Fundamentals of Microeconomics, Level A
Xavier has two job offers: the first pays $2,000 per month and the second pays $1,500 per month. What is the opportunity cost of taking the first offer?
$1,500 per month The opportunity cost of accepting the first offer is the salary that he would receive by accepting the next best offer. In this case, it is $1,500 per month.
A consumer wants to spend his entire income on two goods: T-shirts and hamburgers. The price of one T-shirt is $10, while the price of one hamburger is $3. If his preferred bundle of consumption consists of 4 t-shirts and 3 hamburgers, calculate his income.
$49
In a market, 10 units of a good are sold at $2 per unit. When the price increases to $4, 3 units of the good are sold. If the price further increases to $5, no units of the good are sold. What is the choke price of the good?
$5.00
Assume the market for oranges to be a perfectly competitive market. The consumers are willing to pay $8 per pound. At the output level where the net benefit is maximized, what will be the marginal cost of producing oranges?
$8.00
The slope of the total cost curve of a firm when it produces X units of a commodity is A. What is the marginal cost of the firm at that level of production?
$A
When a firm produces 10 units of a good, it receives a total benefit of $A. The marginal benefit of the 11th unit produced is $B. What will be the total benefit received by the firm when it produces 11 units of the good?
$A + $B
When a firm produces 2 units of a good, it receives a total benefit of $A. The marginal benefit of the 3rd unit produced is $B. What will be the total benefit received by the firm when it produces 3 units of the good?
$A + $B
If a firm incurs a total cost of $A to produce a good, and generates a total revenue of $B from the sale of the good, what will be its producer surplus?
$B - $A
When a firm produces 2 units of a good, it receives a total benefit of $A. When it increases its production to 3 units of the good, the total benefit increases to $B. What is the marginal benefit associated with producing the third unit?
$B - $A
When a firm produces 50 units of a good, it incurs a total cost of $A. When it produces 51 units of the good, it incurs a total cost of $B. What is the marginal cost of producing the 51st unit?
$B - $A
If the net benefit to society from a market is $P, and the consumer surplus in the market is $Q, what is the producer surplus in the market?
$P - $Q
What are the demand shifters?
(1) consumer preferences (2) the prices of related goods and services (3) income (4) demographic characteristics (5) buyer expectations
What is the formula for the calculation of price elasticity of demand for a good?
(Percentage change in quantity demanded of the good) divided by (Percentage change in the price of the good)
What is the formula for change in revenue?
(change in quantity x new price) + (change in price x initial quantity)
What is the equation for elasticity of demand?
-(elasticity of demand) = -(percent of change in quantity/percent of change in price)
100 units of a good are demanded when the price is $5 per unit. When the price increases to $10 per unit, 75 units are demanded. What is the price elasticity of demand of the good?
-0.25
Microeconomics is the branch of economics that deals with the behavior of __________________.
-individual households -firms -industries.
What are the supply shifters?
-input prices -technological innovations -taxes -subsidies -expectations -entry of producers -exit of producers -changes in opportunity costs
What are the three ideas central to economics?
-scarcity -choice -opportunity cost
Trisha takes 2 hours to design a greeting card and 4 hours to design a website. If she can work for 10 hours a day, which of the following options is a combination on her production possibilities curve?
1 greeting card and 2 websites
What are the six stages of the buying process?
1. Need recognition. 2. Search for product information. 3. Product evaluation. 4. Product choice and purchase. 5. Post-purchase use and evaluation of product. 6. Disposal of the product.
______________ is used to startle people to get their attention while _______________ is not very apparent to customers
1. Shock advertising 2. subliminal advertising
The effect of an increase in the price of ice creams on Christina's demand curve for ice creams will cause a movement from a _______ point on the demand curve to a ________ point on her demand curve for ice cream.
1. lower 2. higher
Sports cars are _________. Therefore, their income elasticity of demand is likely to be _____________.
1. luxury goods 2. greater than one
Total output in a ______________ economy is likely to be higher than in a _____________ economy.
1. market capitalist 2. command socialist
Participation of the citizens in national policy making is higher in a _______________ economy, in comparison to a ______________ economy.
1. market capitalist economy 2. command socialist economy
Consider a market where the price of trousers is $10 per pair, and the price of shirts is $30 per unit. Later, the price of trousers increases to $20 per pair, without any change in the price of shirts. The opportunity cost of buying one shirt was initially ____ pairs of trousers. After the price changes it ____________ trousers.
1. three 2. decreases to one and a half
The price elasticity of demand for a good is -3. If its price increases by 50%, by how much will its quantity demanded decrease?
1.5
How do you calculate consumer surplus?
1/2 BH - it is the area of the triangle above total revenue
A consumer has to choose between consuming two goods: hamburgers and hotdogs. Hotdogs are available for $2 per unit, and hamburgers are available for $3 per unit. If the consumer has an income of $30 to be spent on both goods, then what is likely to be her preferred choice?
6 hotdogs and 6 hamburgers
Suppose an individual's budget set comprises two goods X and Y. The quantity of good X is measured along the X-axis, and the quantity of good Y is measured along the Y-axis. What change is likely to occur on the slope of his budget line?
A change in the price of either good X or good Y
What is likely to be the impact of a decrease in the demand for a good with no change in its supply?
A decrease in both the equilibrium quantity and price
What is likely to increase the supply of wooden chairs?
A decrease in the cost of wood
What is likely to be the impact of a freeze that destroys a significant portion of the coffee crop in South America?
A decrease in the equilibrium quantity and an increase in the equilibrium price of coffee
John consumes two goods-apples and oranges. Which of the following events is likely to shift John's budget line outward?
