ECON 110 Exam 2
Consider the market for gasoline illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium. Now suppose the government imposes a gasoline tax of $1.50 to be paid for by producersproducers. The effect of this tax is illustrated in the figure to the right. Who bears the burden of the tax? Consumers pay $---- of the $1.50 tax (enter a numeric response using a real number rounded to two decimal places) and producers pay $ ---- of the tax.
$1 and $0.50
Suppose the government imposes a payroll tax of $3 per hour of work and collects the tax from employers. Use the line drawing tool in the figure to the right to draw and label a curve that reflects the payment, by employers, of the $3 per hour tax According to your graph, the new equilibrium wage that employers pay workers falls by $----
$3.00
In 1916, the Ford Motor Company sold 500,000 Model T Fords at a price of $440. Henry Ford believed that he could increase sales of the Model T by 1,000 cars for every dollar he cut the price. Use this information to calculate the price elasticity of demand for Model T Fords. Use the midpoint formula in your calculation. Assuming the price decreases by $1 and the quantity increases by 1000 cars, the price elasticity of demand for Model T Fords is ---- (enter your response rounded to two decimal places).
- 0.88
Consider the market for a breakfast cereal. The cereal's price is initially $3.00 and 70 thousand boxes are demanded per week. The company that produces the cereal is considering raising the price to $3.50. At that price, consumers would demand 65 thousand boxes of cereal per week. What is the price elasticity of demand between these prices using the midpoint formula? The price elasticity of demand using the midpoint formula is negative -----. (Enter your response as a real number rounded to two decimal places.)
-0.48
Suppose a local bank increases the fees they charge for their bank accounts by 5 percent. In response, the demand for their bank accounts decreases from 5,000 to 2,500. What is price elasticity of demand for this bank's accounts? Using the midpoint formula, the price elasticity of demand is -----. (Enter your response rounded to two decimal places.)
-13.33
Suppose the figure to the right represents the market for cotton. To help reduce debt, the government decides to levy a tax on cotton of $1.20 per pound to be paid by cotton farmers. What is the incidence of this tax? Producers pay $---- of the $1.20 tax and consumers pay $---. (Enter your responses rounded to two decimal places.)
1) $0.40 2) $0.80 explanation- .80 and 2.00 on graph supplier = .80 - 1.20 = 0.40 Buyer = 2.00 - 1.20 = 0.80
Mr. Jernigan owns a piece of land on which he grows corn. Corn production annually requires $8,000 in seed, $1,000 in fertilizer, and $8,000 in pesticides. Mr. Jernigan uses his own labor to grow the corn and therefore hires no workers. If Mr. Jernigan did not use his time to grow corn, he would instead be able to sell insurance, earning $40,000 per year. Suppose another farmer has just offered to pay Mr. Jernigan rent of $25,000 per year for use of the land. If Mr. Jernigan refuses to rent the land to another farmer, then what will be his accounting costs from farming corn himself on his land? What will be his economic costs? Mr. Jernigan's accounting costs will be $---- per year, and his economic costs will be $---- per year. (Enter numeric responses using integers.)
1) $17,000 = 8,000 + 1,000 + 8,000 2) $82,000 = 17,000 + 40,000 + 25,000
According to the graph, how much is the government tax on cigarettes?$----- per pack. What price do producers receive after paying the tax? $----- per pack. (Enter your response rounded to two decimal places.) How much tax revenue does the government collect? $----billion dollars per year. (Enter your response rounded to two decimal places.) If the tax were collected from the buyers of cigarettes, the graph would differ from the one shown here by having A. demand shift up by the tax per pack instead of supply shifting up by the tax per pack. B. no shifts at all. C. demand shift down simultaneously with, and by the same amount as, the upward shift in supply. D. demand shift down by the tax per pack instead of supply shifting up by the tax per pack. With the tax being collected from the buyers instead of the producers, the new equilibrium price that they would pay the p
1) $3.00 2) $3.50 3) $42.00 4) D. demand shift down by the tax per pack instead of supply shifting up by the tax per pack 5) decrease
Suppose the demand for J. Crew sweaters is illustrated in the figure to the right. Suppose the price of J. Crew sweaters is $80. What is total revenue? $----. (Enter a numeric response using a real number rounded to two decimal places.) Now suppose the price of J. Crew sweaters increases to $ 85. What is total revenue now? $-----. Given the change in total revenue caused by the price increase, demand for J. Crew sweaters is ----.
1) $6,400 and $5,100 2) elastic
Consider the market for PepsiPepsi. Suppose the price of CokeCoke increases from $2.00 to $2.25 per 2−litre bottle. As a result, the demand for Pepsi decreases from 293 to 273 to 2−litre bottles. Using the midpoint formula, what is the cross-price elasticity of demand for Pepsi? negative ----. (Enter a numeric response using a real number rounded to two decimal places. Don't forget the minus sign.) Suppose the cross-price elasticity of demand for Pepsi with respect to the price of Coke is 0.20. In this instance, Pepsi and Coke are ----.
1) -0.45 = [(2.25-2.00)/(2.25 + 2.00/2)] / [(278 - 293)/(278 + 293/2)] 2) substitutes = Exy > 0
Suppose income increases by 10 percent and, as a result, the quantity of a particular brand of automobile demanded (holding the price for this particular automobile constant) decreases by 19 percent. The income elasticity of demand for this brand of car is ----. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) This particular brand of automobile is a(n) --- good. In another example, suppose market research shows that a particular brand of truck is a normal good and a necessity. If so, then the income elasticity of demand for this truck is A. positive. B. zero. C. greater than 1. D. less than 1 but greater than 0. E. negative.
