chapter one-four
The market price of cruise ship vacations has increased recently. Some economists suggest that the price increased because of an increase in the number of retirees. In other words, they believe that:
demand increased.
As part of a market research project, you survey six random people to see how much gas per week they would buy at various prices. The data you collect is in the accompanying table. What is the total demand for gasoline at $2.50 per gallon in your survey?
51 gallons
The table shows the monthly individual supply schedules for the four firms in the packed-meals market. What is the market supply at $6.75 per meal?
895,000 meals
Which of the following lists only the factors that would cause a decrease in the supply of an item?
A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.
(Figure: Shift in Supply 1) Use the figure to answer the question. Which of the following market changes would lead to a shift of the supply curve from Old supply to New supply?
A rise in the price of a product that is a complement-in-production. (supply curve shifted right)
(Figure: Shift in Supply 2) Use the figure to answer the question. Which of the following market changes would lead to a shift of the supply curve from Old supply to New supply?
A rise in the price of a product that is a substitute-in-production. (supply curve shifted left)
In general, when incomes rise, individuals are more likely to travel by air than by car when they take vacations. Which statement provides one possible explanation for this phenomenon?
Air travel is a normal good, and travel by car is an inferior good.
Which of the following scenarios describes a business that is NOT following the law of supply?
Automobiles fall in price, and Maria's Autorama Ltd. is now willing to sell more vehicles.
If expected future profits in an industry rise
supply will shift right.
In the local market for coffee, if a newly opened Starbucks competes with two local coffee shops (the Java Joint and Cup O Joe), the _____ curve shifts to the _____.
supply; right
(Figure: Shift in Supply 1) Use the figure to answer the question. Which of the following events would lead to a shift of the supply curve from Old supply to New supply?
technological advance in production techniquies
Steak is a normal good if:
the demand for steak increases when income rises.
Due to uncertainty around Brexit, the value of the British pound has been falling against the Euro. How will this affect the demand for German goods in the UK?
The demand for German goods would fall.
(Figure: Graph) In the graph, the movement from point J to point K must have been caused by:
a fall in the price of the item (movement down on supply curve)
An inferior good is
a good whose demand decreases when income rises.
The table shows the monthly individual demand schedules of four students for soda. What is the change in the total market demand for soda when the price changes from $1.50 per can to $2 per can?
The total quantity demanded in the market falls by 23 cans.
Which statement is TRUE, according to standard economic theory?
The true cost of a choice is what you must give up when choosing between alternatives.
Which statement is TRUE regarding a normal good?
When income increases, the demand for the good increases
Economists use money equivalents to compare costs and benefits because money is
a common measuring stick.
Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does the coffee shop receive when Kevin purchases the latte?
$1
Gary Parker is willing to pay $700 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $600. It costs Apple $400 to produce this iPad. How much economic surplus does Gary receive if he purchases this iPad?
$100
(Figure: Market for Juice) Use the figure to answer the question. You are studying the demand for Minute Maid and Tropicana orange juice. Minute Maid improves the taste of its juice and people start preferring Minute Maid over Tropicana. Which graph depicts the impact of these changes on both Minute Maid and Tropicana?
Graph A shows what happens in the market for Minute Maid, and Graph B shows what happens in the market for Tropicana.
(Figure: Market for Roses) Which graph illustrates what will happen in the market for roses if the price of roses falls?
Graph B (downward movement on demand curve)
Vincent Pearson makes 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?
He will produce one table at a cost of $900.
Why does the demand curve slope downwards?
It slopes downward due to the law of demand.
There are four suppliers in the packed meals market. The quantity of packed meals that each one is willing to supply per week at various prices is provided in the accompanying table. What is the change in the market supply for packed meals when the price falls from $6.25 per meal to $6.00 per meal?
The quantity supplied in the market falls by 149,000
An increase in the supply of coffee beans means:
a shift to the right of the entire supply curve for coffee beans.
Kathleen Alvarado is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes unless the marginal
benefit of watching another episode is equal to the marginal cost.
Diane Jacobs is a student studying economics and currently working on her class schedule for next semester. She considers the fact that more and more data is available every day and that data interpretation skills are learned by taking additional economics courses in her course selection. This acknowledgment highlights the dependencies that exist:
between markets.
