Practice for Quiz

Jamal wants to go to the football game this weekend, but he has a paper due on Monday. It will take him the whole weekend to write the paper. Jamal decided to stay home and work on the paper. According to the scarcity principle, the reason Jamal didn't go to the game is that

• it's too expensive to go to the game

• Jamal prefers schoolwork to football games

• writing the paper is easier than going to the game

• Jamal doesn't have enough time for writing the paper and going to the game

The incentive principle is an example of

• an economic decision-making pitfall.

• a positive economic principle.

• over-estimating the benefits of an action.

• a normative economic principle.

What are the three fundamental questions in economics?

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What is the law of demand and how do we illustrate it?

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How income is realted to demand, explain in 2 lines.

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If OPEC increases its price of oil, and still the demand for oil decreases by a very small amount, we can conclude that the demand for oil is

• inelastic
• volatile
• constant
• elastic

Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units, the coefficient of elasticity of demand for beans using the arc elasticity approach is

• -0.75
• 2.00
• 0.50
• 1.25

When purchases of tennis socks decline following an increase in the price of tennis sneakers (other things remaining equal), the relationship between these two items can be described as

• Complementary
• Substitute
• Inverse
• Unrelated

For each of the following sets of supply and demand curves, calculate equilibrium price and quantity.

 

a.   QD = 2000 - 2P; QS = 2P

b.   QD = 500 - P; QS = 50 + P

c.   QD = 5000 - 10P; QS = -1000 + 5P

• Equilibrium price = 300, Equilibrium quantity = 800
• Equilibrium price = 400, Equilibrium quantity = 100
• a. Equilibrium price = 500, Equilibrium quantity = 1000; b. Equilibrium price = 225, Equilibrium quantity = 275; c. Equilibrium price = 600, Equilibrium quantity = 2000
• Equilibrium price = 700, Equilibrium quantity = 1500

Annual demand and supply for the Entronics company is given by:

 

            QD = 5,000 + 0.5 I + 0.2 A - 100P, and QS = -5000 + 100P

 

where Q is the quantity per year, P is price, I is income per household, and A is advertising expenditure.

 

a.   If A = $10,000 and I = $25,000, what is the demand curve?

b.   Given the demand curve in part a., what is equilibrium price and quantity?

• b. Equilibrium price: $40, Equilibrium quantity: 3,000 units
• a. Demand curve: QD = 5,000 + 0.5(25,000) + 0.2(10,000) - 50P
• a. Demand curve: QD = 5,000 + 0.5(25,000) + 0.2(10,000) - 100P, b. Equilibrium price: $60, Equilibrium quantity: 4,000 units
• c. Demand curve: QD = 5,000 + 0.5(20,000) + 0.2(8,000) - 100P