Exam 1

Question 1

Where is the market equilibrium found?

Answer 1

The market equilibrium is the price where quantity demanded equals quantity supplied.

Question 2

If the supply and demand curves intersect at a price of $14, then any price below that would result in:

Answer 2

a shortage

Question 3

If tortilla chips are a normal good, what happens to equilibrium price and quantity when there is an increase in income?

Answer 3

Equilibrium price increases and equilibrium quantity increases.

Question 4

In the market for tacos, you observe that the equilibrium price and quantity have increased. This can be caused by:

Answer 4

an increase in the incomes of people who eat tacos

Question 5

You notice that the price of DVD players falls and the quantity of DVD players sold increases. Which of the following may cause this change?
A) Demand for DVD players shifts to the right.
B) Demand for DVD players shifts to the left.
C) Supply of DVD players shifts to the right.
D) Supply of DVD players shifts to the left.

Answer 5

C) Supply of DVD players shifts to the right.

Question 6

Suppose the input costs associated with manufacturing hair replacement treatments decreases over time. This would lead to:
A) an increase in the supply of such treatments, lower prices, and an increase in the equilibrium quantity.
B) a decrease in quantity supplied and lower prices.
C) an increase in demand and higher prices.
D) a decrease in the supply of such treatments, higher prices, and a decrease in the equilibrium quantity.

Answer 6

A) an increase in the supply of such treatments, lower prices, and an increase in the equilibrium quantity.

Question 7

For consumers, pizza and hamburgers are substitutes. A rise in the price of pizza causes ________ in the equilibrium price of a hamburger and _______ in the equilibrium quantity of hamburgers.

Answer 7

A rise in the price of pizza causes a rise in the equilibrium price of a hamburger and an increase in the equilibrium quantity of hamburgers.

Question 8

The price of microchips used to produce computers falls. As a result, the equilibrium price of computers _______ and the equilibrium quantity _______.

Answer 8

As a result, the equilibrium price of computers falls and the equilibrium quantity increases.

Question 9

A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect:
A) a decrease in the supply of poultry, leading to a shift to the left in the supply curve for poultry and higher poultry prices.
B) an increase in the supply of poultry, leading to a shift to the right in the supply curve for poultry and higher poultry prices.
C) a decrease in the demand for poultry, leading to a shift to the right in demand curve for poultry and lower beef prices.
D) a decrease in the demand for poultry, leading to a shift to the left in the demand curve for poultry and lower poultry prices.

Answer 9

As millions of Americans switch to the new diet, we can expect a decrease in the demand for poultry, leading to a shift to the left in the demand curve for poultry and lower poultry prices.

Question 10

The market for corn in Kansas is considered to be competitive. This means there are _______ buyers and _______ sellers of corn in Kansas.

Answer 10

This means there are many buyers and many sellers of corn in Kansas.

Question 11

The law of demand is illustrated by a demand curve that is:
A) horizontal
B) downward sloping
C) vertical
D) upward sloping

Answer 11

B) downward sloping

Question 12

Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette cheese over boiled new potatoes. If the price of Raclette cheese decreased, we would expect to see:
A) an increase in demand for Raclette cheese.
B) an increase in demand for new potatoes.
C) no effect on the demand for either of the Raclette ingredients, since this is a traditional dish and its consumption does not depend on the prices of ingredients.
D) an increase in demand for Raclette cheese and for new potatoes.

Answer 12

B) an increase in demand for new potatoes.

Question 13

A shift of the demand curve for thin-crust pizza would not be caused by a change in:
A) buyers' income
B) the price of thin-crust pizza.
C) the price of thick-crust pizza
D) the popularity of thin-crust pizza

Answer 13

B) the price of thin-crust pizza

Question 14

A good is inferior if which of the following is true?
A) When income increases, the demand remains unchanged.
B) When income increases, the demand decreases.
C) When income increases, the demand increases.
D) Income and the demand are unrelated.