You buy two loaves of bread at a price set by the government. The price of the bread never changes, and it is the only kind of bread produced. This scenario is an example of a
centrally planned market
If people demand more Netflix subscriptions when the price of Hulu subscriptions falls, then Netflix and Hulu are:
complements
If the demand for electric cars falls when the price of electricity rises, then electric cars and electricity are:
complements
Consider the decision to read your economics textbook regularly. Which of the four core principles of economics applies to the notion that reading this textbook will require time and effort but that doing so will improve your grade in this course?
cost-benefit principle
If ramen noodles are an inferior good for Kim, then, holding all other things constant, as Kim's income increases, her demand for ramen noodles will:
decrease
Suppose the input costs associated with manufacturing office furniture increase over time. This would lead to a(n):
decrease in the supply of furniture, higher prices, and a decrease in the equilibrium quantity.
Consider the supply curve for wool sweaters. An increase in the price of wool will:
decrease the supply of wool sweaters.
The tendency for quantity demanded to be higher when the price is lower is known as the law of:
demand
Ivan has inherited his grandmother's 1963 Chevrolet Corvette, which he values at $60,000. Samantha is interested in buying the car and offers Ivan $55,000 for the car. Samantha is willing to pay up to $60,000 for such a car. A voluntary economic exchange _____ between Ivan and Samantha because _____ positive economic surplus from the transaction.
does not occur; only Samantha receives
Which influence will shift the supply curve?
expectations of a future decline in prices
Jonathan Mendez is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of dinner at the fancy restaurant on the way to the concert is ____ in the calculation of his opportunity cost and represents a _____ cost.
included; financial
Consider your decision to attend class in college or skip it. Which of the four core principles of economics applies to the notion that each additional class you attend helps increase your likelihood of mastering the material?
marginal principle
Carolyn Bates is a junior in college studying economics. She has created a new software application that applies the four principles of economic decision making to any potential decision that a user faces. She is considering leaving school after this academic year to pursue further development of her app. Carolyn should consider all of the following costs when calculating the opportunity costs of leaving college EXCEPT the
90 credit hours she has already completed for her degree.
(Figure: Shifts in Demand and Supply III) Use Figure: Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose the technology used to produce surfboards improves. Which panel BEST illustrates how this innovation will affect the market for sunscreen, a complement in consumption of surfboards?
A (demand right shift)
An economics conference is scheduled to take place in San Diego. Several thousand attendees from around the world are expected to arrive in San Diego for the conference. Which graph depicts what will happen in the market for hotel rooms in San Diego?
Graph A (demand shifts right)
(Figure: Market for Oral Health Care) A recent article published in the Journal of the American Dental Association talked about the impact of the Great Recession of 2007-2009 on the demand for oral health care in the United States. Which of the graphs illustrates what this impact might have been?
Graph A (left shift of demand curve)
Which of the following items is an inferior good?
Low-quality frozen meals
A new study discovers the health benefits of eating fish regularly. At the same time, some consumers decide to become vegetarians. What is the effect of these events on the equilibrium price and quantity in the fish market?
The change in both the equilibrium price and quantity is ambiguous.
Consider the market for quinoa. What happens if there is an increased demand for quinoa cereal, while at the same time, a new quinoa seed that dramatically increases yield per acre becomes available?
The change in price is indeterminate; quantity increases.
The primary difference between a change in supply and a change in quantity supplied is that:
a change in quantity supplied is a movement along the supply curve, whereas a change in supply is a shift of the supply curve.
An increase in the price of shoes would probably result in _____ in the demand for shoelaces.
a decrease (complements don't bene when one goes up, think of it as a complementy-pick me)
Macaroni and cheese is an inferior good. If students' incomes at your college increase, the effect on macaroni and cheese consumption will be:
a decrease in demand.
Which factor would NOT cause a supply curve to shift?
an increase in the price of a good
The opportunity costs of a decision may include each of the following types of costs EXCEPT
sunk costs
Suppose a technological improvement lowers the cost of producing guava candy. At the same time, preferences for guava candy decrease. The equilibrium quantity of guava candy will:
increase, decrease, or remain the same, depending on the relative magnitudes of the shifts of the demand and supply curves.
If steak is a normal good, when incomes rise, the equilibrium price will _____, and the equilibrium quantity will _____.
increase; increase
The marginal principle says that decisions about quantities are best made
incrementally
It is certain that the equilibrium price will fall when:
the quantity supplied is greater than the quantity demanded.
Suppose there is a surplus of qualified architects in the United States. Over time, we would expect:
the salaries of qualified architects to fall.
Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are
normal goods.
Maria's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Gil orders two slices. From this information, we know that the marginal benefit to Gil of a second slice is at least _____, and the marginal benefit to Gil of a third slice is less than _____.
$1.50; $1.00
A university student faces the difficult decision of how to spend one hour tonight. She could babysit her professor's child at an hourly wage of $10; she could work at the college library at a wage of $12; or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to:
$12
(Figure: Demand and Supply of Sugar) Use Figure: Demand and Supply of Sugar. When the supply curve shifts from S1 to S2, the new intersection of supply and demand indicates an equilibrium price of _____ and an equilibrium quantity of 4,000. This supply shift could have resulted from _____.
