Microeconomics (OFFICIAL) Flashcards by Joshua Mercado

Because of scarcity, every economic decision involves

a. a trade-off.
b. a trade-in.
c. an increasing cost.
d. a money payment.
e. a tax or tariff.

a. a trade-off. Trade

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Ryan spends an hour studying instead of going for a bike ride. Assume studying and bike riding were Ryan’s only options for that hour. The opportunity cost to him of studying is
Choose one answer.

a. the improvement in his grades from studying for the hour.
b. the difference between the improvement in his grades and the enjoyment from bike riding.
c. the enjoyment and exercise he would have received from bike riding.
d. zero since neither activity required Ryan to spend any money.
e. the value of the knowledge he gained by studying.

c. the enjoyment and exercise he would have received from bike riding.

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Which of the following is a false statement about absolute and comparative advantage?

a. Comparative advantage is the basis for gains from trade.
b. It is possible for one country to have the absolute advantage in all goods.
c. It is possible for one country to have the comparative advantage in all goods.
d. To find comparative advantage, you need to consider opportunity cost.
e. All of these statements are true.

c. It is possible for one country to have the comparative advantage in all goods.

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The gains from trade are:

a. limited to trade between nations with similar levels of wealth.
b. always based on different wage rates between nations.
c. a result of more efficient resource allocation.
d. based on the principle of absolute advantage.
e. none of the above

c. a result of more efficient resource allocation.

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Which of the following would not tend to lower the price of VCRs?

a. decreasing price of DVD players
b. increasing price of video cassettes
c. improvement in VCR production technology
d. reduced price of raw materials used in making VCRs
e. increasing price of pay-per-view movies on cable TV

e. increasing price of pay-per-view movies on cable TV

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In a market economy, the allocation of the quantity supplied of any good among demanders is determined by:

a. the needs of the individuals.
b. the sellers.
c. the market price.
d. government regulations.
e. a random process.

(On the EXAM)

c. the market price.

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Milk can be used to make yogurt or cheese. Other things equal, if consumers start demanding more yogurt:

a. the price of milk will fall.
b. less milk will be used in cheese and more will be used in yogurt.
c. the supply of milk will decrease.
d. the price of cheese will fall.
e. all of the above.

b. less milk will be used in cheese and more will be used in yogurt.

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The price elasticity of demand:

a. is determined by the Federal Reserve Bank at a monthly meeting.
b. only works well in competitive markets.
c. intersects with the price elasticity of supply to determine the market equilibrium.
d. is equal to the slope of the demand curve.
e. varies from one point to another on a typical demand curve.

(On the EXAM)

e. varies from one point to another on a typical demand curve.

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Which of the following statements is true?

a. The elasticity of demand for a product cannot change over time.
b. Elasticity is useful in theory but cannot be measured in real life.
c. The elasticity of demand will be larger if there are good substitutes available.
d. If I can’t live without the product, my demand will be elastic.
e. none of these are true

(On the EXAM)

c. The elasticity of demand will be larger if there are good substitutes available.

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A firm’s total cost is $10,000. Its variable cost is $5,500. What is the firm’s fixed cost?

a. $2.22	
b. $3,500	
c. $4,500 	
d. $5,500	
e. none of the above

c. $4,500

Total cost = variable cost + fixed cost

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Which of the following is a correct definition of marginal cost (MC)?

a. It is the added cost that results from hiring one more employee.
b. It is the increase in the average cost that results from producing one more unit of a good.
c. It is the decrease in profits that results from selling another unit of a good.
d. It is the cost per unit of a good produced – i.e., total cost divided by quantity.
e. It is the added cost that results from producing one more unit of a good.

(On the EXAM)

e. It is the added cost that results from producing one more unit of a good.

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A firm will shut down if:

a. P > AVC at all levels of output.
b. P < AVC at all levels of output.
c. AVC > AFC at all levels of output.
d. TR > TC at all levels of output.
e. P < TVC at all levels of output.

