ECON 102 Midterm 1

Natural Experiment

An empirical study in which some process, out of the control of the experimenter, has assigned subjects to control and treatment groups in a random or nearly random way.

Which is an example of a Normative Economics statement? -relaxation of import duties will encourage imports -an increase in subsidies to farmers will boost agricultural production -an increase in social security benefits will increase the welfare of all economic agents -a cut in the tax rate will lead to an increase in consumption

An increase in social security benefits will increase the welfare of all economic agents

(NPR) Replying upon data from a large number of listeners, rather than the opinion of one of the producers, to decide which introduction to the podcast would be more effective is an example of ___________.

Empiricism

Refer to the scenario. Which is the optimum location for the firm to set up its factory?

Far

Luxury goods have an income elasticity ________.

Greater than one

Willingness to pay is the _________ for a unit of a good. For a trade to take place, the willingness to pay must be _______.

Highest price that a buyer is willing to pay; higher than the price of the good

Among a set of alternatives with the same total costs, an individual is said to optimize if she chooses an alternative that has the ________.

Highest total benefit

Which of the following statements is true? -Theories are statistics that describe the real world. -Hypotheses are predictions that can be tested with data. -Empirical evidence consists of facts, measurements, or statistics that describe the world. -Data are facts established by observation and measurement

Hypotheses are predictions that can be tested with data.

At all points below the midpoint of a downward-sloping, linear demand curve for a good, the value of the price elasticity of demand for the good is __________.

Less than one

Assume that a seller in a perfectly competitive market charges more than the equilibrium price. It is likely that this seller will ________.

Lose almost all of his buyers

(NPR) Which idea did David Autor say was the most useful idea in Economics?

Lump of Labor

(NPR) The consultant ended up changing the seats in one area from 8 to 7. She and the owner then focused on how much revenue would changed with this different number of seat. This can be seen as an example of what?

Marginal Analysis

(NPR) How much did the owner of the restaurant calculate that one seat was worth per year?

$72000

Refer to the scenario. What is the marginal opportunity cost of transporting products to the market if the firm chooses factory Far over factory Very Far?

-$50

Refer to the table. What is the equilibrium quantity of notebooks?

12 units

Refer to the table. What is the shortage in the market when the price of a notebook is $1?

16 units

Refer to the table. If the market price of wine is $4 per bottle, and the market demand for wine is 65 bottles, Sandra's demand for wine is _________.

18 Bottles

Assume that a consumer can spend $20 on two goods-pens and pencils. If the price of one pen is $5 and the price of one pencil is $2, which of the following combinations of the two goods represents a point on the consumers budget constraint? -3 pens and 2 pencils -1 pen and 10 pencils -2 pens and 5 pencils -2 pens and 3 pencils

2 pens and 5 pencils

Refer to the table. The price of a soda increases from $1 to $2. What is the optimal combination of Soda and Hotdog for Marcus, if his weekly budget for hotdog and soda is $10?

2 sodas, and 2 hotdogs

Refer to the table. What is the surplus in the market when the price of a notebook is $9?

24 units

Refer to the scenario. If the firm chooses factory Far over Close, what is its marginal opportunity cost of transporting products to the market?

$100

If an alternative provides a benefit of $8 to an individual at a cost of $6, the net benefit of the alternative equals ______________.

$2

Refer to the scenario. What is the total cost incurred per month if Ryan rented Apartment 3?

$2,150

Refer to the scenario. What is the marginal rent cost if the firm chooses factory Very Close over factory Close?

$200

Refer to the scenario. What is the opportunity cost of the commute to work per month if Ryan rents Apartment 2?

$300

Refer to the scenario. What is the marginal rent cost if the firm chooses factory Far over factory Very Far?

$40

Refer to the scenario. The total cost per month is the highest is Apartment ______ is rented.

4

Refer to the table. What is the optimal combination of Soda and Hotdog for Marcus, if his weekly budget for hotdog and soda is $10?

4 sodas, and 2 hotdogs

Refer to the table. What is the shortage in the market when the price of a notebook is $3?

4 units

(NPR) What was the median amount of money given by the tooth fairy according to the Delta Dental survey?

4.66

(NPR) How many solar panel was John from Long Island having installed on his house?

41

(NPR) What did Betsy Stevenson say that she used to get from the tooth fairy as a kid?

50 cents

(NPR) By approximately how much did the price of solar panels decrease between 2007 (8 years before the original airing of the podcast) and 2015 (at the time of the original podcast)?