$15; an improvement in sugar refining technology
You are thinking of starting a tutoring service. You already have a part-time job on campus that pays $20 per hour. You think you can tutor fellow students for five hours each Saturday at $25 per hour, and you have already printed $10 worth of flyers to hang on campus for advertising. If you were not tutoring, you could work another five hours at your campus job. How much economic surplus will you generate each week if you start tutoring?
$25
Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte?
$4
You are thinking of starting a tutoring service. You already have a part-time job on campus that pays $10 per hour. You think you can tutor fellow students for five hours each Saturday at $25 per hour. If you were not tutoring, you could work another five hours at your campus job. How much economic surplus will you generate each week if you start tutoring?
$75
Which of the following would be considered in a cost-benefit analysis to decide if a person should cycle to work or ride the subway? (i) The air pollution that the cyclist has to breathe. (ii) The cost of subway tickets. (iii) The time it takes to cycle to work versus the time it takes to ride the subway to work. (iv) The cost per gallon of gasoline.
(i), (ii), and (iii)
Stores that are expected to perform better during recessions are those that sell
inferior goods
The demand curve (i) is a curve that shows the maximum willingness to pay for a product. (ii) is a curve that shows the marginal benefit gained from a product. (iii) is a curve that shows the production cost of a product. (iv) is a curve that shows the relationship between the price of a product and a consumer's willingness to buy at each price.
(i), (ii), and (iv) are correct.
As a part of a market research project, you survey six food trucks across the city to gather data on how many meals they would plan to sale at various prices. The data you collect is in the accompanying table. What is the total supply of meals in your survey at $8 per meal?
1,135 meals
Janelle loves sashimi. Her first piece of sashimi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sashimi, how many pieces should she eat?
10
The market for peanut butter, a perfectly competitive good, consists of 15 producers who each produce the same amount of peanut butter. If the price of peanut butter is $100, and the total quantity of peanut butter supplied is 150 units, how many units of peanut butter does each producer supply?
10
Consider the data in the table. The price of gasoline is $3.99 per gallon at the gas station. If Rexhall Fuel Supplies is a rational seller, how many gallons of gasoline should this seller be willing to sell?
20 million gallons per week
(Figure: Mia's Demand Curve for Ice Cream) The accompanying graph shows Mia's demand curve for ice cream, how many cones would Mia be willing to buy at $5 per cone?
3 cones
The cost-benefit principle states that _____ are the incentives that shape decisions.
costs and benefits.
(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The figure shows how supply and demand might shift in response to specific events. Suppose vast new oilfields are discovered offshore of Washington state, so that gasoline prices fall. Which panel BEST illustrates how this development will affect the market for luxury sport utility vehicles?
A (demand rightward shift)
Which of the following lists only factors that would cause an increase in the supply of an item?
A decrease in input prices; a technological innovation; a fall in the price of a substitute-in-production.
Which of the following lists only factors that would cause a decrease in the demand for a good?
A decrease in popularity of a good; a rise in income (if the good is an inferior good); a fall in the price of a substitute good.
You are analyzing a trade-off when you compare the _____ and _____ of doing something.
costs; benefits
_____ illustrates an upward-sloping relationship between price and quantity.
A supply curve
(Figure: Shifts in Demand and Supply IV) Use Figure: Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose that a large amount of people move to Denver such that the population increases by 20%. Which panel BEST illustrates how this event will affect the market for houses in Denver?
B (demand shift right)
What happens to the equilibrium price and quantity when demand decreases and at the same time supply increases, but the demand shift is relatively larger than the supply shift?
Both the equilibrium price and quantity will fall.
(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose a heat wave destroys one-quarter on the nation's potato crop. Which panel BEST illustrates how this event will affect the market for French fries?
C (leftward shift of supply)
The demand curve for meals at a local Chick-fil-A will shift to the left if:
Chick-fil-A offers a free sandwich to people who sign up for their new rewards app.
Which statement BEST illustrates the law of demand?
Consumers buy more iPhones because prices have fallen.
A shortage occurs when:
quantity demanded exceeds quantity supplied.
(Figure: Market for Bread) Bread and cheese are often considered to be complementary foods. Which graph shows what will happen in the market for bread if the price of bread rises?
Graph C (price inc)
(Figure: Market for Bread) Which of the following graphs shows what will happen in the market for bread if the price of organic wheat used in bread production rises?
Graph C (supply curve shift left)
Which of the following scenarios does not illustrate the law of demand?