(On the EXAM)

b. P < AVC at all levels of output.

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A negative externality exists when:

a. Jack buys a good from Bill, and this makes Bill worse off.
b. Jack buys a good from Bill, and this makes Jack worse off.
c. Jack buys a good from Bill, and this makes Todd better off.
d. Jack buys a good from Bill, and this makes both of them worse off.
e. Jack buys a good
from Bill, and this makes Todd worse off.

(On the EXAM)

e. Jack buys a good from Bill, and this makes Todd worse off.

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Everything else the same, if the price level in Japan rises relative to the price level in the U.S:

a. the supply of dollars and the demand for yen in the foreign exchange market will decrease.
b. the supply of dollars and the demand for yen in the foreign exchange market will increase.
c. the demand for dollars and the supply of yen in the foreign exchange market will decrease.
d. the yen will appreciate.
e. the dollar will depreciate.

(On the EXAM)

e. the dollar will depreciate.

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Hannah runs a manicuring shop. Currently, her shop provides 50 manicures per day, and the shop’s daily total cost (TC) is $600. If Hannah decides to provide 25 more manicures per day, the total cost will rise by $75 per day. If Hannah does decide to increase production by this much, what will the shop’s daily average total cost (ATC) be?

a. $12.00	
b. $3.00	
c. $8.00	
d. $9.00 	
e. $13.50

d. $9.00

50+25=75
600+75 = 675

675/75 = 9

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If Ross decides to ride his bike this afternoon, he will miss his favorite television show, and he won’t have time to study for his economics test. If Ross doesn’t ride his bike, he’ll choose to watch the television show instead. (He cannot both watch television and study for the test.) Ross’s opportunity cost of riding the bike is:

a. the value to Ross of watching the television show.
b. the value to Ross of studying for the test.
c. the value of watching the television show plus the value of studying for the test.
d. the value of watching the television show minus the value of studying for the test.
e. the value to Ross of riding his bike minus the value of watching the television show.

(On the EXAM)

c. the value of watching the television show plus the value of studying for the test.
d. the value of watching the

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The opportunity cost of purchasing an item is:

a. the number of hours needed to earn money to buy it.
b. the next best thing you could have done with the time and money spent.
c. always less than the dollar value of the item.
d. always equal to the dollar value of the item.
e. just the time required to buy it.

(On the EXAM)

b. the next best thing you could have done with the time and money spent.

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Alternative Outputs from One Day of Labor
Wheat (in bushels) Textiles (in yards)
United States 12 3
Great Britain 3 12

According to the table above, the United States:

a. has an absolute advantage over Great Britain in the production of textiles.
b. has an absolute advantage over Great Britain in the production of wheat.
c. has a comparative advantage in the production of textiles.
d. should export textiles to Great Britain.
e. none of the above

b. has an absolute advantage over Great Britain in the production of wheat.

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Perfume (bottles) Cloth (yards)
Nancy 20 15
Roger 24 12

The table above shows how much each of two people can produce in 40 hours. (For example, Nancy can produce 20 bottles of perfume in 40 hours.) For Roger, what is the opportunity cost of producing 1 bottle of perfume?

a. 3 yards of cloth 	
b. 2 yards of cloth 	
c. 1 yard of cloth 	
d. 1/3 yards of cloth 	
e. 1/2 yards of cloth

e. 1/2 yards of cloth

12/24 = 1/2 cloth

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Most residents of Los Angeles think sushi and sashimi are very similar foods. What effect will an increase in the price of sushi have on the demand curve for sashimi in Los Angeles?

a. there will be a movement down the sashimi demand curve 	
b. the sashimi demand curve will not be affected 	
c. there will be a movement up the sashimi demand curve 	
d. the sashimi demand curve will shift to the right 	 
e. the sashimi demand curve will shift to the left

d. the sashimi demand curve will shift to the right

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Economists can be college professors or business analysts. If there is an increase in businesses’ need for economic analysis:

a. the wage of economists will tend to decrease. 
b. colleges will have to pay less money to hire economists as professors. 	
c. more economists will decide to become professors.  	
d. fewer economists will decide to become business analysts. 	
e. All of the above.

e. All of the above.

