Econ Exam 1 Test Questions – Flashcards
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ceteris paribus
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To study the effect of price on Brett's demand for rock climbing lessons we hold his monthly income constant. This is an example of a(n) _______ assumption.
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why a movie theatre charges different prices to different groups of people
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Which of the following is an example of a microeconomic topic?
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efficiency.
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In some countries it is legal for people to sell their human organs, particularly kidneys. Those who would favor this argue that it results in ____.
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Macroeconomics
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________ is (are) concerned with how high unemployment will get during a recession.
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equity.
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Economists and policy makers often deal with the tradeoff between efficiency and:
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we face tradeoffs in nearly every choice we make
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Because of scarcity:
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Making sure that critical resources such as oil and forests do not run out.
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What is the main problem addressed with scarcity?
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scarcity
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If you see a large group of stranded passengers standing next to a disabled bus, and you have only three seats in your car, deciding who to rescue deals with the issue of:
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choices
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Which of the following words best describes what economics is about?
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How rising wages affects the choice of working instead of going to school
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Which of the following would be most closely related to microeconomics?
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80 dollars
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Lisa is choosing between three alternatives: a) working on her job that pays her 60 dollars; b) writing a term paper which she values at 40 dollars; or c) going out with a friend, which she values at 80 dollars. The opportunity cost of writing the term paper is:
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$15
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Instead of attending class, one could have worked an extra hour at the café for $10 or watched a neighbor's child for $15. The opportunity cost of attending class is:
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the value of one's time and expenses to go to the farther gas station.
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The price of gasoline is $2.50 per gallon at the closest gas station, but is only $2.30 per gallon at a gas station two miles away. By driving to the farther gas station, opportunity cost is:
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a situation in which less time is spent on chores by every roommate.
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When four roommates agree to specialize in chores they are most efficient, this can lead to:
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Deciding whether to spend one more hour studying for an exam.
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Which of the following is a decision that follows the net marginal benefit principle?
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Scarcity
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Alex loves candy and could eat it all day long. However, his weekly allowance of $5 allows him to buy only a small bag of candy. Which of the following key ideas of economics does this illustrate?
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$40
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Suppose a friend invites you to attend the opening day game for your favorite baseball team. You will have to miss a day of work in order to go. You would have earned $40 that day. Your ticket to the game cost your friend $10, and your friend treats you to another $10 worth of food and beverage. What is the opportunity cost of this choice?
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marginal analysis.
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Lindsay is an inventory planner at a local retailer. She is currently making a decision as to how many units she should stock in the store based on projected demands of the consumer. She has determined that she should keep 200 units in the store because an additional unit would not sell. This is an example of:
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specialization.
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Both Maggie and Angie can make beaded necklaces and clay bowls, but Maggie is most efficient at making necklaces. Therefore, Maggie makes necklaces and trades them for clay bowls. This is an example of:
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Jan, Martin, and Marcus
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Jan is most efficient at making braided bracelets, Martin is most efficient at making clay pots, and Marcus is most efficient at making beaded necklaces. If these three people engage in trade in a mutually beneficial manner, who will benefit from the exchange?
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Increase
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Suppose you have a very efficient study system. Then, as you increase the hours that you study for an economics exam, the opportunity costs of studying for the exam:
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start with very few details in order to simplify the model.
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When an economic model is used, it tends to:
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A discovery of a new technology that expands production possibilities
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If an economy moves from a point on a PPF line to a point to the right of that PPF, what event might have occurred?
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Yes, if new regulations restrict a country's capacity to produce goods.
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Can a PPF ever shrink inwards?
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an expansion of the productive capacity of the economy.
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An outward parallel shift of the PPF signals:
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Production possibilities for eggs and butter
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Which of the following would be possible to illustrate on a production possibilities frontier?
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A point outside the curve
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Which point in the following production possibilities frontier (PPF) is unattainable?
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a new curve that is to the right of the original curve
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Assume that the population of Lauronia increased and so did its total production, since more people can produce more things. What would this look like on a graph of the production possibilities frontier?
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increases.
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As you move from left to right along a production possibilities frontier that is bowed out from the origin, the opportunity cost of producing the product on the horizontal axis:
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stays the same
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As you move left to right on a linear production possibilities frontier (PPF), the opportunity cost of producing the good on the vertical axis:
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It depends (need to know opportunity cost)
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Sally can type 100 words per minute and David can type 200 words per minute. Given these numbers, society would be better off if which one of the two was employed as a typist?