Freya buys more doughnuts when the price of doughnuts is higher.
(Figure: Market for High-End Meals) What will happen to the demand for upscale restaurants, if an economy goes into recession and unemployment rises?
Graph A (leftward shift of demand curve)
(Figure: Market for Luxury Vehicles) Which graph shows what will happen in the market for luxury vehicles if a recession is imminent?
Graph A (leftwards)
(Figure: Market for Coffee) A coffee shop opens next to an existing coffee shop. Which of the following graphs shows the effect of this new coffee shop on the market supply curve for coffee in this area?
Graph A (rightward shift b/c supply inc)
(Figure: Market for Video Games) Microsoft's Project Scarlett Xbox release date is 2020. Which graph shows what will happen to the development and supply of new compatible video games once the Xbox launches in the market?
Graph A (rightward shift b/c supply inc)
(Figure: Market for Steel Bars) Which graph illustrates what will happen in the market for processed, industrial steel bars when the price of raw steel falls?
Graph A (supply shifts right)
(Figure: Market for New Housing in Dubai) Which graph shows the effect on the supply curve for new housing in Dubai, if economists predict a decrease in demand for new housing?
Graph B (movement towards origin on supply curve, demand dec so the new quan will be smaller)
(Figure: Market for Roses) Which graph shows what will happen to the supply of roses if the price of roses falls?
Graph B (price lowers, graph moves to origin)
(Figure: Market for Canadian Goods with US Inputs) Use the figure to answer the question. The Canadian dollar has weakened against the US dollar, meaning that it takes more Canadian dollars to purchase a US dollar. What will happen to the supply of Canadian goods that use inputs made in the US? Choose the graph that correctly depicts your answer.
Graph C
(Figure: Market for Cars) Use the figure to answer the question. In 2011, Japan suffered a major earthquake and tsunami. Honda parts that were sourced from Japan could no longer be produced, which caused Honda to cut its production of cars. Which graph shows the effect of this shortfall?
Graph C (left shift in supply)
(Figure: Market for Tropicana Juices) Tropicana produces both orange juice and lemonade. What will happen to the supply of Tropicana orange juice when the price of lemonade rises in the market and the price of orange juice stays the same?
Graph C (leftward shift of supply curve)
(Figure: Market for Stevia) Stevia is a natural sweetener that is used as a substitute for sugar. Which of the following graphs shows the effect on the supply of bakery desserts made with stevia when the price of stevia rises?
Graph C (leftward shift)
(Figure: Market for Leather Wallets) Producers of hand-made leather wallets have made manufacturing changes that have improved quality but reduced efficiency. Which graph shows this change in the market?
Graph C (leftwards shift of supply curve)
(Figure: Market for Canadian Goods with US Inputs) Use the figure to answer the question. The Canadian dollar has strengthened against the US dollar, meaning that it takes fewer Canadian dollars to purchase a US dollar. What will happen to the supply of Canadian goods that use inputs made in the US? Choose the graph that correctly depicts your answer.
Graph D
(Figure: Market for Luxury SUVs) Which of the following graphs shows what will happen to the supply curve for luxury SUVs, if economists predict an increase in demand for these vehicles?
Graph D (inc in demand means larger quantity, movement upwards on supply curve)
(Figure: Market for Printing Paper) Which of the following graphs shows what will happen in the market for printing paper if the price of printing paper rises?
Graph D (movement upwards along supply curve)
Vincent Pearson makes dining tables, and he is trying to decide how many tables to produce. He can sell each dining table for $3,000. The cost of the first table is $1,000, for the second it's $1,500. For each additional table he produces, the marginal cost of each table increases by $500. How many dining tables should Vincent produce, and what is the total cost of his production?
He will produce five tables at a cost of $10,000.
Which of the following lists only factors that would cause an increase in the demand for an item?
Information on possible side effects of using an item; a rise in income (if the good is a normal good); a fall in the price of a substitute good (2nd option)
Look at the chart which shows data for five different oatmeal cookie producers. Which sellers are NOT following the law of supply?
Ken and Ben
Which of the following scenarios does NOT depict a rational seller?
Main Street Bakery calculates the marginal cost of a multilayer red velvet cake sd $9 and sells it for $8.
(Figure: Market for Lenovo Desktops) Lenovo produces laptops and desktop computers. Which graph shows what will happen in the market for Lenovo desktops if the demand for laptops increases?
NOT B (best other guess would be C)
Which factor will NOT cause an increase in the demand for shoes?
NOT a decrease in income, assuming shoes are an inferior good
(Figure: Market for New Housing) Which graph shows the effect on the housing market today, if the realtor association predicts new housing prices to rise in a few months?
