Midterm Review chapters 1-5
The term marginal utility denotes the amount by which ______ changes when consumption changes by ______ unit(s).
total utility; 1
For two goods X and Y to be classified as substitutes, it must be the case that:
when the price of X rises, the demand for Y increases.
Taylor's optimal combination of movies and eating out is:
2 movies and 4 dinners
Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______.
3/4; inelastic
Moving from demand curve D1 to demand curve D2 shows a(n)
Decrease in demand
Choosing to study for an exam until the extra benefit (e.g., improved score) equals the extra cost (e.g., the value of foregone activities) is:
an application of the cost-benefit principle.
Refer to the accompanying figure. At a price of $9, there will be:
an excess supply of 5 units.
Suppose that the technology used to manufacture laptops has improved. The likely result would be:
an increase in supply of laptops.
An individual has an absolute advantage in producing pizzas if that individual:
can produce more pizzas in a given amount of time than anyone else.
A movement along a demand curve from one price-quantity combination to another is called a:
change in quantity demanded
As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to:
decrease
Refer to the given table. Relative to column A, column B represents
decrease in supply
When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for the NBA ticket is:
elastic
To increase total revenue, the firms with _______ demand should lower price, and firms with ______ demand should increase price
elastic and inelastic
The scarcity principle applies to:
everyone
The buyers reservation price for a particular good or service is the
largest price the buyer would be willing to pay for it
Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is:
less than zero
The demand curve illustrates the fact that consumers tend to purchase:
more of a good as its price falls
Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:
$35
Refer to the accompanying figure. The equilibrium price is ______, and the equilibrium quantity is ________.
$35; 20
Refer to the accompanying figure. At equilibrium price, total customer surplus is:
$7.50
At a price of $15 per unit, what would be the total consumer surplus in this market each day?
$75
Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. Suppose the price of fish decreased to $1.50 a pound, and the price of shrimp remains $5 a pound. At Casey's original income of $150 per week, Casey can now buy a max of _____ pounds fish or a max of ______ pounds shrimp.
100;30
If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand?
3
If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a:
3 percent decrease in the quantity of pineapples demanded.
Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:
5
If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.
5 The price elasticity of supply at a point is the percentage change in quantity supplied divided by the percentage change in price.
Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. Casey can buy a maximum of ______ pounds of fish or a maximum of ______ pounds of shrimp. A. 30; 50 B. 50; 30 C. 15; 30 D. 30; 15
50;30
Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. If Casey's income rises to $210, he could buy a maximum of ______ pounds of fish or a maximum of ______ pounds of shrimp.
70;42
Refer to the accompanying figure. The total utility of consuming 4 pizzas a week is:
90
Which of the following factors will lead to a decrease in the current supply of a good
A belief that the price of a good or service will go up in the future
Production possibilities frontier
A graphical representation of the goods a country can produce given their productivity and constraints
The entire group of buyers and sellers of a particular good or service makes up:
A market
If the demand for computers increases as consumers incomes rise, then computers are:
A normal good
Demand
A relationship between the price of a good or service and the quantity demanded
Marginal revenue
Additional revenue a firm receives from selling one more unit
Substitute goods
An increase (decrease) in a price of one good causes an increase (decrease) in the price of another good
complimentary goods
An increase (decrease) in the price of one good causes a decrease (increase) in the demand for another good
Refer to the accompanying figure. Assume the market is originally at point W. Movement to point Z is a combination of:
An increase in supply and an increase in quantity demanded
Revenue
Income a firm receives for engaging in its business activities
Suppose Chris's marginal utility from the first taco he eats is 15, and his marginal utility from the second taco he eats is 12. One can infer that:
Chris's total utility from eating two tacos is 27
Refer to the accompanying figure. Suppose the solid line represents the current supply of Star Wars action figures. If retailers learn that a new Star Wars movie will be released in several months, this news is like to cause:
Current supply to shift to S(A) in anticipation of higher future prices.
Refer to the accompanying figure. Moving from demand curve D2 to demand curve D1 can be caused by a(n)
Increase in the price of a substitute
It is impossibly for total utility to be _____ when marginal utility is ______.
Decreasing; positive
Consumer surplus
Difference between consumers willingness to pay and the price of the good or service
Producer surplus
Difference between price received and the cost of production
When the demand curve shifts to the right and supply doesn't change:
Equilibrium quantity will rise
Absolute advantage
Fewer resources are used in production
Consumption possibilities frontier
Graphical depiction of what a country can consume given it productivity, contrasts and trading opportunities
Purchasing goods such that the ratio of marginal utility to price is equal across all goods in the:
Greatest marginal utility
Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?
