Deck 3: Show Me the Money: the Law of Supply

Question 1

To hire or purchase inputs, a business must pay a price that matches the best opportunity cost of the input owner.

Answer 1

True

Question 2

The marginal cost of a supply choice is measured in dollars.

Answer 2

False

Question 3

People who cannot find work during a recession often enroll in school. An economic explanation is that attending school during a recession has a

A) lower marginal benefit.
B) higher marginal opportunity cost.
C) marginal benefit equal to zero.
D) marginal benefit that is less than the marginal opportunity cost.
E) lower marginal opportunity cost.

Answer 3

lower marginal opportunity cost.

Question 4

The additional opportunity cost of increasing quantity supplied is called marginal cost.

Question 5

Marginal cost increases as you increase quantity supplied.

Question 6

The real cost of any input is determined by the best alternative use of that input.

Question 7

For supply decisions, marginal

A) cost is measured in dollars.
B) cost is measured in the same units as it is for demand decisions.
C) benefit is measured in dollars.
D) benefit is measured in opportunity cost.
E) benefit reflects the value of the best alternative activity.

Question 8

Which statement is true?

A) For demand, marginal benefit increases as you buy more.
B) For supply, marginal benefit is measured in the opportunity cost of your time.
C) For demand, marginal benefit is measured in dollars.
D) For supply, marginal benefit is measured in dollars.
E) For supply, marginal cost decreases as you supply more.

Question 9

The marginal benefit of a supply choice is measured in the opportunity cost of your time.

Question 10

Marginal opportunity cost

A) increases as you supply less.
B) is constant when some inputs are less productive than others.
C) is constant when some inputs are more productive than others.
D) decreases as you supply more.
E) increases as you supply more.

Question 11

The opportunity cost of hiring your lazy brother who does nothing all day is zero.

Question 12

To hire an input, a business owner must pay a price that

A) covers the transportation cost of the input owner.
B) reflects the business owner's lowest-cost alternative activity.
C) matches the best opportunity cost of the input owner.
D) gives the input owner enough money to buy the assets of the business.
E) reflects the business owner's best alternative activity.

Question 13

Which statement is false?

A) For demand, marginal benefit decreases as you buy more.
B) For demand, marginal benefit is measured in the satisfaction you get.
C) For demand, marginal cost is measured in dollars.
D) For supply, marginal cost is measured in dollars.
E) For supply, marginal cost increases as you supply more.

Question 14

As your hourly wage rises, your

A) marginal opportunity cost of attending school increases.
B) value of your best alternative decreases.
C) marginal opportunity cost of attending school decreases.
D) marginal benefit of attending school decreases.
E) ability to concentrate decreases.

Question 15

Julia grows roses and tulips in her greenhouse. When she grows more roses and fewer tulips, her marginal

A) cost of growing roses increases.
B) benefit of growing tulips decreases.
C) cost of growing tulips increases.
D) benefit of growing tulips increases.
E) cost of growing roses decreases.

Question 16

To hire or purchase inputs, a business must pay a price that matches the lowest opportunity cost of the input owner.

Question 17

The opportunity cost of any supply decision is the substitute products you could buy with the money you earn.

Question 18

Amber bakes muffins and cookies to sell at the market. If she bakes more cookies and fewer muffins, her marginal

A) cost of baking muffins increases.
B) cost of baking muffins decreases.
C) benefit of baking muffins increases.
D) cost of baking cookies decreases.
E) benefit of baking cookies increases.

Question 19

As you shift your time away from alternative uses in order to work,

A) you should stop attending class.
B) the marginal cost of your time increases.
C) you give up your least valuable alternatives last.
D) the marginal cost of your time decreases.
E) you give up your favourite alternatives first.

Question 20

All marginal costs are opportunity costs, but not all opportunity costs are marginal costs.

Question 21

Sunk costs

A) reflect the best alternative use of your money.
B) will eventually be refunded.
C) arise from illegal use of inputs.
D) include marginal opportunity costs.
E) cannot be reversed.

Question 22

Matthew bought a 1994 Honda Civic for $2,000. A friend offered him $500 for the car last week. Matthew has been offered a job in France. Driving an old Honda from Toronto to France is not possible. When calculating his opportunity costs, Matthew should include

A) the $1,500 loss on the Honda.
B) nothing, because this is a sunk cost.
C) the $500 he could get from selling the Honda.
D) the $2,000 he spent to buy the car.
E) the cost of buying a similar car in France.