A decrease in the price of both apples and oranges
Tim consumes only two goods-hamburgers and hotdogs. What event is likely to increase Tim's quantity supplied of labor?
A decrease in the price of hamburgers
What is likely to cause a rightward movement along the demand curve for tea?
A decrease in the price of tea
Which of the following is true of disequilibrium in a competitive market?
A disequilibrium is automatically corrected through movements along demand and supply curves.
What does a surplus in a competitive market cause?
A downward pressure on the market price
If there exits an alternative to the current allocation of resources in a market, which would increase total welfare, then what is said about the market?
A market failure is said to have occurred.
What term that best describes a group of people a person identifies with and may want to join.
A reference group
What does an increase in the price of a good cause?
A rightward movement along the supply curve of the good
Which of the following is likely to shift the demand curve for printer ink inward?
A rise in the price of printing paper
What is likely to cause a leftward movement along the demand curve for public transport?
A rise in the price of public transport
Lena needs to decide if she should study for an exam or work an extra shift at the bookstore. What kind of a good is 'time' in this example?
A scarce good
Rachel purchases one bottle of a particular brand of shampoo every month. However, when she went for shopping this month, she noticed that her preferred brand was offering 2 bottles for the price of 1. She immediately decided to purchase an extra bottle of shampoo. What influences her buying behavior in this case?
A situational factor
You go to McDonald's for lunch every Saturday. However, whenever your brother accompanies you, you go to a different restaurant. What affects your buying decision in this case?
A situational factor
You have noticed that you end up spending more on shopping if you go for shopping immediately after the payday. What influences your buying behavior in this case?
A situational factor
You spend more money on weekly grocery when discounts are available. What influences your buying behavior in this case?
A situational factor
A firm offers attractive discounts during the rainy season. Identify the factor that the firm is trying to control by doing this.
Adverse physical factors
A rational individual has to decide between three consumption bundles. The first bundle has 3 cellphones and 4 calculators, the second bundle has 2 cellphones and 2 calculators, and the third bundle has 4 cellphones and 4 calculators. If all the three bundles are affordable, which bundle will he prefer to choose?
Among all the bundles, a rational individual will prefer the third bundle the most.
Consider three markets- A, B and C. Market A comprises a large number of buyers and sellers and none of the buyers or sellers can influence the market price. In market B there is one seller who sets the price as per his will. In market C there is only one buyer and his buying decisions affect the market price of the product. What market has the least probability of market failure?
Among the three markets, the probability of a market failure is the least in market A.
Other things unchanged, what will be the result of a rightward shift of the demand curve for a good?
An increase in both the equilibrium price and quantity of the good
What is likely to be the impact of an increase in the demand for a good, with no change in its supply?
An increase in both the equilibrium quantity and price
What causes an increase in the quantity supplied of a good?
An increase in it's price
Tim consumes only two goods-hamburgers and hotdogs. Which of the following events is likely to decrease Tim's quantity supplied of labor?
An increase in the price of hamburgers
What is likely to cause a leftward movement along the demand curve for tea?
An increase in the price of tea
Everything else remaining unchanged, what will a decrease in the price of eggs result in?
An increase in the quantity demanded of eggs
******What is a likely impact of an increase in the price of a good?
An increase in the quantity supplied of the good
What will happen if the substitution effect of a real wage increase is more than the income effect of a real wage increase?
An individual will work more.
What can cause a decrease in both the equilibrium price and quantity of tea in a market?
An inward shift in the demand for tea without any change in its supply
Mike is an established author and book critique. Many people read his reviews before buying books. What explains this behavior?
An opinion leader
At $2 per unit, 20 loaves of bread are supplied in a country. A year later, at the same price, 50 loaves are supplied. What change in the supply curve will represent the increase in the number of loaves traded in the market?
An outward shift in the supply curve for bread
At $5 per unit, 200 chairs are demanded in a country. A year later, 300 chairs are demanded at the same price. How will this change be represented?
An outward shift of the demand curve for chairs
What will be the impact of an increase in the price of a television sets from $40 to $60?
An upward movement along the supply curve of television sets
What does a shortage in a competitive market cause?
An upward pressure on the market price
State the law of demand.
As price of a good increases, its quantity demanded decreases.
_____________ are physical aspects of the selling environment
Atmospherics
Why are production possibilities curves 'bowed out'?
Because of the law of increasing opportunity cost
Why does a surplus in a competitive market not last long?
Because the suppliers reduce prices to clear out the unsold units
The income elasticity of demand for Good X is -3, and that of Good Y is -2. Which of the following statements is true?
Both Good X and Good Y are inferior goods.
Other things remaining the same, if there is an decrease in consumers' income, which of the following is likely to happen in the market for cars?
Both the equilibrium price and quantity of cars will decrease.
Other things remaining the same, if there is an increase in consumers' income, which of the following is likely to happen in the market for cars?
Both the equilibrium price and quantity of cars will increase.
What is defined as a list of all possible combinations of goods and services that are affordable to a consumer, given both his income and the prices of all goods and services?
Budget set
Which of the following defines a list of all possible combinations of goods and services that are affordable to a consumer, given both his income and the prices of all goods and services?
Budget set
What happens if the market price of a good is below its equilibrium price?
Buyers will compete for the good which will cause the price to rise toward the equilibrium.
In some economies, the government is the primary owner of capital and natural resources and has broad power to allocate the use of factors of production. What are such economies referred to as?
Command socialist economies
What is a resource for which no exclusive property rights exist called?
Common property
___________ is a demand shifter.
Consumer preferences
_______________ is the amount by which the total benefit to a consumer from consuming a good exceeds his total expenditure on the good.
Consumer surplus
A cosmetics brand ran billboards reading " You deserve the best." What is the brand trying to influence?