75

Which of the following factors will NOT cause a shift in the demand for a good? -A change in tastes and preferences -A change in the market price of the good -A change in consumer incomes -A change in the number of consumers

A change in the market price of the good

Which of the following is most likely to be an example of causation? -A student wins money by scratching a ticket with a particular coin. He decides to scratch all tickets with the same coin in the future. -A soccer player scores four goals when he wears red socks. He concludes that the red socks helped him score the goals. -The crime rate is high in a country. The literacy rate is high as well. -A firm producing compact fluorescent light bulbs installs new machinery. Their per-day production of light bulbs increases.

A firm producing compact fluorescent light bulbs installs new machinery. Their per-day production of light bulbs increases.

Suppose Z is a normal good. The equilibrium price and quantity of Z in the year 2013 was $25 and 60 units, respectively. In 2017, the equilibrium price of Z had increased to $35 and the equilibrium quantity had increased to 70 units. Other things remaining the same, which of the following could explain this change? -A leftward shift of the supply curve of Z -A rightward shift of the supply curve of Z -A leftward shift of the demand curve for Z -A rightward shift of the demand curve for Z

A leftward shift of the supply curve for Z

Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, and the shift in demand is greater than the shift in supply. Then in comparison to the initial equilibrium, the new equilibrium will be characterized by ___________.

A lower price and quantity

The market demand is the ________ of the individual demand of all the potential buyers.

Sum

Which of the following statements best describes a normal good? -A normal good is a good that is rationed by the government -A normal good is a good whose supply incests with a decrease in its price -A normal good is a good whose demand increases with an increase in consumers' income -A normal good is a good that is readily available in the market

A normal good is a good whose demand increases with an increase in consumers' income

Data shows that in 2012, the college enrollment in Lithasia increased. In the same year, the sale of hot dogs in Lithasia also increased. The relationship between college enrollment and the sale of hot dogs exhibits ___________.

A positive correlation

Which of the following pairs of goods is most likely to have a positive cross-price elasticity? -Motorcycles and typewriters -Coffee and sugar -A privately-owned car and public transportation -Printers and ink cartridges

A privately-owned car and public transportation

(NPR) A/B testing can be thought of as an example of __________.

A randomized experiment

What does a model refer to?

A simplified description, or representation, of reality

Spending more time commuting in exchange for a lower monthly rent is an example of _______.

A trade-off

(NPR) Based on what Betsy Stevenson reported getting, what was the inflation adjusted amount the tooth fairy should give?

About 3 dollars

What is Economics primarily the study of?

Agents' choice and their impact on society

Which of the following is a key property of models? -all economic models begin with assumptions -all models can be used for a limited time only -empiricism is not essential for testing models -all models are consistent and do not make incorrect predictions

All economic models begin with assumptions

In a perfectly competitive market, the market clearing price is _________ the equilibrium price.

Always equal to

(NPR) Which idea did Scott Cunningham say was the most useful idea in Economics?

Casual Inference

(NPR) Supply increased because of which country beginning to produce goods?

China

(NPR) Which idea did Emily Oster say was the most useful idea in Economics?

Comparative Advantage

Which of the following statements correctly describes perfectly competitive market equilibrium? -Competitive markets converge to the price at which quantity supplied and quantity demanded are equal. -Multiple equilibriums are possible for a given set of demand and supple curves in a competitive market. -Government intervention is necessary for the competitive market to reach equilibrium. -There is always excess supply or excess demand when the competitive market is in equilibrium.

Competitive markets converge to the price at which quantity supplied and quantity demanded are equal.

If the price of a good increases, ____________.

Consumer surplus decreases

Two goods are said to be substitutes when a fall in the price of one good _______________.

Leads to a leftward shift in the demand for the other good

What does empiricism use to test theories?

Data

Suppose Apple raises the cost of downloading a song from iTunes from $.99 per song to $1.49 per song. This price increase will cause a(n) ____________.

Decrease in quantity demanded

The __________ plots the relationship between prices and the quantity that buyers are willing to purchase.

Demand curve

A supply schedule is a table that reports the ________.

Different quantities of a good that producers are willing to sell at different prices

Which of the following statements is true? -Optimization using total value calculates the change in net benefits when a person switches from one alternative to another. -Marginal analysis is a key component in the process of optimization using total value. -In both the techniques of optimization, all costs have to be converted to the same unit of measurement. -Only direct costs are considered when the net benefits of the alternatives are calculated.

In both the techniques of optimization, all costs have to be converted to the same unit of measurement.

(NPR) Justin Wolfers said that one explanation for the increase in tooth fairy payments was related to which concept that we covered in Chapter 5?

Income Elasticity of Demand

Other things remaining same, a rightward shift in the demand curve will lead to a(n) ___________.

Increase in the equilibrium price and the equilibrium quantity

A perfectly elastic demand curve _______.

