Exam #1 (Winter 2025)
1) Marginal reasoning suggests that a rational decision-maker will continue whatever activity it is pursuing as long as:
A. The total cost exceeds the total benefit
B. The marginal benefit is at least equal to the marginal cost
C. The average cost is lower than the average benefit
D. The sunk cost is recoverable
2) Diminishing marginal benefit implies that:
A. The total benefit of consumption increases at an increasing rate
B. Each additional unit consumed provides more benefit than the previous unit
C. As more of a good is consumed, the additional benefit from consuming an extra unit decreases
D. The opportunity cost of consumption decreases.
3) If the marginal cost of producing an additional unit of a good is greater than the marginal benefit, a firm should:
A. Increase production
B. Decrease production
C. Keep production unchanged
D. Ignore marginal analysis and focus on total cost
4) A consumer's willingness to pay for a good is directly influenced by:
A. The sunk cost of previous purchases
B. The amount of discounts offered by firms
C. The cost of production
D. The number of substitutes available
5) Which of the following statements about sunk costs is true?
A. Sunk costs should be considered in future decision-making
B. Sunk costs can be recovered by adjusting future production
C. Rational decision-makers ignore sunk costs when making decisions
D. Sunk costs determine marginal costs
6) When a firm makes decisions based on marginal analysis, it:
A. Considers total revenue and total cost exclusively
B. Evaluates the additional cost and additional benefit of an action
C. Ignores future opportunities and focuses only on past performance
D. Seeks to minimize all possible costs regardless of benefit
7) Suppose a company has spent $1 million on developing a product, but a new technology makes the product obsolete before release. What should the company do according to economic reasoning?
A. Continue investing in the product to recover costs
B. Abandon the project if future costs exceed future benefits
C. Ignore marginal costs and rely on past investments
D. Price the product based on its sunk cost
8) If the marginal benefit of an additional hour of studying decreases as a student studies more, this is an example of:
A. Marginal cost exceeding marginal benefit
B. Increasing returns to studying
C. Opportunity cost
D. Diminishing marginal benefit
9) A local coffee shop lowers its prices, and as a result, its sales increase by 30%. This is an example of:
A. A shift in demand
B. A change in quantity demanded
C. A change in supply
D. A shift in equilibrium price
10)A new study finds that drinking tea significantly improves brain function. As a result, what will likely happen in the tea market?
A. Demand for tea will shift right
B. Quantity demanded for tea will decrease
C. Supply of tea will increase
D. Demand for tea will shift left
11)If the price of a substitute good (e.g., Pepsi for Coca-Cola) decreases, what happens to the demand for Coca-Cola?
A. Quantity demanded for Coca-Cola increases
B. Quantity demanded for Coca-Cola remains unchanged
C. Demand for Coca-Cola shifts left
D. Demand for Coca-Cola shifts right
12)A rise in consumer income leads to an increase in demand for luxury watches. This implies that luxury watches are:
A. Unrelated to income changes
B. Price inelastic
C. Inferior goods
D. Normal goods
13)If a major recession hits and average incomes drop significantly, what happens to the demand for used cars?
A. Demand for used cars shifts right
B. Demand for used cars shifts left
C. Quantity demanded for used cars decreases
D. Supply of used cars increases
14) If the price of movie tickets increases, leading to fewer people going to the movies, what is happening?
A. A decrease in demand
B. A decrease in quantity demanded
C. A shift in consumer preferences
D. A shift in supply
15) If the government imposes a tax on gasoline, leading to higher gas prices, what will likely happen to the demand for electric cars?
A. Demand for electric cars shifts left
B. Demand for electric cars shifts right
C. Quantity demanded for gasoline increases
D. The supply of electric cars shifts right
16)An increase in the number of consumers in a city leads to:
A. A decrease in quantity demanded
B. No effect on demand
C. A rightward shift in demand
D. A leftward shift in demand
17)Which of the following would cause a shift in the demand curve for smartphones?
A. A decrease in the price of smartphones
B. A change in consumer preferences towards tablets
C. A decrease in supply of smartphones
D. A shift in the production technology for smartphones
18)If a new law bans advertising for sugary drinks, what is the likely effect on demand for these drinks?
A. Demand shifts left
B. Demand shifts right
C. Quantity demanded increases
D. There is no effect on demand
19)A new technological advancement allows car manufacturers to produce vehicles at a lower cost. What happens to the supply of cars?
A. Supply shifts left
B. Supply shifts right
C. Quantity supplied decreases
D. Demand increases
20) A severe drought reduces the wheat harvest significantly. What happens in the wheat market?