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In a market economy:

a. resources are distributed equally across the all possible uses.
b. resources move to higher valued uses in response to changes in price.
c. resource usage is independent of the price.
d. most resources are distributed by the government.
e. all of the above.

b. resources move to higher valued uses in response to changes in price.

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At a price of $4.50/pound, people buy 55 pounds of chocolate cream candy. At a price of $5.50/pound, people buy 45 pounds of chocolate cream candy. What is the arc elasticity of demand for chocolate cream candy in this price range?

a. 1.0 	 
b. 10.0 	
c. 0.1 	
d. 0.67 	
e. none of the above

a. 1.0

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At a price of $9.50/pound, people buy 45 pounds of lamb. At a price of $10.50/pound, people buy 35 pounds of lamb. What is the arc elasticity of demand for lamb in this price range?

a. 1.0 	
b. 2.5 	 
c. 0.4 	
d. 3.0 	
e. none of the above

b. 2.5

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Average fixed cost: a. increases as output increases. b. declines as output increases. c. is always zero. d. remains constant even if output increases. e. decreases and then increases as output increases.

b. declines as output increases.

Which of the following statements is true? a. MC = ▲TC/ ▲Q b. MC = TFC/Q c. MC = ATC/Q d. MC = Q/L

a. MC = ▲TC/ ▲Q

A perfectly competitive firm maximizes its profits using what rule? a. P = ATC b. MR = ATC c. Q = MC d. P = MC e. MR = AVC

d. P = MC

Refer to the figure above. Twelve units of this product are sold at $10 each. Producer surplus is equal to areas: a. B+C b. A+B+C c. E+F d. D+G e. E+B

c. E+F

It is common knowledge that many U.S. national parks have become overused. One possible solution to this problem is to a. increase entrance fees. b. increase advertising for the national parks. c. reduce the national park service budget. d. subsidize park admissions. e. all of these are possible solutions.

a. increase entrance fees.

Who among the following is most likely to favor an appreciation of the U.S. dollar? a. a British professor visiting New York b. an American farmer whose business depends on exports c. an American professor on a tour of Italian museums d. Disneyland in Los Angeles, California, a popular destination for foreign tourists e. a Japanese retailer whose business depends on imports from the U.S.

c. an American professor on a tour of Italian museums

If the price elasticity of demand for CSUN sweatshirts is 1.5, then a. an increase in price will cause total consumer expenditures on CSUN sweatshirts to fall b. an increase in price will cause total consumer expenditures on CSUN sweatshirts to increase c. an increase in price will cause total consumer expenditures on CSUN sweatshirts to stay the same d. a decrease in price will cause total consumer expenditures on CSUN sweatshirts to fall e. none of the above

a. an increase in price will cause total consumer expenditures on CSUN sweatshirts to fall

Economic profit is equal to: a. total revenue minus the explicit cost of producing goods and services. b. total revenue minus the implicit cost of producing goods and services. c. total revenue minus the opportunity cost of producing goods and services. d. average revenue minus the average cost of producing the last unit of a good or service. e. total revenue minus depreciation.

c. total revenue minus the opportunity cost of producing goods and services.

