Econ Chapter 1-4 Study Guide (Midterm #1)
What is the law of demand? Explain brieﬂy.
The claim that, other things being equal, the quantity demanded of a good falls when the price
of the good rises.
2. Suppose pizza and coke are complements. If the price of coke decrease, what will happen to
the demand for pizza? Explain your answer brieﬂy.
Demand for pizza will increase if the price of coke decrease. By the law of demand, if the price
of coke decrease, then buyers will demand more cokes, and the demand for pizza as well. Thus,
given the same level of price, buyers will demand more pizzas.
3. Suppose there are two buyers, Jack and John in the notebook market which is perfectly
competitive. Following table represents Jack and John’s demand schedules.
What is the market quantity demanded for notebook when the price is given by $2.00?
Given $2.00, Jack wants to buy 4 notebooks and John wants to buy 3 notebooks. Thus, the
market quantities demanded for notebook are 7 notebooks for given $2.00 price.
1. Economics is the study of
(a) production methods.
(b) how manages scarce resources to maximize happiness.
(c) the interaction of financial firms and governments.
(d) earning money. 2. The adage, “There is no such thing as a free lunch,” means
(a) even people on welfare have to pay for food.
(b) the cost of living is always increasing.
(c) people face tradeoffs.
(d) all costs are included in the price of a product.
3. Barbs aunt gave her $100 for her birthday with the condition that Barb buy herself something.
In deciding how to spend the money, Barb narrows her options down to four choices: Option
A, Option B, Option C, and Option D. Each option costs $ 100. Finally she decides on Option
B. The implicit opportunity cost of this decision is
(a) the value of Option A if the value of Option A is the higher than C and D.
(b) the sum of values of Option A, C and D
(c) the average of the values to Barb of Options A, C, and D.
(d) $ 100.
4. Factors of production in economics include followings except
Section 2: Trade
Consider two farmers, Frank and Rose again. Suppose they can produce meat and potatoes and
they need to devote their efforts (i.