Econ 202 Exam 1

Gary consumes 10,000 units of electricity when his income is $500. when his income increases to $1,000, his consumption of electricity increases to 18,000 units. what is gary's income elasticity of demand for electricity.

0.8

taco bell's economists determine that the price elasticity of demand for their tacos is 2.0. so, if taco bell raises the price of its tacos by 6.0%, the quantity demanded will decrease by ___________ percent.

12%

refer to the figure above. what is the absolute value of the arc (midpoint formula) elasticity of demand when the price falls from $8 to $4.

2

suppose that you are spending two hours a day studying economics and your grade is 85 percent. you want a higher grade and decide to study for an extra hour a day. as a result, your grade rises to 90 percent. your marginal benefit is the

5 point increase in your grade

causation

A cause and effect relationship in which one variable controls the changes in another variable.

inelastic

Describes demand that is not very sensitive to a change in price

which of the following best describes a good with perfectly elastic demand?

Even the smallest increase in the price of the good will cause consumers to stop consuming it completely.

normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

inferior goods

Goods for which demand tends to fall when income rises.

in the summer 2012 the lobster catch in Maine was especially large, but instead of celebrating the fisherman were suffering from a lower total revenue. despite the larger quantity of lobster caught, the total revenue of the fishermen decreased. this fact means that the demand for lobster is.

Inelastic

invisible hand

People acting in their own self interest will encourage the most efficient use of our limited resources.

Soo Jin shares a one-bedroom apartment with her classmate. Her share of the rent is $700 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics major, you rightly conclude that

Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250.

which of the following is a normative statement?

States should require all motorcycle riders to wear helmets to reduce the number of riders killed.

you have the choice of going on vacation to Florida for one week, staying at work for the week, or spending the week doing fix-up projects around your house.if you decide to go to Florida, the opportunity cost of the trip is

Working or doing fix-up projects, depending on which you would have done otherwise.

sunk cost

a cost that has already been committed and cannot be recovered

the price of cereal rises. as a result, people have cereal for breakfast on fewer days and eat eggs instead. this behavior is an example of

a decrease in the quantity demanded of cereal because of the substitution effect.

which of the following factors is likely to lead to an increase in the quantity demanded of pens?

a fall in the price of pens

unit elastic

a given change in price causes a proportional change in quantity demanded

correlation

a mutual relationship or connection between two or more things

which of the following statements best describes a normal good?

a normal good is a good whose demand increases with an increase in consumers income

which of the following leads to a movement along the demand curve for spinach but does not shift the demand curve for spinach?

a rise in the price of spinach

oatmeal is a normal good and cold cereal is a substitute for oatmeal. raisins are a complement for oatmeal. which of the following increases the demand for oatmeal?

an increase in the price of cold cereal.

positive analysis

analysis concerned with what is

normative analysis

analysis concerned with what ought to be

marginal analysis

analysis that involves comparing marginal benefits and marginal costs

which of the following statements is true?

as the rental prices of downtown apartments rise, only workers with the highest opportunity cost of time will be willing to rent them.

Equilibrium

balance

which of the following is NOT an example of an opportunity cost?

because Mary is now being paid a higher wage, she can afford to buy a new car even though she is moving to a bigger apartment.

when trying to assess your economic well-being you should:

compare your situation to that of most people alive today

budget constraints

constraints that consumers face as a result of limited incomes

which of the following statements is true?

correlation arises when there is causation and can also arise even when there is no causation.

elastic

describes demand that is very sensitive to a change in price

Scenario: maria has to choose between driving and taking a train to destination A. traveling by train will cost her $400 and will take 4 hours. driving to destination A takes 6 hours, and the required amount of gasoline costs $250. her opportunity cost of time is $15 per hour.

drive, as it will save her $120.

which of the following is true?

for an inferior good, when income increases, the demand curve shifts leftward.

an omitted variable is a variable that

has been left out, and if included, would explain why the variables considered in a study are correlated.

a politician argues that a tornado that destroyed several houses (but caused no injuries) has some positive impacts, because rebuilding the homes will increase employment and income for construction workers. the politician is...

