Eco231 Final

Determinants of Elasticity

Substitutes, Necessity, Cost Relative to Income, Time

invisible hand

individual acting in their own self interest to provide consumers with the right combination of goods.

social cost=

private cost + External Cost

determinants of supply

tech, price, expectations, & number of sellers

Terms of trade have to be in between

oppor cost

Elasticity=

% Change in quantity/ % change in price

Income Elasticity=

% change in quantity demanded/% change in income

production possibilities frontier (PPF)

(2 options!!!) a line on a production possibilities curve that shows the maximum possible output an economy can produce

Midpoint Method=

(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]

Substitute (Coke vs Pepsi)

+

Compliments (PB&J)

-

All goods can be broken into 2 costs

1. Private Costs 2. External Costs

PPF Pivot

Changes in production capabilities of a single good. change in slope, anchor pts. (ex. can baking cakes, affect cookies?)

Elasticity > 1

Elastic

Supply Determinants of Elasticity

Input availability, Flexibility of Production, Time

How to find Revenue

Price x Quantity

You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10 percent off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15 percent savings. Should you drive downtown to buy the TV?

Yes, because you will save more than $20.

Subsidy is

a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut.

Standardized good

a good for which any two units have the same features and are interchangeable.(gustav selling ice)

Your coffee shop is doing well so far! Last month you had revenues equal to $50,000. You spent $30,000 on coffee, cups, employees, and other variable costs, and the combination of all of your fixed costs, including rent for the store came out to be $10,000. You know you could have become a banker and earned $6,000 last month, but you followed your dreams and are now the proud owner of a profitable coffee shop! what is your economic profit of running the coffee shop last month?

a. $4,000 b. $20,000 c. $30,000 d. $10,000 - a

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:

a. $5 b. $125 c. $345-a

Suppose when the price of calculators is $10, the quantity demanded is 100, and when the price is $12, the quantity demanded drops to 80. Using the mid-point method, the price elasticity of demand is:

a. -1.22. b. -0.81. c. -150 percent. d. -81 percent - a

Quinn's income to spend on either bowling or eating out each month is $100. It costs $10 to bowl for the night and it costs $20 for Quinn to eat at a restaurant. A point on Quinn's budget constraint would be:

a. 3 nights of bowling and 4 trips to the restaurant. b. 4 nights of bowling and 3 trips to the restaurant. c. 10 nights of bowling and 5 trips to the restaurant. d. 2 nights of bowling and 5 trips to the restaurant. - b

If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. Which of the following statements is correct?

a. Ana has the comparative advantage in fudge, but Leo has the absolute advantage in fudge. b. Ana has both an absolute advantage and the comparative advantage in fudge. c. Ana has the comparative advantage in toffee, but Leo has the absolute advantage in toffee. d. Leo has both the absolute advantage and the comparative advantage in fudge. - a.

After browsing several pairs of shoes, Bob buys a pair of Nike running shoes. Economists would say that:

a. Bob is revealing he will always choose Nike over any other shoe brand. b. Bob is revealing his strong distaste for New Balance running shoes. c. Bob made a poor choice, if he really prefers Adidas. d. Bob will get more utility per dollar from the Nike running shoes than any other in the store. - d

Which of the following is an example of a positive externality?

a. Consuming fresh fruit b. Rescuing a puppy c. The delicious scent of fresh donuts from walking by Murray Donuts in the morning d. Air pollution from increased traffic - c

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?

a. Dan should specialize in sandwiches, and Tracy should specialize in smoothies. b. Tracy should specialize in sandwiches and smoothies. c. Dan should specialize in smoothies, and Tracy should specialize in sandwiches. d. Dan should specialize in both sandwiches and smoothies. - a

Suppose Colin brews beer and makes cheese. If Colin can increase his production of beer without decreasing his production of cheese, then he is producing at an:

a. Efficient pt b. Inefficient pt c. Unattainable d. Ideal pt -b (ideal pt is not real)

Which of the following markets would benefit the most from a government subsidy?

a. Inelastic market with negative externalities b. Elastic market with negative externalities c. Elastic market with positive externalities d. Inelastic market with positive externalities - c

Ben is asked to rate the utility he would get from reading different types of publications for the next hour. If he read a graphic novel he would get utility of 5. If he read a biography, he would get utility of 4, and if he read his economics textbook, he would get utility of 9. An economist would predict that Ben will spend his next hour reading:

a. It is impossible to predict how Ben will spend his time. b. a biography. c. his economics textbook. d. a graphic novel. - c

All externalities:

a. are harmful to society and create costs external to the decision maker. b. create either a cost or benefit to a person other than the person who caused it. c. are beneficial to society and create benefits external to the decision maker. d. are addressed by the government through taxation. - b

Suppose Karl divides his time between making birdhouses and growing artichokes. Karl's friend recently gave Karl some new woodworking tools that greatly reduced the amount of time it takes Karl to make each birdhouse, but the new tools had no impact on the amount of time it takes Karl to grow artichokes. Thus, the new tools _____ Karl's opportunity cost of growing artichokes.

a. increased b. decreased c. had no effect on - a

A baker of chocolate chip cookies is likely to have a ______________ price elasticity of supply than the seller of rare baseball cards due to ______________.

a. more elastic; the availability of inputs b. less elastic; the availability of inputs c. less elastic; a shorter adjustment time d. less elastic; a more flexible production process - a

You are thinking of opening a coffee shop. Before you begin your journey as an entrepreneur, you think it may be best to consider all of the costs likely to be involved. You know you will need to constantly resupply coffee essentials, such as cups, coffee beans, and sugar. You will also have to hire baristas to work at your coffee shop, and find a storefront to run the coffee shop out of. What are the fixed costs?

a. renting a storefront b. baristas c. sugar d. coffee cups - a

Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:

a. the value she places on seeing the movie. b. the $12 she spent c. only $0 because she would have spent $12 @ the movie. -a

How to find Economic surplus?

b(x)-c(x)=ES

If the price of a good increases by 10 percent, its quantity demanded drops by 50 percent. The price elasticity of demand is:

a.-1 b.-5. c.-0.2. d.-2. - b

market economy includes

command, market, and mixed

Lower prices when

demand is ELASTIC

Raise prices when

demand is INELASTIC

the price is optional when

demand is unit elastic

Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then:

the opportunity cost of attending State U. includes the money Alex could have earned working for four years.

The cost of the subsidy is equal to

the quantity sold multiplied by the amount it was sold for

price elasticity of demand

the size of the change in the quantity demanded of a good or service when its price changes

Elasticity = 1

unit elastic

A 5% increase in the price of Good C leads to a 20% decrease in the quantity demanded of Good D. Theses goods are:

unrelated substitutes compliments none of these - compliments