Econ 103 Midterm 2

Quota

a numerical limit a government imposes on the quantity of a good that can be imported into that country

Process technologies

involving the ability to improve processes to make existing products

Terms of trade

the ratio to which a country can trade its exports for imports from other countries

In December 2014, the average price of gasoline in the US was $2.50 per gallon and consumers bought 7 percent more gasoline than they had during April 2014, when the average price was $3.60 per gallon. Based on these numbers, what was the price elasticity of demand for gasoline from April 2014 to December 2014?

-0.19

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula

1.62

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent

Autarky

A situation in which a country does not trade with other countries

Which of the following would result in a higher absolute value of the price elasticity of demand for a product? A wide variety of substitutes are available for the good. The time period under consideration is short. The good is a necessity. The expenditure on the food is small relative to one's budget.

A wide variety of substitutes are available for the good

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand is true? It is inelastic at high prices and elastic at low prices. It is unit elastic throughout the demand curve. It is elastic at high prices and inelastic at low prices. It is perfectly elastic at very high prices and perfectly inelastic at very low prices.

It is elastic at high prices and inelastic at low prices

What is a market failure?

It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost

Which of the following activities create a negative externality? Cleaning up the sidewalk on your block, graduating from college, repainting the house you live in to improve its appearance, keeping a junked car parked on your front lawn

Keeping a junked car parked on your front lawn

The absolute value of the price elasticity of demand at the midpoint of the demand curve is

One

The marginal benefit of the last unit produced is represented by the price

Pb

Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee, and Peet's Coffee

Peet's Coffee, coffee, hot beverages

The true marginal cost of the last unit produced is represented by the price

Pf

Which of the following is an example of a positive externality? raising the speed limit to 60 mph, planting trees along a sidewalk which add beauty and create shade, permitting smoking on commercial airplanes, a police department stops enforcing DUI laws

Planting trees along a sidewalk which adds beauty and creates shade

The efficientt output level is

Qa

The private profit-maximizing output level is

Qm

The efficient output level is

Qn

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is

Relatively inelastic

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

Remain constant

The size of marginal costs can be determined by

S2-S1 at each output level

Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?

Sales revenue decreased

Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free-market equilibrium price in the market for milk?

Sales revenue rises

Assume that an economist has estimated the price elasticity of demand values in the table above. Us eh data in the table to select the correct statement. The demand for Coca-Cola is inelastic. The elasticity for "All soft drinks" is less than the elasticity for Coca-Cola because Coca-Cola is more of a luxury than a necessity; "All soft drinks" represent goods that are more nexxessity than luxury. The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be. There are fewer substitutes for "All carbonated soft drinks" than there are for "All soft drinks"

The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be

Which of the following statements about price elasticity of demand is true? The elasticity coefficient is constant along the demand curve. The elastic portion of a straight-line, downward-sloping demand curve corresponds to the segment above the midpoint. The inelastic portion of the demand curve corresponds to the segment above the midpoint. At the midpoint of the demand curve, the elasticity coefficient is zero.

The elastic portion of a straight-line, downward-sloping demand curve corresponds to the segment above the midpoint

Which of the following statements about price elasticity of demand is false? The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope. If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. The value of the price elasticity of demand along a downward-sloping demand curve is always negative. A linear downward sloping demand curve has a varying price elastic coefficient.

The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope

Perfectly inelastic demand is represented by a demand curve which is _____, and relatively inelastic demand is represented by a demand curve which is ____.

Vertical; downward sloping

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

Will decrease by 45 percent

An externality is

a benefit or cost experienced by someone who is not a producer or consumer of a good or service

Tariff

a tax imposed by a government on imports

The deadweight loss due to the externality is represented by the area

abf

Over what range of prices is the demand elastic?

between $14 and $16

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using

command-and-control policies

A service station owner in Staten Island, NY, was worried that the raising the price of gas would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gas would cause the owner to receive less total revenue from the sale of gas, the demand for gas is

elastic

Imports

goods and services bought domestically but produced in other countries

Exports

goods and services produced domestically but sold in other countries

If the absolute value of the price elastic of demand for DVD movies is 0.8 then the elasticity of demand of the DVD for the movie The Hangover should be

greater than 0.8 in absolute value

Opportunity Cost

highest valued alternative that must be given up to engage in an activity

Which of the following is a source of market failure? Unforeseen circumstances which leads to the bankruptcy of many firms, a lack of government intervention in a market, incomplete property rights or inability to enforce property rights, an inequitable income distribution

incomplete property rights or inability to enforce property rights

The inelastic segment of the demand curve

lies below the midpoint of the curve

A market supply curve reflects the

marginal private costs of producing a good or service

A carbon tax which is designed to reduce pollution is an example of a

market-based policy

When a negative externality exists, the private market produces

more than the economically efficient output level

The deadweight loss due to the externality is represented by the area

msn

Voluntary Export Restraints (VERs)

negotiated between countries on the quantity of a good imported by one country from another

Total revenue equals

price per unit times quantity sold

If a firm raised its price and discovered that its total revenue fell, then the demand for its product is

relatively elastic

Comparative Advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

Product technologies

the ability to develop new products

Absolute Advantage

the ability to produce more of a good or service than competitors when using the same amount of resources

Suppose a decrease in the supply of paper results in an increase in revenue. This indicates that

the demand for paper is inelastic

Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows

the effect of a negative externality in the production of a good

Conceptually, the efficient level of carbon emissions is the level for which

the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions

A positive externality causes

the marginal social benefit to exceed the marginal private cost of the last unit produced

A negative externality exists if

the marginal social cost of producing a good or service exceeds the private cost

If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output Q1, what does S1 represent?

the market supply curve reflecting marginal private cost

If, because of an externality. the economically efficient output is Q2 and not the current equilibrium output of Q1, what does S2 represent?

the market supply curve reflecting marginal social cost

When demand is unit elastic, a change in price causes total revenue to stay the same because

the percentage change in quantity demanded exactly offsets the percentage change in price

At the competitive market equilibrium, for the last unit produced

the size of the external benefit is Pm-Po

In the absence of any government intervention, the private market

underproduces by Qn-Qm units

If the demand for a product is perfectly inelastic, a decrease in the price of the product

will decrease total revenue