Questions:
1. A graph.......
a. can be used to show either a positive or negative relationship between two variables.
b. can illustrate both demand and supply.
c. is used because it is impossible to describe any economic relationship verbally.
d. all of the above.
e. both a) and b) are correct.
2. If less people buy coffee as income declines, then coffee is
a. a complementary good.
b. a substitute good.
c. a normal good.
d. an inferior good.
3. Consider that when the price of a good increases, like hamburgers people buy less of that good and less of a complementary good such as ketchup. Therefore if the price of hamburgers increases,
a. the quantity demanded of hamburgers will decrease and the demand curve for
ketchup will shift to the left.
b. the quantity demanded of hamburgers will increase and the demand curve for
ketchup will shift to the left.
c. the quantity demanded of hamburgers will decrease and the demand curve for
ketchup will shift to the right.
d. the quantity demanded of hamburgers will increase and the demand curve for ketchup will shift to the right.
4. If insurance companies are compelled by law to decrease their rates 5% for high-risk drivers, what would be the most likely outcome for high-risk drivers according to supply and demand analysis?
a. High-risk drivers will be better off since there will be an increase in the supply for insurance.
b. High-risk drivers will be better off since there will be an increase in the demand for insurance.
c. Many high-risk drivers may be unable to purchase insurance since the likely outcome of the law may be to cause a shortage of insurance for high-risk drivers.
d. both b) and c) are correct.
5. Which of the following forecasts for revenue are correct when the price of x declines?
a. increased revenue in the price elastic case and decreased revenue in the price inelastic case
b. decreased revenue in the price elastic case and increased revenue in the price inelastic case
c. increase in revenue no matter what the elasticity coefficient is
d. decrease in revenue no matter what the elasticity coefficient is
6. The demand for food is likely to be more than the demand for meat. The relates to the elasticity determinant of ________.
a. elastic - price relative to income
b. inelastic - price relative to income
c. elastic - number of substitutes
d. inelastic - number of substitutes
7. If you enjoyed wine so much that the more you had, the better it tasted, then the marginal utility of additional wine would be
a. positive and declining
b. negative
c. zero
d. increasing
8. If the demand for corn shifts to the right, it may have been caused by
a. the price of corn declining.
b. more people needing corn for recipes.
c. the price of corn increasing.
d. both a) and b) are correct.
9. The paradox of value suggests that one will pay
a. more for water than diamonds.
b. more for a luxury cruise than water.
c. more for goods with higher total utilities over one's lifetime.
d. all of the above.
10. Which of the following is not a resource?
a. land
b. labor
c. money
d. capital
11. Assume a person's consumption of just the right amounts of pork and chicken is in
equilibrium. We can conclude that the
a. marginal utility of pork must equal the marginal utility of chicken.
b. price of pork must equal the price of chicken.
c. ratio of marginal cost to price must be the same in both the pork and the chicken
markets.
d. ratio of marginal utility to price must be the same for pork and chicken.
12. If there is a frost in Florida there is a ________ and a ___________.
a. shift in the supply curve - shift in the demand curve
b. shift in the supply curve -- movement along a demand curve
c. movement along the supply curve -- movement along the demand curve
d. movement along the supply curve - shift in the demand curve
13. Many Coca-Cola bottlers reduced the price of Coca-Cola several years ago because of a
decrease in the price of sugar, an important ingredient in the production of Coke. This implies
a. a decrease in supply with demand relatively unchanged.
b. an increase in supply with demand relatively unchanged.
c. a decrease in both supply and demand.
d. a decrease in demand with supply relatively unchanged.
14. An article in a newspaper is titled "Bus fare cut lures riders, but not enough to increase
revenues." This implies
a. elastic demand.
b. inelastic demand (but not perfectly inelastic).
c. perfectly inelastic demand.
d. all of the above.
15. The administrators of "The School of Naïve Economics" naively assume that they can raise tuition for each of their 100 students by $1,000 and increase their revenues by $100,000. Their math is fine, but their economics leaves something to be desired. In order for their plan to work, the elasticity coefficient would need to be
a. negative infinity.
b. 0
c. positive infinity.
d. between 1.0 and 3.0
e. both c) and d) are correct.
Use this information for the next two questions: Manuel's Restaurant had to increase the price of its dinners due to higher input cost.
16. This increase in costs will cause to increase.
a. supply
b. demand
c. equilibrium price
d. both a) and b) are correct.
17. After the costs increased, the owner had an increase in the number of dinners sold. Is one possible explanation that at the same time the costs of production increased, consumer's discretionary income increased?
a. yes
b. no
18. A subdivision has homes all priced at 5 million dollars. After 5 years many are still not sold and the developer sells the unsold houses at an auction. This suggests the 5 million dollar price was too _______ for equilibrium, causing a _________.
a. high - surplus
b. low -- surplus
c. high - shortage
d. low -- shortage
The following statements are false. Write out the statements exactly as they appear and then make the necessary corrections:
19. If another successful brand of Cola comes on the market, the demand for Coca-Cola will become more inelastic.
20. According to the Economic Analysis of Drug Prohibition article by David Brownstone on drug legalization, making illegal drugs such as marijuana legal would increase drug addiction.