Answer 14

B) When income increases, the demand decreases.

Question 15

If steak and potatoes are complements, when the price of steak goes up, the demand curve for potatoes:
A) shifts to the right.
B) shifts to the left.
C) stays the same.
D) shifts to the right and then moves back.

Answer 15

B) shifts to the left.

Question 16

The primary difference between a change in supply and a change in the quantity supplied is that:

Answer 16

a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve.

Question 17

If the price of mozzarella cheese (an ingredient in pizza) declines, there would be:
A) a decrease in the supply of pizza.
B) an increase in the supply of pizza.
C) an increase in the quantity of pizza supplied.
D) no change in the supply of pizza.

Answer 17

B) an increase in the supply of pizza

Question 18

A technological advance in the production of automobiles will:
A) increase the demand for automobiles.
B) increase the supply of automobiles.
C) decrease the demand for automobiles.
D) decrease the supply of automobiles.

Answer 18

B) increase the supply of automobiles.

Question 19

Which of the following will NOT cause an increase in the supply of cornflakes in the short run?
A) an increase in the price of cornflakes.
B) a cost-saving improvement in the technology of corn production.
C) a reduction in the price of corn.
D) the expectation by producers that the price of cornflakes will fall in the future.

Answer 19

A) an increase in the price of cornflakes.

Question 20

One day, Martha wakes up and in frustration yells, “Decisions, decisions, decisions! Why do I have to make decisions about everything?” Martha’s frustrations stem from the fact that:
A) like all economic beings, she faces constraints and cannot have everything she wants.
B) she doesn’t realize she can have everything she wants.
C) she is the only one who faces constraints in life.
D) she really doesn’t want anything.

Answer 20

A) like all economic beings, she faces constraints and cannot have everything she wants.

Question 21

Alison is offered two jobs: one pays a salary of $45,000 per year and offers three weeks of vacation, while the other offer provides two weeks of vacation and a salary of $54,000. What is the opportunity cost for Alison if she chooses the job offer of $54,000?
A) $45,000 plus the three weeks of vacation
B) $45,000 per year
C) one week of vacation
D) two weeks of vacation

Answer 21

C) one week of vacation

Question 22

Mr. Freezee operates a fleet of ice cream trucks that drive around neighborhoods selling ice cream. He is trying to decide whether he should buy another ice cream truck to add to his fleet. He determines that one more truck will add $750 to his revenue but that the truck will also increase his costs by $1,000. Based on marginal analysis, Mr. Freezee decides:
A) that he should not purchase the truck, since the costs outweigh the benefits.
B) that he should purchase the truck, since the benefits outweigh the costs.
C) that he should purchase the truck, since his profits will rise by $250.
D) to purchase several trucks with the same costs and benefits.

Answer 22

A) that he should not purchase the truck, since the costs outweigh the benefits.

Question 23

A bank offers two compensation plans to its tellers. Plan A provides an hourly wage of $12. Plan B offers $10 per hour plus additional compensation if customers sign up for a related bank product. If a teller choose plan B, most likely this person would:
A) be more helpful to customers than if he or she chooses plan A.
B) not be thinking wisely in choosing this plan.
C) be less helpful to customers than if he or she chose Plan A.
D) would not alter his or her behavior.

Answer 23

A) be more helpful to customers than if he or she chose plan A.

Question 24

When people have exploited all opportunities to make themselves better off, this is known as