1) -1.9 = 19/10 and inferior 2) less than 1 but greater than 0 E = 1 < , 0 > normal and necessity
Economists' estimates of price elasticities can differ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. the following statement from the Centers for Disease Control and Prevention: "A 10 percent increase in the price of cigarettes reduces consumption by 3 to 5 percent." Compute the range of price elasticity of demand for cigarettes. According to the article, the price elasticity of demand for cigarettes ranges from ---- (the lowest end of the range in absolute value) to ---- Explain whether the demand for cigarettes is elastic, inelastic, or unit elastic. The price elasticities in this range A. are inelastic during a portion of the range and elastic during a portion of the range. B. are inelastic because they are less than one (in absolute value). C. are inelastic because they are less than zero. D.
1) .3 and .5 2) B. are inelastic because they are less than one (in absolute value) 3) D. increase because the percentage increase in price will be larger than the percentage decrease in quantity.
Consider the market for a natural resource, where the price is initially $22,000 per ton and 44,000 thousand tons are supplied. Suppose the price of the resource falls to $20,000 per ton, at which price the market supplies 43,500 thousand tons. What is the price elasticity of between these prices? Using the midpoint formula, the price elasticity of supply is ----. (Enter your response as a real number rounded to two decimal places.) As such, supply is ----.
1) 0.12 = [(20,000-22,000)/(20,000+22,000/2)] x [(43,500-44,000)/(43,500+44,000/2)] 2) inelastic as |E| < 1
Suppose the price of pepper increases by 20 percent and, as a result, the quantity of salt demanded (holding the price of salt constant) increases by 3 percent. The cross-price elasticity of demand between pepper and salt is ----. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) In this example, pepper and salt are -------. Instead, suppose pepper and salt were complements. If so, then the cross-price elasticity of demand between pepper and salt would be A. greater than 1. B. positive. C. less than minus−1. D. negative. E. zero.
1) 0.15 = 3/20 Q/P 2) substitutes 3) D. Negative
Consider the market for Patagonia pullovers. Suppose average household income increases from $39 thousand to $52 thousand per year. As a result, the demand for Patagonia pullovers increases from 438 to 471. Using the midpoint formula, what is the income elasticity of demand for Patagonia pullovers? ----. (Enter a numeric response using a real number rounded to two decimal places.) In this instance, Patagonia pullovers are a ---- good. Furthermore, Patagonia pullovers are a -----.
1) 0.29 2) normal + necessity = E > 0 < 1
Suppose the price of pepper increases by 10 percent and, as a result, the quantity of salt demanded (holding the price of salt constant) increases by 7 percent. The cross-price elasticity of demand between pepper and salt is ----. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) In this example, pepper and salt are -----. Instead, suppose pepper and salt were complements. If so, then the cross-price elasticity of demand between pepper and salt would be A. zero. B. negative. C. positive. D. greater than 1. E. less than minus−1.
1) 0.70 = 7/10 2) substitutes = Exy > 0 3) B. negative Exy < 0
Suppose that after hurricane Irene, the average income in Cape Charles, Virginia decreased by 18 percent. In response to this change in income, suppose the quantity of steak demanded in Cape Charles (holding the price of steak constant) decreased by 16 percent. What is the income elasticity of demand for steak in Cape Charles? The income elasticity of demand for steak in Cape Charles is ----. (Enter your response rounded to two decimal places.) In this instance, steak in Cape Charles is ---- and a ---.
1) 0.89 = 16/18 2) normal and necessity
Suppose income increases by 20 percent and, as a result, the quantity of a particular brand of automobile demanded (holding the price for this particular automobile constant) increases by 39 percent. The income elasticity of demand for this brand of car is -----. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) This particular brand of automobile is a(n) ----- good. In another example, suppose market research shows that a particular brand of truck is a normal good and a necessity. If so, then the income elasticity of demand for this truck is A. greater than 1 B. negative C. less than 1 but greater than 0. D. positive E. zero.
1) 1.95 = .39/.20 2) normal 3) C. less than 1 but greater than 0. >0 but <1
Suppose that legalizing the use of cocaine would decrease its price by 76 percent. If the price elasticity of demand for cocaine is -2.25, what would be the percentage increase in the quantity of cocaine demanded from legalizing cocaine? ---- percent. (Enter a numeric response using a real number rounded to two decimal places.) Suppose instead that the price elasticity of demand for cocaine is -0.16. What would be the percentage increase in the quantity of cocaine demanded from legalizing cocaine? ---- percent (enter your response rounded to two decimal places). The higher the absolute value of the price elasticity of demand for cocaine, the ---- the increase in cocaine use that would result from legalization.
1) 171 = 2.25 x 76 2) 12.16 = .16 x 76 3) Greater
The figure illustrates the market for apples in which the government has imposed a price floor of $12 per crate. How many crates of apples will be sold after the price floor has been imposed? ------ million crates of apples per year. (Enter your response as an integer.) Will there be a shortage or surplus? If there is a shortage or surplus, how large will it be? There will be a ------ of --- million crates of apples per year. (Enter your response as an integer.) Will apple producers benefit from the price floor? a) Apple producers who are able to sell their apples at the $12 price per crate will benefit. B. Apple producers who are not able to sell their apples will not benefit. C. Total revenue for apple producers as a group will decrease from $220 million to $216 million. D. Both a and b. E. All of the above.