Consumers' self-concept
Country A is characterized by private ownership of all resources, whereas in country B the government is the sole owner of the key inputs like capital and natural resources. Determine the type of economy for each.
Country A is a market capitalist economy, while country B is a command socialist economy.
When the price of movie tickets decreases, Sarah goes to watch more movies. This explains the law of ________.
Demand
Decrease in the price of cars is likely to cause a _________ movement along the demand curve for cars.
Downward
What is another term for net benefit to a producer?
Economic profit
What is the net benefit enjoyed by a producer referred to as?
Economic profit
______________ enjoyed by a producer is equivalent to the net benefit of the producer.
Economic profit
What is Economics?
Economics is a social science concerned with how people choose among alternatives.
____________ measures the proportionate change in one variable relative to the change in another variable.
Elasticity
What is a term used to indicate a cost imposed on others outside of any market exchange?
External cost
There are certain goods for which consumption decreases with a decrease in their price. What are these goods referred to as?
Giffen goods
The income elasticity of demand for good A is found to be positive, while for good B it is found to be negative. Identify the type of both these goods from the given information.
Good A is a normal good, and good B is an inferior good.
What is likely to be the value of -(price elasticity of demand) for a good if its demand is relatively elastic?
Greater than one
When will an individual decide to purchase a good if he is interested to buy only one unit of the good?
He will purchase the good if his valuation of the good is greater than the price of the good.
What type of purchase does an individual engage in while buying a house?
High-involvement purchase
Suppose an individual's budget set comprises two goods X and Y. The quantity of good X is measured on the horizontal axis, and quantity of good Y is measured on the vertical axis. If the consumer spends his entire income on good X only, where will his bundle of choice lie?
His bundle of choice will lie on the horizontal axis
Suppose an individual's budget set comprises two goods X and Y. The quantity of good X is measured on the horizontal axis, and quantity of good Y is measured on the vertical axis. If the consumer spends his entire income on good Y only, then where will his bundle of choice lie?
His bundle of choice will lie on the vertical axis.
In which market is resource allocation likely to be the most efficient?
In a market where both consumers and producers have transferable and exclusive property rights
In May 2013, John's income was $4,000. In December 2013, his income increased to $8,000. Everything else unchanged, which of the following statements will be true?
In comparison to May 2013, John's budget line in December 2013 will shift to the right, without any change in the slope.
Where does an individual's preferred point of consumption lie?
It always lies on his budget line.
100 units of a good was supplied when the price was $2 per unit. However, more units of the good were offered for sale in the market as price increased. Which of the following represents this change?
It can be represented by an upward movement along the supply curve of the good.
What could be a possible implication of an outward shift in the production possibilities curve of a nation?
It can produce a greater quantity of output.
What does an increase in the price of a good cause?
It causes an upward movement along the good's demand curve.
Why is labor often considered a scarce good, although its supply exceeds its demand in some countries?
It has two or more alternative uses
What does an upward movement along a good's supply curve indicate?
It indicates an increase in the price of the good.
Define a scarce good.
It is a good that has more than one alternative use.
What is a price floor?
It is a minimum allowable price set above the equilibrium price.
What is meant by consumer surplus?
It is the amount by which the total benefit to a consumer from consuming a good exceeds his total expenditure on the good.
What is an individual's marginal valuation of a good?
It is the maximum amount that an individual would be willing to pay for an extra unit of the good.
What is the formula for calculation of price elasticity of demand for a good?
It is the ratio of percentage change in the quantity demanded of a good to the percentage change in its price.
What feature is necessary for a resource to be considered capital?
It must be possible to use it to produce other goods and services.
What does the term consumer surplus refer to?
It refers to the difference between the benefits received by consuming a good and the price paid for the good.
What does the individual labor supply curve show?
It shows the number of hours of labor supplied by an individual at different wage rates.
What does the supply schedule for a good show?
It shows the quantity supplied of the good at different market prices.
What value is -(price elasticity of demand) for a good likely to take if the demand for the good is known to be relatively elastic?
It takes values greater than one.
If the own-price elasticity of a good is -2, what will be the impact of a 100% increase in the price of the good?
It will cause a 200% decrease in the quantity demanded of a good.
What will be an impact of an increase in prices of consumer goods on the supply of labor?
It will cause a downward movement along the individual supply curve of labor.
What will be the result of performing an activity that has a positive marginal benefit?
It will cause an increase in total benefit from the activity.
Due to the increase in the price of gasoline, commuters have started using more of public transport. What will be the result of this change in consumer behavior?
It will cause an upward movement along the demand curve for gasoline and an outward shift in the demand curve for public transportation
What will be an impact of a decrease in prices of consumer goods on the supply of labor?
It will cause an upward movement along the individual supply curve of labor.
Suppose an individual's budget set comprises two goods X and Y. The quantity of good X is measured along the X-axis, and the quantity of good Y is measured along the Y-axis. If good X is priced at $6 per unit, and good Y is priced at $8 per unit, identify a reason which will cause the opportunity cost of consuming good X to increase.
It will increase if the price of good X triples, and the price of good Y doubles.
The market determined rent for apartments in a country is $500 per month. The government decides to regulate the rent at $250 per month. What is likely to be the impact of this government intervention?
It will increase the quantity demanded of apartments and decrease the quantity supplied.
What is likely to be the outcome of allocation of resources through a competitive market without well defined property rights?
It will result in an inefficient and inequitable allocation of resources.
How would you classify a delivery truck used by a manufacturer?
It would be considered capital.
A painter spends his time on two activities-painting portraits and making greeting cards. If the time spent on painting is measured along the X-axis, and the time spent on making greeting cards is measured along the Y-axis, what will an upward movement along his time constraint indicate?