NOT graph A (leftward shift)
A beach resort in Bali builds 24 villas with private pools. They also establish two restaurants using state-of-the-art equipment (such as multipurpose ovens, freezers, and food processors). Meals are prepared using organic, locally sourced vegetables and meat. The hotel also uses water from the town supplier. Based on this scenario, what are the variable costs for the beach resort?
Organic vegetables and water.
Suppose that supply decreases and demand increases. What is the MOST likely effect on price and quantity?
Price will increase, but quantity may increase, decrease, or stay the same.
What is the difference between a shortage and scarcity?
Scarcity will exist, but a shortage will exist only if the price of a good is below the equilibrium level.
Which of the following items is a normal good?
Steak
What happens to the equilibrium price and quantity when demand decreases and at the same time supply increases, and the demand shift is relatively smaller than the supply shift?
The equilibrium price falls, and the equilibrium quantity rises.
What affect will the release of the new Mercedes E-Class sedan have on last year's models that are still on the dealers' lots? Use supply and demand concepts to do your analysis.
The arrival of the new E-Class would lead to a decrease in demand for last year's model and their prices would fall.
If Canadian consumers expect the value of the Canadian dollar to depreciate against the US dollar (the Canadian dollar becomes weaker against the dollar), what impact would we expect this to have on Canadians' demand for American made products?
The demand for American-made items would fall.
If Canadian consumers expect the value of the Canadian dollar to rise against the US dollar, what impact would we expect this to have on Canadians' demand for American made products?
The demand for American-made items would rise.
In March 2019, airlines around the world grounded their Boeing 737 Max aircraft after two of them crashed. What would we expect to happen in the market for this aircraft?
The demand for the Boeing 737 Max would decrease due to concerns about the safety of the aircraft.
What happens to the equilibrium price and quantity when demand decreases and at the same time supply increases, but the relative size of the shifts are not known?
The equilibrium price falls, and the change in the equilibrium quantity is ambiguous.
You are studying the international market for coffee. The world production of coffee beans increases, and at the same time, consumers worldwide start favoring tea over coffee. What is the effect on the equilibrium price and the equilibrium quantity in the coffee market?
The equilibrium price falls, and the change in the equilibrium quantity is ambiguous.
What happens to the equilibrium price and quantity when demand increases and simultaneously supply decreases, and the relative size of the shifts is not known?
The equilibrium price rises, and the change in the equilibrium quantity is ambiguous.
What happens to the equilibrium price and quantity when demand increases and at the same time supply decreases, but the demand shift is smaller than the supply shift?
The equilibrium price rises, and the equilibrium quantity falls.
What happens to the equilibrium price and equilibrium quantity when demand and supply decrease simultaneously, but the relative size of the shifts are not known?
The equilibrium quantity falls, and the change in equilibrium price is ambiguous.
Which of the following is NOT a factor that can shift supply?
The market price of a product.
Which of the following is not a demand shifter?
The price of the product
As a part of a market research project, you survey six food trucks across the city to gather data on how many meals they would plan to sale at various prices. The data you collect is in the accompanying table. What is the change in the total supply of meals in your survey when the price increases from $8 per meal to $9 per meal?
The quantity supplied rises by 165.
Exxon imports a significant amount of oil from Canada. What would happen to Exxon's supply curve if the value of the U.S. dollar falls against the Canadian dollar?
The supply curve will shift to left.
German firms import machinery from the UK. What will happen to the supply of German goods manufactured using machinery from the UK, if the value of the euro falls against the British pound?
The supply curve will shift to the left.
Anderson windows and doors imports wood from Canada. What would happen to the supply curve of Anderson if the value of the U.S. dollar rises against the Canadian dollar?
The supply curve will shift to the right.
German firms import machinery from the UK. What will happen to the supply of German goods manufactured using machinery from the UK, if the value of the euro rises against the British pound?
The supply curve will shift to the right.
What happens to the supply curve for new housing when there is a significant amount of new housing construction?
The supply curve will shift to the right.
A large amount of harvested grain used to make flour grows mold due to flooding. How will this affect the supply of flour in the market?
The supply of flour will decrease in the market.
Antonio has a cell phone, and his service provider is AT&T. When he calls his wife, Erika, who is also an AT&T customer, he does not have to pay for those minutes. The more AT&T customers there are in the market, the greater the benefit Antonio receives. This is:
a network effect.
At Trader Joe's, the price of a chocolate chip cookies falls. As a result, you would expect to see
a rise in the quantity demanded of chocolate chip cookies.
An increase in price and an ambiguous change in quantity are MOST likely caused by:
a shift to the left of the supply curve and a shift to the right of the demand curve.
