Microeconomics

Shoppers at supermarkets often abandon their empty shopping carts at various locations in the parking lot, despite the risk of damage to vehicles or the additional labor cost of retrieving those carts. How might an economist explain this behavior?

a) People go to the supermarket when they have the energy to shop only, without considering the cost of returning their carts.

b) The perceived potential benefit of going to a cart return location is less than the time and energy cost to the shopper.

c) People are generally lazy and gravitate toward any decision with the lowest cost.

d) Once a shopper leaves the parking lot, the abandoned cart becomes someone else's problem.

e) Because food prices are always subsidized by the government, shoppers are ignorant of additional costs.

b

The presence of scarcity means that no choice comes without

a) shortages

b) trade-offs

c) regret

d) incentives

e) consumption

b

Scarcity refers to the concept that society has limited wants and unlimited resources.

True or false

False

Microeconomics is the branch of economics that focuses on the

a) Entire economy

b) Choices and decision-making of individuals and firms

c) Production side of the economy

d) Consumption side of the economy

e) Involvement of the government in the economy

b

Economics is the study of

a) How to make money

b) How to allocate resources to satisfy wants and needs

c) Capitalism

d) How to make workers more productive and firms more profitable

e) Markets

b

An economist would argue that the true cost of a college education exceeds the cost of tuition, housing, and books because of

a) Tax credits

b) Invisible costs

c) Opportunity cost

d) Scholarships

e) Inflation

c

At the price of $3 a pound of pork, Jason buys 8 pounds of pork, and Noelle buys 10 pounds of pork. When the price rises to $5 a pound, Jason buys 5 pounds of pork, and Noelle buys 7 pounds of pork. What is the market demand at $5?

a) 7

b) 25

c) 5

d) 12

e) 18

d

After Sushmita lost her job, she found that she was going to the movies less often. How would she describe this to an economist?

a) Movies are a normal good and, as my income decreased, my demand curve shifted to the left.

b) Movies are an inferior good and, as my income decreased, my demand curve shifted to the right.

c) Movies are a normal good and, as my income decreased, my demand curve shifted to the right.

d) Attending movies is a necessity.

e) Movies are an inferior good and, as my income decreased, my demand curve shifted to the right.

a

The scientific method starts with the development of a hypothesis to be tested.

True or false

false

In a market economy, economic activities between buyers and sellers happen with little to no interference from the government.

True or false

true

The process of examining a change in one variable in a model while assuming that all the other variables remain constant is called

a) exogenous factors

b) normative analysis

c) ceteris paribus

d) positive analysis

e) faulty assumptions

c

Consider the market for peanut butter and the market for jelly. If there is a change in the price of jelly, there is a movement along the demand curve in the market for peanut butter

True or false

false

For a market to be competitive

a) Sellers must produce goods and services that are different from their competitors.

b) Sellers should have substantial pricing power.

c) Each buyer and seller is small, relative to the whole market; no single decision maker has any influence over the market price.

d) The price must be a fair price.

e) All you need are many buyers and many sellers.

c

Suppose we are looking at the market for corn in Iowa. There is a new wave of residents that arrive in Iowa from other states. All else equal, the number of buyers in the market for corn would

a) increase, causing supply to increase.

b) increase, causing demand to increase.

c) decrease, causing demand to decrease.

d) not change.

e) decrease, causing supply to decrease.

b

When the price falls, what happens?

a) There is an increase in the quantity demanded.

b) There is a decrease in the quantity demanded.

c) There is a decrease in demand.

d) There is an increase in demand.

e) There is no change in the quantity demanded or demand.

a

A new car is typically considered to be a normal good. What would happen to the equilibrium price and quantity of new cars if there is a recession where many people lose their jobs?

a) The equilibrium price would rise and the equilibrium price would fall as demand shifts to the left.

b) The equilibrium price and quantity would both rise as demand shifts to the right.

c) There would be no change to the equilibrium price or quantity.

d) The equilibrium price and quantity would both fall as demand shifts to the left.

e) The equilibrium price would fall and the equilibrium quantity would rise as demand shifts to the right.

d

Salima is a devoted Coca-Cola consumer, whereas Antonia can drink either Coca-Cola or Pepsi products. Salima's demand for Coca-Cola will be relatively more _____, while Antonia's demand will be relatively more _____.

a) inelastic; inelastic

b) elastic; elastic

c) inelastic; elastic

d) elastic; inelastic

e) perfectly elastic; elastic

c

When the price of a particular brand of soda increases by a lot, the quantity demanded decreases by only a little. The demand for this brand of soda is said to be inelastic.

True or false

true

James specializes in college-level economics tutoring. He knows that during the two weeks before finals he can charge more for an hour of private tutoring. Expecting this price increase, James will:

a) Supply more tutoring now, shifting supply to the left.

b) Supply less tutoring now, shifting supply to the right.

c) Change the price of tutoring without any shift in supply.

d) Supply less tutoring now, shifting supply to the left.

e) Supply more tutoring now, shifting supply to the right.

d

Which of the following would NOT affect a good's price elasticity of demand?

a) whether the time horizon is in the short run or long run

b) whether the good is a necessity

c) the cost of producing the good

d) the proportion of the budget devoted to the good

e) the number of substitute goods

c

When supply shifts to the right and demand stays constant, the equilibrium price _____ and the equilibrium quantity _____

a) decreases; increases

b) increases; decreases

c) stay the same; increases

d) decreases; decreases

e) increases; increases

a

When the equilibrium price in a market increases, we know for certain that the demand for that good must have increased.

True or false

false

Over the long run horizon, consumer demand for a good becomes more elastic.

True or false

true

When incomes fall by 20 percent, quantity demanded of specialty baked goods falls by 50 percent. Specialty baked goods are

a) complements to butter.

b) inferior goods.

c) substitutes for mass-produced bread.

d) necessities.

e) luxuries.

e

A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good is

a) elastic.

b) unitary elastic.

c) perfectly elastic.

d) relatively price sensitive.

e) inelastic.

e

From the short run to the long run, the demand for a good tends to become more inelastic.

True or false

false

If the percentage change in quantity demanded of Good A is 2 percent and the percentage change in the price of Good B is -10 percent, what is the cross-price elasticity of demand between the two goods?

a) 1

b) 0.20

c) -5

d) 5

e) -0.20

e

If the demand for a good is perfectly elastic, its price elasticity of demand is zero.

True or false

false

If the price elasticity of demand of a good is -2.5, we know that demand for that good is:

a) unit elastic

b) relatively elastic

c) perfectly inelastic

d) relatively inelastic

e) perfectly elastic

b

Income elasticity of demand is calculated as

a) the percentage change in demand divided by percentage change in price

b) the percentage change in demand divided by percentage change in income.

c) the change in price divided by change in income.

d) the change in demand divided by the change in income.

e) the change in demand divided by change in income.

b

Super Economy Brand products have an income elasticity of -1.4. Thus, these are ________ goods.

a) normal

b) luxury

c) inferior

d) necessity

e) complementary

c