Microeconomics Test 1
The key to using the cost benefit principle is to think about _______ aspects of a decision. A. Both financial and non financial B. None of the above C. Only non financial D. Only financial E. Neither financial nor non financial
A.
Equilibeium
The point at which there is no tendency for change
The Interdependence Principle
Your best choice depends on the other choices you make, the choices others make, developments in other markets, and expectations about the future.
Midpoint formula
(x₁+x₂)/2, (y₁+y₂)/2
A change in what factor would shift the supply curve? A. The price of the good being sold B. The demand for the product C. Production technology D. The willingness of consumers to pay
C.
Charles McCoy is a manager at a coffee shop, and he has to decide how many workers to hire. One worker can make 20 drinks that sell for $4 on average in one hour. A second worker can make another 16 drinks in one hour. The marginal benefit of each additional worker decreases by 4 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? A. Seven B. Six C. Five D. Four
C.
The marginal principle breaks quantity decisions into iterative decisions that use the _________
Cost-benefit principle
A market can be described by the equations Qd = 50 - 3P and Qs = 2P. What are the equilibrium price and quantity in this market? a. The equilibrium price is $20, and the equilibrium quantity is 10 units. b. The equilibrium price is $30, and the equilibrium quantity is 10 units. c. The equilibrium price is $50, and the equilibrium quantity is 100 units. d. The equilibrium price is $10, and the equilibrium quantity is 20 units.
D.
Asking "or what" allows the ______ principle to be analyzed as a simple question. A. Marginal B. Cost benefit C. Interdependence D. Opportunity cost
D.
In a free market setting where quantity supplied is 50 units and quantity demanded is 40 units, price will: a. remain the same. b. rise c. move in an indeterminate direction. d. fall
D.
Demand equation
Qd=a-b(P)
Supply equation
Qs= -a+b(P)
Law of supply
Tendency of suppliers to offer more of a good at a higher price
Economics
The study of how people seek to satisfy their needs and wants by making choices
Supply
The willingness of firms to produce certain quantities of goods and services at different prices
Free Market Economy
an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets
The rational rule for buyers
buy more of an item if its marginal benefit is greater than (or equal to) the price
The law of demand
consumers buy more of a good when its price decreases and less when its price increases
The Opportunity Cost Principle
the true cost of producing an additional unit of a good or service is the value of other goods or services that must be given up to obtain it
Which of the following might explain why the price of DVD players has been falling? a. a decrease in the price of DVDs b. an increase in consumer income c. a decrease in the price of high-definition Blu-ray players d. an increase in the price of gasoline
C.
Determinante of Elasticity
1. Availability substitutes 2. Passage of time 3. Access to information & willingness to shop around 4. Particular brand of product vs category of product
6 Demand Determinants
1. Income 2. Tastes and preferences 3. Expectations of future prices 4. Price of related goods 5. Congestion and network effects 6. # of buyers/population
Three Assupmtions
1. People are rational 2. Choices create opportunity cost 3. Incentives matter
6 Supply Determinants
1. Price of inputs 2. Technology 3. Expectations of future price 4. Number of sellers 5. Price of substitute goods in production
If Major League Baseball ticket prices rise by 15%, the number of tickets sold falls by 5%. The elasticity of demand is: a. -1/3. b. -7.5. c. -3. d. -0.75.
A.
In free markets, shortages lead to: a. higher prices. b. lower prices. c. surpluses. d. unexploited gains from trade.
A.
The law of demand suggests a ______ relationship between price and _____. A. Negative; quantity demanded B. Positive; quantity supplied C. Positive; quantity demanded D. Negative; quantity supplied
A.
The price elasticity of demand: a. tells us how responsive consumer purchases are to price changes. b. equals the inverse of price to quantity demanded. c. estimates the relationship between quantity demanded and production costs. d. measures how far the demand curve shifts from a change in price.
A.
The quantity demanded of a good of service is the amount that: A. Consumers are willing and able to buy at a given price B. A consumer would like to buy but not might be able to afford C. Firms are willing to sell during a given time period at a given price D. A consumer needs to consume during a given period
A.
Which statement correctly completes the following definition of a demand curve? A demand curve is the connection that shows the relationship between __________. A. Price & quantity demanded B. Quantity demanded & quantity supplied C. Price and quantity supplied D. Price and quantity sold
A.
Mixed Economy
An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.
Cost-Benefit Principle
An individual (or a firm or a society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs.
A 4% increase in the price of beer will cause a 1% decline in the quantity of beer demanded. The demand for beer is: a. elastic. b. inelastic. c. elastic at 4 (in absolute value). d. unitary elastic.
B.
Demand slopes down because: A. Supply slopes up, and supply and demand must intersect B. Consumers will choose to use goods only in their most valuable uses when prices are high C. Consumers focus too much on the price of goods when they choose the quantity to demand D. Goods usually have only a single use
B.