incorrect, because the opportunity cost of the resources used in rebuilding mean that other, more desirable goods can't be purchased.

if demand for farmer John's maple syrup is inelastic, then when farmer john raises the price of maple syrup, his total revenue will

increase

if good growing conditions increase the supply of strawberries, the quantity of strawberries bought...

increases and the price might rise, fall, or not change

a student is studying for an exam 2 hours a day and is debating whether to study for an extra hour. the student's marginal benefit...

is the benefit the student receives from studying the extra hour.

advantages of trade include

it permits specialization, it can improve economic performance, it generally benefits both parties.

are you richer than

king George III of England, most people in the world today?

scarcity in an economy emerges from

limited resources and infinite wants

which of the following statements about the economic decisions consumers, firms, and the government have to make is false?

only individuals face scarcity; firms and the government do not.

people do not "feel" rich because

people always want more

one year, the government boosted regulated taxi fares in new york city by 15% with the expectation that the total revenue from taxi rides would also increase by 15%. the taxi commission that authorized this fare increase must have believed that the demand for taxi service was

perfectly inelastic

suppose a medical study reveals new benefits to consuming beef and at the same time a bumper corn crop reduces the cost of feeding steers. the equilibrium price of beef will

perhaps rise, fall, or stay the same, but more information is needed to determine which it does.

if quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

pivot leftward ( inwards) along the vertical axis

which of the following statements is true?

rational economic agents maximize more than just monetary income.

central control of economies

regulated resources like land and water

economics studies

scarcity, the social institutions used to address scarcity. what to produce, how to produce it, and who gets it.

production possibilities frontier(PPF)

shows the most that we can produce

omitted variables

something that has been left out of a study that, if included, would explain why two variables that are in the study are correlated

which of the following correctly identifies the trade-off that a budget constraint represents?

the amount of one good that has to be given up to purchase an additional unit of the other good.

income effect

the change in consumption resulting from a change in real income

at a local ice cream parlor, when the price of half-gallons of chocolate ice cream was lowered by fifty cents per half gallon, total revenue from the sale of chocolate ice cream is decreased. this result indicates that

the demand for chocolate ice cream is inelastic.

Greenaqua Corp. is the only supplier of bottled drinking water in the country lithasia. due to the profits the firm enjoys, new corporations are interested in entering the market. if a few more companies producing their own line of bottled drinking water enter the market, which of the following statements will be true about Greenaqua Corp.?

the elasticity of demand of Greenaqua corp.'s product is likely to increase.

assume that an individual spends his income on sweaters and shirts. if the price of a sweater increases:

the opportunity cost or buying sweaters increase.

cross price elasticity

the percentage change in demand for product A that occurs in response to a percentage change in price of product B

when sellers sell goods in a market, they are doing so because

the price is at least as much as the cost to produce

adam smith's book, wealth of nations, investigated

the role of markets in determining economic efficiency.

a bakery can produce either cakes or cookies. if thee price of cookies rises, then

the supply curve of cake shifts leftward

in module 5, Dr. Meer described the impact of local gun buyback programs in economic terms. which of the following best describes the effects of these programs?

the supply of guns in a city is very elastic, so increases in demand from buyback programs lead to a large increase in the equilibrium quantity of guns in the city but small or no changes in the number of guns on the street.

opportunity cost

the value of the next best option

when buyers and sellers operate in a competitive market, it is because

the value to consumers is at least as great as the cost to produce.

consumers determine what gets made in the economy because

they buy things they like.

homer changes jobs and his new job pays him a higher income. before he changed jobs, Homer purchased 3 pounds of tuna and 2 pounds of chicken. after he changed jobs, Homer now purchases 2 pounds of tuna and 3 pounds of chicken. for homer...

tuna is an inferior good and chicken is a normal good.

complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

which of the following decreases the supply of restaurant meals?

waiters get a pay raise.

what does the video say about scarcity?

we must find ways to deal with that scarcity, figure out the best set of social arrangements to address scarcity.

the three fundamental questions that must be answered by any economy include:

what to produce, how to produce goods, and who gets the goods

substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

comparative advantage

who is relatively better at doing something?