ECON 2020 Exam 1

Principles of Economics

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms’ owners, workers, and customers. This statement illustrates the principle that

people face tradeoffs

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the member of the society in a fair manner. However, redistributing income from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between

efficiency and equality

For which of the following individuals would the opportunity cost of going to college be the highest?

A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

What's the flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on the flight. If the marginal cost of flying a passenger is $200 and the standby passenger is willing to pay $300, the airplane should

sell the ticket because the marginal benefit exceeds the marginal cost

Suppose the state of Wyoming passes a law that increases the tax on alcohol. As a result, alcohol consumers who live in Wyoming start purchasing their alcohol in surrounding states. Which of the following principles does this best illustrate?

People respond to incentives

If Korea is capable of producing either shoes or toy trains or some combination of the two, then

Korea's opportunity cost of shoes is the inverse of its opportunity cost of toy trains.

If Shawn can produce more cupcakes in one day than Traci can produce in one day, then

Shawn has an absolute advantage in the production of cupcakes.

If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn.

Which of the following is not correct?

The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

Suppose that when the price of a 16oz to go cup of gourmet coffee is $4.25, students purchase 750 cups per day. If the price decreases to $3.75 per cup, which of the following is the most likely outcome?

Students would purchase more than 750 cups per day.

Which of the following events would cause a movement upward and to the left along the demand curve for olives?

The price of olives rises.

Which of the following changes would not shift the demand curve for a good or service?

A change in the price of the good or service.

Pizza is a normal good if the demand

for pizza rises when income rises.

Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see

a decrease in the demand for energy drinks.

Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would

decrease.

Which of the following events would cause a movement downward and to the left along the supply curve for mangos?

The price of mangos falls.

Workers at the bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the

supply of bicycles will shift to the left.

Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires

is unaffected, and the supply of tires could increase, decrease, or stay the same.

Oakley bakes cakes that he sells at the local farmer’s market. If he purchases a new convection oven that reduces the cost of baking cakes, the

supply of Oakley’s cakes will increase.

Which of the following events would cause an increase in the supply of ceiling fans?

The number of sellers of ceiling fans increases.

If a shortage exists in a market, then we know that the actual price is

below the equilibrium price, and quantity demanded is greater than quantity supplied.

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation?

New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.

Which of the following events would cause the price of oranges to fall?

The price of land throughout Florida decreases it's Florida produces a significant production of the nation's oranges.

What would happen to the equilibrium price and quantity of smartphones if consumers’ income rise and smartphones are a normal good?

Both the equilibrium price and quantity would increase.

If consumers often purchase croissants to eat while they drink their cappuccinos at local coffee shops, what would happen to the equilibrium price and quantity of cappuccinos if the price of croissants falls?

Both the equilibrium price and quantity would increase.

Suppose the United states had a short-term shortage of farmers. Which market mechanisms would adjust to remove the shortage?

The prices of food and wages of farmers would adjust.

Which of the following movements would illustrate the effect of an increase in the incomes of parents with school-age children on the market for piano lessons?

Point C to Point B

which of the following movements would illustrate the effect of an increase in the price of Kevlar, a material used to make bullet-proof vests, on the market for bulletproof vests?

Point A to Point B

Which of the following movements illustrates the effect of an improved high-speed mixture that allows bakers to produce cookies in less time on the market for cookies?

Point C to Point D

Which of the following movements would illustrate the effect of an increase in the price of beach towels on the market for bathing suits?

Point A to Point D

if the price of almonds rises, many people would switch from consuming almonds to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

The availability of close substitutes and determining the price elasticity of demand.

Which of the following is likely to have the most price elastic demand?

Diamond earrings

Which of the following is likely to have the most price inelastic demand?

Salt

Which of the following is consistent with the elasticities given in the table below

A is a luxury, and B is a necessity.

For a particular good, a 14 percent increase in price causes a 7 percent decrease in quantity demanded which of the following statements is most likely applicable to this good?

The market for this good is broadly defined.

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

buyers’ total expenditure on the good is unchanged.

Dalia says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Dalia’s

demand for cigarettes is perfectly inelastic.

You are in charge of the local city-owned Aquatic Center. You need to increase the revenue generated by the Aquatic Center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

The mayor of thanks demand is inelastic, and the city manager thinks demand is elastic.

You and your college roommate eat three packs of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would

be positive, and your roommate’s would be negative.

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both price and total revenues.

On June 14th, 2011, the Delaware Senate approved a gun buyback program. The yearlong program would authorize the state to pay $100 for every gun turned over to police. What sort of guns should Delaware officers expect to get if this plan becomes law?

nonworking guns, usually kept in someone's back closet

In medieval Europe, there were two basic types of waterwheels. With an undershot wheel, water flowed below the wheel to turn it. With an overshot wheel, water flowed over the top of the wheel to turn it. Because the overshot wheel cooperated better with gravity, it was more efficient than the undershot wheel, but it also required a hill. Which wheel had a more inelastic supply curve and why?

an overshot wheel, because it was more difficult to find locations to build them

Because of aging requirements, it takes many years to make good Scotch. If it's technology were invented that made it possible to create good Scotch literally overnight, how would the short-run supply of good Scotch change?

It would become more elastic.

The supply of wooden toothpicks is likely to be very _______ because there is a _______ amount of wood used in production.

elastic; small

The day after a hurricane has hit the coast of Florida, you would expect the supply of generators to be _______ the supply of generators two weeks following the hurricane.

relatively less elastic than

In 2005, Ireland began taxing residents on how much garbage they threw away to promote recycling. In response, residents began burning trash--which is environmentally more harmful and resulted in an increase in burn victims as people accidentally set themselves on fire. This story suggests that the elasticity of demand for trash collection was more _______ then lawmakers believed because _______ than previously thought.

elastic; there were more substitutes for trash collection

Why might the demand for massages be more elastic than the demand for chiropractic adjustments?

Massages tend to be luxuries, and chiropractic adjustments tend to be necessities.

Overtime, the demand for cable television service has become more elastic. This is likely because:

the increase in the number of streaming services has created more substitutes.