It would indicate more time is spent on making greeting cards and less time is spent on painting portraits.
A painter spends his time on two activities-painting portraits and making greeting cards. If the time spent on painting is measured along the X-axis, and the time spent on making greeting cards is measured along the Y-axis, what will a downward movement along his time constraint indicate?
It would indicate more time is spent on painting portraits and less time is spent on making greeting cards.
A student spends his time on two activities—sleeping and studying. If the time spent on sleeping is measured along the X-axis, and the time spent on studying is measured along the Y-axis, what will a downward movement along his time constraint indicate?
It would indicate more time is spent on sleeping and less time is spent on studying.
If the government passes a law to include the external costs of producing a good in the pricing of the good, what is likely to happen?
Its price would rise and output would fall.
What happens when a nation experiences economic growth?
Its production possibilities curve shifts outward.
Jack has $50 to spend on two goods-pens and pencils. Each pencil is available for $1, and each pen is available for $2. He chooses to purchase a bundle which consists of 20 pencils and 10 pens. What is true in this context?
Jack's choices are inconsistent with the assumption that "more is always better."
Consider two individuals: Jenna and Alex. Alex earns ten times of what Jenna earns in a month. Since consumer protection leads to a rise in market prices, it is likely to make ________ relatively worse off.
Jenna
Kelly spends her income on two goods: X and Y. If she spends all her income on good X she can buy 10 units of good X. However, if she spends all her income on good Y she can buy 5 units of good Y. What is true in regards to opportunity cost if she spends all her money on good Y?
Kelly has to give up 10 units of good X if she spends all her income on good Y.
How would you classify a nurse in a hospital?
Labor
What law that states that consumers are willing and able to buy less of a good when its price increases.
Law of demand
The closure of many cellphone manufacturing firms is likely to cause the supply to shift __________.
Leftward
There are certain goods on which consumers spend a larger fraction of their income when their income increases. What are these goods called?
Luxury goods
A theory states that an increase in the amount of money in an economy leads to an increase in all prices in the economy. In which course are you likely to learn this theory?
Macroeconomics
What is the amount by which an additional unit of an activity increases its total benefit referred to as?
Marginal benefit
What is referred to as the amount by which an additional unit of an activity increases total cost?
Marginal cost
_________ is the change in cost associated with a change in quantity of output produced.
Marginal cost
When society's well being cannot be further increased by producing more of a good, what does it imply?
Marginal cost of producing the good is less than the marginal benefit from producing the good
In country A, the prices of goods and services are determined solely through the interaction of market forces. All key factors of production in the economy are owned by private enterprises. What is likely to be the economic system in country A?
Market capitalist economic system
____________ is the extent to which a firm produces a product that consumers want very much and for which few substitutes are available.
Market power
What type of market is least likely to fail?
Markets that are competitive and have well-defined property rights.
Which branch of economics studies how individual consumers make their consumption decisions?
Microeconomics
A consumer derives more utility from the consumption of a bundle that has 6 apples and 2 oranges than a bundle that has 2 apples and 1 orange. Identify the assumption with which this behavior is consistent.
More is always better.
________ refers to the inward drive that we have to get what we need.
Motivation
An increase in the price of tea, which is a substitute of coffee. Will this effect the supply of coffee?
NO
Will restrictions on international trade in the nation lead to economic growth?
NO
Coal in the ground is an example of ___________.
Natural resource
What is the economic profit enjoyed by a producer equivalent to?
Net benefit of the producer
Will restrictions on international trade in the nation lead to economic growth of a nation?
No
Will restriction on the import of oil and petroleum necessary for production lead to economic growth?
No, it will not lead to economic growth of nations as it will hamper production of other goods and services.
Analysts predict that if the price of gasoline falls, the demand for gasoline will increase, and this would cause the price of gasoline to rise back to the initial price. Is this prediction correct?
No, the analysts are wrong because a decrease in the price of gasoline would cause a change in quantity demanded and not demand.
A candy bar manufacturer gives free stickers and temporary tattoos with candy bars. What is the firm engaging in to attract customers?
Operant conditioning
A gas station provides free car washes to those who fill up their car's gas tank at the station. What is the firm engaging in to attract customers?
Operant conditioning
A pizza outlet gives discount coupons with each pizza purchased. What is the firm engaging in to attract customers?
Operant conditioning
A restaurant provides complimentary drinks to each customer on certain days. What is the firm engaging in to attract customers?
Operant conditioning
A retailer provides a free gift to each customer on weekends. What is the firm engaging in to attract customers?
Operant conditioning
What correctly identifies why actresses are chosen as brand ambassadors for premium clothing brands?
Opinion leaders influence buying decisions.
Change in demand causes what shift?
Outward or inward movement of the demand curve
_____________ is how you interpret the world around you and make sense of it in your brain
Perception
Everything else remaining unchanged, what will happen if a consumer's income doubles?
Points of consumption that were earlier efficient are likely to become inefficient.
What is the formula for marginal revenue?
Price x (1 + (percent change in price/percent change in quantity))
An individual makes his decisions by evaluating the opportunities he faces and then chooses among them in a way that serves his best interest. Choose from the following the term that best describes this behavior.
Rationality
Everything else remaining unchanged, what happens if the price of a good rises?
Real income decreases.
Everything else remaining unchanged, what will happen if the price of all goods and services reduce by 50%?
Real income increases.
What term that refers to automatic purchase decisions based on limited information or previously gathered information.
Routine response behavior
Systematic set of procedures through which knowledge is created
Scientific method
You want to buy a new house. In which stage of the buying process are you likely to read articles about real estate prices in your city?