Is parallel to the quantity axis

(NPR) The price of solar panels decreased in part because installers found ways to install them more quickly, for example using the "zep tool". The installer said that the installation time decreased from 2 days to about four hours between 2010 and 2015. How does this relate to an increase in supply?

It is an improvement in technology

Which of the following goods is likely to have the highest price elasticity of demand? -Life-saving drugs -Ketchup -Gasoline -Salt

Ketchup

The Principle of Optimization at the Margin

Moving toward the optimal alternative makes the decision maker better off and moving away from it makes him worse off

To calculate the ________ of an alternative, an individual needs to estimate __________ of the alternative.

Net benefit; both cost and benefit

(NPR) According to what Wolfers said about the income elasticity, we can conclude that (given our definitions from class), the amount of money parents give to their kids through the tooth fairy is what kind of good?

Normal and Luxury

(NPR) Which idea did Lisa Cook say was the most useful idea in Economics?

Opportunity Cost

John has to choose between a camping holiday and a holiday in Las Vegas. If he evaluates the total net benefit of both alternatives before coming to a decision, he is using the technique of __________.

Optimization using total value

(NPR) What Was the end result from the changes in the restaurant?

Overall, revenue went up

A shortage occurs in a market when ________.

Price is lower than the equilibrium price

Normative Economics

Recommends what people ought to do

If the net benefit of Project A is $20 and that of Project B is $15, switching from Project A to Project B _______________.

Reduces the net benefit by $5

Scare Resources

Resources for which the quantity that people want exceeds the quantity that is freely available

Which of the following is NOT a key principle of economics? -empiricism -substitution -optimization -equilibrium

Substitution

In a perfectly competitive market, situations of surplus or shortage of a good ________.

Self-correct due to the competitive nature of the market

(NPR) In terms of optimization, what was the key trade off?

Spend per table vs number of tables

Quantity Demanded of a Good

The amount of the good that buyers are willing to purchase at a given market price

What is the quantity supplied of a good?

The amount of the good that sellers are ready to supply at a given price

Optimization using marginal analysis analyzes _______________.

The change in the net benefits resulting from a shift from one alternative to another

Which of the following is NOT a determining factor of consumers' purchase decisions? -The market price of the finished goods -The cost of factor inputs -Consumers' income -Consumers' tastes and preferences

The cost of factor inputs

Suppose the government imposes a tax on Good X. In order to estimate the effect of the tax on the quantity demanded Good Y, a related good, we can use the concept of __________.

The cross-price elasticity of demand

(NPR) Why was John installing solar?

To save money on his electricity bill

Consumer surplus is _______.

The difference between the buyer's willingness to pay and the price paid for the good

Reverse Causality

The direction of cause and effect are mixed up in a set

(NPR) The end of the podcast update developments in this market between 2015 and 2019. Which of the following was NOT a change which happened in this market?

The federal subsidy expired

(NPR) What did the producers of the podcast A/B test?

The introduction of the podcast

Which of the following statements correctly describes a competitive market? -Buyers and sellers negotiate prices before making exchanges. -The market price for the same good varies from seller to seller. -A single seller sometimes has the ability to dictate the market price. -The market price is determined by the interaction of demand and supply.

The market price is determined by the interaction of demand and supply

Assume that an individual spends her income on sweaters and shirts. If the price of a sweater increases, __________.

The opportunity cost of buying sweaters increases

Which of the following statements is true about the price elasticity of demand? -As the number of substitutes for a product increases, the price elasticity of demand for that good decreases. -If the budget share of a particular good in a consumerʹs bundle increases, the price elasticity of demand for that good is likely to decrease. -The price elasticity of demand for a good is generally higher in the long run than in the short run. -The demand for a good with a price elasticity of demand of zero is highly responsive to price changes

The price elasticity of demand for a good is generally higher in the long run than in the short run.

Elasticity

The ratio of the percentage change in two variables

The slope of a consumer's budget constraint equals ____________.

The ratio of the price of the good measured along the horizontal axis to the price of the good measured along the vertical axis

Microeconomics

The study of how individuals, households, governments, and firms make choices and how those choices affect prices, the allocation of resources, and the well-being of other agents.

(NPR) How did subsidies discussed in the podcast affect this market?

They increased demand

(NPR) Which idea did Betsey Stevenson say was the most useful idea in Economics?

Thinking on the Margin

To conduct a randomized experiment, researchers usually classify the participants into a _______.

Treatment Group and Control Group

Equilibrium

When everyone is optimizing; no one would be better off with a different choice

Positively Correlated Variables

When two variables move in the same direction

A fall in the price of flour, used in making cakes, is likely to _________ of cakes

increase the supply