MICRO EXAM 1

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Suppose that salsa manufacturers sell 2 million bottles at \$3.50 in one year, and 3 million bottles at \$3 in the next year. Based on this information we can conclude that the:

supply of salsa has increased

If Z is an inferior good, an increase in money income will shift the:

demand curve for Z to the left.

Price elasticity of demand is the

percentage change in quantity of a good demanded divided by the percentage change in the price of that good.

A price elasticity of demand for a good or service of 1.8 tells us that:

quantity demanded falls by 1.8 percent when price rises by 1 percent

0.67; INELASTIC

Along a straight-line demand curve, elasticity:

rises as price rises.

The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:

decrease by approximately 12 percent

We would expect the cross elasticity of demand between Pepsi and Coke to be:

positive, indicating substitute goods

The more time consumers have to adjust to a change in price:

the greater will be the price elasticity of demand.

Mary has just stated that normally, as price rises, supply will increase. Her teacher grimaces. Why?

Because as price rises, quantity supplied will increase, not supply will increase

Identify four shift factors of supply with the correct explanation of how each affects supply

-Producers expect prices of their products to change in the future. As the price that producers expect to sell their products for increases, supply decreases.
-Change in taxes paid by producers. As the amount of taxes that producers pay increases, supply decreases
-The price of inputs changes. As the price of inputs rises, supply decreases
-When new production technologies are introduced the cost of production falls and supply increases

If the price of movies on DVD rises while the price of movies purchased on demand through the Internet remains the same, the law of demand predicts that consumers will:

substitute movies on the Internet for movies on DVD.

Sometimes price cuts can have an unintended result of consumers waiting for deeper discounts. What does this waiting suggest about supply and demand?

Price cuts have changed buyers' expectations, and the change in expectations has moved the demand curve left.

Which of the following would likely result in an increase in the demand for beef?

An increase in family incomes

To derive a market demand curve from individual demand curves, it would be necessary to:

sum the curves horizontally, adding quantities demanded at each price.

Which of the following is not likely to change the supply of personal computers?

An increase in consumers' incomes

Say that equilibrium price fell and quantity remained constant. What would you say was the most likely cause?

There was a decrease in demand and an increase in supply.

Which of the following are microeconomic problems?

-House loan installment
-negative externalities

You rent a car for \$29.95. The first 165 miles are free, but each mile thereafter costs 16 cents. You plan to drive it 200 miles. What is the marginal cost of driving the car?

The marginal cost is \$5.60 plus the cost of gas

Economists Henry Saffer of Kean University, Frank J. Chaloupka of the University of Illinois at Chicago, and Dhaval Dave of Bentley College estimated that the government must spend \$4,170 on drug control to deter one person from using drugs and the cost that one drug user imposes on society is \$897. Based on this information alone, should the government spend the money on drug control?

No, since the marginal cost of drug control exceeds the marginal benefit, the government should not spend \$4,170 to deter one person from using drugs

According to the text, economics is the study of how

human beings coordinate their wants and desires

Any economic system:

addresses the questions what is produced, how it is produced, and for whom it is produced.

An economic model:

applies economic theory to understand real-world events.

Sunk costs

are irrelevant to economic decisions

Any one of them

Brooke and Sandy both attend the same college and have the same expenses for tuition, books, and supplies. However, Brooke is a famous actress who could earn \$2 million per year if she were not attending college whereas Sandy could earn \$10,000 a year serving hamburgers if he were not attending college. It follows that the opportunity cost of attending college:

is greater for Brooke than for Sandy

Which of the following is a normative statement?

The governments should spend more to aid the poor.

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