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Indonesia has a comparative advantage in producing seaweed salads.
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If Japan can produce 3 rice cakes or 6 seaweed salads in an hour, while Indonesia can produce 2 rice cakes and 5 seaweed salads in an hour, which of the following is true?
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one is able to produce the good at a lower opportunity cost.
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Having a comparative advantage in producing a good means that:
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can benefit from trade by specializing in its comparative advantage.
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A country that does not have an absolute advantage in producing any good:
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definitely has an absolute advantage in producing watches.
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If Switzerland can produce more watches in a year than Austria, we know that Switzerland:
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absolute advantage
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In a single day, the United States can produce more lobsters than Mongolia because the United States has the extensive coastline that is necessary for trapping lobsters. In terms of lobsters, the United States has a(n) ________ over Mongolia.
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Demand exceeds supply and a shortage occurs
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If a technology company introduces a new gadget to the market which creates long lines of eager customers at stores, what is true about this market?
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The demand for snow-clearing services would increase, causing prices to rise.
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Suppose that an especially harsh winter blankets a town in snow all winter, what would happen in the market for snow-clearing services?
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increase supply, which would push airfares lower.
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If gas prices drop significantly and remain low for an extended time, industries that use a lot of gasoline, such as airlines, would likely:
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surplus of shares which causes prices to fall.
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If a public offering of new stock is initially priced too high relative to market demand, the result would be a:
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negatively related.
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According to the law of demand, the price of coffee and the quantity of coffee demanded are:
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positively related.
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According to the law of supply, the price of potato chips and the quantity of potato chips supplied are:
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Quantity supplied and quantity demanded are equal.
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Market equilibrium price exists when:
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a shortage.
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The Green Bay Packers, an NFL team, have over 90,000 names on its waiting list for season tickets. This situation is referred to as:
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Equilibrium price would increase.
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The demand for guitars increases but supply stays the same. What would happen to the equilibrium price in this situation?
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wrong; demand is not the same as quantity demanded.
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Your friend tells you the following: "The Law of Demand does not work ALL the time. As an example, think about the demand for luxury cars (e.g. BMWs, Porshe, etc). Demand for those luxury cars increases when the price of the car increases." Your friend is:
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A rise in the price of popsicles, a substitute for ice cream.
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Which of the following would cause the demand curve for ice cream to shift to the right?
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Falling incomes due to a weakening economy.
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Which of the following factors would most likely cause a shift in the demand curve for candles?
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decrease because demand for cheap pizza is negative related to income.
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College students often buy cheap pizza because it's more affordable. Suppose after graduating, college students find high paying jobs. The demand for cheap pizza will likely:
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A big sale on socks
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What would cause a movement from one point on the demand curve for socks to a point farther down on the same curve?
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willing and able
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Demand is defined as the amount of a product that buyers are __________ to purchase over some time period at various prices.
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The quantity demanded will increase.
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Because of increased competition in the late 1990s and early 2000s the price of cell phones dropped dramatically. According to the law of demand, what will happen to the quantity of cell phones demanded based on this price change?
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Inferior good
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Because Shannon just got a significant raise at work, she has started to eat less macaroni and cheese. In this example, macaroni and cheese is what type of good?
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The quantity demanded of hot dogs will increase and the demand for hot dog buns will shift to the right.
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Suppose that the local food store lowers the price of hot dogs. Which of the following would likely to occur as a result?
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a new curve to the left of the original curve.
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The demand for theme park tickets has decreased, even though their price has stayed the same, because people are taking fewer vacations. The change in demand is represented by:
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Firms perceive that the marginal benefit of producing the good has increased.
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The supply curve is upward sloping because at higher prices ________
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An increase in the cost of pet grooming supplies.
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Which of the following is most likely to shift the supply curve for pet grooming services leftward?
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The supply curve will shift to the right, increasing supply.
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If the government offers a tax deduction to companies producing solar panels, what will happen in the market for solar panels?
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Profits of copper producers decrease.
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As the price of copper continues to rise, which of the following is a consequence that may result?
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It would increase as the risk of prosecution falls.
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If more states legalize recreational marijuana, what is the likely effect on the supply of marijuana?
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supply.
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The maximum amount of a product that sellers are willing and able to provide for sale over some period at various prices, ceteris paribus, is called:
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A movement from one point on the line to a higher point on the line.