Your friend is thinking of opening a video store. She estimates it would cost $500,000 a year to rent the store and buy video stock. She is planning to quit her $50,000 a year job as an accountant to run the store. Her opportunity cost of opening the store is a. $500,000 b. $550,000 c. $50,000 d. $450,000 e. $60,000

b. $550,000 Explicit + Implicit

Comparative advantage is based on: a. capital costs b. labor costs c. opportunity costs d. dollar price e. both labor and capital costs

c. opportunity costs

Cheese Bread England 40 20 Spain 20 5 The table above shows how much each of two countries can produce in 40 hours. (For example, England can produce 40 units of cheese in 40 hours.) For Spain, what is the opportunity cost of producing 1 unit of bread? a. 4 cheese b. 2 cheese c. 1/2 cheese d. 1 cheese e. 1/4 cheese

a. 4 cheese | OC: give up / produce OC: 20 cheeses / 5 breads = 4 cheeses

Americans love to eat peanut butter & jelly sandwiches. If the price of jelly increases (while other things remain constant), what effect will this have on the market for peanut butter? a. price rises, quantity falls b. price falls, quantity rises c. both price and quantity fall d. both price and quantity rise e. price rises and quantity remains the same

a. price rises, quantity falls

If resources are owned by individuals instead of government, a. resources will be used less efficiently. b. resource use will tend to be unchanging and determined by historical usage patterns. c. resource use will be guided by changing relative prices as owners attempt to maximize self-interest. d. market prices will not reflect changing values of different uses of the resources. e. none of the above answers are correct.

c. resource use will be guided by changing relative prices as owners attempt to maximize self-interest.

At a price of $50 for a CD player, firms are willing to produce and sell 2200 CD players. At a price of $70 for a CD player, firms are willing to produce and sell 2600 CD players. What is the price elasticity of supply in this range? (Use arc elasticity.) a. 2 b. .5 c. .05 d. 20 e. none of the above

b. 0.5 Q = 2600-2200/2600+2200/2 x 100 = 16.66 P = 70-50/70+50/2 x 100 = 33.33 Q/P = 16.66/33.33 = 0.5

Quantity TC MC 10 10,000 X 20 25,000 The table above shows a firm's total cost and marginal cost for a range of output. What is X equal to? a. 1500 b. 1000 c. 35,000 d. 1750

a. 1500 MC: ▲TC/ ▲Q MC: (25,000 - 10,000) / (20 – 10) = 1500

Acme, Inc. is currently producing 12,000 gadgets per year. Acme’s average total cost (ATC) is $18 per year. What is Acme’s total cost (TC) per year? a. $667 b. $108,000 c. $216,000 d. $500 e. $1500

c. $216,000 12,000 x 18 = 216,000

As compared to monopoly, a perfectly competitive market typically produces a(n) ______ quantity at a(n) _______ price. a. higher, higher b. higher, lower c. lower, higher d. lower, lower e. identical, lower

b. higher, lower

Which of the following would not be a negative production externality associated with tire production? a. smoke from the tire factory worsens the city’s air quality b. toxins from the tire-making process seep into the area’s ground water c. neighbors experience the bad smells that come from the tire factory d. the rubber used to make tires could be used to make something else e. all of these are negative production externalities

d. the rubber used to make tires could be used to make something else

Everything else the same, if income in Japan rises while income in the U.S. remains unchanged: a. the supply of dollars in the foreign exchange market will increase. b. the demand for yen in the foreign exchange market will decrease. c. the supply of yen in the foreign exchange market will decrease. d. the demand for dollars in the foreign exchange market will increase. e. the demand for dollars in the foreign exchange market will decrease.

d. the demand for dollars in the foreign exchange market will increase.

Your friend is thinking of opening a video store. She estimates it would cost $500,000 a year to rent the store and buy video stock. She is planning to quit her $50,000 a year job as an accountant to run the store. If there are no other costs of operation and the store’s revenue is $530,000, the accounting profits will be: a. $50,000 b. $20,000 c. -$20,000 d. $30,000 e. $530,000

d. $30,000 Accounting profits: total revenue – explicit cost AP: 530,000 - 500,000 = 30,000

The term which means whatever must be given up to obtain an item is

Opportunity Cost

In order to fix 1 car tire, jerry fixed 3 bicycle tires. In order to fix 1 car tire, berry fixes 5 bike tires, who has the comparative advantage

