Practice Exam 1

Suppose that a disease that affects people who consume beef has been discovered in the US. One likely result is

a decrease in demand for beef

"As the price of personal computers continues to fall, demand increases" This headlineis inaccurate because

a falling price of personal computers increases the quantity demanded, not demand

If the demand for computers increases as consumers' incomes rise, then computers are

a normal good

Which of the following is not true of the equilibrium price

it is fair in the sense that everyone can afford basic goods and services

The cost-benefit principle predicts that

people will tend to do more of something when its benefits are greater

If the price of doughnuts decreases, then one would expect

quantity of doughnuts supplied to decrease

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her

reservation price

Efficiency occurs if the

socially optimal quantity of goods and services is being produced

Dean should play golf instead of preparing for tomorrow's exam in economics if

the economic surplus from playing golf is greater than the economic surplus from studying

When the demand curve shifts to the right and supply doesn't change

the equilibrium quantity will rise

The entire group of buyers and sellers of a particular good or service makes up

the market

If there are no unexploited opportunities for individuals in a particular market, then one can conclude that

the market is in equilibrium

The opportunity cost of an activity includes the value of

the next-best alternative that must be forgone

A seller's reservation price is generally equal to

the seller's marginal cost

As coffee becomes more expensive, Joe starts drinking tea instead. This is called

the substitution effect of a price change

If the price of rubber (an input to the production of tires) increases

the supply of tires will decrease

Economists recognize that because people have limited resources...

they have to make trade offs

The average benefit of n units of an activity is the

total benefit of n units divided by n

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movie is

$35 ($15 cost of ticket plus $20 job opportunity)

Suppose the most you would be willing to pay for a plane ticket home is $250. If you buy one for $175, then your economic surplus is

$75

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is

5

What might cause a demand curve to shift to the right

An increase in the price of a substitute

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case

Excess demand will lead the price of oranges to rise

Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true?

Forest has to make trade offs.

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is

Greater than $4.50 but no more than $5.00

The quantity that sellers wish to sell tends to _____ as price increases; and so the supply curve is _______ sloping

Increase, upward

Which of the following factors will lead to a decrease in the current supply of a good

a belief that the price will go up in the future

Chris has a 1 hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym to work out. The decision Chris must make is

an economic problem because Chris only has one hour, and engaging in one activity means giving up the other.

Suppose that the technology used to manufacture laptops has improved. The likely result would be

an increase in supply of laptops

Which of the following is likely to lead to a decrease in the demand for tennis balls?

an increase in the price of tennis racquets

Suppose that the equilibrium price of apples decreases and the equilibrium quantity of apples increases. This is best explained by

an increase in the supply of apples

When the price of a good changes, the amount of that good that buyers wish to buy changes

because of both the substitution and income effects

Equilibrium price and quantity are determined by

both supply and demand

When the current price of a good is below the equilibrium price

buyers have an incentive to offer to pay sellers more than the current price

If a country's economic decisions are made by an individual or small number of individuals, then it has a

centralized economy

If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are

complements

Suppose the solid line represents the current supply of Star Wars action figures. If retailers learn that a new Star Wars movie will be released in several months, this news is likely to cause

current supply curve to shift to the left in anticipation of higher future prices

A demand curve is ______ sloping because ________

downward, because fewer people are willing to buy an item at higher prices

If the price is above the equilibrium price, then there will be

excess supply

The marginal benefit of an activity is the

extra benefit associated with an extra unit of the activity

Shelly purchases a leather purse for $400. One can infer that

her reservation price was at least $400

Economics is best defined as the study of...

how people make choices in the face of scarcity and the implications of those choices for society as a whole

The supply curve illustrates that firms

increase the quantity supplied of a good when its price rises

The Cost-Benefit Principle indicates that an action should be taken if, and only if

its benefits exceed its costs

If the production of oranges reduces global warming, then the equilibrium quantity of oranges will be ______ the socially optimal quantity

lower than (if production benefits others than buyers and sellers, then equilibrium quantity will be less than socially optimal quantity)

The extra cost that results from carrying out one additional unit of an activity is the _______ of the activity

marginal cost

When the market is in equilibrium

no unexploited opportunities exist for individuals

If the demand for a good decreases as income decreases, then the good is a

normal good

A market equilibrium might not maximize total economic surplus because

sometimes goods entail costs and benefits that do not fall on buyers and sellers (if people other than sellers and buyers bear costs then what's best for buyers and sellers may not be what's best for society as a whole)

According to the cost benefit principle, you should go see the latest Star Wars movie with your friends if

the benefits of seeing the movie are greater than the costs of seeing the movie

According to the cost-benefit principle, you should spend an additional hour studying for an exam if, and only if

the benefits of studying for an additional hour exceed the costs of studying for an additional hour

Microeconomics differs from macroeconomics in that microeconomics focuses on

the choices made by individuals and the implications of those choices

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying

the demand curve

Suppose the line shows the current demand curve for coffee. In response to an announcement that much of next year's coffee crop has been destroyed by a storm in Brazil, you should expect

the demand curve to shift to the right in anticipation of higher future prices

Suppose sport utility vehicles get poor gas mileage compared to other available cars. If the price of gasoline increases, then one would expect

the demand for sport utility vehicles to decrease

If supply and demand both increase, the new equilibrium price will be _______ and the new equilibrium quantity will be _______

uncertain, higher (both will cause the equilibrium quantity to increase, but will have opposing effects on equilibrium price)