ECON 221 Midterm #1 Medina

CAL POLY SLO 2025-2026

Should a coffee shop stay open for one extra hour if MC = $60 and MR = $75?

Yes — marginal benefit ($75) > marginal cost ($60).

Should a student study for an extra hour if she values a 2% grade increase at $30 but loses $25 in wages?

Yes — marginal benefit ($30) > marginal cost ($25).

Should a gym add a class if it costs $400 but earns $350?

No — marginal cost > marginal benefit.

Should a factory produce the 101st unit if MC = $10 and MR = $9?

No — marginal cost > marginal benefit.

Should a firm install two filters if first costs $1

000 (benefit $1

Education spending increased from $524B to $606B.

Positive statement.

Higher congestion charges are unfair.

Normative statement.

A fall in incomes will raise demand for store-brand foods.

Positive statement.

Pollution is the most serious economic problem.

Normative statement.

Unemployment is more harmful than inflation.

Normative statement.

Rising crude oil prices will increase cycling.

Positive statement.

Government is right to ban texting while driving.

Normative statement.

Higher soda taxes reduce soda producers’ profits.

Positive statement.

Inflation has been above 5% for five years.

Positive statement.

Inflation should be kept at 0%.

Normative statement.

Spotify subscription — product or resource market?

Product market.

Hiring a data scientist — product or resource market?

Resource market.

Ordering from DoorDash — product or resource market?

Product market.

Buying a TV from Best Buy — product or resource market?

Product market.

Freelance photographer hired by agency — product or resource market?

Resource market.

Trucking contract for logistics — product or resource market?

Resource market.

Paying a private tutor — product or resource market?

Product market.

Renting an apartment — product or resource market?

Product market.

Architecture firm hires employee — product or resource market?

Resource market.

Bakery hires cashier — product or resource market?

Resource market.

Ronald McDonald (20 pizzas or 200 burgers) vs Papa John (100 pizzas or 200 burgers): who has absolute and comparative advantage in pizza?

Papa John has both absolute and comparative advantage in pizza.

Who has comparative advantage in burgers (Ronald McDonald vs Papa John)?

Ronald McDonald.

USA (30 wheat/30 sugar) vs Brazil (10 wheat/20 sugar): absolute advantages?

USA in both wheat and sugar.

Who has comparative advantage in wheat and sugar (USA vs Brazil)?

USA in wheat; Brazil in sugar.

Japan (4 CDs/2 beef) vs Canada (4 CDs/6 beef): absolute advantage in beef?

Canada.

Comparative advantage in CDs and beef (Japan vs Canada)?

Japan in CDs; Canada in beef.

U.S. (4 bread/2 corn) vs France (4 bread/6 corn): absolute advantage in corn?

France.

Comparative advantage in bread and corn (U.S. vs France)?

U.S. in bread; France in corn.

Sara (2 haircuts/1 perm) vs Megan (3 haircuts/2 perms): absolute advantage?

Megan in both.

Comparative advantage (Sara vs Megan)?

Sara in haircuts; Megan in perms.

Justin (16 flats/8 brakes) vs Tim (14 flats/8 brakes): comparative advantage?

Justin in flats; Tim in brakes.

U.S. (50 computers/50 TVs) vs China (30 computers/40 TVs): comparative advantage?

U.S. in computers; China in TVs.

Henry (3 deer/6 antelope) vs John (24 deer/12 antelope): comparative advantage?

John in deer; Henry in antelope.

Tablets: supply chain issues increase production costs — what happens?

Supply decreases → price ↑

Coffee: price of tea (substitute) increases — what happens?

Demand increases → price ↑

Candy: campaign to eat fruit instead — what happens?

Demand decreases → price ↓

Avocados: new diet trend — what happens?

Demand increases → price ↑

Sushi: one restaurant shuts down — what happens?

Supply decreases → price ↑

Umbrellas: it rains for several days — what happens?

Demand increases → price ↑

Cars: new government regulations increase production cost — what happens?

Supply decreases → price ↑

Avocados: drought limits water supply — what happens?

Supply decreases → price ↑

Solar panels: government subsidies lower production costs — what happens?

Supply increases → price ↓

Candy: sugar price decreases — what happens?

Supply increases → price ↓

TVs: consumers expect future price drops — what happens?

Demand decreases → price ↓

Jelly: peanut butter (complement) price increases — what happens?

Demand decreases → price ↓

Cookies: brownie (substitute) price increases — what happens?

Demand increases → price ↑

Corn: farmers expect prices to fall — what happens?

Supply increases → price ↓

Soda: government tax raises costs — what happens?

Supply decreases → price ↑

Gasoline: people drive larger SUVs — what happens?

Demand increases → price ↑

Denture cream: aging population — what happens?

Demand increases → price ↑

Frozen burritos (inferior good): income increases — what happens?

Demand decreases → price ↓

Cars: assembly line lowers costs — what happens?

Supply increases → price ↓

Tablets: smartphones replace tablets — what happens?

Demand decreases → price ↓

Price $16→$14; Q 20

000→30

Price $70→$60; Q 2

800→3

Price $10→$5; TR $1000→$1125 — demand type?

Elastic.

Price $95→$105; TR $1995→$1995 — demand type?

Unitary elastic.

Price $6→$4; TR $420→$320 — demand type?

Inelastic.

Price of Y ↑2%

Qx ↓4% — what kind of elasticity?

Income ↑3%

meat ↑1% — elasticity and good type?

Income ↑5%

noodles ↓2% — elasticity and good type?

Price of Y ↑3%

Qx ↑6% — elasticity and good type?