Jerry has the comparative advantage over Berry

Milk can be used to make yogurt and cheese, other things equal, if consumption starts demanding more yogurt a. Supply of milk will decrease. b. Demand of milk will increase. c. Answer was NONE are

c. Answer was NONE are

Demand for cocaine is unit Elastic, price of cocaine were to rise 10%, a. Quantity consumed would fall 10% b. Dealer income from the sale of cocaine would fall 10% c. ANSWER is both FALSE

b. Dealer income from the sale of cocaine would fall 10%

In economics “short run” is defined as a. as a period of time when at least one of the four factors of production is fixed in supply b. A period of time during which at least one production input is fixed while others are variable

b. A period of time during which at least one production input is fixed while others are variable

The total cost to build 8 tract houses is $1,000,000. Total cost to build 9 tract houses $1,050,000. What is the Margin cost of the 9th tract house?

a. 50,000 MC: ▲TC/ ▲Q MC: (1,050,000 - 1,000,000) / (9 – 8) = 50,000

Once it becomes obvious that a common resource is being overused

B. as a period of time when at least one of the four factors of production is fixed

If the equilibrium of a dollar in terms of pesos is 20. what is the equilibrium price in terms of dollars

A) .05 (1 / 20 = 0.05)

Accounting profit is equal to? A. Total revenue minus the explicit cost of producing goods and services. B. Total revenue minus the opportunity cost of producing goods and service. C. Average revenue minus the average cost of products the last unit of a good or service. D. Marginal revenue minus marginal cost. E. Total revenue minus depreciation (On the EXAM)

A. Total revenue minus the explicit cost of producing goods and services.

Fresh tuna can be canned or used to make sushi. Other things equal, if consumers start demanding more sushi? a. The price of tuna will fall. b. Less tuna will be canned and more will be used in tuna sushi. c. The supply of fresh tuna will decrease. d. The price of tuna sushi will fall. e. None of the above.

b. Less tuna will be canned and more will be used in tuna sushi.

In economics, short run is defined as? a. A period of time less than a year. b. A period of time during which at least one production input is fixed. c. A period of time less than one month. d. A period of time during which all production inputs are fixed. e. A period of time during which all production inputs are variable. (is correct in long-run)

b. A period of time during which at least one production input is fixed.

``` The table below shows a firms cost for range of quantity. Find the value of X? Q TC ATC MC 100 500 5 X 120 720 6 ``` a. 11 MC: ▲TC/ ▲Q b. 20 c. 1 d. 220 e. None of the above.

a. 11 MC: ▲TC/ ▲Q (720-500_/(120-100) = (220/20) = 11

Compared to perfect competition, monopoly in the long run? a. Restricts outputs b. Changes a higher price. c. Produces at greater than the minimum average total cost. d. Is able to make greater profits. e. All of the above.

e. All of the above.

A foot-Loofah is worth $15 to Edna. But she buys one on sale at Bath and Body works for just $8 what is the consumer surplus that results from Edna’s purchase? a. $8 b. $15 c. $7 d. $23 e. Cannot be determined from the information given.

c. $7 (15 - 8 = 7)

If purchases power parity exists and the exchange rate is 1.50 u.s. dollars per British pound, then a latte that has a price of $4.00 in Northridge, California, has a price of _ in London, England? a. 8.00 pounds b. 4.00 pounds c. 6.00 pounds d. 2.67 pounds e. .38 pounds

d. 2.67 pounds (4 / 1.50 = 2.67)

``` In economics, the cost of something is? A. The out-of-pocket expense of obtaining it. B. What you must give up to get it. C. Always measured in units of time. D. Always higher than people think ```

B. What you must give up to get it.

Helena does her bathroom Saturday night and she wants to see a movie and surf the web. If she doesn’t clean her bathroom and surf the web what is the value (note she cannot see the movie and surf the web). A. The value of Helen of watching a movie. B. The value of Helen of suffering the web. C. The value of Helen surfing the web PLUS the value of watching a movie. D. The value of cleaning her bathroom MINUS the value of surfing the web. E. The value of cleaning her bathroom MINUS the value of surfing the web

b. Value to Helena of surfing the web.

