Econ 103 Final Exam
There are no good substitutes for medicines like insulin. Therefore we would expect that
There are no good substitutes for medicines like insulin. Therefore we would expect that
If sellers in a market have some monopoly power, they can raise the market price of the good. As a result,
a smaller quantity of the good is sold, and there's a deadweight loss in the market.
In this example, the law of comparative advantage implies that
both countries can be better off if Canada produces wheat and the U.S. produces cars, and then they trade.
Based on this information, are coffee and carbonated beverages substitute goods or complements?
complements
Suppose the Minnesota Twins baseball team decides to raise its ticket prices in order to increase the team's revenue from ticket sales. The Twins must be assuming that
inelastic
Based on this information, is coffee a normal good or an inferior good?
inferior
Suppose an economic study shows that the income elasticity of demand for milk is equal to -0.6. Based on this we can conclude that
inferior good
Assume that wheat farmers are profit-maximizing competitive firms. If we know that the market price of wheat is $4 per bushel, we can predict that the marginal cost of growing another bushel of wheat
is equal to $4 for all farmers in the market
Suppose that a country's only resource is land, and this land can be used to grow fifteen bushels of barley per acre or three bushels of beans per acre. Then the opportunity cost of producing another bushel of beans (in terms of bushels of barley) in this country
is equal to five bushels of barley
a market outcome of economically efficient if
it allocates society's resources to their highest-valued uses.
If a firm's marginal revenue is greater than its marginal cost at its current output, then
it can increase its profit by increasing the output it sells.
if the firms enter a competitive industry
it tends to reduce market price
A nation's productivity is equal to
its total output divided by the total number of hours of labor used to produce that output.
Wheat farmers behave like competitive firms. If a wheat farmer in Kansas raised their price above the market price just a little, then
lose all their customers
When there are positive externalities in a market, the government can improve social welfare by
paying a subsidy to producers to encourage more production of the good.
a good that is non-rival and non-excludable
public good
Lighthouses and the U.S. legal system are examples of
public goods
If the price elasticity of demand for electricity is equal to -0.4, then a 5% reduction in the quantity of electricity available after a storm would
raise the price by 12.5%
An example of a government policy that might sacrifice some economic efficiency to promote equity is
raising taxes on successful, wealthy entrepreneurs to pay for public assistance for lower-income families.
A reduction in the demand for ginseng
reduce profit for ginseng growers
Since the demand for oil is inelastic, oil producers (such as the members of OPEC) would increase their revenue if
reduce the amount of oil they produce
Consider the market for high-tech digital cameras. A reduction in consumers' incomes would probably
reduce the price
If the supply of corn rose sharply, it is likely that this would
reduce the price
Assume that owners of gas stations -- retail suppliers of gasoline -- are competitive firms. If the government requires them to pay a new tax of $1 for every gallon of gasoline they sell, how (if at all) will this affect the competitive market price and quantity of gasoline?
quantity and price of gas will both rise
Suppose a country uses all its resources to produce just two goods: food and health care. If there's an improvement in technology that raises productivity in the food industry, what impact might this have on the country's economy? (Think about the production possibilities frontier model to answer the following question.)
the opportunity cost of producing food (measured in units of health care) must fall.
If the price of Ford cars rises (due to an increase in production costs that only affects Ford),
the price of Chevrolets will rise and the quantity of Chevrolets sold each year will rise.
If the price of DVDs falls, it is likely that
the price of DVD players will rise and the quantity of DVD players sold each year will rise.
Hamburgers are produced from beef. Therefore if the price of beef falls, it is likely that
the price of hamburgers will fall and the quantity of hamburgers sold each year will rise.
Suppose shrimp producers are competitive firms, and assume that all shrimp producers have the same cost curves. In the long run, an increase in the demand for shrimp tends to cause an increase in
# of shrimp producers
Suppose that today the price of a candy bar in a campus vending machine is 50 cents, and 200 are sold. Tomorrow the price is raised to 60 cents per candy bar, and the number sold per day falls to 180. Then the price elasticity of demand for candy bars is equal to
-0.5
Assume that consumers' incomes fell by 5% during the COVID-19 pandemic. Based on the estimates above, by about what percentage would the quantity of coffee demanded change? Enter your answer as a number in the space below. (For example, if your answer is 2.3%, enter your answer as 2.3. If your answer is negative, be sure to include the minus sign in your answer.)
1.35
If the price of coffee falls by 10%, by what percentage would the quantity of coffee demanded change? Enter your answer as a number in the space below. (For example, if your answer is 2.3%, enter your answer as 2.3. If your answer is negative, be sure to include the minus sign in your answer.)
4.5
If the cost of producing 10 units of output is $620 and the marginal cost of producing the 11th unit of output is equal to $80, then the total cost of producing 11 units must be equal to
700
Which of the following is an example of negative externalities in a market?
Acid rain in New England, which is caused by sulfur dioxide emissions from power plants in the Midwest.
Suppose that coffee shops are competitive firms. If the price of coffee beans (from which coffee shops make the coffee they sell) falls, how does this affect the profits of coffee shops in the short run?
Coffee shops' profits increase in the short run as a result of the drop in the price of coffee beans.
If the world's coffee producers agree to cut the quantity of coffee they sell, so they can push up the price of coffee, would this increase their total revenue from sales of coffee, leave their total revenue unchanged, or reduce their total revenue from sales of coffee?
If producers raise the price, the total revenue from sales of coffee would rise.