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The quantity supplied of sugar has increased due to a change in price. How would this change in quantity supplied be represented on the supply curve?
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A new supply curve to the right of the original curve
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Advances in technology can make it less costly to produce a good or service. How would this be illustrated on a graph?
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fall in price to avoid letting the ticket go unsold.
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Many Super Bowl football tickets are resold online for several times their face value. As the game day approaches, unsold tickets will likely:
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Supply decreases, pushing prices higher.
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Suppose that the price of beef rises significantly. What happens in the market for fast-food hamburgers?
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The supply of surfboards would rise, putting downward pressure on prices.
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Suppose that the price of foam blanks used in surfboard production falls. What will happen in the market for surfboards?
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Demand for cameras falls, pushing prices lower.
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Because nearly all smartphones have built-in cameras, what happens to the market for traditional cameras?
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increase; increase or decrease
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Say the following two events occur at the same time: The Chicago Cubs win the MLB Championship, The team management increases the salaries of all the Chicago Cubs players Holding everything else constant, we would expect the price of next season Cubs' tickets to _____ and the quantity of tickets to _______
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between the demand curve and the supply curve above the equilibrium point.
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A surplus is represented by the distance:
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shortage occurs and prices are bid up toward equilibrium.
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When quantity demanded exceeds quantity supplied, a:
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Equilibrium price would increase.
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The demand for skateboards increases but supply stays the same. What would happen to the equilibrium price in this situation?
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quantity rises, and the equilibrium price falls.
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When production technology improves, supply increases and the equilibrium:
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increase in the equilibrium price of pizza.
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Ceteris paribus, a decrease in the number of businesses selling pizza will cause a(n):
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There was an increase in demand and a decrease in supply.
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There is an increase in the price of gasoline, but the quantity exchanged in the market remained the same. What had to have happened to supply and demand?
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The increase in demand must have been greater than the increase in supply.
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Industry experts predicted that the price of gasoline would rise above $4 a gallon, even if the Organization of Petroleum Exporting Countries (OPEC) increased its output. What must be true in this case?
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$20
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Suppose you search for a used bicycle online, and are willing to pay at most $100. You successfully find one for sale for $80. What is the value of consumer surplus?
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Miranda = $10; Jason = $0
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Miranda and Jason are in the tutoring business. Miranda is willing to tutor as long as she gets $20, while Jason won't tutor unless he gets $35. If the most that someone would pay for tutoring is $30, how much producer surplus is earned?
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consumer surplus = $400; total surplus = $500
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Carolina is trying to sell her car; the lowest amount she is willing to accept is $2,000. Abdul is interested in buying the car, and although he's willing to pay $2,500, he negotiates a price of $2,100. How much consumer surplus does Abdul achieve, and what is total surplus?
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$4
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If Avery is willing to pay $10 for a pizza, Pia is willing to pay $13, and Sylvio is willing to pay $15, how much consumer surplus is achieved when the price of pizza is $12?
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increase
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Grapes are an input in the production of wine, and wine and red meat are complements. A decrease in the price of grapes will _________ the total surplus in the market for red meat.
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$150
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Suppose Kelly buys a washing machine for $450 that she was willing to pay $600 for. What is the amount of consumer surplus?
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$50
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If the equilibrium price for an airline ticket is $300 and Southwest Airlines is willing to sell their tickets for $250, how much producer surplus exists?
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$100
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Suppose the price of a TV is $600. Joe is willing to pay $700 and Isaac is willing to pay $550. How much consumer surplus exists in this market?
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$20
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At the end of the term, Bill is willing to sell his chemistry lab equipment for no less than $30, while Janice, who is taking chemistry next term, is willing to pay no more than $50. If Bill sells the lab equipment to Janice for $45, how much total surplus in generated?
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below the market price and above the supply curve.
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Producer surplus is represented by the area:
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decreases.
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All else equal, when market price rises, consumer surplus:
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fewer patients
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Suppose the government sets the maximum price for a normal doctor's visit at $20, but the current market price is $40. As a result of this government action doctors will see:
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A surplus of sugar will occur, increasing inefficiency.
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If the government guarantees sugar farmers a price of $1 per pound when the market equilibrium price is actually $0.50 per pound, which of the following will occur?
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An increase in the quality of existing apartments in Rentville
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Suppose that the city of Rentville sets a price ceiling of $800 a month on all apartments, despite the market equilibrium rent being $1,000. Which of the following is least likely to occur?