Which of the following goods will have the most elastic demand at any time? ``` A. Cigarettes B. Electricity C. Gasoline D. Water E. Jewelry ```

E. Jewelry

Airline knows from exp. Vacation travel has elastic demand for travel whereas business travels have an inelastic demand for travel in order maximizes the airline should? A. Offer everyone a discount to increase sales. B. Increase price to everyone. C. Try to increase price for vacation travelers and decrease price for business travelers. D. Try to decrease price for vacation travelers and increase price for business travelers. E. Ignore this information.

D. Try to decrease price for vacation travelers and increase price for business travelers.

``` Consumer surplus is equal the area below the _________ and above___________ A. Price; Supply Curve B. Demand Area; Price C. Demand Curve; Supply Curve D. Price; Demand Curve E. Supply Curve; Demand Curve ```

B. Demand Area; Price

A negative consumption externality will cause a private market to produce: a. more than is socially desirable. b. less than is socially desirable. c. less than is market optimal. d. the socially desirable quantity.

a. more than is socially desirable.

5. An unregulated negative production externality will cause a private market to : ``` A. Produce less than is socially optimal B. Produce more than is socially optimal C. Produce more than market equilibrium D. Produce less than market equilibrium E. Produce the amount that is socially optimal ```

B. Produce more than is socially optimal

n the figure shown, the deadweight loss caused by the tariff would be equal to: a. B. b. E. c. D + F. d. B + D + E + F.

c. D + F

Private solutions may not always be possible if negotiating and enforcing these solutions involve high: a. Pigovian taxes. b. opportunity costs. c. deadweight losses. d. transaction costs.

d. transaction costs.

An externality exists when: a. a firm sells its product in a foreign market. b. markets are not able to reach equilibrium. c. the government intercedes in the operation of private markets by forcing the market to adjust to the balance of supply and demand. d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

A market structure with a few firms is known as: a. monopoly. b. oligopoly. c. monopolistic competition. d. perfect competition.

b. oligopoly.

6. On the foreign exchange market, an increase in a country’s exchange rate: A. Decrease the quantity demand of its currency B. Increase the quantity demand of its currency C. Has no effect on the quantity demand of its currency D. Decrease the quantity supplied of its currency E. has no effect of the quantity supplied of its currency

not sure

7. If you want to know the long-run equilibrium output of one perfectly competitive firm, and you are permitted to see only one curve, which one below is most helpful? ``` A. Demand B. Marginal Cost C. Average total cost D. Average Fixed cost E. Average Variable cost ```

C. Average total cost

Bliff and Harvey in 1hr. what is the absolute advantage? 1 hr. Bliff Harvey Martins 9 12 Gin 6 9

Harvey does has both absolute advantage

Opportunity cost of producing 1 pound of meat In 20 hrs. Pounds of meat Pounds of potatoes Farmer 2 4 Rancher 5 20

½ of a potato 2/4 = 1/2

``` What will cause outward shift of the Demand curve for electricity? a. decrease in price of electricity b .increase in price of A/C c. Increase in price of heating oil d. decrease in price of natural gas e. increase in price of electricity ```

c. Increase in price of heating oil

A raise in the demand for a resource to produce some product (x) will a. Raise the cost of using the resource for an alt. product b. Reduce the use of that resource in alt lower valued production c. Increase the value of the resource d. All

