ECO 305 - Cumulative Quiz
How does the labor supply curve typically look?
"backward bending" - first increasing in wages and then decreasing in wages
Which of those are uses of elasticity?
The first 2 answers are correct, but the 3rd one is not
Which of the following claims about normal goods is correct?
When income goes up, the quantity demanded of the good goes down None of the other answers is correct* If a good is normal it must be high quality
If a good is a normal good, its Engel curve should be
increasing
Suppose there are 2 goods, x1 and x2. The price of x1 goes up. Both goods are normal. Using income and substitution effects, show which of the claims below is correct.
x1 will decrease in quantity, x2 may increase or decrease
A dry cleaning business has the following costs: $5000 a month for workers $10000 a month in lost earnings of the owner (who could work elsewhere for $10000 a month $6000 a month in lost rent (the owner owns his store and does not pay any rent - but if he closes down he could rent the store to someone else) $3000 a month for cleaning materials. What is the monthly total IMPLICIT costs (or opportunity costs) this business has?
16000
The table below shows the total costs of production (C) as a function of the quantity produced (Q).Q C 0 0 1 5 2 12 3 20 4 32 How many units should be produced to maximize profits if the price a unit can be sold for is 10 dollars?
3
Suppose demand is given by p=20-q. Suppose that the price in the market is $12. Consumer surplus is then
32
The table below shows the total costs of production (C) as a function of the quantity produced (Q).Q C 0 0 1 10 2 18 3 24 What is the marginal cost of producing the third unit?
6
A dry cleaning business has the following costs: $5000 a month for workers $10000 a month in lost earnings of the owner (who could work elsewhere for $10000 a month $6000 a month in lost rent (the owner owns his store and does not pay any rent - but if he closes down he could rent the store to someone else) $3000 a month for cleaning materials. What is the monthly total EXPLICIT costs this business has?
8000
Which of the below claims are correct about a Giffen good?
A Giffen good must be inferior
Which of the following goods do you expect to have the highest price elasticity (in absolute value, so "highest price elasticity" means most responsiveness to price in percentage terms)
A certain movie title
Which of these consumers may be rational (use the economic definition, not a dictionary definition)?
A consumer who always buys the cheapest product that satisfies a certain need regardless of any quality comparison to other products. Consumer A, who likes drama movies best of all movie genres, but never watches them (despite their price being similar to other movies that he does watch) None of the other answers is correct*
What is a Giffen good
A good for which a price increase causes the quantity demanded to increase
What is an inferior good? Hint - use the economic definition, not a general dictionary definition!
A good for which demand decreases as income goes up
What is the permanent income hypothesis?
A model predicting consumption in each period strongly depends on expected life time income
Which of the pairs of goods below are perfect substitutes?
A red pen and a blue pen to a color blind person. People who will read what he writes are also color blind
What are income and substitution effects?
A way to break the change in quantity demanded when prices or income change, so we can separate changes in the quantity due to higher income from changes in the quantity due to differing price ratios
Which of the following factors may affect time preferences?
All answers are correct* Possible new goods that we will be able to consume in the future The consumer's psychological makeup The consumer's age and health
When analyzing the costs and benefits of going to a physician, which of the below are costs of visiting?
All of the other answers are correct* The time wasted at the doctor's office and on the way there The risk of contracting a disease from other patients at the office The doctor's fee
What affects whether a consumer is a lender or borrower?
All other answers are correct* The consumer's income level in both periods The interest rate The consumer's time preferences
Change in what will cause the supply curve for a good to move?
Both input prices and production technology
What are perfect complements
Complementary goods that are always consumed together in fixed proportions, because they have no use if they are consumer alone
What is the cost-benefit approach?
Computing the full (monetary and otherwise) costs and benefits of an action, and doing it if the benefits outweigh the costs.
Which of the following assumptions regarding consumer preferences implies that the consumer prefers mixtures of baskets to extreme allocations (just one good and not the other)? (hint - see book page 64 where the assumptions are discussed)
Convexity
What is incorrect about indifference curves? You may assume our standard assumptions (convexity, more is better than less, etc)
Different indifference curves may intersect
Which of the below are determinants of the price elasticity of demand?
Direction of the income effect Substitution possibilities Budget share All of the other answers are correct*
What is the unit we measure elasticity with?
Elasticity has no units
Which of the following statements about the optimal basket is true?
Every optimal basket (except corner solutions) must have MRS=P1/P2
Which of the following goods is likely to have the strongest quantity change in response to changes in income?
Luxury jewelry
What is the MRTP?
Marginal rate of technological production Two of the other answers are correct* Marginal rate of time preference The slope of the indifference curves in a consumption over time model
How will the budget constraint change if all prices are cut by half and income decreases by 50%?