1) 18 2) surplus of 12 3) All of the above
use the information on the kumquat market in the following table to answer the questions. (Quantities are given in millions of crates per year.) The equilibrium price is $ ---- and the equilibrium quantity is ----- million crates. (Enter your responses as integers.) How much revenue do kumquat producers receive when the market is in equilibrium? Kumquat producers receive $ ----- billion in revenue. (Enter your response rounded to one decimal place.) Suppose the federal government decides to impose a price floor of $30 per crate. Assume that the government does not purchase any surplus kumquats. Now how many crates of kumquats will consumers purchase? Consumers will purchase ----- million crates of kumquats. (Enter your response as an integer.) How much revenue will kumquat producers receive? Kumquat producers will receive $ ----- billion in revenue. (Enter your response rounded
1) 20 and 120 2) 2.4 3) 100 4) 3.0
Suppose that legalizing the use of marijuana would decrease its price by 89 percent. If the price elasticity of demand for marijuana is -2.50, what would be the percentage increase in the quantity of marijuana demanded from legalizing marijuana? ----percent. (Enter a numeric response using a real number rounded to two decimal places.) Suppose instead that the price elasticity of demand for marijuana is -0.44. What would be the percentage increase in the quantity of marijuana demanded from legalizing marijuana? --- percent (enter your response rounded to two decimal places). The higher the absolute value of the price elasticity of demand for marijuana, the --- the increase in marijuana use that would result from legalization.
1) 222.50 = 2.50 x .89 2) 39.2 = 0.44 x .89 3) Greater
Suppose the demand for a Czech novel translated into English is perfectly inelastic. Assume the initial price of the translated novel is $30.00 and the quantity demanded is 266 copies per year. If the price of the translated novel increases by $2.00, then the quantity demanded will be ----- copies per year. Next, suppose the demand for a mystery novel by John GrishamJohn Grisham is infinitely elastic. In this example, assume the initial price of the novel is $21.00 and the quantity demanded is 31 thousand copies per year. If the price of the mystery novel increases by $1.00, then the quantity demanded will be --- copies per year.
1) 266 as |E| = 0 so it would have the same Q# 2) 0 as |E| = infinity so it would be 0
Suppose the demand for a Czech novel translated into English is perfectly inelastic. Assume the initial price of the translated novel is $30.00 and the quantity demanded is 368 copies per year. If the price of the translated novel increases by $1.00, then the quantity demanded will be ---- copies per year. Next, suppose the demand for a mystery novel by Stephen KingStephen King is infinitely elastic. In this example, assume the initial price of the novel is $21.00 and the quantity demanded is 43 thousand copies per year. If the price of the mystery novel increases by $2.00, then the quantity demanded will be ---- copies per year.
1) 368 2) 0
After playing two football games, a professional football team's defense had given up an average of 36 points per game. After playing a third football game, the team's defense had given up an average of 38 points per game. How many points did the team's defense give up in the third football game? In the third football game, the team's defense gave up ---- points. (Enter your response as a whole number.)
1) 42 = 36 x 2 - 38 x 3
Suppose Charles owns a lawn-mowing company. Assume that without workers, no yards are mowed. When he hires one worker, he is able to mow 5 yards per day. With two workers, he can mow 12 yards per day, and with three workers, he can mow 20 yards per day. The marginal product of the first worker is -- yards per day. The marginal product of the second worker is -- yards per day. Last, the marginal product of the third worker is -- yards per day. The marginal product of labor potentially increases (from one to three workers) due to ----.
1) 5 2) 7 3) 8 4) specialization
Suppose the demand for a Czech novel translated into English is perfectly inelastic. Assume the initial price of the translated novel is $20.00 and the quantity demanded is 864 copies per year. If the price of the translated novel increases by $1.00, then the quantity demanded will be --- copies per year. Next, suppose the demand for a mystery novel by John GrishamJohn Grisham is infinitely elastic. In this example, assume the initial price of the novel is $23.00 and the quantity demanded is 18 thousand copies per year. If the price of the mystery novel increases by $2.00, then the quantity demanded will be --- copies per year.
1) 864 2) 0
Consider the demand curve illustrated in the figure to the right. Is demand elastic or inelastic? A. Demand is inelastic at all prices above $7.00 and elastic at all prices below $7.00. B. Demand is elastic at all prices above $7.00 and inelastic at all prices below $7.00. C. Demand is elastic at all prices above $9.00 and inelastic at all prices below $9.00. D. Demand is inelastic (at all prices). E. Demand is elastic (at all prices). At what price is total revenue maximized? Total revenue is maximized when price equals $---. (Enter your response as a real number rounded to two decimal places.)
1) B. Demand is elastic at all prices above $7.00 and inelastic at all prices below $7.00. 2) $7.00
Consider the market for electricityelectricity illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of p 2p2 and a quantity of Upper Q 2Q2. Now suppose the government applies a price ceilingprice ceiling of p 1p1. Compared with the market-clearing equilibrium, consumer surplus would A. increase by areas B and F. B. Increase by area C and decrease by area E C. increase by area C. D. increase by area B. E. decrease by area E. In turn, producer surplus would A. decrease by area C. B. decrease by areas B and E. C. decrease by areas C and F. D. increase by area B. E. decrease by areas B, E, and G. Consequently, with the price ceiling, deadweight loss would equal A. areas E and F. B. area F. C. area E. D. no areas. E. areas B, C, E, and F.
1) B. increase by area C and decrease by area E 2) C. decrease by areas C and F 3) A. areas E and F
How can marginal cost be expressed mathematically? Marginal cost (MC) can be expressed as A. MC= ΔFC/ΔQ, where FC is fixed cost and Q is output. B. MC = TC−FC, where TC is total cost and FC is fixed cost. C. MC = ΔTCΔQ, where TC is total cost and Q is output. D. MC = ΔACΔQ, where AC is average cost and Q is output. E. MC = TC/ Q, where TC is total cost and Q is output. For example, if the total cost of producing three units of output is $2,687 and the total cost of producing four units of output is $3,126, then the marginal cost of the fourth unit is $----. (Enter your response as an integer.)
