Microeconomics Exam 1 Practice Questions

At the end of the semester, you plan to sell your physics textbook back to the Bookstore for $40 (the lowest amount you would accept), but your friend (who is taking the same class next semester) offers you $60. What do you achieve?

$20 in producer surplus

At Famous Footwear, they always sell the second pair of shoes at 50% off. If you find two pairs of shoes that are regularly priced at $100 each, what is the marginal cost of the 2nd pair?

$50

Which of the following might cause the following change in supply of bow ties to occur? (S0 to S1 to the left)

A rise in the price of silk used to make bow ties

If the market price for a Microeconomics textbook is $200, which of the following would be a binding price ceiling? A) $175 B) $200 C) $250 D) $300

A) $175

The area below the demand curve and above the equilibrium price is? A) Consumer surplus B) Shortage C) Surplus D) Producer surplus

A) Consumer surplus

When the supply curve shifts to the right. What happens to the equilibrium price and equilibrium quantity? A) Decreases, Increases B) Increases, Decreases C) Increases, Increases D) Decreases, Indeterminate

A) Decreases, Increases

When the demand decreases and the supply increases. The equilibrium price _______, and the equilibrium quantity _______. A) Decreases, Indeterminate B) Increases, Decreases C) Decreases, Decreases D) Indeterminate, Decreases

A) Decreases, Indeterminate

Which of the following occurs when a price is below market equilibrium? A) Shortage B) Surplus C) Change in equilibrium price D) A change in demand

A) Shortage

Billy is capable of producing a cell phone in 20 minutes, and a laptop in 2 hours. Dave is able to make a laptop in 1.5 hours, and cell phone in 30 minutes. Billy decides to only produce cellphones, and Dave only produces laptops. Which concept best explains this situation? A) Specialization B) Trade-offs C) Equity D) Scarcity

A) Specialization

Which of the following would be considered a normative statement? A) This country needs more national security protections B) Interest rates increased this year C) The national debt continues to increase year over year D) GDP has grown quicker this year than it did last year

A) This country needs more national security protections

What does the Law of Demand state? A) decrease in price leads to an increase in quantity demanded B) decrease in price leads to an decrease in quantity demanded C) change in price leads to a movement in the demand curve D) increase in price leads to an increase in quantity demanded

A) decrease in price leads to an increase in quantity demanded

Melissa has the choice to do one of the following: Study (value of $5), go for a walk (value of $20), or sleep (value of $15). What is the opportunity cost if Melissa decides to walk? A) $5 B) $15 C) $20 D) $25

B) $15

Causes Supply decrease

Technology falls Resources cost rise Price of production substitutes falls Price expectations of future rises Number of sellers falls Taxes rise Subsidies decrease (fall)

Causes Supply increase

Technology rises Resources price falls Price of production substitutes fall Price expectations for future falls Number of sellers rise Taxes fall Subsidies increase

For Spring Break, you are trying to decide whether to go to Costa Rica (worth 10 units of satisfaction), Vail (worth 15 units of satisfaction), or just stay home and catch up on homework. If you decide to stay home, the opportunity cost is:

15

A ticket to Ultra music festival sells for $300 per ticket. There is usually an option to buy two tickets simultaneously for a price of $550. What is the marginal cost of the second ticket? A) $200 B) $250 C) $300 D) $550

B) $250

Which of the following is a factor of production? A) Time B) Capital C) Interest D) Output

B) Capital

Which of the following would cause the demand curve to shift to the left? A) The price of a substitute good decreases B) The price of a complementary good increases C) Income rises (normal good) D) More firms enter the market

B) The price of a complementary good increases

Suppose the price of wheat is $2. The government enacts a price floor of $3.50 for wheat. Which of the following would occur? A) There would be a wheat shortage B) There would be a wheat surplus C) There would be no deadweight loss D) The price of wheat would decrease

B) There would be a wheat surplus

Georgia can produce either 1 olympic recreation center or 4 hotels. What is the opportunity cost of producing 1 hotel? A) 1 recreation center B) 1/2 recreation center C) 1/4 recreation center D) 4 recreation centers