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It should raise the price ceiling.
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In order to reduce the effects of a shortage caused by a price ceiling, what must a government do?
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The minimum wage has no effect in this market.
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If the market equilibrium wage for entry-level fast-food workers is $10 an hour, while the minimum wage is $8, what impact does the minimum wage have in this industry?
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A law states that gasoline cannot be sold for more than $3 per gallon.
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Which of the following is an example of a price ceiling?
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binding price ceiling.
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Suppose the equilibrium price in a market is $10. The government sets a maximum price of $7. This is an example of a(n):
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minimum
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A price floor is a(n) _____ price for a good.
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nonbinding price floor.
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Suppose the equilibrium price in a market is $10. The government sets a minimum price of $8. This is an example of a(n):
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A shortage of homeowner's insurance coverage
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The state of Florida caps the price of homeowners insurance. As a result State Farm pulled out of the homeowner's insurance market in Florida. What was the likely result of this price ceiling?
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Inelastic demand
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Many new restaurants have opened in Collegetown in recent years. Given this change in supply, what type of demand would result in a larger drop in prices for restaurant meals?
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medication for a sick pet
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Which of the following goods would likely be very inelastic?
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It would be downward sloping and relatively steep
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If demand for a good is inelastic, what would the demand curve for this good look like?
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elastic
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Because there are dozens of brands of tablet computers to choose from, the elasticity of demand for the tablet market is:
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2.0
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If the Sunset Café reduces prices by 20%, and the number of customers increases by 40%, what is the elasticity of demand?
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Percentage change in quantity demanded divided by the percentage change in price
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Which of the following is the correct expression for the price elasticity of demand?
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1.5
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If a 30% change in the price of grape soda leads to a 45% change in quantity demanded, the price elasticity of demand for grape soda is:
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elastic.
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If the price elasticity of demand for ice cream is 1.6, then the price elasticity for ice cream is considered:
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Medical care
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Which of the following products has (approximately) the lowest price elasticity of demand?
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1.67
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If the price falls from $3 to $2, and the quantity demanded rises from 200 to 400 units, compute the price elasticity of demand using the midpoint method.
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It will rise.
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If the price of apples causes quantity demanded to fall on the elastic portion of the demand curve, what will a decrease in price do to total revenue?
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0.05 is probably the short-run demand elasticity and 0.6 is the long-run demand elasticity.
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If the following demand elasticities, 0.05 and 0.6, are given for a particular good or service, then:
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4%
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If grapefruit have a price elasticity of 4, then that means for every 1% decrease in price, the quantity demanded will increase by:
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increase
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Grapes are an input in the production of wine, and wine and red meat are complements. A decrease in the price of grapes will _________ the total surplus in the market for red meat.
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Demand for lift tickets, a complement good, will fall.
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If the Aspen ski lodge doubles its room rates, what is likely to happen to the demand for lift tickets sold by the lodge?
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Elasticity of supply increases.
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For most automobile manufacturers, what happens to the elasticity of supply over time?
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-0.80
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Suppose that Michael's Bowling Alley offers 50% off bowling on Mondays, and as a result, drink sales increase by 40%. What is the cross elasticity of demand between bowling and drinks?
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a normal good
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Frank recently lost his job as a photo lab technician. To get by while he searches for a new career, he increases his purchases of spaghetti. For Frank, spaghetti is:
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cross elasticity of demand.
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Whether two goods are substitutes or complements can be determined by computing the:
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-0.75
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When the price of hot dogs increased by 40%, the demand for hot dog buns decreased by 30%. The cross elasticity between hot dogs and hot dog buns is:
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-0.8
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Which of the following could be a possible cross elasticity of demand measure for two products such as peanut butter and jelly?
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quantity demanded is to a change in consumer income.
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Income elasticity of demand measures how responsive:
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lattes are a normal good.
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If Susan's income increases by 20% and, as a result, she buys 10% more lattes, then:
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a normal good.
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When Lindsay recently received a 50% increase in pay because of a major promotion at her consulting firm, she increased her consumption of sushi by 25%. This indicates that Lindsay considers sushi to be:
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1
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When the increase in price for a new video game is 10%, the increase in quantity supplied of that new video game is 10%. What is the price elasticity of supply for that video game?
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firms in an industry
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The short run is defined as a period of time when plant capacity and the number of __________ cannot change.