Marge tutors English students. If she raises rates, her revenues increase. Brad tutors biology students. If he lowers rates, his revenues increase. Which of the following is TRUE? a. Marge's demand is elastic, and Brad's demand is elastic. b. Marge's demand is inelastic, and Brad's demand is elastic. c. Marge's demand is elastic, and Brad's demand is inelastic. d. Marge's demand is inelastic, and Brad's demand is inelastic.
B.
Suppose it is widely believed that the price of flat-screen, high-definition televisions will be lower next year. What will happen as a result of such beliefs? A. The demand for flat screen TVs will decrease next year B. The demand for flat screen TVs will decrease now C. The demand for flat screen TVs will increase now D. The demand for flat screen TVs will not change now
B.
Total revenue is: a. quantity/price. b. price × quantity. c. price + quantity. d. the elasticity of demand × price.
B.
When supply decreases there is a ______ at the old equilibrium price, which puts ______ pressure on price until the market reaches the new equilibrium. a. surplus; upward b. shortage; upward c. surplus; downward d. shortage; downward
B.
If demand is elastic, a price ________ causes ________ in total revenue. a. increase; an increase b. decrease; a decrease c. decrease; an increase d. increase; no change
C.
In a market, the equilibrium condition is given by the following: a. quantity demanded > quantity supplied. b. price = quantity demanded = quantity supplied. c. quantity demanded = quantity supplied. d. quantity demanded / quantity supplied.
C.
Sunk costs are costs that are incurred A. Only for some decisions B. If a particular decision is made C. Regardless of which decision is made D. If a particular decision is not made
C.
Sunk costs should _____ be considered as part of the opportunity costs of a decision. A. Always B. Sometimes C. Never D. Rarely
C.
Suppose that a group of humans build an enormous space ship of fixed size and travel into outer space, never to return. They live on board the ship and allocate all goods on the ship using markets. As the population grows, the price of housing on board the ship will: a. remain constant. b. fall rapidly. c. grow faster than the quantity of housing supplied. d. grow more slowly than the quantity of housing supplied.
C.
The demand for most goods tends to become ______ over time. a. more vertical b. less elastic c. more elastic d. downward sloping
C.
You have paid $100 for student season tickets to the football games at your university. It is halfway through the season, and the team has not won any games. You are considering whether you will attend any future games this season. All of the following are costs or benefits you should consider when making this decision EXCEPT the.... A. Satisfaction you will get of your team wins a game B. Time spent to go to the game instead of studying C. $100 you spent on season tickets D. $5 you can make per game by selling remaining tickets
C.
Demand
Consumer willingness and ability to buy products
In the early 1980s, movie rentals averaged $5 a night; by the early 1990s, that average was $1 per night. This is an example of a supply curve shifter based on: a. a change in tastes and preferences. b. a decrease in the wages of workers in the video rental stores. c. an increase in the number of VCRs owned by consumers. d. the entry of new suppliers into the market.
D.
It is a rainy day, and you were considering taking an Uber 1 mile to meet some friends. You have decided you were willing to pay $20 to avoid getting wet from the rain. The trip would normally cost you $8. Because of the weather the surcharge is twice the regular cost, so the trip will cost $16. You should _______ because of benefit to you of taking the Uber is ______ than the cost. A. Take an Uber; less B. Walk; less C. Walk; more D. Take an Uber; more
D.
Necessities tend to have a(n) ______ demand than luxuries. a. equally elastic b. more elastic c. equally inelastic d. more inelastic
D.
Suppose that the equilibrium price in the market is $10. If the current market price is $7.50: a. the quantity demanded in the market will decrease until current market price falls. b. the equilibrium price will fall to $7.50. c. the current price will fall below $7.50 as sellers compete for market share. d. competition among buyers will increase the current price.
D.
The demand curve for Froot Loops breakfast cereal is very elastic because: a. most breakfast cereals are considered a luxury good. b. it is one of the most advertised cereals in the world. c. the demand curve is negatively sloped. d. there are many good substitutes for Froot Loops.
D.
What could cause demand shift out (increase)? A. The cost of building an oil rig declines B. People start driving more hybrid cars C. More countries start pumping oil & selling it on the global market D. People start driving more SUVS and trucks
D.
Which of the following factors causes a decrease in supply? A. decrease in demand B. decrease in price of product C. increase in price of product D. new taxes on output
D.
Which variable does not shift demand? A. Tastes & preferences B. Price of complements C. Price of substitutes D. Price of raw materials
D.
Why is the demand curve for oil rather inelastic? a. The demand curve for oil is always perfectly inelastic. b. The world supply of oil is low relative to demand. c. To increase the production of oil requires a significant outlay of exploration and drilling costs. d. There are few widely available good substitutes for oil.
D.
Elastic
Demand is elastic if quantity demanded changes significantly as price changes
Inelastic
Demand is inelastic if quantity demanded changes little as price changes
A decrease in the price of a good will typically increase demand for that good. T or F?
False
The Marginal Principle
Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.
Total revenue
Price x Quantity
Market
Where buyers and sellers come together to trade
Elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants