Micro midterm 1

In order to discourage consumers from eating unhealthy fast food, the government is considering placing a tax on all fast food sales. Which of the following statements is TRUE? A) Given the numerous alternatives, consumersʹ demand for fast food is relatively elastic and the tax will likely work to discourage fast food consumption. B) The tax on fast food will likely raise considerable revenue, but will be unlikely to reduce the consumption of fast food by consumers. C) The tax on fast food will likely increase the demand for homecooked meals. D) Both (A) and (C) are true.

Both (A) and (C) are true.

Which of the following is not an efficiency property of the market outcomes a. Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. b. Free markets allow consumers to benefit more than producers in the long run because profits are zero in the long run. c. Free markets allocate the demand for goods to the sellers who can produce them at the lowest cost. d. Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.

Free markets allow consumers to benefit more than producers in the long run

Which of the following statements about scarcity is TRUE? A) Scarcity refers to the situation in which unlimited needs exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity arises when there is a wide disparity in income distribution.

Scarcity refers to the situation in which unlimited needs exceed limited resources.

Larry tells you that he prefers Pepsi to Coke, Coke to 7UP, and 7UP to Pepsi. This violates what assumption made when analyzing consumer preferences? A) That more is better. B) That there is a diminishing marginal rate of substitution. C) That indifference curves do not cross. D) That consumers are able to choose among all the combinations of goods and services available

That indifference curves do not cross.

Rented DVDs and movies shown in theaters are substitutes. Rented DVDs and plasma TVs are complements. Plasma TVs and movies shown in theaters are normal goods. People watch rented DVDs more often in the winter than in the summer. Suppose the number of stores renting DVDs is reduced by 25% which leads to a decrease in the number of DVDs available, which of the following would occur? A) The rental price of DVDs would increase, and the price of plasma TVs and movie tickets would decrease. B) The rental price of DVDs would increase, but the price of plasma TVs and movie tickets would be unaffected. C) The rental price of DVDs and movie tickets would decrease, but the price of plasma TVs would increase. D) The rental price of DVDs and the price of movie tickets would increase, but the price of plasma TVs would decrease.

The rental price of DVDs and the price of movie tickets would increase, but the price of plasma TVs would decrease.

A Giffen good is A) a normal good for which the income effect dominates the substitution effect. B) an inferior good for which the income effect dominates the substitution effect. C) an inferior good for which the substitution effect dominates the income effect. D) a normal good for which the substitution effect dominates the income effect.

an inferior good for which the income effect dominates the substitution effect.

A change in income, preferences, or prices of other goods or services leads to a ________ that causes a ________. A) change in demand; movement along the demand curve. B) change in quantity demanded; movement along the demand curve. C) change in demand; shift of the demand curve. D) change in quantity demanded; shift of the demand curve.

change in demand; shift of the demand curve.

If the market for tires is unregulated and is presently characterized by excess supply, you can accurately predict that price of tires will A) increase, the quantity demanded will fall, and the quantity supplied will rise. B) increase, the quantity demanded will rise, and the quantity supplied will fall. C) decrease, the quantity demanded will rise, and the quantity supplied will fall. D) decrease, the quantity demanded will fall, and the quantity supplied will rise

decrease, the quantity demanded will rise, and the quantity supplied will fall

Which of the following is held constant along the demand curve? A) price of the good. B) quantity. C) income. D) both A and B.

income

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will A) decrease the quantity of education demanded by 3.5%. B) decrease the quantity of education demanded by 14%. C) increase the quantity of education demanded by 4%. D) increase the quantity of education demanded by 14%.

increase the quantity of education demanded by 14%.

When the price of fresh fish increases by 10%, quantity demanded decreases by 5%. The price elasticity of demand for fresh fish is ________ and total revenue from fresh fish sales will ________ . A) inelastic; increase. B) inelastic; decrease. C) elastic; decrease. D) elastic; increase.

inelastic; increase.

You own the Cable Girls DVD set. The opportunity cost of watching these DVDs for the second time A) is zero. B) is one-half the cost of the DVDs, as this is the second time you have watched it. C) is the value of the alternative use of the time you spend watching the DVDs. D) cannot be calculated.

is the value of the alternative use of the time you spend watching the DVDs.

Suppose an increase of 10% in the price of steak reduces the consumption of steak by 15%. Such a price rise will induce households to allocate A) less of their income on steak. B) more of their income on steak. C) the same amount on steak as before. D) more on products that are complementary with steak.

less of their income on steak.

Both Sara and Dan own saltwater taffy factories. Saraʹs factory has low fixed costs and high variable costs. Danʹs factory has high fixed costs and low variable costs. Currently, each factory is producing 1,000 boxes of taffy at the same total cost. Complete the following statement with the correct answer. If each produces A) less, their total costs will be equal. B) more, their total costs will be equal. C) more, the total costs of Saraʹs factory will exceed those of Danʹs factory. D) less, the total costs of Saraʹs factory will exceed those of Danʹs factory

more, the total costs of Saraʹs factory will exceed those of Danʹs factory.

Better health insurance benefits decrease healthy behaviors. This statement is best described as a A) positive statement. B) prescriptive statement. C) normative statement. D) personal statement.

positive statement.

Rob can buy either pizzas or club sandwiches. If the prices of pizza and club sandwiches double and so does Robs money income, we can conclude that Robʹs budget constraint will A) shift in but remain parallel to the old one. B) shift out but remain parallel to the old one. C) pivot so that the slope of the budget constraint is doubled. D) remain unchanged.

remain unchanged.

As an individual consumes more of a product within a given period of time, it is likely that each additional unit consumed will yield A) successively less satisfaction. B) successively more satisfaction. C) the same amount of satisfaction. D) less satisfaction for a while and then start to add more satisfaction.

successively less satisfaction.

Which of the following is NOT an opportunity cost of attending college? A) the tuition you pay. B) the income you could have earned if you didn't attend college. C) the alternative uses of the time you spent studying. D) the cost of the food consumed while you attended college.

the cost of the food consumed while you attended college.

Which of the following statement under perfect competition is FALSE? A) the market supply curve is horizontal in the long run. B) the firm's supply curve in the short run is the portion of its marginal cost above AVC. C) the firm's supply curve in the long run is the portion of its marginal cost above ATC. D) the market supply curve is horizontal in the short run

the market supply curve is horizontal in the short run