Search for information
You are more likely to notice different packs of bread rather than milk when you go shopping for bread. What explains this behavior?
Selective attention
Commercials of a particular brand of product are aired at regular intervals during a television show because consumers tend to remember only a part of the information which is relevant to them. What term refers to this tendency of customers?
Selective retention
Marketers use repetition to send messages to their target markets. What explains why they do this?
Selective retention
__________ is how a person sees himself or herself.
Self-concept
The market for apples achieves an efficient allocation of resources when producers and consumers interact. What is a necessary requirement for such an efficiency to exist?
Sellers should have property rights to the apples they grow.
The market for wheat achieves an efficient allocation of resources when producers and consumers interact. What is a necessary requirement for such an efficiency to exist?
Sellers should have property rights to the wheat they grow.
What should a firm do to maximize profits if it faces a relatively inelastic demand curve?
Set a high price above the marginal cost.
You are less likely to visit a hill station if you are traveling alone but you often go to the hills for trekking with friends. Given this information, what factor is said to influence your buying behavior?
Situational factors
You wanted to go out for a meal. However, you discarded the idea when your room mate decided to order for a home delivery. Given this information, what factor is said to influence your buying behavior?
Situational factors
You are likely to spend more time shopping for your wedding dress than for a regular dress. What does this imply?
Situational factors influence consumer behavior.
Why people having the same occupation consume similar products?
Social class influences people's buying decisions.
Angel always buys the brand of shampoo her parents bought and used when she was a child even though several new brands are now available in the market. What explains her buying decision in this case?
Societal factors
A recent study has revealed that people from the same income group buy similar types of houses. What does this imply?
Societal factors influence a consumer's buying decisions.
People often buy goods that their friends and relatives use. What could explain their buying decisions?
Societal factors influence their buying decisions.
A store manager at a premium apparel store changed the items displayed in the store window, following which sales increased several times. In this case, what factor has the store manager changed to his advantage?
Store's atmospherics
_________ is likely to have inelastic demand because its demand is unlikely to vary much due to a change in its price.
Sugar
What is likely to be the impact of a pest attack on the market for corn?
Supply of corn with decrease
What are improvements in production technologies and changes in input costs referred to as?
Supply shifter
What is the likely effect of a price floor in a market? There will be a _______ in the market.
Surplus (know this one word for word)
How do you calculate the total value received?
TVR=CS+TR (total value received = consumer surplus + total revenue)
_____________ is knowledge that can be applied to the production of goods and services.
Technology
What happens when we move downward along a linear demand curve for a good?
The -(elasticity of demand) decreases.
What happens when we move upward along a linear demand curve for a good?
The -(elasticity of demand) increases
John has $50 to spend on two goods-pen and pencils. Pens are available for $2 each, while pencils are available for $1 each. What event will shift John's budget line outward?
The amount John has to spend increases
Consider a consumer's budget line representing the allocation of income between consumption of sugar (measured along the X-axis) and salt (measured along the Y-axis). What will be the impact of a decrease in the price of sugar?
The budget line will rotate outward along the X-axis without any change in the intercept on the Y-axis.
Consider a consumer's budget line representing the allocation of income between consumption of wine (measured along the X-axis) and apples (measured along the Y-axis). What will be the impact of a decrease in the price of apples?
The budget line will rotate outward along the Y-axis without any change in the intercept on the X-axis.
A buyer with a fixed income purchases a good for which he has a unit demand. What is the most likely effect of the purchase on his budget line for other goods?
The budget line will shift inward.
Consider a budget line with quantity of good X measured on the X-axis and quantity of good Y measured on the Y-axis. What will be the effect of a fall in the price of both goods?
The budget line will shift outward due to an increase in real wage.
A buyer has a unit demand for good X, good Y, and good Z. His valuation of good X, good Y, and good Z are $200, $300, and $400 respectively. If the price of all three goods is $500, what should be the buyer's purchase decision?
The buyer should not purchase any of the three goods.
In a market, 10 apples are sold at $2 per unit. When the price increases to $3, 3 units of the good are sold. If the price further increases to $4, no apples are sold. What is the choke price of apples?
The choke price of apples is $4 because no units of the good get sold at this price.
A consumer has to choose between three points of consumption—point P, point Q, and point R. Point P lies inside his budget line, point Q lies on his budget line, and point R lies outside his budget line. If the consumer is rational, which of the three bundles is he likely to prefer?
The consumer will prefer to consume at point Q
Suppose there is an improvement in the level of technology used in a country. What is most likely to happen ?
The country's ability to produce goods will increase.
Coffee is considered a substitute of tea, and milk is considered to be a complement of tea. What is likely to happen to the demand curve for tea, if the price of milk increases and the price of coffee decreases?
The demand curve for tea is likely to shift inward.
The following figure shows the demand curve for shoes. Initially when the price is P, the demand for shoes is represented by point A. If there is a decrease in the consumers' income, without any change in price of shoes, what is likely to happen
The demand curve will shift inward
Everything else remaining unchanged, what will happen if the income of a consumer increases four fold?
The demand curves for the goods he consumes shifts outwards.
If the absolute value of the price elasticity of demand of a good is greater than one, then what can be concluded about the demand for the good?
The demand for the good is relatively elastic.
What causes an increase in the amount of natural resources available in a country?
The discovery of iron ore (or another type of ore)
Other things remaining same, what will be the effect of an increase in the workers' wages in a cocoa farm?
The equilibrium price of cocoa will increase and the equilibrium quantity of cocoa will decrease.
Data on the automobile industry indicate that over the past decade there has been a fall in the price of cars and an increase in the quantity of cars traded in the market. Given this information, what is the most plausible explanation for the observed changes in price and quantity of cars?