Lewis should specialize in pies, and Cathy should specialize in cakes.
Comparative advantage
Lower opportunity cost of production
For two goods, A and B, the rational spending rule is expressed as:
MUa/Pa = MUb/Pb
Let MUc denote the marginal utility that Pablo receives from a cup of coffee, and let Pc denote the price of a cup of coffee. We typically expect that as Pablo buys more coffee:
MUc/Pc will fall.
Determinants of supply
Market price shifters, expectations, and # of sellers
Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger can gather mangoes faster than Maryann and can also catch more fish per hour than can Maryann. Therefore:
Maryann should specialize in the activity for which she has a comparative advantage.
Perfectly competitive equilibrium
Occurs at a price where Qd is equal to Qs
Determinants of demand
Population, income, prices of substitutes and complements, tastes/preferences, and expectations
Law of supply
Prices and quantities supplied are directly related (price rise and quantity rises)
Terms of trade
Ratio of goods at which countries agree to trade at
Market power
The ability of a firm to set its own price
Marginal cost
The additional cost a firm incurs when they sell 1 more unit
Consumer surplus measures:
The difference between the maximum price a consumer is willing to pay and the price actually paid.
Suppose that Chris had been charging $1.00 per pound for potatoes. When Chris lowered the price to $0.90 per pound, his total revenue fell. When Chris raised the price to $1.10, total revenue fell. Which of the following could explain this?
The price elasticity of demand for potatoes is 1 at a price of $1.00 per pound
Law of demand
The price of a good or service is inversely related to the quantity demanded
Opportunity cost
The value of the next best alternate
Suppose a new study highlights the health benefits of eating bacon. At the same time, suppose the cost of producing bacon falls. Given these changes, you should expect to see:
an increase in the equilibrium quantity of bacon, but it's hard to say what will happen to the equilibrium price.
Two goods are complements if
an increase in the price of one leads to a decrease in the demand for the other
Inferior goods
as income increases, demand decreases
Normal good
as income increases, demand increases
In a free market, if the price of a good is below the equilibrium price, then;
buyers, hoping to ensure they acquire the good, will bid the price higher.
Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium:
excess supply will lead the price to fall.
Larry has a comparative advantage over his classmates in writing term papers if he:
has a lower opportunity cost of writing term papers than his classmates.
Economics is best defined as the study of
how people make choices in the face of scarcity and the implications of those choices for society as a whole.
The supply curve illustrates that firms:
increase the quantity supplied of a good when its price rises
The quantity that sellers wish to sell tends to ______ as price increases, and so the supply curve is ______ sloping.
increase; upward
Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ______ and PepsiCo's ability to raise revenues through price increases ______.
increased; was reduced
If the demand curve for bologna shifts to the right as income falls then bologna is a(n):
inferior good
The Incentive Principle states that a person
is more likely to take an action if its benefit increases.
If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ________.
negative; complements
If most consumer goods and services are ______, then most income elasticities are ______.
normal; positive
An implication of scarcity is that:
people must make trade-offs
According to the Cost-Benefit Principle, you should go see the latest Star Wars movie with your friends this weekend if:
the extra benefits of seeing the movie are greater than the extra costs of seeing the movie.
The goal of utility maximization is to allocate your _______ in order to maximize your ______.
resources; satisfaction
The law of demand indicates that as the cost of an activity
rises, less of the activity will occur.
The downward slope of the production possibilities curve illustrates the:
scarcity principle
If cross price-elasticity of demand between two goods is positive, the two goods are:
substitute
In a free market, if the price of a good is above the equilibrium price then;
suppliers, dissatisfied with growing inventories, will lower the price.
The price elasticity of demand is a measure of:
the change in quantity demanded of a good that results from a change in its price.
When a market is not in equilibrium
the economic motives of sellers and buyers will move the market to its equilibrium.
All else equal, the price elasticity of demand tends to be higher when:
the good has many substitutes
You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as:
the income effect of a price change.
An increase in the quantity of tea demanded occurs if:
the price of the tea falls
A seller's reservation price is generally equal to:
the seller's marginal cost.
As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:
the substitution effect of a price change.
Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:
the value she places on seeing the movie.
When a market is in equilibrium
there is neither excess demand nor excess supply
Refer to the accompanying figure. If the current market price were $20:
there would be an excess demand of 25 units.
Profit
total revenue minus total cost