1) C. MC = ΔTCΔQ, where TC is total cost and Q is output. 2) $439 = $3,126 - $2,687
Which of the following is a primary determinant of the price elasticity of supply The price elasticity of supply is affected by A. the share of the good in consumer budgets. B. whether the good produced is a luxury or a necessity. C. the passage of time. D.whether the good produced has close substitutes available. E. the definition of the market. In particular, the supply curve for a particular product will be increasingly more elastic over a ------ period of time.
1) C. The passage of time 2) Longer
In the diagram to the right, illustrating a per-unit tax equal to P2 minus P3, tax revenue is represented by the areas ------ and the excess burden of the tax is represented by areas -------.
1) D and F 2) E and G
Consider the demand curve illustrated in the figure to the right. Is demand elastic or inelastic? A. Demand is elastic (at all prices). B. Demand is elastic at all prices above $9.00 and inelastic at all prices below $9.00. C. Demand is inelastic at all prices above $7.00 and elastic at all prices below $7.00. D. Demand is inelastic (at all prices). E. Demand is elastic at all prices above $7.00 and inelastic at all prices below $7.00. At what price is total revenue maximized? Total revenue is maximized when price equals $----. (Enter your response as a real number rounded to two decimal places.)
1) E. Demand is elastic at all prices above $7:00 and inelastic at all prices below $7.00. 2) $7.00
Suppose a pizza parlor has the following production costs: $5.00 in labor per pizza, $4.00 in ingredients per pizza, $0.50 in electricity per pizza, $4,500 in restaurant rent per month, and $450 in insurance per month. Assume the pizza parlor produces 1,000 pizzas per month. What is the variable cost of production (per month)? The variable cost of production is $----. (Enter your response as an integer.) What is the fixed cost of production (per month)? The fixed cost of production is $----. (Enter your response as an integer.)
1) VC = $9,500 = 5 + 4 + .50 = 9.5 x 1,000 2) FC = $4,950 = 4,500 + 450
The figure to the right illustrates the long-run average cost curve for a company that makes motors. Suppose the company produces 11 thousand motors per month. Is it experiencing economies of scale, diseconomies of scale, or constant returns to scale? If the company produces 11 thousand motors, then it experiences -----. At what level of output does the firm experience the minimum efficient scale? The minimum efficient scale occurs when the firm produces ---- thousand motors. (Enter your response as an integer.)
1) diseconomies of scale 2) 5
Suppose the price elasticity of demand for cereal is −1.09. If so, then the demand for cereal is -----. In another example, assume the price elasticity of demand for a particular magazine is −0.67. The demand for the magazine is -----.
1) elastic |E| > 1 = elastic 2) inelastic |E| < 1 = inelastic
Suppose Claire hires workers to cook hotdogs. The table shows how many hotdogs can be produced with various quantities of labor. Calculate the marginal product of labor. (Enter a numeric response using a real number rounded to one decimal place.) When the average product of labor is decreasing, the average product of labor is ---- the marginal product of labor, and when the average product of labor is increasing, the average product of labor is ---- the marginal product of labor.
1) greater than 2) less than
Between 1950 and 2020, the price of wheat fell dramatically from $20.23 per bushel to $4.85 per bushel. Suppose between 1950 and 2020, the supply of wheat increased substantially due to increases in productivity, shifting the wheat supply curve to the right. With this supply shift, the amount by which the price of wheat falls will be larger, the more ----- the demand for wheat. In addition, assume that between 1950 and 2020 the income of the average American increased substantially and that wheat is a normal good. With this increase in income, A. the price of wheat will be unaffected. B. the amount by which the price of wheat falls will be larger the higher the income elasticity of wheat. C. the amount by which the price of wheat falls will be smaller the higher the income elasticity of wheat. D. the amount by which the price of wheat rises will be smaller the lower the income elasticity of w
1) inelastic 2) D. the amount by which the price of wheat rises will be smaller, the lower the income elasticity of wheat
Consider the market for natural gasnatural gas, depicted in the figure to the right. Suppose a price ceiling of p1 is imposed by the government. As a result of the price ceiling, there is a ---- of natural gas Compared with the market-clearing equilibrium, is the price ceiling efficient? ----. What area represents the loss in efficiency in terms of consumer and producer surplus resulting from the price ceilingprice ceiling? Use the triangle drawing tool to shade in deadweight loss. Label this shaded area 'Deadweight Loss'.
1) shortage 2) No
Economist X. M. Gao and two colleagues have estimated that the cross-price elasticity of demand between beer and spirits is 0.15. If so, then beer and spirits are ----. Gao and colleagues have estimated that the cross-price elasticity of demand between beer and wine is 0.31. If the price of wine increases by 10 percent, then the quantity of beer demanded will ---- by -- percent. (Enter your response rounded to one decimal place.) In addition, Gao and colleagues have estimated the income elasticity of demand for beer to be −0.09. If so, then beer is A. a normal good that is a necessity. B. an inferior good. C. a normal good that may be a luxury or a necessity. D. a luxury that may be a normal good or an inferior good. E. a normal good that is a luxury.
1) substitutes = E 1 < , 0 > 2) increase by 3.1 = 0.31/10 3) B. an inferior good.
Suppose the figure to the right represents a local cattle market. What would be the effect on this market of the local government regulating a price floor of $1.40 per pound? The market would have a ---- of ---- thousand pounds. (Enter your response as a whole number.)
