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Quiz 1 Part I

Chapters 1 & 2

Monroe College

Dr. Rawana
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Name (last)BOKHABRINE, (first)Ayoub..
February 22, 2016
MG 640
Quiz 1 Part I
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Discussion Problem
1. If the interest rate is 7% and cash flows are $4,000 at the end of year one and $6,000 at the end of year two,
then the present value of these cash flows is
a.

$9,246.

b.

$8,979.

c.

$9,615.

d.

$10,691.

Show all work. The use of the time line is useful in explaining your answer.
PV=4000/(1+0.07)1+6000/(1+0.07)2
=3738.31+5240.63
=8978.94
My answer is B

2.

. If the interest rate is 6.5%, what is the present value of $500 received in one year?
a.

$303.

b.

$469.

c.

$532.

d.

$577.

Show all work. The use of the time line is useful in explaining your answer.
PV=500/(1+0.65)1
=303.03
My answer is A

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Quiz 1 Part I
3.

Chapters 1 & 2

Monroe College

Apples and oranges are substitutes. A freeze in Florida destroys most of the orange crop. What would
you expect to happen to the market (price and quantity) for each of the following:
(Hint: Use the demand curve and supply curve to draw conclusion with respect to the impact on the price and
quantity following the freeze).

a. Oranges?
Supply of oranges goes down,
And demand remains the same

b. Apples?
Demand of apples goes up,
Supply of apples goes up, because there is no oranges in the market.

c. Orange juice?

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Quiz 1 Part I

Chapters 1 & 2

Monroe College

Supply of orange juice goes down, since there the orange production decreased
Demand of orange juice remains constant; consumers would buy apple juice, since apple and oranges are substitutes

4. Suppose market demand and supply are given by Qd = 30 - 3P and QS = 5 +2P.


a) Solve for the equilibrium price and quantity. Show your work!
There is a formula to find equilibrium: Qd=Qs, demand equals supply,
30-3P=5+2P
P=5
b) Draw the demand and supply curve and show the equilibrium values obtained in part a)
Show Work!

5. In a competitive market, the market demand is Qd = 96 10P and the market supply is Qs = 14p. A price
ceiling of $5 will result in a shortage of

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Quiz 1 Part I

Chapters 1 & 2

36 units

24 units

16 units

None of the above

Monroe College

Show your work! Using market demand and Market supply diagram!

6. Graphically, a report indicating the health defects from consuming extra ounces of whole grains per day
increases the chances of cancer by 30% will cause the demand curve for grains to:
a.
b.

Shift rightward
c.
Shift leftward
Become flatter
d.
Become steeper
Show your work using the tools of demand and supply curves!

My answer is C
Demand curve occurs to shift leftward when price and demand goes down. Since the chances of cancer
increased, the price of a product would decrease.

7.

Consumer surplus is the difference between the

a.
b.
c.
d.

Market price and the minimum price required to induce production


The maximum willingness to pay of consumers and the market price
Quantity demanded and the quantity supplied at the market price
Full economic price and the minimum price required to induce production
Show your work!

Page 4 of 5

Quiz 1 Part I

Chapters 1 & 2

Monroe College

I chose answer B, following a definition of consumer surplus. Consumer surplus implies the extra profit that
consumers could gain when they buy a product or a service. Managers can understand how much consumers are
ready to pay and set a price in the market. Usually, customers pay more than they suppose, and sales are just an
economic trick to make people to buy more.

8.

a) What is scarcity? Can it be eliminated? Explain

Scarcity means a shortage of resources, they are available, but the quantity is not enough to cover humans
needs. Scarcity cannot be eliminated, people need to make a choice, otherwise, there is no economic.
b) Why does scarcity exist? How can it be resolved? Explain
Scarcity exists, because humans needs are unlimited and available quantity of resources are limited. In
my opinion, it cannot be resolved. If there is no scarcity, then economics would cease to exist.

c)

IS there such a thing as a free lunch? Yes No. Explain

Considering a termin consumer surplus, I dare to state that there is no a thing as a free lunch. Sales are
just a good way to force consumers to spend their money buying more things that they may not actually
need. Deals such as buy one and get one free create artificial benefit that in reality does not exist.
9.

What is market equilibrium? Does the market always achieve equilibrium? If so, why? If not, why?
Explain. Illustrate with examples and graphs where necessary

Market equilibrium occurs when supply and demand are equal. Equilibrium means there is no shortage or
surplus in the market. However, the market does not always reach equilibrium. Prices tend to change and there
is always shortage and surplus. Demand and supply are usually not balanced in the market.
10. The movement along a given demand curve is the same as a shift in the demand curve.
True False. Explain
Movement along demand curve and a shift in the demand curve are not the same. Movement along demand
curve occurs when a price changes, meanwhile, other variables remain constant. Demand shifters change a
demand curve when there is other causes that impact demand such as income, substitute products and
consumer expectations.

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