No change whatsoever
Which of the goods below is likely to be a Giffen good?
None of them is likely to be a Giffen good* Staples for your stapler Marlboro cigarettes Food (in general, including all types of food)
Which of the following statements about corner solutions is true?
Practically all people choose a corner solution when deciding what to consume
Change in what will cause the demand curve for a good to move
Price of a substitute good
When deciding whether or not to operate a business, the rule establishing that operation is profitable should be
Revenue > implicit costs + explicit costs (but not including sunk costs)
Decreasing the interest rate will lead people to
Save less looks reasonable, but it may not be so - depending on the income effect
Income and substitution effects are
Something you will make sure to master :) A powerful tool that can show up what will happen to consumption even if we know little about the consumer All answers are correct* An important and difficult part of this class
Which of the statements is true?
Supply curves are usually downward sloping and demand curves upward sloping Supply curves are usually upward sloping and demand curves downward sloping* Supply curves are usually downward sloping and demand curves downward sloping Supply curves are usually upward sloping and demand curves upward sloping
What are the most basic determinants of the demand curve of a single person in a model without any uncertainty? (hint - I discuss this in the video lecture)
Tastes, Incomes, Prices of substitutes and complements
If the price of X1 goes down, the price of X2 goes up, and income does not change, then
The budget constraint will be less steep. The maximum X1 increases. The maximum X2 decreases
Decreasing the wage rate will lead to
The consumer may work more hours, less hours, or not change the hours worked
Suppose all prices in the economy double. The consumer's income doubles as well. Which statement is true?
The consumer will choose the same optimal basket as before
Suppose each year is a period in the inter-temporal consumption model. Assume there is no uncertainty and the consumer lives 90 years. Suppose the economy suffers a surprising, great recession for exactly 1 year. Please assume borrowing and lending are freely available - anyone can secure a loan. Which statement is correct?
The consumer will decrease his consumption today, but not very much, because life time income did not decline too much (in % terms)
If the income of a consumer goes up, what can we expect to be true? Choose the BEST answer which is clearly true, even if another MAY be true.
The consumer will spend more on food and beverages overall, because this aggregate category is much more likely to represent a normal 'good' than a narrowly defined good like diet-coke (which can be normal at some income levels, but perhaps not all)
The consumer's income goes up. The good in question is a normal good. What can we expect? (hint - I discuss this in the video lecture)
The demand curve moves to the right. The price of the good increases.
What is consumer surplus?
The difference between quantity demanded and quantity supplied when there is a maximum price the government sets, below the equilibrium price
Which of the following is a normative statement?
The minimum wage should be raised
Suppose a person with low income is supported by the government. Which statement is correct? (hint - see book pages 73-75)
The person will either prefer to get cash, or have no preference between cash and food stamps, depending how much food he plans to buy
Suppose there are 2 goods, x1 and x2. The price of x1 goes up. x2 is inferior, and x1 is normal. Using income and substitution effects, show which of the claims below is correct.
The quantity of x1 will go down. The quantity of x2 will go up.
The concept of equilibrium describes what?
The situation the economy is always in A situation where quantity demanded equals quantity supplied Two of the other answers are correct* A situation that is our prediction for the market, but we may not be there at all times
What is the marginal rate of substitution?
The slope of the indifference curve (in absolute value) The slope of the budget constraint The ratio at which one is willing to exchange X1 and X2, while still remaining as happy as one was before the exchange More than one answer is correct*
If soybeans are one of the ingredients in cattle feed, how does a price support program in the soybean market affect the equilibrium price and quantity of beef? (hint - see chapter 2 for a discussion)
The supply curve for beef moves to the right. Price of beef decreases
What is the price of leisure in the labor supply model?
The wage rate
What is correct about rent controls?
They cause excess demand (or shortage) at the controlled price, which is lower than equilibrium price.
When choosing to study economics at DePaul, your costs include (assuming you cannot both work and study)
Tuition + forgone earnings + loss of the opportunity to study toward another degree + loss of the pleasure from any leisure activities you give up in order to study
What are some of the roles of economic theory, and economic models?
Two of the other answers are correct* Understanding economic reality and processes Predicting future economic trends No other answer is correct
Suppose demand is given by p=100-q. Suppose price in the market, if opened, is $50. Suppose opening the market requires an investment of $1000 by the government. Should the government invest? assume no other projects are considered. Assume the government will need to pay interest on the investment.
Yes, if the interest is less than $250
If leisure is an inferior good then
none of the other answers are correct
Suppose there are 2 goods, x1 and x2. The price of x1 goes up. x1 is inferior, and x2 is normal. Using income and substitution effects, show which of the claims below is correct.
x1 may increase or decrease in quantity, the same is true for x2