For normal goods
a tax cut on consumer income will lead to a rise in their demand
Sunk costs are costs that
are incurred in the past and cannot be reversed.
Which factor would cause an INCREASE in the supply of light bulbs?
an advance in the technology of producing light bulbs.
Consider the market for online video streaming services (Netflix, Apple TV, Amazon Prime, HULU, to name a few). Which statement would cause the equilibrium price of online streaming services to rise with certainty?
an increase in demand combined with a decrease in supply.
Which factor would shift the demand curve for new computers to the right?
an increase in student enrollment in college
If the price of airline tickets goes up, there will be
an increase in the demand for both bus and train tickets.
Suppose we observe an increase in both the price of ping pong tablesand the quantity of ping pong tables bought and sold. Which statement would explain this observation?
an increase in the demand for ping pong tables.
In the market for chimichangas, a normal good, you observe that the equilibrium price and quantity have increased. This can be caused only by:
an increase in the incomes of people who love to eat chimichangas.
Which factor will NOT cause an increase in the supply of smartphones?
an increase in the price of inputs used to produce smartphones.
(Figure: Graph) In the graph, the movement from point L to point K is caused by
an increase in the price of the item (point K is above L on the supply curve)
(Figure: Graph) Refer to the graph to answer the question. The movement from point V to point W is caused by
an increase in the price of the item.
A recent news story reported that the Organization of Petroleum Exporting Countries is expected to increase the supply of oil next summer. Summer is traditionally a time of increased demand for oil because of vacation travel. What would be the combined effect of these two events on the market for gasoline?
an increase in the quantity and an unpredictable change in the price
Rising marginal costs imply
an upward-sloping supply curve
Harry Watson is an engineering student taking an economics elective in his senior year. He has the option after college to work as a petroleum engineer or to design rollercoasters. He is using concepts he learned in his economics course to help with this decision. He thinks many engineers would prefer to design rollercoasters and expects a lower salary in this field. With this analysis, he is acknowledging the dependencies that exist
between people or businesses in the same market.
The cost-benefit principle evaluates _____ costs and benefits, and willingness-to-pay considerations evaluate _____ costs and benefits.
both monetary and nonmonetary; only nonmonetary
Nerida Kyle is thinking of buying a new car to avoid taking the bus to work. Each of the following is a cost she should consider when using the cost-benefit principle to evaluate this decision EXCEPT
bus fare
If yoghurt and smoothies are substitutes in consumption, then a rise in the price of yoghurt will cause the:
demand for smoothies to increase
Carolyn Bates is a junior in college studying economics. She has created a new software application that applies the four principles of economic decision making to any potential decision that a user faces. She is considering leaving school after this academic year to pursue further development of her app. Carolyn should consider all of the following costs when calculating the opportunity costs of staying in college EXCEPT the
cost of supplies and the technology fees she paid during the first three years of college.
A _____ illustrates a downward sloping relationship between price and quantity.
demand curve
As consumers consume more units of an item, the marginal benefit of each additional unit decreases at an increasing rate. This can be seen through:
demand curves that are steeper at lower quantities and flatter at higher quantities.
Suppose that apples and pomegranates are substitute goods. The _____ pomegranates will increase when apple prices rise.
demand for
When there is a shortage of highly skilled workers in a particular region, the:
demand for skills education increases.
Over the past several years, sushi has become increasingly popular among consumers. This means that the _____ sushi has _____.
demand for; increased
According to the interdependence principle, when faced with a decision, you should ask what
else might my decision affect and what else might affect my decision?
According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item.
equal to
Which factor would cause a DECREASE in the supply of soy candles?
expectations that the price of soy candles will rise.
You go to Starbucks and see that the price of your favorite tall vanilla latte has gone up by 25 cents. All sizes of the vanilla lattes are now more expensive. As a result of this price increase, you would expect to see a
fall in the quantity demanded of vanilla lattes.
Suppose the New York City housing market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a series of new apartment buildings has just been completed. Given these two changes, and assuming that apartment housing is a normal good, we can predict that the price of apartments will _____, and the quantity of apartments bought and sold will _____.
fall; rise or fall
Charles McCoy 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?
five
If a product has a large network effect, it will lead to
greater marginal benefits from using the product and increased demand for the product.
The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:
greater than or equal to the marginal cost.
When there is a shortage of highly skilled workers in a particular region:
highly skilled workers can negotiate higher salaries.
Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost.
included; nonfinancial
A decrease in the price of raw fish will result in a(n):
increase in the supply of sushi.
