Microeconomics Homework Review

Which statement correctly completes the definition of a demand curve? A demand curve is a function that shows the relationship between:
A. quantity demanded and quantity supplied
B. price and the quantity demanded
C. price and the quantity sold
D. price and the quantity supplied

The quantity demanded of a good or service is the amount that:
A. a consumer would like to buy but might not be able to afford
B. consumers are willing and able to buy at a given price
C. A consumer needs to consume during a given time period
D. firms are willing to sell during a given time period at a given price

The supply curve illustrates:
A. the relationship between the cost of production and price
B. the relationship between the quantity supplied and the price of a good
C. the total cost of producing a good
D. the willingness to produce a good if the technology to produce it becomes available

What does the law of supply state?
A. There is a positive relationship between price and quantity supplied
B. When prices rise, suppliers sell more
C. There is a negative relationship between price and quantity supplied
D. When prices rise, buyers buy less of the product

The movie trilogy The Lord of the Rings was hugely successful, and, as a result, the demand for fantasy novels, action figures, and online role-playing games surged. The increase in demand can be explained by a(n):
A. change in tastes
B. change in expectations
C. change in the price of substitutes
D. increase in population

An increase in supply shifts the supply curve:
A. up and to the right
B. down and to the left
C. up and to the left
D. down and to the right

A decrease in demand refers to:
A. a rightward shift of the demand curve
B. an upward movement along the demand curve
C. a leftward shift of the demand curve
D. a downward movement along the demand curve

Which of the following choices contains only factors that cause the supply curve to shift to the right?
A. a decrease in taxes on production, a fall in subsidies on production, a rise in costs of production
B. a fall in tastes and preferences for the product, economic growth, a rise in technology
C. a fall in production costs, a rise in technology, an increase in taxes on output
D. a rise in technology, a fall in the costs of production, a fall in taxes on output

If producers from expectations that copper prices will be higher in the future, then this fill shift the:
A. supply curve of copper to the right
B. demand curve for copper to the left
C. supply curve of copper to the left
D. demand curve for copper to the right

Deciding whether to study an additional hour for an exam by comparing the additional benefits to the extra hour of study is an example of:
A. Marginal thinking
B. The power of trade
C. the social interest
D. the invisible hand

Which of the following is the best definition of the opportunity cost cost of a decision?
A. the sum of all benefits from all foregone alternatives
B. the difference between the benefits of the first and second best choices
C. actual financial cost of a decision
D. benefits from the best foregone alternative

What is thinking on the margin?
A. making choices that are based on historical precedents
B. making decisions that are of noneconomic importance
C. making choices that ignore the marginal benefits, but not the marginal costs, of some activity
D. making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity

A cell phone plan costs $50 per month for 1000 minutes and $0.30 per minute for each additional minute after 1000. What is the marginal fee for the 1001st minute used?
A. $0.30
B. $0.25
C. $0.35
D. $0.40

Which of the following is an example of self-interest that attempts to promote the public interest?
A. The New York Yankees beat the Boston Red Sox
B. The president of the United States restricts American consumers from buying foreign-made products
C. A mother prevents her children from becoming vaccinated against measles, mumps, and rubella because of fears of autism
D. An entrepreneur risks his life savings to open up a grocery store in an underserved area

Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?
A. prisons, jails, and psychiatric hospitals that are used to keep certain people isolated from the rest of the population
B. the laws, social norms, and conventions of a culture
C. government agencies like the Food and Drug Administration (FDA) or the Environmental Protection Agency (EPA)
D. mechanisms that allow for the use of fiscal and monetary policy
E. long-standing companies that consumers can depend on for reliable service and products

You have a part time job that pays $8 an hour. Your manager has asked you to work four extra hours on Friday night, but you already have plans for dinner and a movie with a friend on Friday night. Under what conditions will you choose to work on Friday night? Consider the economic way of thinking in answering this question; also assume that you are rational (even if you do not think you are rational) and can afford dinner and a movie:
A. You value the Friday night activities more than the extra pay(in terms of marginal benefits, marginal costs, and your utility)
B. You have already seen the movie that has been chosen for Friday night.
C. You value the extra pay more than the Friday night activities (in terms of marginal benefits, marginal costs, and your utility)
D. You think the Friday night dinner will be expensive

The opportunity cost of committing a crime and spending 5 years in jail:
A. is zero bc the costs of jail are paid for by the gov.
B. is higher for people who are employed than for the unemployed
C. is the same for everyone
D. equals the fines and legal fees

Some people worry that machines will take jobs away from people, making people permanently unemployed. In the United States, only 150 years ago most people were farmers. Now, machines fo almost all of the farm work and fewer than 2% of Americans are farmers, yet that 2% produce enough food to feed the entire country while still exporting food overseas. What happened to all those people who used to work on farms?
A. most adult males in the US are unemployed now that the farm work is gone
B. Now that our food can be produces by such a small group of workers, most Americans have moved on to work in other sectors of the economy
C. most working Americans are earning a living by fixing farm equipment. So it's okay for the machines to take jobs, since we'll get jobs fixing the machines.
D. both A and B are correct

The equilibrium price and quantity are the only price and quantity that are stable in a free market

A shortage will occur at any price below equilibrium price, and a surplus will occur at any price above equilibrium price

When there is a surplus, sellers have an incentive to __________ their price and buyers have an incentive to offer a ___________ price
A. decrease; higher
B. decrease; lower
C. increase; lower
D. increase; higher

If market supply increases:
A. equilibrium price and quantity will both decrease
B. equilibrium price will increase but equilibrium quantity will decrease
C. equilibrium price will decrease but equilibrium quantity will increase
D. equilibrium price and quantity will both increase

Tim values treats for his dog at $10 per box, and John values them at $6 per box. If the price of dog treats is $3 per box, but only one box is available between these two buyers, then gains from trade will be maximized when:
A. John buys the treats
B. consumer surplus is equal to $3
C. either buys the treats, since they both value them more than the market price
D. Tim buys the treats

If you are willing to pay $8 for a $6 burrito, what is your consumer surplus if you buy it?
A. $6
B. $0
C. $2
D. $8

Gains from trade are maximized at the:
A. equilibrium price and quantity
B. point at which output is maximized
C. vertical intercept on the supply curve
D. midpoint on the demand curve

Gains from trade are maximized in a competitive market when:
A. quantity supplied exceeds quantity demanded
B. quantity demanded exceeds quantity supplied
C. quantity supplied equals zero
D. quantity supplied equals quantity demanded

The flatter the demand curve, the less elasticity of demand

The elasticity of demand measures how sensitive the:
A. demand is to a change in the number of suppliers
B. price is to a change in quantity demanded
C.quantity demanded is to a change in price
D. price is to a change in the quantity supplied

The price of cigars is $10, with a quantity demanded of 1000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?
A. 12.2
B. 0.82
C. 1.22
D. 1.00

Good X and Good Y are related goods. When the price of Good X rises by 20%, the quantity demanded for Good Y falls by 40%. What is the cross-price elasticity?
A. -2
B. 2
C. 4
D. -0.5

The quantity demanded for cosmetic surgery increased by 12% following a period of strong economic growth that raised consumer income by 4%. What type of good is cosmetic surgery?
A. it is a supernormal good since the income elasticity is greater than 2
B. it is normal good since the income elasticity is less than 1
C. It is a necessity since the income elasticity of demand is equal to 1
D. it is a luxury good since the income elasticity of demand exceeds 1