Answer 24

The market being in equilibrium

Question 25

``` Beth and Alice decide to trade services. Beth promises to do Alice's taxes, and in exchange, Alice will create several spreadsheets for Beth's household budget. This mutual agreement of trade will most likely: A) be beneficial to both individuals. B) hurt both individuals. C) help Beth but hurt Alice. D) help Alice but hurt Beth. ```

Answer 25

A) be beneficial to both individuals

Question 26

The provision of disabled-parking passes to those with disabilities often requires that more than enough spaces be available for those with disabilities. As a result, many of these spaces are vacant quite often when they could be used by able-bodied individuals. Such a situation illustrates the : A) trade-off between efficiency and equity. B) trade-off between efficiency and specialization. C) ability of markets to provide efficient and equitable outcomes. D) power of the market to provide for equilibrium outcomes.

Answer 26

A) trade-off between efficiency and equity.

Question 27

Katherine has a physics exam tomorrow. However, a free lecture by one of her favorite authors is taking place this evening. Katherine decides to attend the lecture instead of studying for her exam. Which is a correct statement? A) Katherine's opportunity cost is the time spent listening to the lecture. B) Katherine's opportunity cost is not relevant, since no money is involved. C) Katherine's opportunity cost i the cost of getting to the lecture event itself plus the reduction in her physics exam grade by not studying tonight. D) Katherine's opportunity cost is the time spent getting to the lecture.

Answer 27

C) Katherine's opportunity cost is the cost of getting to the lecture event itself plus the reduction in her physics exam grade by not studying tonight.

Question 28

When all opportunities to make people better off without making other people worse off have been taken, this means that

Answer 28

the economy is efficient

Question 29

A popular train station has free parking for commuters who take the train. This often results in many people being unable to find a parking spot and missing their train. Which of the following plans would most likely help to solve this parking problem? A) All commuters are automatically given a parking pass along with their ticket. B) All commuters are required to pay an hourly price for parking. C) All commuters can purchase an annual pass which allows them to park at the train station. D) All commuters are exempt from parking lot fees.

Answer 29

B) All commuters are required to pay an hourly price for parking.

Question 30

``` The circular-flow diagram illustrates how households _________ goods and services and _________ factors of production. A) buy; sell B) buy; buy C) own; buy D) own; sell ```

Answer 30

A) buy; sell

Question 31

Which of the following examples illustrates the law of demand? A) An increase in tuition encourages more students to enroll in college because the quality of education has risen. B) Consumers buy more personal computers because prices have fallen. C) Oil companies drill for new sources of oil because oil prices are higher. D) Fewer people play golf because incomes are lower.

Answer 31

B) Consumers buy more personal computers because prices have fallen.

Question 32

Which of the following statements is incorrect? A) A change in demand is a movement along the demand curve, and a change in quantity demanded is a shift of the demand curve. B) Both a change in quantity demanded and a change in demand are movements along the demand curve, only in different directions. C) Both a change in quantity demanded and a change in demand are shifts of the demand curve, only in different directions. D) A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

Answer 32

D) A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

Question 33

A change in demand is known as a

Answer 33

shift

Question 34

A change in quantity demanded is known as a

Answer 34

movement

Question 35

The typical supply curve illustrates that:

Answer 35

other things equal, the quantity supplied for a good is positively related to the price of a good.

Question 36

Consider the supply curve for cotton shirts. An increase in the price of cotton will: A) increase the supply of cotton shirts. B) decrease the supply of cotton shirts. C) increase the quantity supplied of cotton shirts. D) decrease the demand for cotton shirts.

Answer 36

B) decrease the supply of cotton shirts.

Question 37

Microeconomics deals with

Answer 37

individual decision makers in the economy.

Question 38

A key fundamental theme to all of economics is: A) There are limited wants. B) We are a rich country but are simply not aware of it. C) People have unlimited wants facing limited means to satisfy them. D) There are unlimited resources.

Answer 38

C) People have unlimited wants facing limited means to satisfy them.

Question 39

The value of the best alternative forgone in making any choice is known as the

Answer 39

opportunity cost

Question 40

You can spend $100 on either a new economics textbook or a new CD player. If you choose to buy the new economics textbook, the opportunity cost is: A) $100 B) your enjoyment of the new CD player. C) both the $100 and your enjoyment of the new CD player. D) impossible to determine.

Answer 40

B) your enjoyment of the new CD player

Question 41

Marginal analysis studies how individuals decide...

Answer 41

whether to do a bit more activity versus a bit less activity.