If the demand curve for Toyotas shifts down,
If the demand curve for Toyotas shifts down,
Which of the text's Ten Principles of Economics best captures the point of the Principle of the Invisible Hand?
Markets are usually a good way to organize economic activity
Suppose we see that Japan exports cars to the U.S., and the U.S. exports corn to Japan. According to the Law of Comparative Advantage, which of the following could cause this trade pattern?
The opportunity cost of growing corn (in terms of cars) is lower in the U.S. than in Japan.
Which of the following is an example of a deadweight loss?
The reduction in society's total surplus that results when a tax is imposed in a market.
In the last year the cost of beef has increased. McDonalds and other fast-food restaurants use beef to produce hamburgers. In the short run the increase in beef prices tends to cause
an increase in the price of hamburgers and a reduction in the quantity sold by a fast-food restaurant like McDonalds.
If the cost of steel used to make cars falls, then
car manufacturers will increase their outputs and earn larger profits in the short run.
The U.S. and Canada can each produce two goods, cars and wheat. In Canada the opportunity cost of producing a car is 2000 bushels of wheat, and in the U.S. the opportunity cost of producing a car is 1500 bushels of wheat. The U.S. has a comparative advantage in the production of
cars
According to the Law of Demand, if the price of a good rises, then
consumers will demand a smaller quantity of the good, moving up to the left along the demand curve.
According to the definition used in microeconomics, an inferior good is one for which
demand falls (shifts down to the left) when consumers' incomes increase.
If we see that the price of cars has gone up recently, we know that
either the demand for cars has risen or the supply of cars has fallen.
The two criteria economists usually use to judge whether a market outcome is good for society are
equity and economic efficiency
we know that in the short run
every firm has a upward-sloping marginal cost curve
Economists assume that in the short run
firms cannot change the quantities of fixed inputs they use
competitive industry
firms take the market price of their product as given
Since the demand for gasoline is highly inelastic in the short run, we would predict that if a new gasoline tax is imposed
gasoline buyers end up paying a larger share of the tax than gasoline sellers in the short run.
Price elasticity of demand measures
how much the quantity of a good demanded responds to a change in its price.
Tesla's production of cars is subject to economies of scale. Therefore we would expect that
if Tesla produces fewer cars than another car manufacturer, then Tesla's average cost of producing a car is likely to be higher than the other manufacturer's.
If the demand for salt is inelastic, this means that
if the price of salt rises, the quantity demanded falls by a smaller percentage.
If the price elasticity of demand for restaurant meals is equal to -2.3, then a 10% reduction in the price of restaurant meals would
increase demand by 23%
Suppose shrimp producers are competitive firms, and assume that all shrimp producers have the same cost curves. In the short runan increase in the market demand for shrimp would
increase market price
The U.S. market for shoes is supplied by producers in the U.S. and other countries. If the government restricts the quantity of shoes that can be imported into the U.S. from other countries, this would tend to
increase the quantity of shoes sold by U.S. shoe manufacturers.
When a competitive firm maximizes its profit, then we know that
marginal cost is equal to the price of its product
When a business firm's output is small, its average production cost tends to be high in the short run because
marginal cost is high
Tesla's production of cars is subject to economies of scale. If the quantity of cars produced by Tesla increases significantly in the short run, then
marginal cost of production must increase
In the market models we've considered in class, the market equilibrium output is determined by the intersection of the
market supply and demand curves
hamburgers sold at fast-food restaurants
private good
The short-run supply curve in a competitive industry is upward-sloping because
producers always face diminishing returns in the short run
one way to eliminate a common resource problem
restrict access to common resource
Suppose the state legislature raises the state cigarette tax by one dollar per pack. Assuming that the usual supply and demand model describes the market for cigarettes, we would expect that the price of cigarettes paid by consumers would
ride by less than one dollar per pack
A reduction in consumers' incomes would probably
shift the demand curve for restaurant meals to the left.
Consider the market for steel. If the cost of iron ore (from which steel is made) goes up, this tends to
shift the supply curve for steel to the left
a reduction in the supply of gas
shift the supply curve to the left
The economically efficient output in a market is determined by the intersection of the
social benefit and social cost curves
If the wages paid by firms in the steel industry go up, it is likely that
steel producers will reduce quantity of steel they sell
Cars and gasoline are complementary goods. Therefore when the price of gasoline rises, we expect that
the demand curve for cars will shift down to the left
Electricity and natural gas can both be used as energy sources for home appliances. Therefore if the price of electricity falls (due to an increase in production costs that only affects the production of electricity),
the demand curve for natural gas will shift down to the left.
A government study estimated that the price elasticity of demandfor coffee is −0.45; the income elasticity of demand for coffee is −0.27; and the cross-price elasticity of demand for coffee with respect to the price of carbonated beverages is −0.07. Based on this information, is the demand for coffee elastic, unit elastic, or inelastic?
the demand for coffee is inelastic
Suppose you buy a new car for $21,000. You would have been willing to pay $26,000 for the car if you had to. If it costs the car dealer $17,000 to supply the car, then
the producer surplus is $4,000
The supply curve for a good usually shifts if
the suppliers' cost of producing the good changes
In the U.S. today, workers and their employers each pay half of the tax that funds the Social Security system. If the system was changed so that the entire Social Security contribution (or tax) was deducted from workers' paychecks directly (so their employers would no longer directly contribute to the system), the supply and demand model predicts that
workers and their employers would take home the same amounts of money after taxes as they do now.