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Exam-Ivy Software MBA Prepworks Fundamentals of Economics|286 Questions & Answers
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Exam-Ivy Software MBA Prepworks Fundamentals ofEconomics|286 Questions & Answers
The main concept demonstrated in the production possibilities frontier is Correct-
Opportunity cost
When country A has a lower opportunity cost of producing sugar relative to country B, then
country A is said to have Correct-Comparative Advantage
A graph that shows the combinations of two goods that the economy can produce given the
available scarce resources and available technology is called a Correct-Production
Possibilities Frontier
Assume a production possibilities frontier for pickup trucks and big Mac hamburgers. The
economy is producing 20 big Mac hamburgers and 65 pickup trucks (point 20, 65). What is the
opportunity cost of producing an additional 20 Big Mac hamburgers (point 40, 60)?
Correct-Five Pickup Trucks
The opportunity cost of an item is Correct-whatever must be given up to obtain the item.
, Exam-Ivy Software MBA Prepworks Fundamentals of
Economics|286 Questions & Answers
Consider market for pork, suppose that price of beef, a substitute for pork, increases. Because
of the change in price of beef, the equilibrium price of pork...? Correct-Increases
Consider the market for pork, suppose that the price of beef, a substitute for pork, increases.
Because of this change in the price of beef, the equilibrium quantity of pork will...?
Correct-Increase because increase in price of beef causes demand curve for pork to shift
North East. B/c of this shift, the equilibrium quantity of pork will increase.
Consider the market for pork. Suppose that the price of hog feed, an input to the production
of pork, increases. Because of that change in the price of hog feed, the equilibrium quantity of
pork ...? Correct-Decreases because the increase in price of hog feed causes the supply
curve for pork to shift NW. B/c of this shift, the quantity of pork decreases.
Consider the market for pork. Suppose that disposable income increases and pork is an
inferior good. Because of that change in income, the equilibrium price of pork...? Correct-
Decreases because the increase in disposable income causes the demand curve for pork to
shift south west, because pork is an inferior good. because of this shift, the equilibrium price
of pork decreases.
, Exam-Ivy Software MBA Prepworks Fundamentals of
Economics|286 Questions & Answers
Consider the market for pork. Suppose that 1) disposable income increases and pork is a
normal good, And 2) the price of hog feed decreases. Because of these changes, the
equilibrium price of pork is... Correct-Indeterminate because the increase in disposable
income causes the demand curve for pork to shift north east because pork is a normal good.
The decrease in price of hog feed causes the supply curve to shift to the south east. The net
effect of these shifts leaves us unable to say waht will happen to the equilibrium price of
pork.
Consider the market for pork. Suppose that disposable income increases and pork is a normal
good and the price of hog feed decreases. The equilibrium quantity of pork...? Correct-
Increases.
Suppose the price elasticity for demand for retail phone service in the US is 0.95. If the # of
retail substitutes for retail telephone service increases, will the price elasticity of demand
become more elastic or more inelastic? Correct-Elastic. When the number of substitute
products increases, the price elasticity of demand will become more elastic. consumers
become more sensitive to price when they have more options to chose among.
, Exam-Ivy Software MBA Prepworks Fundamentals of
Economics|286 Questions & Answers
True or False: the law of demand states that if the price of a good increases, CP, then the
quantity demanded of that good will increase. Correct-False. quantity demanded of that
good will decrease.
Suppose the cross-price elasticity of demand for home heating oil with respect to the price of
natural gas is +0.6. This number tells us that home heating oil and natural gas are substitute
or compliment goods? Correct-Substitute goods. When the cross price elasticity is positive
then they are substitutes.
Consider the market for mustard which is a complement to hot dogs. Suppose the price of hot
dogs increase. What happens to the equilibrium price and equilibrium quantity of the
mustard market? Correct-Equilibrium price decreases and equilibrium quantity decreases.
The price of hot dogs is an independent variable in the demand function for mustard. This is
because hot dogs and mustard are complementary goods. Therefore, if the price of hot dogs
increases, then the demand curve for mustard shifts to the south-west. People demand less
mustard at every price when hot dogs are more expensive. In the mustard market, the
equilibrium price decreases and equilibrium quantity decreases.
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