If the price of Canadian lumber (an import) increases as a result of the U.S. government imposing a tariff (which raises the price of lumber in the United States), the equilibrium price of hardwood flooring in the United States will _____, and the equilibrium quantity of hardwood flooring in the United States will _____.
increase; decrease
For bus rides, a(n) _____ in buyers' incomes causes a(n) _____.
increase; decrease in demand
An increase in demand and an increase in supply will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.
increase; indeterminate change
A decrease in demand and an increase in supply will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.
indeterminate change; decrease
Suppose that, upon changing jobs, you experience an increase in income (otherwise, why change jobs?). If, as a result, you decide to purchase more sushi and fewer hamburgers, then hamburgers for you are a(n) _____ good.
inferior
Consider the decision to read your economics textbook. Which of the four core principles of economics applies to the notion that reading this textbook will help you to establish a solid foundation of understanding economics, which will be beneficial for future courses?
interdependence principle
Consider your decision to attend class each day or skip it. Which of the four core principles of economics applies to the notion that attending class will most likely help you understand the material better and perform well on future exams?
interdependence principle
A choice made using the marginal principle:
is a choice regarding whether to do a little more or a little less of an activity.
Facebook is subject to network effects because:
its value to an individual increases when the number of other people using it increases
A rational buyer will:
keep buying a product until marginal benefit equals price
Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.
less; $150
Nerida Kyle can either commute to work using a bus or purchase a new car. The bus fare each way is $2. Nerida works five days a week for 50 weeks a year. Based solely on the benefit of avoiding the cost of her bus tickets, Nerida should purchase a car if the cost of the car is _____ than _____ per week.
less; $20
Frank is a barley farmer in a perfectly competitive market. The market price of barley is $250 per ton. If Frank charges $245 per ton, he will
lower his profitability by $5 per ton.
Consider the local market for fast food hamburgers, an inferior good. If more fast food restaurants open, while consumers' incomes increase, the equilibrium price will be _____, and the equilibrium quantity will be _____.
lower; ambiguous
The cost of sensors used in making radio frequency identification (RFID) chips falls, while a successful ad campaign makes using "tap" technology in credit card usage more fashionable. As a result, the equilibrium price of RFID chips _____, and the equilibrium quantity _____.
may increase, decrease, or stay the same; increases
Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the
money spent on the groceries he used to cook dinner.
When Coca Cola consumption recently decreased, the Coca Cola Company hired a survey firm to determine what was going on. The firm interviewed consumers, who said that rising Coke prices were discouraging them from purchasing Coke. This implies a:
movement along the demand curve for Coca Cola
A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:
multiply the individual supply of one of the suppliers by ten.
The opportunity cost principle states that the true cost of something is the
next best alternative you have to give up to get it.
According to the cost-benefit principle, framing effects or how a choice is described, should
not affect a decision
Jonathan Mendez is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of the concert ticket that he purchased yesterday is ____ in his opportunity cost and represents a _____ cost.
not included; sunk
Daisy is a milk farmer in a perfectly competitive market where there are many milk farmers. The market price of milk is $0.15 per gallon, which is also the marginal cost per gallon of milk. If Daisy charges $0.25 per gallon, she will
not sell any milk.
Asking "Or what?" allows the _____ principle to be analyzed as a simple question.
opportunity cost
Consider the decision to read your economics textbook. Which of the four core principles of economics applies to the notion that instead of reading this textbook you could be studying for your upcoming exam in a different course?
opportunity cost principle
The relationship between price expectations and demand is
positive; when future prices are expected to rise, current demand will rise. (stock up now!)
The opportunity costs of attending college include the:
potential income that could be earned working.
When plotting a demand curve
price is on the vertical axis.
Suppose that more security guards become aware that wearing Kevlar (bulletproof) vests can protect them from injury and decide to start wearing Kevlar. At the same time, the price of materials used to produce the vests falls. The equilibrium price of Kevlar vests _____, and the equilibrium quantity produced _____.
probably changes, but in an ambiguous direction; increases
If baseball bats and toothpicks are substitutes in production, a producer (with her fixed set of resources) will need to reduce the production of baseball bats when she:
produces more of the other good.
Graphically, the equilibrium quantity can be identified as the:
quantity corresponding to the intersection of the demand and supply curves.
(Figure: Demand and Supply of Sugar) Use Figure: Demand and Supply of Sugar. What might cause the supply curve to shift fromS2 back to the initial supply curve S1?
restrictions on sugar cane exports by Brazil
For consumers, hot dogs and hamburgers are substitutes. A rise in the price of hot dogs causes a _____ in the equilibrium price of hamburgers and a _____ in the equilibrium quantity of hamburgers.
rise; rise
Suppose the market for gasoline is in equilibrium. You have heard that the price of crude oil is rising because of Organization of Petroleum Exporting Countries (OPEC) restrictions. You are also aware that the number of drivers is rising. Knowing this, you predict that the price of gasoline will _____ and the quantity of gasoline bought and sold will _____.
rise; rise or fall
Rising input costs lead to
rising marginal costs for a seller.
