Summary Review Micro 1

What effect an increase in the price of cheese, all else equal, is likely to have:

• decrease in the quantity demanded of cheese

• decrease in the demand for apple pie (a complementary good).

• increase in demand for peanut butter (a substitute good).

• decrease in the supply of pizza.

• All of the above

All of the following statements about price floors are true except:

• if the price floor is set below the equilibrium price, the intervention will have no effect on the market.

• There will be a surplus of a commodity when a price floor is set above the equilibrium price.

• If the price floor is set below the equilibrium price, the price must be reduced.

• The government may have to set up a system of storage to handle the excess supply when a price floor is set above the equilibrium price.

A free good is not scarce because,

• it is an abundant natural resource.

• individuals can have all they desire at zero cost.

• a and b.

• price rations the good so that all individuals willing to pay the market price can buy the good and it is, therefore, not scarce.

• human desires for the good exceed the amounts available at a zero money price.

In 1968, there were 20 million acres of commercially valuable forestland in Utah. The timber on this land was worth roughly 2 billion dollars. In 1969, forest fires destroyed half of this timber, yet the value in the market for the remaining timber was higher (2.6 billion dollars) than in 1968.

• this shows how the market maximizes human satisfaction.

• this shows that market prices are an inaccurate measure of value because half of a forest can not be worth more than the full forest.

• this could happen if, for whatever reason, demand for timber increased simultaneously driving up both the price and quantity demanded of timber.

• none of the options in this question.

Suppose you need to study six hours per week to earn a C, nine hours per week to earn a B, and 15 hours per week to earn an A. This implies:

• decreasing returns to hours studied.

• that extra study is a waste of time.

• increasing returns to hours studied.

• constant returns to hours studied.

One purpose of advertising is to:

• shift the demand curve for the good to the left.

• shift the demand curve for the good to the right. 

• shift the supply curve for the good to the left.

• make the demand curve for substitute goods shift to the right, thus increasing the demand for the advertised good.

Which of the following is the best definition of opportunity costs?

• the price of a good that must be charged in order for a merchant to sell one more unit.

• the amount of money that must be paid in order to purchase one more unit of a good.

• none of the options in this question.

• the amount of one good that must be given up in order to produce one more unit of another good.

• the amount of an input that must be used in order to produce one more unit of a good

Excess supply for a commodity is ordinarily eliminated through market forces by:

• price rising, quantity demanded increasing, and quantity supplied decreasing.

• price rising, quantity demanded decreasing, and quantity supplied increasing.

• none of the options in this question eliminate excess supply.

• price rising, demand increasing, and supply decreasing.

• price rising, demand decreasing, and supply increasing

Which one of the following would be most likely to cause the demand for firewood to increase?

• an increase in the price of fuel oil.

• an increase in the price of chain saws, which are used to cut firewood.

• a decrease in the price of travel.

• an increase in the price of firewood.

A fall in the price of raw milk, used in the production of ice cream, will:

• have no effect on the supply curve of ice cream, but will cause a downward movement along the supply curve of ice cream.

• decrease the supply of ice cream, causing the supply curve of ice cream to shift to the left.

• have no effect on the supply of ice cream at all.

• increase the supply of ice cream, causing the supply curve of ice to shift to the right.