1) surplus of 20
Which of the following is a primary determinant of the price elasticity of supply The price elasticity of supply is affected by A. the passage of time. B. whether the good produced is a luxury or a necessity. C. whether the good produced has close substitutes available. D. the share of the good in consumer budgets. E. the definition of the market. In particular, the supply curve for a particular product will be increasingly more elastic over a ---- period of time.
1) the passage of time 2) Longer
What is technology? Technology is A. the processes a firm uses to turn inputs into outputs of goods and services. B. the highest-valued alternative that must be given up to engage in an activity. C. the rate of economic depreciation. D. the additional output a firm produces as a result of hiring one more input. E. a change in the ability of the firm to produce a given level of output with a given quantity of inputs. An example of technological change is A. being able to produce more output using the same inputs. B. being able to produce the same output using fewer inputs. C. a decline in the quantity of output that can be produced from a given quantity of inputs. D. both a and b. E. all of the above.
1) the processes a firm uses to turn inputs into outputs of goods and services 2) All of the above
------- surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram by area ------
1)consumer 2) A
Consider a production process where flowers are grown (the output) using gardeners (labor) and greenhouses (capital). The quantity of flowers grown per day with various combinations of labor and capital are shown in the table. Fill in the marginal product of labor in the table below. (Enter your responses as integers.) Does the production of flowers experience the effects of the law of diminishing returns The effects of the law of diminishing returns A. are experienced when the fourth worker is hired. B. are experienced when the third worker is hired. C. are experienced when the fifth worker is hired. D. are never experienced. E. are experienced when the second worker is hired.
2) B. are experienced when the third worker is hired
Suppose the price of tires increases from $80 per tire to $100. In response, the quantity of tires supplied increases from 5,000 to 30,000 tires. What is the price elasticity of supply for tires? Using the midpoint formula, the price elasticity of supply is ----. (Enter your response rounded to two decimal places.)
6.43 = [(100-80)/(100+80/2)] / [(30,000-5,000)/(30,000+5,000/2)]
What is the distinction between the economic short run and the economic long run? A. In the short run, at least one input is fixed, but in the long run, the firm can vary all inputs. B. In the short run, the firm incurs no opportunity costs, but in the long run, the firms incurs some opportunity costs. C. In the short run, the firm incurs only fixed costs, but in the long run, the firm incurs fixed and variable costs. D. In the short run, the firm incurs explicit and implicit costs explicit and implicit costs, but in the long run, the firm incurs only explicit costs only explicit costs. E. In the short run, the firm can vary all inputs, but in the long run, at least one input is fixed.
A. In the short run, at least one input is fixed, but in the long run, the firm can vary all inputs.
With the price regulations, producer surplus is equal to the area A. above the supply curve and below the price for units produced and sold. B. above the supply curve for units produced and sold. C. under the demand curve and above the price for units consumed. D. under the demand curve and above the supply curve for units produced and sold.
A. above the supply curve and below the price for units produced and sold
Consider firms selling three goods—one firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than one, and one firm sells a good with an income elasticity of demand greater than one. In a recession, sales of a good with A. an income elasticity of demand greater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most. B. an income elasticity of demand less than zero will increase along with the sales of a good with an income elasticity of demand greater than one. C. an income elasticity of demand less than zero will decline the most and sales of a good with an income elasticity of demand greater than one will increase the most. D. an income elasticity of demand less than zero will decline along with the sales of a good with an income elasti
A. an income elasticity of demand grater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most.
Someone who will be moving to Lowell next year and who intends to rent an apartment A. will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling. B. will be worse off if they are unable to find an apartment to rent. C. will be better off regardless of whether they find an apartment to rent because rent is lower due to the price ceiling. D. will be worse off regardless of whether they find an apartment to rent because there is a shortage of apartments. E. both a and b.
A. will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling.
The figure illustrates the short-run cost curves for a company that produces cell phones. Identify the average total cost curve (ATC), the average variable cost curve (AVC), the average fixed cost curve (AFC), and the marginal cost curve (MC) in the figure. The ATC curve is ----, the AVC curve is ----, the AFC curve is ----, and the MC curve is ----.
ATC = c3, AVC = c2, AFC = c1, MC = c4
In the diagram to the right, illustrating a binding price floor at P1, the amount of consumer surplus transferred to producers is represented by area ----- and the deadweight loss is equal to areas
B and C and E
"The marginal product of labor is increasing for the first 3 workers hired, and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. Then Jill must have had to settle for increasingly poor workers." Do you agree with the student's analysis? Briefly explain. A. No. Marginal product initially decreases due to the law of diminishing returns and then increases due to specialization. B. No. Marginal product initially increases due to specialization and then decreases due to the law of diminishing returns. C. No. Marginal product initially increases due to division of labor and then decreases due to specialization. D. Yes. Productivity differences among these workers are due to effort. E. No. Marginal product initially increases due to specialization and then decreases due to division of labor.
B. No, Marginal product initially increases due to specialization and then decreases due to the law of diminishing returns.
Does it matter whether buyers or sellers are legally responsible for paying a tax? A. Yes, the tax is more equitable if sellers pay the tax. B. No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax. C. Yes, the tax is more efficient if consumers pay the tax.
B. No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax
According to an article in the New York Times, the Venezuelan government "imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find." Source: William Neuman, "With Venezuelan Cupboards Bare, Some Blame Price Controls," New York Times, April 20, 2012. Imposing price controls on goods would make them hard to find because A. the high price level would encourage producers to supply more, but buyers would not want to pay the higher price. B. producers would not want to supply as much as they did before the price controls. C. there would be too much of the product supplied and the price would fall. D. the high price level would discourage buyers.