A product that can have congestion effects is
roads.
The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of:
scarcity
The market is a
setting that brings together potential buyers and sellers.
Marie Johnston is a manager at an electronics store, and she has to decide how many workers to hire. If she hires one worker, her revenue is $400 per day. If she hires another worker, she can make another $350 per day. The marginal benefit of hiring another worker decreases by $50 with each additional hire. Assuming that workers are paid $20 per hour and work eight hours, how many employees should Marie hire, and what will be the total revenue of her store?
she will hire five workers and the revenue of the store will be $1,500.
Sarah Sandoval is a coffee farmer trying to decide how many tons of coffee to produce. She can sell each ton of coffee for $3,000. The cost of producing her first ton of coffee is $600, and the second ton costs $1,200. Each additional ton of coffee costs $600 more to produce. How many tons of coffee should Sarah produce, and what is the total cost of her coffee production?
she will produce five tons at a total cost of $9,000.
Sarah Sandoval is a coffee farmer trying to decide how many tons of coffee to produce. She can sell each ton of coffee for $1,500. The cost of producing her first ton of coffee is $300, and the second ton costs $500. Each additional ton of coffee costs $200 more to produce. How many tons of coffee should Sarah produce, and what is the total cost of her coffee production?
she will produce seven tons at a total cost of $6,300.
(Figure: Demand for Bananas) Use Figure: Demand for Bananas. Expectations among consumers that the price of bananas will rise significantly in the near future could be represented as a:
shift from D1 to D2 (rightwards)
(Figure: The Demand and Supply of Quinoa) Use Figure: The Demand and Supply of Quinoa. A price of $2 in this market would result in a _____ of _____ bushels per period.
shortage; 8,000 (where D meets price - where S meets price)
The market price for bus travel has increased, a development some economists attribute to the closure of several bus companies. In other words, these economists believe that:
supply has decreased.
Assuming that farmers can easily stock beef or pork, if the price of beef decreases, you can expect the:
supply of pork to increase. (b/c they'll make more money on the pork then)
In the market for barley, if the price of ethanol (which is made from corn, a crop that competes with barley for farmland) increases dramatically, the _____ barley would _____.
supply of; decrease
On a hot sweltering day, you feel thirsty and buy an ice-cold soft drink, which you gulp down. Whether you buy the second drink or not, will depend on
the marginal benefit from the second soft drink and if it will outweigh the price of the soft drink.
Rose Riley's parents have booked a family trip to Aspen, Colorado, during her spring break. They have agreed to pay for everything except her plane ticket. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose must now decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her parents in Aspen include each of the following EXCEPT
the nonrefundable deposit her friends paid for the beach house in Destin.
The law of supply refers to
the positive relationship between price and quantity supplied.
Rose Riley's parents have booked and paid for a family trip to Aspen, Colorado, during her spring break. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose needs to decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her friends on the trip to Destin include each of the following EXCEPT
the ski lift ticket her parents have already purchased for her.
It is certain that the equilibrium quantity will fall when:
the supply curve and the demand curve both shift to the left.
If the state of New York allocates additional spending on after-school programs for at-risk youths, then the opportunity cost of these expenditures is:
the value of alternative expenditures forgone in making this allocation.
If resources are scarce:
they are insufficient to provide enough goods and services to satisfy all human material wants and needs.
The price of coffee at a local coffee shop is $2.50. Cheryl is willing to pay $8 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase?
three
Diane Jacobs is a student studying economics and currently working on her class schedule for next semester. When she considers taking another economics course and how to meet prerequisites for future economics courses, she is acknowledging dependencies that exist
through time.
Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the
time he spent cooking the dinner.
Variable costs are the costs that
vary with the quantity of output produced.
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 McDonald is willing to pay $600 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $700. It costs Apple $400 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction.
will not; only Apple
Juan McDonald is willing to pay $650 for a new iPad. He offers to pay $600 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 not; only Juan
You can spend $300 on either a pair of new Air Jordan sneakers or a new skateboard. If you choose to buy the Air Jordans, the opportunity cost is:
your enjoyment of the new skateboard.
King Taco charges the same price for everything on its menu: $5 will buy a taco, a burrito, or nachos. You buy the burrito and think that if you had not purchased the burrito, you would have purchased the taco. The opportunity cost of the burrito is:
your forgone enjoyment of the taco.