Question 23

For supply, marginal cost increases as you supply more.

Question 24

Joanna is paid $50 an hour to DJ at Club Keynes on Friday and Saturday nights. The Club is closed all other nights. She also is paid $15 an hour to work at the library. The library lets her work as many hours as she wants. Club Karl wants to hire Joanna to DJ on Thursday nights. The marginal opportunity cost of hiring Joanna at Club Karl is $15 an hour.

Question 25

The marginal cost of a supply choice is measured in the opportunity cost of your time.

Question 26

Sunk costs influence smart choices.

Question 27

Sunk costs do not influence smart choices.

Question 28

Sunk costs are part of opportunity costs.

Question 29

The marginal cost of the labour you supply includes the cost of commuting to your job.

Question 30

For supply, marginal cost decreases as you supply more.

Question 31

Season's tickets that cannot be resold are a sunk cost.

Question 32

Sunk costs are not part of opportunity costs.

Question 33

The marginal cost of the labour you supply does not include the cost of commuting to your job.

Question 34

Sunk costs cannot be reversed.

Question 35

A new gym opened up just minutes from Charu's condo. Previously, getting to the gym after school took over an hour! Charu's marginal opportunity cost of studying has decreased.

Question 36

Examples of sunk costs include

A) unanticipated future costs.
B) pay-as-you-go phone service.
C) marginal benefits.
D) opportunity costs.
E) long-term leases.

Question 37

Joanna is paid $50 an hour to DJ at Club Keynes on Friday and Saturday nights. The Club is closed all other nights. She also is paid $15 an hour to work at the library. The library lets her work as many hours as she wants. Club Karl wants to hire Joanna to DJ on Thursday nights. The marginal opportunity cost of hiring Joanna at Club Karl is $50 an hour.

Question 38

Haley sold one of her watercolour paintings 5 years ago for $10,000, but hasn't sold another painting since. Painting kitchens for $20 an hour might be a smart choice for Haley.

Question 39

Komal paid $800 for a night school class. She can still get a 75% refund if she drops out today. When deciding whether to drop out of school, Komal should consider the

A) $600.
B) $1,400.
C) $0.
D) $200.
E) $800.

Question 40

A new gym opened up just minutes from Charu's condo. Previously, getting to the gym after school took over an hour! Charu's marginal opportunity cost of studying has increased.

Question 41

Mariya runs a small cafe where she makes sandwiches and sells coffee. There isn't room for a second person so Mariya works alone. Mariya buys a new coffee machine that allows her to brew her coffee more cheaply. Mariya should

A) make more sandwiches and sell more coffee.
B) make fewer sandwiches and sell less coffee.
C) make more sandwiches and sell less coffee.
D) go back to the old coffee machine.
E) make fewer sandwiches and sell more coffee.

Question 42

As the price of a product or service falls,

A) supply decreases.
B) quantity supplied increases.
C) both demand and supply decrease.
D) quantity supplied decreases.
E) supply increases.

Question 43

Komal paid $800 for a night school class. She can still get a 75% refund of $600. The opportunity cost of dropping out of school includes the $200 in tuition that she can't get back.

Question 44

A sunk cost can be recovered if you make a smart choice.

Question 45

Kiran paid Global TV $2,000 to run commercials for her business. Even though the commercials are over, her customers still mention them. While the commercials continue to generate new business, the $2,000 is a sunk cost.

Question 46

You are sick of your "Save the Whales" tattoo, and are willing to pay to have it painfully removed. The cost of the original tattoo is a sunk cost.

Question 47

Matthew bought a 1994 Honda Civic for $2,000. A friend offered him $500 for the car last week. Matthew has been offered a job in France. Driving an old Honda from Toronto to France is not possible. His opportunity costs of the job include the $1,500 he would lose on the Honda.

Question 48

Equipment originally bought for $4,000 which now has no resale value is a sunk cost.

Question 49

When Francis decides about moving to take a job in Phoenix, his three-year contract with Rogers for cable TV in Toronto is not a relevant factor.

Question 50

Lance runs a bicycle repair shop. His assistant demanded and received a wage raise. In response, Lance's supply of repair services decreases because

A) the price of an input rises.
B) his marginal opportunity costs fall.
C) this is a cost-saving technological innovation.
D) he expects that the price of repair services will fall in the future.
E) the price of his repair service falls.

Question 51

Costco requires all customers to buy a one-time membership before they can shop. The membership fee is a sunk cost.

Question 52

You miss the flight to Hawaii, and the airline only gives you a credit for a future flight. The cost of your original ticket is a sunk cost.

Question 53

Before Andrew took a prestigious accounting job, he estimated that he would have to spend $10,000 on new suits. For a job with a less prestigious company he would only have to spend $2,000 on new suits. When making a smart choice between jobs, the $8,000 difference in clothing costs is irrelevant because it is a sunk cost.

Question 54

All inputs in a business are equally productive at all activities. As the business increases its output, marginal opportunity cost

A) decreases but eventually increases.
B) is constant.
C) increases.
D) increases but eventually decreases.
E) decreases.

Question 55

All inputs in a business are not equally productive at all activities. As the business increases its output, marginal opportunity cost

A) decreases but eventually increases.
B) is constant.
C) increases.
D) increases but eventually decreases.
E) decreases.

Question 56

You miss the flight to Hawaii, and the airline only gives you a credit for a future flight. The cost of your original ticket is not a sunk cost because you can use the credit in the future.

Question 57

Buying a photo ID bus pass creates a sunk cost.

Question 58

As the price of a product or service rises,

A) quantity demanded increases.
B) demand increases.
C) quantity supplied increases.
D) supply increases.
E) both demand and supply increase.

Question 59

Costco requires all customers to buy a one-time membership before they can shop. The membership fee is not a sunk cost because the savings on Costco purchases are more than the membership fee.

Question 60

Haley spent 100 hours of her time and bought $500 in supplies to paint a picture. These costs are sunk costs.

Question 61

You read a

A) marginal cost curve up and over.
B) marginal cost curve over and down.
C) supply curve up and over.
D) supply curve as the minimum price businesses will accept.
E) marginal cost curve as the maximum price businesses will accept.

Question 62

Some producers are chatting over a beer. Which quotation refers to a movement along a supply curve?

A) "Wage increases have forced us to raise our prices."
B) "Our new, sophisticated equipment will enable us to undercut our competitors."
C) "Raw material prices have sky-rocketed; we will have to pass the cost on to our customers."
D) "We anticipate a big increase in demand. Our product price should rise, so we are planning for an increase in output."
E) "New competitors in the industry are causing prices to fall."

Question 63

Mariya runs a small cafe where she makes sandwiches and sells coffee. There isn't room for a second person so Mariya works alone. Improved growing conditions lead to lower prices for the coffee beans that Mariya buys. Mariya should

A) make fewer sandwiches and sell less coffee.
B) make fewer sandwiches and sell more coffee.
C) make more sandwiches and sell more coffee.
D) make more sandwiches and sell less coffee.
E) open a coffee bean plantation.

Question 64

A fall in the price of a product results in a decrease in quantity supplied. This illustrates

A) the law of supply.
B) the law of demand.
C) a change in supply.
D) an inferior good.
E) technological improvement.

Question 65

Which statements are true? 1 Read a supply curve over and down.
2 Read a marginal cost curve over and down.
3 Read a supply curve up and over.
4 Read a marginal cost curve up and over.

A) 3 only
B) 1 and 2
C) 1 and 4
D) 2 and 3
E) 2 and 4

Question 66

Farmland can be used to produce either cattle or corn. If the price of cattle falls, the

A) quantity supplied of corn increases.
B) supply of corn increases.
C) demand for cattle increases.
D) supply of corn decreases.
E) quantity supplied of corn decreases.

Question 67

A rise in the price of a service

A) decreases demand for the service.
B) increases the quantity supplied of the service.
C) decreases demand for the service
D) increases the supply of the service.
E) increases preferences for the service

Question 68

Farmland can be used to produce either cattle or corn. If the price of cattle rises, the

A) quantity supplied of corn increases.
B) supply of corn increases.
C) demand for cattle decreases.
D) supply of corn decreases.
E) quantity supplied of corn decreases.

Question 69

Market supply is the

A) sum of the minimum prices that each business is willing to accept for each quantity supplied.
B) sum of the quantities supplied by all businesses at each price.
C) difference between the minimum amount each business is willing to accept and the market price.
D) difference between the maximum amount each business is willing to accept and the market price.
E) price that covers all opportunity costs of production.

Question 70

Figure 3.3.1
The economy is at point b on the PPF in Figure 3.3.1. The opportunity cost of moving to point a is

A) 8 units of X.
B) 20 units of Y.
C) 30 units of Y.
D) 6 units of X.
E) 2 units of X.

Question 71

Which statements are true? 1 Read a supply curve up and over.
2 Read a marginal cost curve up and over.
3 Read a supply curve over and down.
4 Read a marginal cost curve over and down.

A) 3 only
B) 1 and 2
C) 1 and 4
D) 2 and 3
E) 2 and 4

Question 72

Sadiq attends classes at the college and works at a CIBC bank. During exams, he cuts back on his work hours even though his wage remains the same. The explanation is that

A) not all inputs are equally productive during exams.
B) the marginal opportunity cost of his time is higher during exams.
C) CIBC has a fall in the price of an input to production.
D) Sadiq expects that CIBC will offer him more money in the future.
E) Sadiq has implemented a cost-saving technology that only works during exams.

Question 73

Figure 3.3.1
Which statement about the PPF in Figure 3.3.1 is true?

A) Inputs are equally productive in all activities.
B) Points inside the frontier represent impossible combinations of good X and good Y.
C) The opportunity cost of producing good X decreases as production of X increases.
D) The opportunity cost of producing good Y increases as production of Y increases.
E) Changes in consumer preferences for good X or good Y will shift the PPF.

Question 74

Some producers are chatting over a beer. Which quotation refers to a change in quantity supplied?

A) "Wage increases have forced us to raise our prices."
B) "Our new, sophisticated equipment will enable us to undercut our competitors."
C) "Raw material prices have sky-rocketed; we will have to pass the cost on to our customers."
D) "We anticipate a big increase in demand. Our product price should rise, so we are planning for an increase in output."
E) "New competitors in the industry are causing prices to fall."

Question 75

Figure 3.3.1
The economy is at point b on the PPF in Figure 3.3.1. The opportunity cost of producing one more unit of X is

A) 1 unit of Y.
B) 20 units of X.
C) 20 units of Y.
D) 1 unit of X.
E) 8 units of X.

Question 76

The law of supply tells us that, if other factors do not change, as the

A) price of gasoline falls, the quantity of gasoline supplied decreases.
B) price of gasoline rises, the quantity of gasoline supplied decreases.
C) supply of gasoline increases, the price of gasoline rises.
D) cost of producing gasoline decreases, the supply of gasoline increases.
E) cost of producing gasoline increases, the price of gasoline rises.

Question 77

Dimitry earns $10 an hour working at Costco. During the school term he works 20 hours a week. In the summer he works 50 hours a week even though his wage is still $10. The explanation is that

A) there has been a fall in the price of a complementary product or service.
B) the marginal opportunity cost of his time is higher during the summer.
C) he expects his wage will be higher in the future.
D) the marginal opportunity cost of his time is lower during the summer.
E) the marginal benefit of the wage is higher in the summer.

Question 78

Figure 3.3.1
Which statement about the PPF in Figure 3.3.1 is false?

A) Inputs are not equally productive in all activities.
B) Points inside the frontier represent unemployed inputs.
C) Starting at point a, an increase in the production of good Y will shift the frontier out.
D) The opportunity cost of producing good Y increases as production of Y increases.
E) Shifts in preferences for good X or good Y will not shift the frontier.

Question 79

A market has 10 identical businesses. When the price is $50, one business's quantity supplied is 70 units and market supply is

A) 700 units.
B) 500 units.
C) 3,500 units.
D) 70 units.
E) impossible to calculate without more information.

Question 80

Figure 3.3.1
The economy is at point a on the PPF in Figure 3.3.1. The opportunity cost of moving to point b is

A) 50 units of Y.
B) 20 units of Y.
C) 30 units of Y.
D) 6 units of X.
E) 2 units of X.