B. producers would not want to supply as much as they did before the price controls.
A sportswriter writing about the Cleveland Indians baseball team made the following observation: "If the Indians suddenly slashed all tickets to $10, would their attendance actually increase? Not all that much and revenue would drop dramatically." Source: David Schoenfiel, "Chat with David Schoenfield," espn.com, November 27, 2012. The sportswriter is assuming that the demand for Indians tickets is A. perfectly price inelastic. B. relatively price inelastic. C. perfectly price elastic. D. relatively price elastic.
B. relatively price inelastic
The demand for agricultural products is inelastic, and the income elasticity of demand for agricultural products is low. How do these facts help explain the disappearing family farm? The family farm has been disappearing because A. the demand for food has not increased proportionally with increases in income, and increases in the supply of food have resulted in food prices increasing by less than income. B. the demand for food has not increased proportionally with increases in income, and increases in the supply of food have resulted in significant decreases in food prices. C. the demand for food has decreased with increases in income, and increases in the supply of food have resulted in significant increases in food prices. D. the demand for food has decreased with decreases in income, and increases in the supply of food have resulted in significant decreases in food prices. E. the demand for food
B. the demand for food has not increased proportionally with increases in income, and increases in the supply of food have resulted in significant decreases in food prices.
Suppose a professional basketball game is to be played at a suburban arena, which increases demand for parking on the night of the game. If the suburban area has the ability to create additional parking during periods of peak demand, then A. the supply of parking will be more inelastic and the price of parking will not change the night of the game. B. the supply of parking will be more elastic and the price of parking will increase by a relatively small amount the night of the game. C. the supply of parking will be more inelastic and the price of parking will increase by a relatively small amount the night of the game. D. the supply of parking will be more elastic and the price of parking will increase by a relatively large amount the night of the game. E. the supply of parking will be perfectly elastic and the price of parking will increase by a relatively large amount the night of the game.
B. the supply of parking will be more elastic and the price of parking will increase by a relatively small amount the night of the game.
A price control will be a price ----- the equilibrium price.
Below
Suppose a study shows that the demand for Brooks Brothers' ties is more elastic than the demand for all ties. What could be a likely explanation for this? The demand for Brooks Brothers' ties could be more elastic than the demand for all ties because A. Brooks Brothers' ties have fewer close substitutes B. Brooks Brothers' ties are consumed over a shorter period of time. C. Brooks Brothers' ties are more narrowly defined. D. Brooks Brothers' ties are less costly. E. Brooks Brothers' ties are more of a necessity.
C. Brooks Brothers' ties are more narrowly defined
What is the difference in the short run and the long run? In the short run, A. at least one of the firm's inputs is fixed, while in the long run, the firm is either able to vary all its inputs, adopt new technology, or change the size of its physical plant. B. all of the firm's inputs are fixed, while in the long run, the firm is able to vary all its inputs, adopt new technology, and change the size of its physical plant. C. at least one of the firm's inputs is fixed, while in the long run, the firm is able to vary all its inputs, adopt new technology, and change the size of its physical plant. D. all of the firm's inputs are variable, while in the long run, the firm is able to vary all its inputs as well as adopt new technology and change the size of its physical plant. E. at least one of the firm's inputs is fixed, while in the long run, at least
C. at least one of the firms inputs is fixed, while in the long run, the firm is able to vary all its inputs, adopt new technology, and change the size of its physical plant.
A price ceiling A. increases the amount of the product that consumers buy because it lowers the price. B. increases the amount of the product that consumers buy because it creates a surplus. C. does not increase the amount of the product that consumers buy because it creates a shortage. D. does not increase the amount of the product that consumers buy because it creates a surplus. E. both a and b.
C. does not increase the amount of the product that consumers buy because it creates a shortage
Consider the demand for cigarettes. Suppose the government decreases the price of cigarettes by lowering cigarette taxes. How will this affect the demand for cigarettes over time? If the price of cigarettes decreases, then the quantity of cigarettes demanded will A. decrease, and this effect will likely become larger (in absolute value) over time. B. increase, and this effect will likely remain constant over time. C. increase, and this effect will likely become larger (in absolute value) over time. D. likely never change either initially or over time. E. increase, but this effect will likely become smaller (in absolute value) over time.
C. increase, and this effect will likely become larger (in absolute value) over time
Compare the demand for water with the demand for wine. The demand for water is likely A. relatively more inelastic because water is a luxury. B. relatively more elastic because water is a necessity. C. relatively more inelastic because water is a necessity. D. relatively more elastic because water is a luxury. E. equally elastic as the demand for wine.
C. relatively more inelastic because water is a necessity.
Suppose the demand for a product increasesincreases. What will be the effect on the market equilibrium price and quantity if supply is perfectly inelastic? If supply is perfectly inelastic, then A. the equilibrium price will decrease and the equilibrium quantity will not change. B. the equilibrium price will not change and the equilibrium quantity will not change. C. the equilibrium price will increase and the equilibrium quantity will not change. D. the equilibrium price will increase and the equilibrium quantity will increase. E. the equilibrium price will decrease and the equilibrium quantity will decrease.
C. the equilibrium price will increase and the equilibrium quantity will not change
Over the past 30 years, the price of oil has been relatively unstable, fluctuating between $11.00 and well over $100 per barrel. Which of the following potentially contributes to oil-price instability? Oil prices are relatively unstable because A. OPEC has been successful in controlling the quantity of oil its members supply. B. the demand for oil is elastic. C. the supply of oil is inelastic. D. the market for oil is relatively competitive. E. the income elasticity of demand for oil is negative.
