Review for exam 1
Which of the following is the best description of
the cost-benefit principle?
1. An individual should engage in an activity as long
as the marginal benefits exceed the sunk costs.
2. An individual should engage in an activity as long
as the marginal benefits exceed the average costs.
3. An individual should engage in an activity as long
as the marginal benefits exceed the marginal costs.
4. An individual should engage in an activity as long
as the total benefits exceed the total costs
If you are given a free ticket to a movie, the
opportunity cost of going to the movie is:
1. the value associated with your next best
alternative.
2. the costs to you in terms of any parking
fees/snacks you purchase at the movie.
3. the net benefits you actually receive from goin
to the movie.
4. zero, because it is a free ticket.
John says, “People should consume fewer fossil fuels.”
Milton says, “People will consume fewer fossil fuels if the
costs of fossil fuels increased.”
1. John’s statement is normative and Milton’s
statement is normative.
2. John’s statement is positive and Milton’s
statement is normative.
3. John’s statement is normative and Milton’s
statement is positive.
4. John’s statement is positive and Milton’s
statement is positive.
Paula has a comparative advantage in writing papers
over Laura, but Laura has an absolute advantage in
writing papers over Paula. This implies that:
1. Paula can write more papers than Laura and has a
lower opportunity cost to doing so.
2. Laura can write more papers than Paula and has a
lower opportunity cost to doing so.
3. Laura can write more papers than Paula, but Paula
has a lower opportunity cost to doing so.
4. Paula can write more papers than Laura, but Laura
has a lower opportunity cost to doing so.
An individual that is absolutely better at all
tasks compared to another individual:
1. should therefore complete all tasks for
themselves.
2. can still benefit from specializing in the
task they are relatively best at.
3. also is comparatively better at all tasks
compared to another individual.
4. cannot benefit from using their
comparative advantage.
When price is below the market
equilibrium price:
1. there will be an excess supply.
2. the quantity demanded will exceed the
quantity supplied
3. demand will shift in and supply will shift
out.
4. demand will shift out and supply will shi
in.
An increase in “demand” of a good is
caused by __; an increase in “quantity
demanded” of a good is caused by ____:
1. a decrease in the price of the good; an
increase in income for a normal good.
2. a decrease in the price of the good; an
increase in the price of the good.
3. a decrease in income for an inferior good;
decrease in the price of the good.
4. an increase in income for an inferior good;
an increase in the price of the good.
A decrease in the price of an input
will cause _____ to ______.
1.
2.
3.
4.
demand; increase.
demand; decrease.
supply; increase.
supply; decrease.
An increase in equilibrium price and a
decrease in equilibrium quantity could be
produced by a(n) ______.
1. increase in
demand.
2. decrease in
demand.
3. decrease in
supply.
4. increase in
supply.
Price=$3.00;
Buyer Reservation Price=$3.00;
Seller Reservation Price=$1.00
1.
2.
3.
4.
CS=$3.00; PS=$2.00
CS=$0.00; PS=$1.00
CS=$0.00; PS=$2.00
CS=$3.00; PS=$3.00
Supply and demand increase at the
same time. What will happen?
1. Price and quantity will both definitely
increase.
2. Price and quantity will both definitely
decrease.
3. Price will definitely increase and quantit
may increase, decrease or not change.
4. Quantity will definitely increase and pric
may increase, decrease or not change.
The price elasticity of demand equals:
1.
2.
3.
4.
$ change in P/$ change in P
% change in P/% change in Q
% change in Q/% change in P
$ change in Q/$ change in P
If demand for a product is perfectly
inelastic, this means the
1. price elasticity of demand equals infinity.
2. the demand curve is horizontal.
3. quantity demanded does not change when
price changes.
4. all of the above.
Suppose a seller increases price by
$5 and revenue decreases by 5%.
This means that demand is price:
1.
2.
3.
4.
Elastic.
Inelastic.
Unit-elastic.
Indeterminate.
Suppose a seller increases price from $300
to $330 and quantity sold decreases by 5%.
This means that demand is price:
1.
2.
3.
4.
Elastic.
Inelastic.
Unit-elastic.
Indeterminate.
For a seller facing a straight line
downward sloping demand, as price
decreases the P-intercept to P=0:
1.
2.
3.
4.
total revenue is always increasing.
total revenue is always decreasing.
total revenue is not changing.
total revenue is initially increasing, then it
begins to decrease after the midpoint.
Good A has an income elasticity of demand equal
to -0.5 and it has a cross price elasticity with good
B equal to -0.3. This indicates that:
1. Good A is a normal good and it is a
complement of good B.
2. Good A is inferior and it is a
complement of good B.
3. Good A is a normal good and it is a
substitute of good B.
4. Good A is inferior and it is a substitute
of good B.
The income elasticity of demand for good A is -1.5, and
income decreases by 10%. Quantity demanded for good
a will ____:
1.
2.
3.
4.
decrease by 15%.
increase by 15%.
decrease by 7.5%.
Not change.
An elastic supply has a price
elasticity
1.
2.
3.
4.
greater than 1.
less than 1.
equal to 1.
equal to 0.
Which of the following will be negative?
1.
2.
3.
4.
The income elasticity of demand for a normal good.
The price elasticity of demand for an inferior good.
The cross price elasticity of demand between subst
All of the above.