d. All

Price elasticity of demand: Percentage change of Qd divide change in P

Percentage change of Qd divide change in P

``` No doubt ticket is $45 and you want to illegally sell it (scalp) for $75 what is the opportunity cost? $30 $ 45 $ 75 $ 115 ```

$ 45

Law of demand states: Price and quantity demand of a good are inverse related

Price and quantity demand of a good are inverse related

More buyers enter a market Demand increases…. Quantity supply lends to increase The products are able to use resourcing with higher opportunity cost Price of good will raise (or increase) ……………….. All

All

Good A has many substitutes and Good B has none what is true Demand for Good B is likely to be elastic and Good A is inelastic Demand for Good B is likely to be inelastic and Good A is elastic Good A and B are elastic Good A and B are inelastic

Demand for Good B is likely to be inelastic and Good A is elastic

in a market economy? A. Resources are distributed equal across the all possible users. B. resources move to higher valued uses in respond to change in price. C. Resources usage is independent of the price. D. Most resources are distributed by the government. E. All of the above.

B. resources move to higher valued uses in respond to change in price.

An increase in demand for a product will: a. not affect the value of resources. b. reduce the production of the good as the price rises. c. decrease the profits of sellers. d. draw more resources into the production of the good. e. not affect the rate of production since production is fixed

d. draw more resources into the production of the good.

The entry of new firms into a competitive industry will very likely: a. shift the short run industry supply curve to the right b. cause the market price to fall c. reduce the profits of firms in the industry d. cause the market quantity sold to rise e. all of the above

e. all of the above

Which of the following would cause an increase in the demand for us dollars? a. An interest rate cut in the US b. An interest rate cut in Europe c. An interest rate increase in Europe d. A recession in Europe e. Less desire by Europeans for US goods

a. An interest rate cut in the US

Bob could do 3 broken legs and 7 bandage wounds, James can do 2 broken legs and 5 bandages wounds:

Bob has both absolute advantages

A positive consumption externality occurs when; a. When jack receives a benefit from john’s consumption of a certain good b. When jack receives personal benefit from his own consumption of a certain good c. When jack benefits exceed johns benefits wo………… d. When jack consumes of a good is not beneficial to john

a. When jack receives a benefit from john’s consumption of a certain good

``` Video store gave an estimate it will cost 500,000 and to quit her job she makes 50,000 and the revenue will be 530,000 what is her econ profit? 50 k 20k 30k None ```

Econ profit: total revenue – OP EP: 530,000 – (500,000 + 50,000) = 20,000 because it is an econ profit, we add salary

In an attempt to boost enrollment, in January 1996, a private college in Iowa offered free tuition for seniors graduating from high school in the county where it is located. For students who accept the offer, how does this offer affect the opportunity cost of attending college? a. The opportunity cost is not changed, since lost earnings are still a factor. b. The opportunity cost is now zero for the typical student. c. The opportunity cost is very low, because the only cost is for books and school supplies. d. The opportunity cost is not changed, since tuition is not a factor in computing opportunity cost. e. The opportunity cost is lower than if tuition were charged, but there is still a cost.

d. The opportunity cost is not changed, since tuition is not a factor in computing opportunity cost.

The opportunity cost of going to college is a. the total spent on food, clothing, books, transportation, tuition and other expenses. b. zero for students who are fortunate enough to have all their college expenses paid by someone. c. the value of the next best opportunity a student gives up to attend college. d. zero, since a college education will allow a student to earn a larger income after graduation. e. infinite, because there’s no way you can ever get your time back.

c. the value of the next best opportunity a student gives up to attend college

Cheese (units) Bread (units) England 40 20 Spain 20 5 The table above shows how much each of two countries can produce in 40 hours. (For example, England can produce 40 units of cheese in 40 hours.) England has an absolute advantage in __________ and the Spain has an absolute advantage in __________. a. bread, cheese b. both goods, neither good c. cheese, both goods d. both goods, cheese e. neither good, bread

e. neither good, bread

Professional baseball teams in the United States use only wooden bats. If aluminum bats were permitted, the likely result would be a. a shift in the supply curve for aluminum bats. b. a shift in the supply curve for wooden bats. c. a shift in the demand curve for aluminum bats. d. a persistent shortage of aluminum bats. e. a persistent shortage of wooden bats.

c. a shift in the demand curve for aluminum bats.

