Consumer Econ – Flashcards

Unlock all answers in this set

Unlock answers
question
You can drive to campus or take a bus. Driving costs you $1/mile in gas and maintenance. If you live 2 miles from campus, and are a rational decision maker, what is your reservation price for a bus ticket?
answer
$2
question
Most economists are against rent control because it
answer
discourages the building of new apartments
question
A hailstorm kills all of the wheat in Minnesota. What will happen to the price and quantity of wheat sold in the U.S.?
answer
equilibrium price rises, equilibrium quantity falls
question
Pizza and beer are complements. The price of beer increases. What happens to the market for pizza?
answer
equilibrium price falls; equilibrium quantity falls
question
You decide to go skiing this weekend. It costs $50 for transportation, $50 for lodging, $30 for ski lift tickets. You are unemployed. What is the total cost of the ski weekend?
answer
$130
question
Let demand be given by P=10. Let supply be given by P=Q. What is the equilibrium quantity?
answer
5
question
You decide to go skiing this weekend. It costs $50 for transportation, $50 for lodging $30 for lift tickets and you could have earned $100 as a waiter. What is the total cost of the ski weekend?
answer
$230
question
A long hot summer has increased the demand for beer. At the same time a tax is placed on alcohol. What can we say about the equilibrium price and quantity of alcohol?
answer
equilibrium prices rises; equilibrium quantity is unknown
question
If the number of suppliers in the microcomputer industry increases, what would we expect to happen?
answer
movement along the demand curve will occur
question
The equilibrium price is the price
answer
at which quantity supplied equals quantity demanded
question
If the good is inferior, then an increase in income will cause the demand curve to
answer
shift left
question
If price and quantity are not at their equilibrium positions, then
answer
it is possible to reallocate so that some people are better off without harming others
question
If the State of MS decides to raise the drinking age to 25, what would happen to the demand for beer
answer
the demand for beer will shift left
question
The price in the market has fallen and so has the quantity. This could be happening because
answer
income has fallen and this is a normal good
question
Let demand be given by P=10-Q. Let supply be given by P=Q. What is the equilibrium price?
answer
5
question
If the price of PC's go down dramatically, what will happen in the market for Windows softwares?
answer
The equilibrium price of softwares will go up because PCs and softwares are complements
question
In town of Blackville, demand for typical one-bedroom apartment monthly rental is given by P=1225-1.5Q, and supply is P=125+0.5Q . If the city imposes a rent control of $325/month, what will happen?
answer
600 units of apartments will be demanded, but only 400 units will be supplied, causing a shortage of 200 units.
question
Let demand be given by P=20-3Q and supply by P=5+2Q. Equilibrium quantity will be:
answer
3
question
A new discovery makes ink jet computer printers less expensive to produce. At the same time another type of computer printer, the laser printer, also becomes less expensive. What would you expect to happen to the equilibrium price and quantity of ink jet printers?
answer
Equilibrium price will fall, but the effect on quantity is uncertain
question
The price of peanut butter rises due to a blight on the peanut crop. Peanut butter and jelly are complements. What happens to the equilibrium quantity and price of jelly?
answer
Equilibrium price falls, equilibrium quantity falls
question
If you go to college, you need to spend: tuition $5,000; books $200; housing $1,000; food $1,000. Alternatively you could live on your own (at the same food and housing costs) and work to earn $10,000. What is the total opportunity cost of going to school?
answer
$15,200
question
If the Surgeon General announces that colas cause cancer then we would expect
answer
the demand for cola will shift left
question
You have rented a car for $200. You are considering whether you should take this car for a 300-mile journey, which will cost you $0.20 per mile (including gas). What is the cost of the journey?
answer
$60
question
If you go to college, you will need to spend: tuition $5,000; books $200; housing $1,000; food $1,000. Suppose that you could live at home only at the cost of food $1,000 and work to earn $10,000. Studying and work are equally desirable in your mind. What is the total opportunity cost to you of going to school rather than working?
answer
$16,200
question
If the benefits of X=$50 and the price of X=$50, then
answer
you will be indifferent between buying X and keeping your money
question
Let supply be given by Q=-7.5+0.5P and demand by Q=10-2P. What will be the equilibrium price in this market?
answer
25
question
My income rose and the price of good Y rose also. This means that my demand curve for good X shifted right
answer
This statement will always be true if good Y is a substitute for X and X is a normal good
question
Adam Smith in The Wealth of Nations argued
answer
society works best when people act in their own interest
question
If an airline overbooks it pays people who volunteer to leave the overbooked flight. This system may be better than drawing randomly from a hat the people who should miss the flight because:
answer
those with the least to lose are the ones who miss the flight.
question
We say economists are doing positive economics when they
answer
look for regularities and principles in economic life that can help show how the economy works
question
An example of a normative statement
answer
Food stamps are a good way to help low-income people to afford food.
question
A consumer is choosing between red wine and white wine. The price of red wine is 20 and the price of white wine is 10. If the marginal rate of substitution is 1, and if red wine is on the horizontal axis, then the consumer is buying:
answer
too much red wine
question
An increase in income with no changes in the price of either good will cause:
answer
an outward shift of the budget line
question
An increase in the price of one good will cause
answer
an inward rotation of the budget line
question
If food is on the vertical axis and shelter on the horizontal axis, then the equation for the budget line can be expressed as:
answer
PSS + PFF = M.
question
If the consumer's budget constraint is given by 10F+5S=100 where F is food and S is shelter, how much food can he buy if he purchases 2 units of shelter?
answer
9
question
If the consumer's budget constraint is given by 10F+5S=100 where F is food and S is shelter, what is the opportunity cost of food in terms of shelter?