C. the supply of oil is inelastic
The deadweight loss with the price regulations is equal to the area A. under the demand curve and above the supply curve for all units. B. under the demand curve and above the supply curve for units up to the quantity with the price ceiling. C. under the demand curve and above the supply curve for units between the quantity with the price controls and the equilibrium quantity. D. under the demand curve and above the supply curve for units up to the equilibrium quantity.
C. under the demand curve and above the supply curve for units between the quantity and the price controls and the equilibrium.
Will the consumer who was complaining about the increase in the price of gasoline definitely be made better off by the price ceiling?
D) Maybe, if the consumer can get gasoline.
The graph to the right illustrates the average product of labor. Use the three-point curved line drawing tool to graph the marginal product of labor. Properly label this curve. Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the graph? A. The marginal product of labor initially increases due to specialization and then decreases due to diminishing returns. B. Whenever the marginal product of labor is less than the average product of labor, it pulls the average product of labor down. C. The average product of labor equals the marginal product of labor when the marginal product of labor is at its maximum. D. Both a and b. E. All of the above.
D. Both A and B
Sally looks at her college transcript and says to you, "How is this possible? My grade point average (GPA) for this semester's courses is higher than my GPA for last semester's courses, but my cumulative GPA still went down from last semester to this semester." Explain to Sally how this is possible. A. Sally took more courses last semester than this semester. B. Sally's GPA for this semester is higher than her cumulative GPA. C. Sally's GPA for last semester was equal to her cumulative GPA. D. Sally's GPA for this semester is lower than her cumulative GPA. E. This is not possible, and Sally's cumulative GPA has been calculated incorrectly.
D. Sally's GPA for this semester is lower than her cumulative GPA.
Which of the following is true of the relationship between the average product of labor and the marginal product of labor A. Whenever the marginal product of labor is increasing, the average product of labor must be increasing. B. The marginal product of labor equals the average product of labor for the quantity of workers where the marginal product of labor is at its maximum. C. The average product of labor equals the sum of the marginal products of labor. D. Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing. E. Whenever the marginal product of labor is less than the average product of labor, the average product of labor must be increasing.
D. Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing.
Suppose Wendy's hamburgers have many close substitutes available. If so, then an increase in the price of Wendy's hamburgersWendy's hamburgers will likely A. decrease the quantity of Wendy's hamburgers demanded by a relatively small amount. B. increase the quantity of Wendy's hamburgers demanded by a relatively large amount. C. not change the quantity of Wendy's hamburgers demanded. D. decrease the quantity of Wendy's hamburgers demanded by a relatively large amount. E. increase the quantity of Wendy's hamburgers demanded by a relatively small amount.
D. decrease the quantity of Wendy's hamburgers by a relatively large amount.
Compare the demand for water with the demand for wine. The demand for wine is likely A. relatively more elastic because wine is a necessity. B. equally elastic as the demand for water. C. relatively more inelastic because wine is a necessity. D. relatively more elastic because wine is a luxury. E. relatively more inelastic because wine is a luxury.
D. relatively more elastic because wine is a luxury.
How is the price elasticity of demand measured? The price elasticity of demand is measured as A. the change in the quantity demanded divided by the change in price B. the slope of the demand curve. C. the percentage change in the quantity supplied divided by the percentage change in the quantity demanded D. the percentage change in the quantity demanded divided by the percentage change in price. E. the quantity demanded the quantity demanded divided by price.
D. the percentage change in the quantity demanded divided by the percentage change in price.
Consider the market for corn, illustrated in the figure. Suppose the government regulates a price floor of $11.00 per bushel to help corn farmers. What will be the effect of this price regulation on the market for corn? Indicate the market price and the quantity demanded with the government's price floor and indicate the deadweight loss created by the government's price floor relative to the competitive equilibrium. The market quantity is that where A. supply is greater than zero. B. the price floor intersects the supply curve. C. the demand curve intersects the supply curve. D. the price floor intersects the demand curve.
D. the price floor intersects the demand curve
The price floor creates a deadweight loss equal to the area A. under the demand curve and above the supply curve for units up to the equilibrium quantity. B. under the demand curve and above the supply curve for units up to the quantity with the price floor. C. under the demand curve for units between the quantity with the price floor and the equilibrium quantity. D.under the demand curve and above the supply curve for units between the quantity with the price floor and the equilibrium
D. under the demand curve and above the supply curve for units between the quantity with the price floor and the equilibrium.
Suppose that last semester your semester GPA was 1.80 and your resulting cumulative GPA was 2.56. Next, suppose that this semester your semester GPA will be 2.10. If so, then your cumulative GPA A. could increase or decrease because your "marginal" GPA will be above your semester GPA last semester but below your cumulative GPA. B. will decrease because your "marginal" GPA will be above your semester GPA last semester. C. will increase because your "marginal" GPA will be above your semester GPA last semester. D. will decrease because your "marginal" GPA will be below your cumulative GPA. E. will decrease because your "marginal" GPA will be below your semester GPA last semester.
D. will decrease because your "marginal" GPA will be below you cumulative GPA.
Consider the two demand curves illustrated in the figure. Which of the two is relatively more elastic? ----- is more elastic
D2
Consider the two demand curves illustrated in the figure. Which of the two is relatively more elastic? ---- is more elastic.
D2
Someone who will be moving to Lowell next year and who intends to rent an apartment A. will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling. B. will be worse off if they are unable to find an apartment to rent. C. will be better off regardless of whether they find an apartment to rent because rent is lower due to the price ceiling. D. will be worse off regardless of whether they find an apartment to rent because there is a shortage of apartments. E. both a and b.