C) 1/4 recreation center

Canada can produce 100 planes or 75 ships. China can produce 50 planes to 25 ships. Based on this information, which of the following are true? A) Canada has the comparative advantage in producing planes B) China has the comparative advantage in producing ships C) China has the comparative advantage in producing planes D) Canada should produce both items since they can produce more of each

C) China has the comparative advantage in producing planes

When the price of a ________ good decreases, the demand for the other good increases. What term best fills the blank? A) Inferior B) Substitute C) Complementary D) Normal

C) Complementary

An executive at NBC studies is paid in two ways. The executive is paid a standard salary, and also stock options based on performance. The stock options would be an example of what? A) Equity B) Efficiency C) Incentive D) Specialization

C) Incentive

Which of the following is a microeconomic topic? A) Inflation B) Unemployment C) Individual firms D) Economic growth

C) Individual firms

When there is an increase in both demand and supply. The equilibrium quantity increases. What do we know about the equilibrium price? A) It increases B) It decreases C) It is indeterminate D) It stays the same

C) It is indeterminate

NASA decides to purchase a new satellite. Those resources are not available any longer and cannot be used to build a new school. Which concept best explains this situation? A) Equity B) Efficiency C) Opportunity Cost D) Scarcity

C) Opportunity cost

New Zealand can produce anywhere from 400 Uggs to 750 leather chairs. Mexico can produce anywhere from 500 Uggs to 250 leather chairs. Based on this information, which of the following is true? A) New Zealand has the absolute advantage in producing uggs B) Mexico has the absolute advantage in producing uggs C) New Zealand has the absolute advantage in producing leather chairs D) 'B' and 'C' are both true

D) 'B' and 'C' are true

Which of the following is not an example of a public good? A) Roads B) National Defense C) Parks D) Cell phones

D) Cell phones

Which of the following would cause the supply curve to shift to the right? A) A decrease in the number of firms in the market B) Price of a substitute good decreases C) An increase in the cost of raw materials D) Improvements in technology

D) Improvements in technology

Which of the following is not a determinant of supply? A) Cost of resources B) Expectations C) Taxes D) Location

D) Location

Which of the following is not a determinant of demand? A) Tastes and preferences B) Income C) Number of buyers D) Origin

D) Origin

The area above the supply curve and below the equilibrium price is? A) Consumer surplus B) Shortage C) Surplus D) Producer surplus

D) Producer surplus

The market price to rent an apartment in San Francisco is $5000. The government decides to place a price ceiling on San Francisco apartments at a price of $6000. What statement would be true in regard to the market for apartments? A) There will be a shortage B) There will be a surplus C) The price would have to rise to $1,000 D) There is no deadweight loss

D) There is no deadweight loss

With the rise in the flu epidemic, obtaining a flu shot would create an _____; therefore, this market failure could be resolved by making flu shots _____.

External benefit; less expensive

At Madison's birthday party, there was so much ice cream that the melted leftovers were thrown away. But the good news is that every attendee was able to have their first choice of flavor. Which type(s) of efficiency was achieved?

Only allocative efficiency

Causes Demand decrease

Preferences fall Income falls (normal good) Price of substitute falls Price of complement rises Number of buyers falls Price expectations for future falls

Causes Demand increase

Preferences rise Income rises (normal good) Price of a substitute rises Price of complement falls Number of buyers rises Price expectations for future rises

If the price of lift tickets at Vail rise, what would happen to the equilibrium price and quantity of snowboard rentals (a complement), all else equal?

Price and quantity both fall

Farah can run 3 times faster than Jessie, and can also swim 2 times faster than Jessie. Does Jessie (the slower athlete) have a comparative advantage?

Yes, Jessie has a comparative advantage in swimming

What might cause a PPF to change as shown below? (goes from outer line to inner line)

an earthquake that disrupts the power supply for two weeks

The current price of gasoline is $2.80 per gallon. Suppose that a price ceiling of $2.50 is placed on gasoline sales. As a result, quantity demanded would be _____ quantity supplied and a _____ would result.

more than; shortage