answer
5
question
If the consumer's budget constraint is given by 4P+2B=50 where P is pizza and B is burgers, the following bundles of pizza and burger would be on the budget constraint:
answer
P=2; B= 21
question
Jane has 30 dollars to spend. She must spend it on some combination of frozen dinners and ice cream. Suppose the price of frozen dinners is $2 and one serving of ice cream costs $3. Which of the following represents her budget constraint correctly?
answer
(2 * FROZEN_DINNER) + (3 * ICE_CREAM) ≤ 30
question
Say a consumer is choosing between wine and cheese. The price of wine is 10 and the price of cheese is 5. If the marginal rate of substitution is 4, and if wine is on the horizontal axis and cheese is on the vertical axis then the consumer is purchasing
answer
too much cheese
question
Suppose price of food is $5/lbs, and price of shelter is $10/sqyd. If you have a weekly income of $120, what is the opportunity cost of buying an additional square yard of shelter?
answer
2 lbs of food
question
Suppose price of food is 2, price of shelter is 4, and your income is 100. If food is on the vertical axis and shelter on the horizontal axis, then the equation for the budget line can be expressed as:
answer
F= 50-25F
question
Suppose the budget constraint is given by 20P + 5S =200, where P is pizza and S is sandwich. If the price of S and P increase by 10% each, then the budget line will shift:
answer
down with the same slope.
question
The graph of the budget line below has dollars on the vertical axis and food on the horizontal axis. Which statement is false?
answer
The distance OA shows the amount of money spent on OD amount of food.
question
The law of diminishing marginal utility
answer
as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.
question
According to the rational choice model, cash grants are preferred to food stamps because:
answer
they enhance consumer choice
question
Given the budget of $80, what quantities of books and movies will maximize Joe's level of satisfaction?
answer
5 movies and 4 books
question
If the consumer is willing to give up 3 units of food (vertical axis) in exchange for one unit of shelter (horizontal axis) and food is priced at 10 and shelter at 20, then the consumer is buying:
answer
too much food for utility maximization
question
The marginal benefit of a typical activity
answer
decreases as you do more of the activity
question
T/F When the price of good X (on the horizontal axis) falls and the price of good Y rises, the budget line gets steeper.
answer
False
question
What are the common mistakes in Cost-Benefit calculations?
answer
-ignoring opportunity costs -failing to ignore sunk cost -average vs. marginal cost distinction
question
Give an example of how consumers use the concept of reservation price in making consumption decisions.
answer
the price at which a person would be indifferent between doing x and not doing x
question
How is the circular flow of the economy related to the dual role of consumers?
answer
-chart means for consumers is that consumers have dual roles in market economy -in the final goods market--provide expenditures, receive goods and services -in the factors market--provide inputs or factors of production (labor, capital), receive incomes
question
What is the "law of demand" and what causes it? (2 reasons)
answer
-inverse relationship between price and the quantity demanded -downward sloping demand curve Price increases-->Qd dec. Price decreases-->Qd inc. -other things being equal, consumer will buy less of a good at a high price than at a low price
question
How does an increase (and decrease) in demand affect the equilibrium price and quantity sold in the market?
answer
Price increases-->Qd dec. Price decreases-->Qd inc.
question
How does an increase (and decrease) in supply affect the equilibrium price and quantity sold in the market?
answer
Price inc-->Qs inc Price dec.-->Qs dec
question
Give an example of price ceiling and discuss its goal and effect.
answer
-hold inflation in check -keep purchase of certain item within reach of low income customers -a legal maximum on the price at which a good can be sold -rent control
question
Give an example of price floor and discuss its goal and effect
answer
-increase the incomes of those who sell the item -a legal minimum on the price at which a good can be sold -agricultural price support -minimum cage
question
What was Adam Smith's position regarding consumer sovereignty?
answer
-interests of free & self-seeking consumers can lead allocation of economic resources most efficiently -a strong opposition to "mercantilism" which is a strong central gov. exists that tends to favor the interests of merchants & manufacturers over the interests of consumers
question
What are the positive and normative economic considerations?
answer
Positive- about 'what is-concern with factual issues positive questions economics have better chances to provide clear answers Normative- about 'what should be-deals with ethical or moral issues economic cannot provide clear answers involves values-shows th
question
Discuss how a consumer's budget constraint illustrates opportunity cost
answer
-shows that consumers can only buy "affordable" bundles of goods that do not cost more than their income -slope= opp. cost
question
How does a consumer's budget constraint reflect changes in income?
answer
-income and prices define a consumer's budget constraint -when income is limited, the real cost of any single good or service is the value of the next preferred other goods and services that could have been purchased with the same amount of money -a change in the price of one good may change the entire allocation -some goods may be demanded more, while others may be demanded less
question
Discuss two general assumptions about the properties of consumer utility.
answer
-diminishing marginal utility -positive marginal utility
question
Diminishing Marginal Utility
answer
as you increase consumption of a product, you get less and less marginal utility from consuming each additional unit of that product ex//: all you can eat buffet
question
What are the properties of indifference curves?
answer
-have a negative slope (willing to give up some to get more of other goods) -further from the origin (0,0), preferred (the more, the better) -convex toward 0 (decreasing marginal utility -Indifference curves cannot cross
question
What is MRS?
answer
Marginal Rate of Substitution slope of the indifference curve at a given point -willingness to trade between horizontal & vertical axis
question
Substitution effect
answer
-a decline in the price of a product, that product becomes 'relatively' cheaper, becoming more attractive relative to potential substitutes -the change in consumption of the good due to changes in its relative attractiveness compared to alternatives
question
Income effect
answer
-a decline in the price of any product will make the household better off, all else equal -the change in consumption of the good due to this improvement in the household's purchasing power
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New