Good A has many close substitutes, while good B has no close substitutes. Which of the following is true? a. the demand for both goods is likely to be inelastic. b. the demand for both goods is likely to be elastic. c. the demand for good A is likely to be elastic, the demand for good B inelastic. d. the demand for good B is likely to be elastic, the demand for good A inelastic. e. both goods will have elasticity of 1.

c. the demand for good A is likely to be elastic, the demand for good B inelastic.

A firms’ total cost is $500 when its quantity is 80 units. Its total cost increases to $510 when its quantity increases to 81 units. What is the firm’s marginal cost? a. 6.25 b. 10 c. 5 d. 6.29 e. none of the above

b. 10 (500-510) / (80-81) = 10/1 = 10

Average total cost is a. AFC + (TVC/Q) b. TC/Q c. (TFC/Q) + (TVC/Q) d. AFC + AVC e. all of the above

e. all of the above

A monopoly maximizes its profits using what rule? a. P = ATC b. MR = ATC c. Q = MC d. MR = MC e. pick the highest price possible, as long as some units still sell

d. MR = MC

What are the two defining features of a public good? a. excludability and rivalrous consumption b. common pool consumption and positive externalities c. negative externalities and excludability d. rivalrous consumption and common pool consumption e. non-excludability and non-rivalrous consumption

e. non-excludability and non-rivalrous consumption

Itchy Scratchy Bombs 10 8 Missiles 6 4 The table above shows how many bombs or missiles Itchy and Scratchy can produce in one year. (For example, Itchy could produce 10 bombs or 6 missiles in a year.) Which of the following is an accurate statement about comparative advantage? a. Itchy has the comparative advantage in both goods. b. Scratchy has the comparative advantage in both goods. c. No one has the comparative advantage in missiles. d. Itchy has the comparative advantage in bombs, while Scratchy has the comparative advantage in missiles. e. Itchy has the comparative advantage in missiles, while Scratchy has the comparative advantage in bombs.

e. Itchy has the comparative advantage in missiles, while Scratchy has the comparative advantage in bombs.

A technological breakthroughs in the production of computers creates a __________ and causes the price of computers to __________. a. leftward shift of supply, rise b. rightward shift of supply, fall c. rightward shift of demand, rise d. rightward shift of supply, rise e. leftward shift of demand, rise

b. rightward shift of supply, fall

When the price of hamburgers is $3.50, consumers buy 1100 hamburgers. When the price is $4.50, consumers buy 900. What is the price elasticity of demand in this range? (Use arc elasticity.) a. 0.8 b. 200 c. 1.25 d. 0.005 e. none of the above

a. 0.8

In the long-run, the price elasticity of demand is usually a. smaller than in the short-run. b. bigger than in the short-run. c. the same as in the short run. d. equal to zero. e. can’t tell from the information given.

b. bigger than in the short-run.

Gary is a tailor who creates custom-made business suits. His yearly total cost (TC) is $28,000. His average total cost (ATC) for the year is $400. How many business suits does Gary's business make in a year? a. 50 b. 20 c. 30 d. 70 e. none of the above

d. 70 ATC: TC / ≠ units 400 = 28,000 / Q Q = 28,000 / 400 = 70

Which of the following would be not considered a common pool resource? a. a lake where anyone can fish b. an oyster bed that anyone can take oysters from c. a congested public park d. a public pasture where anyone can graze their cattle e. a strip mine owned and operated by a coal-mining company

e. a strip mine owned and operated by a coal-mining company

If a road is congested, then use of that road by an additional person would lead to a. a negative externality. b. a positive externality. c. a natural monopoly. d. a free-rider problem with rush hour drivers stuck in traffic. e. none of the above.

a. a negative externality.