Economics Test Unit 1 - Questions

Assume that apple juice and grape juice are substitutes. Which of the following will cause and increase in the quantity of apple juice supplied?

An increase in the price of apple juice

Assume that the market for tangerines is in equilibrium at a price of $25 per bushel. If the demand for tangerines decreases, which of the following will occur?

A surplus will occur at $25, leading to a decrease in price and in quantity supplied.

Assume that good X is a normal good. Which of the following helps to explain why a decrease in the price of good X increases the quantity demanded of good X?

Good X becomes relatively less expensive than its substitutes, so consumers buy more of good X and fewer of the substitutes.

Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs rises. Which of the following is true for this price change?

The consumer's demand for compact discs is unit price elastic.

Consumer surplus is defined by the areas ___________, while producer surplus is define by the areas ________.

ABD, CE Explanation: Consumer surplus is the area where some consumers were willing to pay more but still got the good at market price (D > equilibrium price), and producer surplus is the area where producers were willing to produce for less but still received market price (S < equilibrium price).

In the figure above, at which of the given points is demand most elastic?

Z

During a football game, it starts to rain and grow colder outside. ROTC, which operates the concession stand, raises the price of hot chocolate from $2.00 to $3.00 and sells more coffee than ever before. Why?

The demand curve for coffee shifted right

While producers will often sell at a loss during the ________________ because they cannot alter production, sometimes they will prefer to accept a total loss because _____________________.

Market period; they do not want consumers to grow accustomed to such low prices.

Assume the demand for polo shirts is relatively price inelastic. An increase in supply of polo shirts will result in which of the following?

A decrease in price, leading to a decrease in total revenue

Oscar spent his entire income on only two goods: good X and good Y. At his current consumption of the two goods, the marginal utility of X is 8 and the marginal utility of Y is 2. If the price of X is $4.00 and the price of Y is $0.50, then to maximize his total utility, Oscar should have

bought less X and more Y Explanation: You find the marginal utility PER DOLLAR for both goods. If one good has greater MU per dollar, then purchase more of that good and less of the other good.

According to the graph, we can determine that the tax equals __________ per unit and that the total tax revenue is _____________.

60; 12,000 Explanation: The decrease in supply caused by the tax establishes a new equilibrium quantity of 200 units. The vertical distance between the two supply curves is $60, revealing the size of the tax per unit. $60 x 200 units = $12,000 tax revenue raised for the taxing entity (government).

Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?

There will be a shortage in the market.

Mr. Carpenter devotes his working time to producing tables and chairs. An increase in the demand for chairs will result in

An increase in his opportunity cost of producing tables Explanation: Because chairs now have a higher price due to increased demand, Mr. Carpenter's opportunity cost of NOT producing chairs (by producing tables) is greater than before.

Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in the production of the other. An increase in the demand for leather will most likely cause

A decrease in the price of beef

Assume that the price elasticity of demand for good X is constant and is equal to -0.5 and the price elasticity of demand for good Y is constant and is equal to -2. Assume that goods X and Y have identical upward-sloping elastic supply curves. If a per-unit excise tax of the same amount is levied on good X and on good Y, which of the following would be true?

The tax share paid by consumers of good X would be relatively higher than that paid by consumers of good Y.

The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight's departure rather than on the day of departure. This pricing strategy is based on the assumption that

Travelers' demand becomes less elastic as the departure date approaches

The graph above shows the market demand for good X. A movement from point A to point B would most likely be caused by

a decrease in production costs for good X Explanation: Going from A to B implies that the supply curve shifted to the right, which is caused by reduced production costs.

Following a decrease in the supply of oranges, the price of orange juice increased by 20 percent, which resulted in a 10 percent increase in the quantity of apple juice consumed. This implies that the cross elasticity of demand between orange juice and apple juice is

0.5

If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X and good Y is negative, which of the following must be true?

X is an inferior good and is complement to Y

The diagram above shows the demand and supply curves for a normal good. The equilibrium price could rise from P1 to P2 if

Consumers' incomes increased

Which of the following is true of the substitution effect on an increase in the price of a normal good?

It works to reinforce the income effect

A rightward shift in the supply curve for cell phones could be caused by

A decrease in wages paid to workers who produce cell phones

Which of the following is a key assumption of consumer choice theory?

Consumers maximize their utility.

Why does the Supply curve slope upward?

Firms must charge higher prices to handle higher costs of production at high levels of output.

Suppose the people who work in the lumber industry face a great risk of developing an incurable disease. A medical breakthrough that eliminates the risk will most likely cause which of the following shifts in the supply and demand curves for workers in the lumber industry?

Supply Curve Shift right Demand Curve No shift