1. Review for exam 1

2. Which of the following is the best description of the cost-benefit principle?
An individual should engage in an activity as long as the marginal benefits exceed the sunk costs.
An individual should engage in an activity as long as the marginal benefits exceed the average costs.
An individual should engage in an activity as long as the marginal benefits exceed the marginal costs.
An individual should engage in an activity as long as the total benefits exceed the total costs

3. If you are given a free ticket to a movie, the opportunity cost of going to the movie is:
the value associated with your next best alternative.
the costs to you in terms of any parking fees/snacks you purchase at the movie.
the net benefits you actually receive from going to the movie.
zero, because it is a free ticket.

4. John says, “People should consume fewer fossil fuels
John says, “People should consume fewer fossil fuels.” Milton says, “People will consume fewer fossil fuels if the costs of fossil fuels increased.”
John’s statement is normative and Milton’s statement is normative.
John’s statement is positive and Milton’s statement is normative.
John’s statement is normative and Milton’s statement is positive.
John’s statement is positive and Milton’s statement is positive.

5. Paula has a comparative advantage in writing papers over Laura, but Laura has an absolute advantage in writing papers over Paula. This implies that:
Paula can write more papers than Laura and has a lower opportunity cost to doing so.
Laura can write more papers than Paula and has a lower opportunity cost to doing so.
Laura can write more papers than Paula, but Paula has a lower opportunity cost to doing so.
Paula can write more papers than Laura, but Laura has a lower opportunity cost to doing so.

6. An individual that is absolutely better at all tasks compared to another individual:
should therefore complete all tasks for themselves.
can still benefit from specializing in the task they are relatively best at.
also is comparatively better at all tasks compared to another individual.
cannot benefit from using their comparative advantage.

7. When price is below the market equilibrium price:
there will be an excess supply.
the quantity demanded will exceed the quantity supplied
demand will shift in and supply will shift out.
demand will shift out and supply will shift in.

8. An increase in “demand” of a good is caused by __; an increase in “quantity demanded” of a good is caused by ____:
a decrease in the price of the good; an increase in income for a normal good.
a decrease in the price of the good; an increase in the price of the good.
a decrease in income for an inferior good; a decrease in the price of the good.
an increase in income for an inferior good; an increase in the price of the good.

9. A decrease in the price of an input will cause _____ to ______.
demand; increase.
demand; decrease.
supply; increase.
supply; decrease.

10. An increase in equilibrium price and a decrease in equilibrium quantity could be produced by a(n) ______.
increase in demand.
decrease in demand.
decrease in supply.
increase in supply.

11. Price=$3. 00; Buyer Reservation Price=$3
Price=$3.00; Buyer Reservation Price=$3.00; Seller Reservation Price=$1.00
CS=$3.00; PS=$2.00
CS=$0.00; PS=$1.00
CS=$0.00; PS=$2.00
CS=$3.00; PS=$3.00

12. Supply and demand increase at the same time. What will happen?
Price and quantity will both definitely increase.
Price and quantity will both definitely decrease.
Price will definitely increase and quantity may increase, decrease or not change.
Quantity will definitely increase and price may increase, decrease or not change.

13. The price elasticity of demand equals:
$ change in P/$ change in P
% change in P/% change in Q
% change in Q/% change in P
$ change in Q/$ change in P

14. If demand for a product is perfectly inelastic, this means the
price elasticity of demand equals infinity.
the demand curve is horizontal.
quantity demanded does not change when price changes.
all of the above.

15. Suppose a seller increases price by $5 and revenue decreases by 5%
Suppose a seller increases price by $5 and revenue decreases by 5%. This means that demand is price:
Elastic.
Inelastic.
Unit-elastic.
Indeterminate.

16. Suppose a seller increases price from $300 to $330 and quantity sold decreases by 5%. This means that demand is price:
Elastic.
Inelastic.
Unit-elastic.
Indeterminate.

17. For a seller facing a straight line downward sloping demand, as price decreases the P-intercept to P=0:
total revenue is always increasing.
total revenue is always decreasing.
total revenue is not changing.
total revenue is initially increasing, then it begins to decrease after the midpoint.

18. Good A is a normal good and it is a complement of good B.
Good A has an income elasticity of demand equal to -0.5 and it has a cross price elasticity with good B equal to This indicates that:
Good A is a normal good and it is a complement of good B.
Good A is inferior and it is a complement of good B.
Good A is a normal good and it is a substitute of good B.
Good A is inferior and it is a substitute of good B.

19. decrease by 15%. increase by 15%. decrease by 7.5%. Not change.
The income elasticity of demand for good A is -1.5, and income decreases by 10%. Quantity demanded for good a will ____:
decrease by 15%.
increase by 15%.
decrease by 7.5%.
Not change.

20. An elastic supply has a price elasticity
greater than 1.
less than 1.
equal to 1.
equal to 0.

21. Which of the following will be negative?
The income elasticity of demand for a normal good.
The price elasticity of demand for an inferior good.
The cross price elasticity of demand between substitutes.
All of the above.