The increase in the supply of cars must have been greater than the increase in the demand for cars.
Suppose the real wage of an individual increases. What is likely to happen if the substitution effect of a real wage increase is less than the income effect of a real wage increase?
The individual will work less.
What laws explains why the value of a good's price elasticity of demand is negative?
The law of demand
What happens when the level of education in the United States increases?
The level of human capital in the economy increases
The marginal cost of producing the Ath unit of output for a firm is $X. What will be the slope of the total cost curve at that level of production?
The marginal cost of a firm at a particular level of production is also equal to the slope of the total cost curve of the firm. Therefore, the slope of the total cost curve in this case is X.
What will happen if price is held at equlibrium?
The market will clear.
Which of the following is likely to shift the production possibilities curve of a country inward?
The migration of domestic labor to foreign countries for better employment opportunities
Assume that there are two goods-tea and coffee. The demand curves for both goods are shown in the figure. What do the movements from point A to point C and from point B to point C indicate?
The movement from point A to point C indicates a change in the quantity demanded of tea, whereas a movement from point B to point C indicates a change in the quantity demanded of coffee.
What is true of an economy with a price level equal to one?
The nominal wage will be equal to the real wage.
Identify a factor that affects the price elasticity of demand for a good?
The number of substitutes available
What is likely to happen if the price of a normal good halves?
The opportunity cost of consuming the good decreases.
What happens when we move from left to right along a production possibilities curve?
The opportunity cost of producing the good on the X-axis increases.
What term refers to the highest-valued choice that an individual foregoes when choosing to do more of one activity.
The opportunity cost of the activity
In Lithasia, human capital has improved over the last twenty years. What will be an implication of this improvement?
The output combinations that were earlier unattainable for this country would now become attainable.
Which of the following best describes the equilibrium price in a market?
The price at which quantity supplied equals quantity demanded
What mechanism of price determination is observed in a competitive goods market?
The price is determined by the interaction between the buyers and the sellers of the good.
What happens in a competitive market if the quantity supplied of a good exceeds the quantity demanded of the good at a given price?
The price tends to fall.
What is an example of a low-involvement purchase?
The purchase of a candy bar
The market determined price of corn is $2 per bushel in country A. Since, most of the corn growers are marginal farmers and have low income, the government of country A decides to fix the price of corn at $3 per bushel. What is likely to be the impact of this government intervention?
The quantity supplied of corn will exceed the quantity demanded of corn.
What is likely to happen if the price of a good increases due to an increase in demand, everything else remaining unchanged?
The quantity supplied of the good is likely to increase.
What is likely to happen if the government sets a price floor for a good?
The quantity supplied of the good will exceed its quantity demanded. (know word for word)
What does the supply curve of a good illustrate?
The relationship between the price of the good and its quantity supplied during a particular period, all other things unchanged
Consider a consumer's budget line showing the allocation of income between two goods. What will happen to the slope of the consumer's budget line if the prices of both goods reduce by 50%, without any change in the consumer's income?
The slope of the budget line remains the same
Al manages a grocery store. He decided to rearrange the different items displayed in the store. He began by keeping all the dairy items in one corner of the store and the bakery items in the other corner. Which factor is he trying to change by rearranging the products in the store?
The store's atmospherics
After a real wage increase, an individual starts to work more. Which of the following statements must then be true?
The substitution effect of the real wage increase must be less than the income effect of the real wage increase.
Consider the market for wooden chairs in two countries: A and B. Wood is available for cheaper in country A in comparison to country B. All other conditions are similar in both countries. Given that the market price is also same in both the countries, which of the following statements will be true?
The supply in country A will be greater than the supply in country B.
Consider the market for apples in two countries- A and B. Country A has a greater number of apple growers, than country B. All other conditions are similar in both countries. Given that the market price is also same in both the countries, what is likely to be the case in regards to the supply of each country?
The supply of apples in country A will be greater than the supply in country B.
Consider two markets for used cars-market A and market B. In market A, buyers have all the relevant information about the cars, whereas in market B buyers are not aware of all the features of the cars. Which consumer has a greater need for protection or is it the same?
There is a greater need for consumer protection in market B than in market A.
The demand and supply curve of cellphones shift outward by the same amount. What will be the result of such shifts?
There is an increase in the equilibrium quantity, without any change in the equilibrium price of cellphones
What is likely to be the effect of a change in the price of a good?
There occurs a movement along the demand curve of the good.
Which condition will have to be fulfilled if a competitive market is required to function efficiently?
There should be well defined property rights in the market.
What is likely to happen if the demand curve and supply curve of a good shift inward by the same amount?
There will be a decrease in the equilibrium quantity, without any change in the equilibrium price.
The market determined price of good X in a country is $1. The government decides to regulate the price at $0.50. What is likely to be the impact of this government intervention?
There will be a shortage in the market for good X.
What will happen if both the demand curve and supply curve for a good shift to the right, and the shift in the demand curve is greater than the shift in the supply curve?
There will be an increase in equilibrium price and quantity.
What will happen if both the demand and supply curves for a good shift rightward by the same amount, other things remaining unchanged?
There will be an increase in the equilibrium quantity but no change in equilibrium price.
What are the characteristics of the output combinations that lie inside the production possibilities curve of a nation?
They are attainable but inefficient.
In comparison to private property, what happens to common property in free markets?
They are overconsumed.
What do the points lying inside a consumer's budget line represent?
They represent bundles that are affordable but do not exhaust the consumer's income.
A married, 40 year-old man is likely to spend his income differently than a 20-year old, single woman. What does this imply?
This implies that personal factors influence buying decisions.
