; less

Juan is willing to pay $900 for a new iPad. He offers to pay $800 for an iPad at the Apple store. It costs Apple $700 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because _____ would be better off due to the transaction.

will; both Juan and Apple

You are a small business owner preparing to launch your first ad campaign to attract new customers and must decide whether to learn about advertising yourself or hire a professional to launch the campaign. The campaign will last three months. If you hire a professional, you'll have to pay them a lump sum of $1,000 for the entire campaign. But if you decide to do it yourself, you'll take a course that costs $200 to introduce you to the skill. You'll also pay an employee $340 per month to work some of the hours you normally work while you manage the campaign. Would it be better to hire a professional rather than doing the campaign yourself? Yes, because your economic surplus is $220. Yes, because your full set of costs is only $540. No, because the benefit of not having to do it yourself is greater than the cost of the professional. No, because you can increase your economic surplus if you do it yourself.

Yes, because your economic surplus is $220