Question 42

You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept: A) resources are scarce B) the real cost of something is what you must give up to get it. C) "How much" is a decision at the margin. D) there are gains from trade.

Answer 42

C) "How much" is a decision at the margin

Question 43

The increase in total output that is realized when individuals specialize in particular tasks and trade with each other refers to the phrase known as

Answer 43

"gains from trade"

Question 44

The incentives built into the market economy ensure that resources are put to good use and that opportunities to make people better off are not wasted. This means that...

Answer 44

markets move toward equilibrium

Question 45

Why do economists emphasize the importance of equilibrium in markets?

Answer 45

At the equilibrium price, the market clears leaving neither surplus nor shortage.

Question 46

If a shortage exists in the market for candy bars, an economist would predict: A) the price of candy bars will rise B) the supply of candy bars will increase C) the price of candy bars at retail outlets will begin to fall D) buyers will react to the surplus by increasing the demand for candy bars

Answer 46

A) the price of candy bars will rise.

Question 47

Which of the following is evidence of a surplus of bananas? A) Firms raise the price of bananas. B) The price of bananas is lowered in order to increase sales. C) The equilibrium price of bananas rises due to an increase in demand. D) The quantity demanded of bananas is greater than the quantity supplied.

Answer 47

B) The price of bananas is lowered in order to increase sales.

Question 48

Suppose the Surgeon General releases a study suggesting that orange juice consumption reduces the risk of cancer. What happens to the market for orange juice? A) The equilibrium price of orange juice rises but the equilibrium quantity falls. B) The equilibrium price of orange juice rises and the equilibrium quantity rises. C) The equilibrium price of orange juice falls and the equilibrium quantity falls. D) The equilibrium price of orange juice falls but the equilibrium quantity rises.

Answer 48

B) The equilibrium price of orange juice rises and the equilibrium quantity rises.

Question 49

Peaches and plums are substitutes in consumption. When the price of peaches falls, A) the equilibrium price and quantity of plums falls. B) the equilibrium price and quantity of plumbs rises. C) the equilibrium price of plums rises but equilibrium quantity falls. D) the equilibrium price of plums falls but equilibrium quantity rises.

Answer 49

a) the equilibrium price and quantity of plums falls.

Question 50

Peaches and cream are complements in consumption. When the price of peaches falls, A) the equilibrium price and quantity of cream falls. B) the equilibrium price and quantity of cream rises. C) the equilibrium price of cream rises but equilibrium quantity falls. D) the equilibrium price of cream falls but equilibrium quantity rises.

Answer 50

B) the equilibrium price and quantity of cream rises.

Question 51

Which of the following would cause both the equilibrium price and equilibrium quantity of cookies to decrease? A) a rise in the price of milk (a complement) B) a rise in consumer incomes (cookies are a normal good) C) a rise in the price of cookie dough (an input) D) a rise in the price of crackers (a substitute)

Answer 51

A) a rise in the price of milk (a complement)

Question 52

Suppose that the price of fertilizer rises. What should happen to the equilibrium price and equilibrium quantity of corn? A) The equilibrium price rises but equilibrium quantity falls. B) The equilibrium price rises and the equilibrium quantity rises. C) The equilibrium price falls and the equilibrium quantity falls. D) The equilibrium price falls and the equilibrium quantity rises.

Answer 52

A) The equilibrium price rises but the equilibrium quantity falls.

Question 53

A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many diaries, what will be the effect on the milk market? A) an increase in supply, higher equilibrium price, and lower equilibrium quantity. B) a decrease in supply, lower equilibrium price, and lower equilibrium quantity. C) an increase in supply, lower equilibrium price and a higher equilibrium quantity. D) an increase in supply, higher equilibrium price, and higher equilibrium quantity. E) a decrease in supply, lower equilibrium price, and higher equilibrium quantity.

Answer 53

C) an increase in supply, lower equilibrium price and a higher equilibrium quantity.