A. Demand shifts right
B. Quantity supplied increases
C. Supply shifts right
D. Supply shifts left
21)An increase in the price of oil leads to higher transportation costs for delivering goods. What happens to the supply of goods?
A. Supply shifts left
B. Supply shifts right
C. Demand shifts right
D. Quantity supplied increases
22)If the price of microchips (a key input in smartphone production) falls significantly, what happens to the supply of smartphones?
A. Supply shifts left
B. Supply shifts right
C. Demand shifts right
D. Quantity supplied decreases
23)A regulation requiring costly safety upgrades in factories is introduced. What happens to supply?
A. Supply shifts left
B. Supply shifts right
C. Demand increases
D. Quantity supplied increases
24)Which of the following scenarios would lead to an increase in the quantity supplied of a good?
A. A new technology improves production efficiency
B. The government provides subsidies
C. The price of the good increases
D. The cost of raw materials decreases
25)If the price of coffee increases due to a supply shock, what is likely to happen in the market for tea (a substitute good)?
A. Supply of tea increases
B. Equilibrium price of tea decreases
C. Demand for tea increases
D. Demand for tea decreases
26)A major technological advancement reduces production costs for smartphones. How does this impact the smartphone market?
A. Supply shifts right, lowering equilibrium price
B. Demand shifts left, lowering equilibrium quantity
C. Supply shifts left, raising equilibrium price
D. Quantity demanded decreases
27)A sudden increase in the price of raw materials causes a leftward shift in supply for automobiles. What happens in the market?
A. Equilibrium price increases, equilibrium quantity decreases
B. Equilibrium price decreases, equilibrium quantity increases
C. Demand shifts right, leading to higher quantity sold
D. No impact on market equilibrium
28)During a holiday season, the demand for toys increases significantly. What is the likely effect in the toy market?
A. Supply increases to match demand
B. Surplus occurs
C. Equilibrium price and quantity both increase
D. Equilibrium price decreases, quantity increases
29) If both supply and demand decrease at the same time, what happens to equilibrium quantity?
A. Equilibrium quantity decreases
B. Equilibrium quantity increases
C. Equilibrium price remains unchanged
D. Equilibrium price must decrease
30)Which of the following is a possible effect on the market for fresh vegetables, a normal good, if consumer incomes increase.
A. Quantity demanded of fresh vegetables decreases
B. Supply of fresh vegetables increases
C. Quantity supplied of fresh vegetables increases
D. Demand of fresh vegetables decreases
E. None of these are correct.
31)A 15% increase in the price of bottled water leads to a 30% decrease in quantity demanded. What is the price elasticity of demand?
A. -0.5
B. -1.0
C. -2.0
D. -1.5
32)If the price elasticity of demand for a product is -0.4, what happens to total revenue if the price increases?
A. Total revenue increases
B. Total revenue decreases
C. Total revenue remains unchanged
D. Consumers stop buying the product
33)If the income elasticity of demand for organic food is 1.8, this means that organic food is:
A. A necessity
B. An inferior good
C. A normal good
D. A perfectly elastic good
34) A 6% increase in consumer income results in a 4% decrease in demand for instant noodles. What type of good is this?
A. A necessity
B. A luxury good
C. A normal good
D. An inferior good
35) The cross price elasticity between butter and margarine has been estimated to be 1.5, what does this imply?
A. Butter and margarine are substitutes
B. Butter and margarine are complements
C. The demand for butter is perfectly inelastic
D. Margarine is an inferior good
36) A ride-sharing company increases its fares by 20%, resulting in a 10% decrease in rides. What does this suggest about the price elasticity of demand?
A. Demand is elastic
B. Demand is unit elasticity
C. Demand is inelastic
D. Demand is perfectly elastic
37) A 10% increase in the price of beef results in a 5% increase in demand for chicken. What does this indicate?
A. Chicken and beef are substitutes
B. Chicken and beef are complements
C. Chicken is a normal good
D. Beef is an inferior good.
38) A recession lowers consumer incomes. What happens to the equilibrium price and quantity in the market for an entertainment venue like a bowling alley?
A. Price decreases, quantity increases, if bowling is a normal good
B. Price decreases, quantity decreases, if bowling is an inferior good
C. Price increases, quantity decreases, if bowling is a normal good
D. Price increases, quantity increases, if bowling is an inferior good
39) If demand is given by P = 12 – Q and supply is given by P = 2 + Q, at a price of 3 there is a(n):
A. Equilibrium
B. Shortage
C. Surplus
a) Sunk cost
40) If demand is given by P = 12 – Q and supply is given by P = 2 + Q, at a price of 7 there is a(n):
A. Equilibrium
B. Shortage
C. Surplus
D. Sunk cost
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