Econ Section 1 Test Practice Problems

Which of the following would most likely increase the demand for peanut butter?

• a decrease in the price of jelly, a good that is often used with peanut butte

• the discovery that excessive consumption of peanut butter is harmful to one's health

• crop failures that raise the price of peanuts

• the invention of a new product that consumers think is a good substitute for peanut butter

Producers are willing to offer greater quantities for sale at higher prices because

• they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses

• they will decrease their profits by expanding production at higher prices

• the government orders them to do so

• lower prices attract new firms, which have higher costs of production

If DeShawn only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

• DeShawn is an irrational consumer.

• The seller earned a $10,000 profit on the sale of the car.

• DeShawn reaped $10,000 of consumer surplus from the transaction.

• The seller received $10,000 worth of producer surplus on the transaction.

The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is

• higher than the equilibrium price.

• equal to the equilibrium price since the number of tickets bought equals the number sold.

• lower than the equilibrium price.

• higher than the equilibrium price when the demand is inelastic but lower when the demand is elastic.

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

•  

  are essentially correct.

• contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand.

• contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand.

• contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars.

A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation?

• The supply of Florida oranges fell, causing the supply of California oranges to increase as well as their price.

• The supply of Florida oranges fell, causing the supply of California oranges to decrease and their price to increase.

• The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase.

• The demand for Florida oranges was reduced by the freeze, causing an increase in the price of California oranges and a greater demand for them.

When the market for a good is in equilibrium,

• consumer surplus will equal producer surplus.

• the total value created for consumers will equal the total cost of production for business firms.

• all units valued more highly than the opportunity cost of production will be supplied.

• all units that have value will be produced, regardless of their cost of production.

Assume that corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn will

• increase the supply of corn.

• increase the supply of soybeans.

• decrease the supply of soybeans.

• decrease the supply of corn.

If cable TV service and satellite TV service are substitutes,

• a decrease in the price of cable will decrease the demand for satellite TV.

• an increase in the price of cable will decrease the demand for satellite TV.

• an increase in the price of cable will generally have no effect on the demand for satellite TV.

• an increase in the price of cable will shift the demand curve for satellite TV to the left.

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources

• only if buyers and sellers really care, personally, about economic efficiency.

• even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use.

• even if business firms fail to produce goods efficiently.

• if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.