The manager of a footwear showroom has observed that the number of female customers increase when the store window displays more shoes while the number of male customers increase when the store offers discounts. What does this imply?
This implies that personal factors influence buying decisions.
Due to an increase in the price of butter, more consumers are switching to margarine. What inference can be made from the statement?
This statement indicates an increase in the demand for margarine and a decrease in the quantity demanded of butter.
"More consumers are taking advantage of falling prices of CD players by switching from tape players to CD players." What can be concluded from this statement?
This statement indicates an increase in the quantity demanded of CD players and a decrease in demand for tape players.
When Tom earns $100 per month, he consumes 8 hamburgers and 6 hotdogs. When his income increases to $200 per month, his consumption of hamburgers increases to 12, but her consumption of hotdogs decreases to 4. Identify how Tom treats both goods.
To Tom, a hotdog is an inferior good, and a hamburger is a normal good.
Tara spends her entire income on only two goods: T-shirts and hamburgers. If the price of each T-shirt is $10, price of each hamburger is $5, which of the following equations correctly identifies her total spending?
Total spending =(5 number of hamburgers) + ( 10 number of T-shirts)
John is interested in learning about online consumer behavior, so he tracks purchases made every afternoon at 4pm. He is interested in sales of music, books, movies and videos. In this study, what would "sales" be classified as?
Variable
Which term refers to something whose value can change?
Variable
What does the time allocation line show?
What does the time allocation line show?
Under which situation is an inefficient allocation of resources likely to occur?
When costs and benefits of a decision maker's actions are unknown
Under what situation can a firm set prices above the marginal cost to maximize profits?
When it faces a relatively inelastic supply curve
When are the profits of a producer maximized?
When marginal cost equals marginal benefit
When is the demand curve for pizzas likely to shift to the right?
When the income of consumers increases
When is the quantity of an activity said to be at its optimum?
When the marginal cost of the activity is equal to the marginal benefit
When should the quantity of an activity be increased?
When the marginal cost of the activity is lower than the marginal benefit
When does the quantity demanded of a good exceed its quantity supplied?
When the market price of a good is below the equilibrium price
When is the supply curve for calculators likely to shift to the right?
When the number of sellers of calculators increases
All other things same in two countries: A, and B, when will the supply of tomatoes be more in country A in comparison to country B?
When the number of tomato sellers in country A is greater than the number of tomato sellers in country B
When do prices increase in a competitive market?
When the quantity demanded exceeds the quantity supplied
When is a market surplus said to have occurred?
When the quantity demanded of a good is less than the quantity supplied
When is the supply curve of calculators likely to shift to the left?
When there is a decrease in the number of sellers of calculators
When will the amount of labor available in a country decrease?
When there is a decrease in the number of workers available to work
When is the level of technology used in a production process said to improve?
When workers can produce more output from a given input due to better knowledge about the production process
An article in the newspaper described a successful advertising campaign by the California wine industry. The article also notes that "California wine company officials are excited about the increase in wine prices that resulted from the campaign. But they expressed a fear that the price increases would cause demand to decline, which would then cause prices to fall." Are the company officials making a mistake in their analysis of the situation?
Yes, contrary to what the executives may have thought, a rise in price causes the quantity demanded to fall but does not cause the demand to fall.
Identify a possible reason for the quantity demanded of a good to increase.
a fall in its price
It is observed that the younger group spends more on ____________ than the other group.
alcohol & tobacco
An efficient ______________ can be fair or unfair, but always maximizes net benefits to the society.
allocation
Define hypothesis.
an assertion of a relationship between two or more variables that could be proven to be false.
Suppose a consumer has an option to choose from any 5 consumption bundles. If a consumer chooses bundle 1 over bundle 2, bundle 2 over bundle 3, and bundle 3 over bundle 4 and 5. Would the customer prefer bundle 1 or bundle 4?
bundle one
All the physical factors of the selling environment can or cannot be controlled?
cannot
What causes a movement along the demand curve for a good?
change in price
In a ______________ market, prices always tend to move towards equilibrium.
competitive
An assumption on which the theory of consumer choice is based on is that consumer choices are ____________.
consistent
Anli is interested in learning about online consumer behavior, so he tracks purchases made every afternoon at 4pm. He is interested in the sales of music, books, movies and videos. In his study, what would 'time of day' be classified as?
constant
Freedom of choice of individuals may get restricted due to ____________________.
consumer protection
Companies often interview consumers about their daily activities and routine because a ____________ lifestyle influences his buying behavior.
consumer's
The ____________ is a situational factor that affects a consumer's buying behavior.
consumer's time of purchase
Country A is a command socialist economy while country B is a mixed economy. The ownership of resources by the government will be greater in which country?
country A
Other things unchanged, what will be the result of a leftward shift of the demand curve for a good?
decrease in both the equilibrium price and quantity of the good
What causes a decrease in the quantity supplied of a good?
decrease in its price
What is a likely impact of a decrease in the price of a good?
decrease in the quantity supplied of the good
As the number of alternative uses of a good decreases, its price elasticity __________.
decreases
A surplus in a competitive market is eliminated by movements along the ____________________.
demand and supply curves.
An individual's allocation of time to work is __________ on the income he earns and the price of goods and services he consumes.
dependent
Elasticity of demand is __________ in different price ranges along the same demand curve.
different
The maximum amount of money that Chris wants to pay for an extra hotdog decreases as he consumes more of it. This implies __________________.
diminishing marginal valuation
The maximum amount of money that Chris wants to pay for an extra hotdog decreases as he consumes more of it. This implies the law of _________________.
diminishing marginal valuation.
A decrease in the demand for the good, without any change in the supply of the good is likely to cause a decrease in the _________________.
equilibrium quantity and equilibrium price of a good.
Expenditure on food and housing __________ the expenditure on insurance for almost all households.
exceeds
An increase in the price of coffee will lead to a ________ in their consumer surplus?
fall
Households spend most of their income on __________________.
food and housing.
A good with no opportunity cost is a ________________.
free good
What are goods for which the opportunity cost of production is zero referred to as?
free goods
An increase in the price of __________ is likely to shift the demand curve for cars inward
gasoline; because gasoline and cars are complements.
Consumer protection least likely to be required in a competitive market for a ___________.
good
Will an increase in immigration workers in the nation lead to economic growth or decline?
growth
A profit-maximizing firm should set a __________________ if it faces a relatively inelastic demand curve.
high price above the marginal cost
When does a hypothesis become a law?
if it wins universal acceptance after testing. (becomes a theory before becoming law)
Outward shift of the demand curve of a good represents an _______________.
increase in demand for the good
Demand for necessities is more _________ than the demand for luxury goods.
inelastic
The demand for salt is unlikely to change much due to a change in its price. Therefore, the demand for salt is likely to be most price __________.
inelastic
The demand for tobacco products is unlikely to change much due to price changes because these products are mostly used by addicts. Therefore, the demand for tobacco products is likely to be most price _________.
inelastic
If a hurricane destroys half of a nation's stock of steel, what will be its impact on the supply curve of steel goods?
it is likely to shift inward
If everything else remains unchanged, the price of cellphones decreases, what will happen to the market supply of cellphones?
it will shift down along the supply line (left)
The _____________________ states that as the price of a good increases, its quantity demanded decreases.
law of demand
A consumer's ______________ includes the goods she consumes
lifestyle
The income elasticity of demand for __________________ is likely to be greater than one.
luxury holidays
It is only _________ that matter for a firm's pricing decision.
marginal costs
The government's role is limited in a ___________ economy, but is fundamentally important.
market
In what markets is government intervention for consumer protection most likely to be required?
market with only one seller of a good.
What is this an example of.... How does an individual decide how much of a good to consume?
microeconomic focus
A shortage in a competitive market is eliminated by....
movements along the demand and supply curves.
What good does not require human effort for its production?
natural resource
The price elasticity of goods is _________. This is an implication of the law of demand.
negative
If the consumer surplus in a market is $X and the producer surplus in the market is $Y, what is the net benefit to society from this market?
net benefit to society from a market is the sum of producer and consumer surplus. Therefore, $X + $Y
When Patrick's income increases by 50%, his consumption of bottled drinking water increases by 25%. What kind of a good is bottled drinking water to Patrick?
normal good
An individual's preferred point of consumption always lies ___________.
on his budget line.
A firm is said to engage in ___________ when it gives surprise gifts and freebies to its customers.
operant conditioning
An individual's disposition as other people see it is known as ___________.
personality
What is the formula for marginal revenue in reference to elasticity of demand?
price x [1 - (1/-(elasticity of demand)]
How do you calculate total revenue?
price x units
The difference between the total revenue received by sellers and their total cost is called ____________.
producer surplus
For some goods, regardless of whether consumers pay for them, they cannot be excluded from receiving the benefits from consumption. What are these goods called?
public goods
Non-toll roads is an example of _______ goods
public goods
Lighthouses are examples of ____________.
public goods.
What refers to the quantity sellers are willing to sell at a particular price during a particular period
quantity supplied of a good or service
A ________________ is a group of people a person identifies with and wants to join.
reference group
Assume that there are two goods: 1 and 2. The supply curves for both goods are shown in the figure... each product has it's own supply curve. the spots shift upward and downward on the graph. WHat does the movement indicate?
represents a change in the quantity supplied of good
An abundantly available good can also be a _____________ if it has several alternative uses.
scarce good
An increase in the number of steel mills is likely to do what for the supply curve of steel?
shift the supply curve of steel outward
The consumer's reason for the purchase is a ______________ that affects a consumer's buying behavior.
situational factor
Gabriella always buys the brand of detergent her parents bought and used when she was a child even though several new brands are now available in the market. What influences her buying decision in this case?
societal factor
A ________ is a group of people within a culture who are different from the dominant culture but have something in common with one another.
subculture
People with similar religious beliefs often consume similar goods. What explains this behavior?
subcultures influence buying decisions
As the number of ___________ of a good increases, its price elasticity of demand increases.
substitutes
When the price of tea decreases, sellers supply lesser quantities of tea. This explains the law of _______.
supply
A ______________ shows the quantities supplied at different prices during a particular period graphically.
supply curve
A ________________ shows the quantities supplied at different prices during a particular period
supply schedule
A __________ exists if the quantity of a good or service supplied exceeds the quantity demanded at the current price
surplus
The following figure (just pretend there's one) shows the demand and supply curves for chairs in a market. What is the equilibrium price and quantity?
the center of the X
When looking at a graph, how do you determine shortage?
the difference in when the demand line is vs supply line at certain price point.
When there are many sellers of a good, an increase in price results in an increase in quantity supplied, and this relationship is often referred to as ______________.
the law of supply.
The individual labor supply curve shows _______________.
the number of hours of labor supplied by an individual at different wage rates.
The price of good X and good Y are $4, and $8 respectively. If a consumer's marginal valuation of good X is $6 and that of good Y is $7. What products would the customer buy?
they would by x but not y
A fall in the price of microchips used in cellphones is likely to shift the supply curve _____________.
to shift rightward
Change in quantity demanded causes what shift?
upward or downward on the demand curve
An essential condition for a competitive market to function efficiently is that there should be _____________.
well defined property rights in the market.
Can allowing the immigration of skilled labor from foreign countries increase the society's ability to produce goods and services.?
yes