E both a and b. A. will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling. B. will be worse off if they are unable to find an apartment to rent.
Consider the markets for BP supreme-grade gasoline, all BP grades of gasoline, and all gasoline. For which of these three markets will demand be most elastic? Demand will be most elastic for A. all gasoline, then for all BP grades of gasoline, and then for BP supreme-grade gasoline. B. all gasoline, then for BP supreme-grade gasoline, and then for all BP grades of gasoline. C. all BP grades of gasoline, then for BP supreme-grade gasoline, and then for all gasoline. D. BP supreme-grade gasoline, then for all gasoline, and then for all BP grades of gasoline. E. BP supreme-grade gasoline, then for all BP grades of gasoline, and then for all gasoline.
E. BP supreme-grade gasoline, then for all BP grades of gasoline, and for all gasoline.
A landlord who intends to ignore the law and illegally charge the highest rent possible for his apartments A. will be better off if he does not get caught because that amount will be above the equilibrium. B. will be worse off if he gets caught and the fine for violating the rent control law is higher than the black market rent. C. will be worse off regardless of whether he gets caught because that amount will still be below the equilibrium. D. will be better off because the highest rent possible and the price ceiling are both above the equilibrium. E. both a and b.
E. Both A and B A. will be better off if he does not get caught because that amount will be above the equilibrium. B. will be worse off if he gets caught and the fine for violating the rent control law is higher than the black market rent.
The competitive equilibrium rent in the city of Lowell is currently $1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of $750 per month. Briefly explain whether rent control is likely to make each of the following people better or worse off. Someone currently renting an apartment in Lowell a will be better off if they keep their apartment because rent is lower due to the price ceiling. B. will be worse off if they lose their apartment. C. will be worse off regardless of whether they keep their apartment because there is a shortage of apartments. D. will be better off regardless of whether they keep their apartment because rent is lower due to the price ceiling. E. both a and b.
E. both an and b. a will be better off if they keep their apartment because rent is lower due to the price ceiling. B. will be worse off if they lose their apartment.
Compare the demand for pepper with demand for gasoline. The demand for pepper is likely A. more elastic because pepper tends to be purchased in larger quantities. B. more elastic because pepper tends to represent a larger fraction of a consumer's budget. C. more inelastic because pepper tends to be purchased more frequently. D. more elastic because pepper tends to represent a smaller fraction of a consumer's budget. E. more inelastic because pepper tends to represent a smaller fraction of a consumer's budget.
E. more inelastic because pepper tends to represent a smaller fiction of a consumer's budget.
An accountant increases the price he charges for his services by 18 percent. In response, the demand for his services decreases by 4 percent. Will the accountant's revenue from his accounting services increase, decrease, or remain unchanged? The accountant's revenue will -----.
Increase because TR increases = Price increase x Quantity decreases
Consider the market for wheat. Suppose that productivity growth increases the supply of wheat. If the demand for wheat is relatively inelastic, then the price of wheat will fall by a relatively ---- amount.
Large
Gao's restaurant produces tacos using workers. The table below shows how many tacos can be served per hour with different quantities of workers. What is the marginal product and average product of labor for her restaurant? To answer this question, fill in the marginal product of labor and the average product of labor in the table below. (Enter numeric responses using real numbers rounded to two decimal places.)
Quantity of tacos / Quantity of workers
Suppose a pizza parlor has the following production costs: $4.00 in labor per pizza, $1.00 in ingredients per pizza, $0.50 in electricity per pizza, $4,000 in restaurant rent per month, and $550 in insurance per month. Assume the pizza parlor produces 2,000 pizzas per month. What is the variable cost of production (per month)? The variable cost of production is $----. (Enter your response as an integer.) What is the fixed cost of production (per month)? The fixed cost of production is $----. (Enter your response as an integer.)
VC = $11,000 = 4 + 1 + 0.50 x 2,000 FC = $4,550 = 4,000 + 550
Economic efficiency is
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
Consider the polar case where the demand curve is perfectly elastic. Use the line drawing tool to draw a perfectly elasticelastic demand curve. Label this line 'D'.
a straight line
Rank the following four goods from lowest income elasticity of demand (1) to highest income elasticity of demand (4). a. Bread b. Pepsi c. Mercedes-Benz automobiles d. Laptop computers
a) 1 b) 2 c) 4 d) 3
a Before the price ceiling is imposed, the equilbrium price is $----- and the equilbrium quantity is ------ thousand gallons. b Suppose the government had stepped in and imposed a price ceiling equal to the old price of $3.446 per gallon. The price ceiling will be ------ the market equilibrium price. c With the price ceiling, the quantity demanded is ---- thousand gallons and the quantity supplied is --- thousand gallons d Remembering that the quantity is measured in thousands, before the price ceiling is imposed, the consumer surplus is $ ---- and the producer surplus is ----- f After the price ceiling is imposed, the consumer surplus is $----- and the producer surplus is $------. g Remembering that the quantity is measured in thousands, the deadweight loss after the price ceiling is imposed is $----
a) 3.68 and 10 b)below c)19.5 and 4 d)1,1000 and 1,950 = [(3.90 - 3.812) x (10,000) x (0.50)]+[(3.812 - 3.68) x (10,000) x (0.50)] f)1,640 and 312 g)1,098
The diagram to the right shows a market in which a price floor has been imposed. Identify the following (enter all values as integers). a. The deadweight loss is $ b. The transfer of consumer surplus to producers is $ c. Producer surplus with this price floor is $ d. Consumer surplus with this price floor is $
a) 40,000 = 40,000 - 80,000 b) 40,000 c) 100,000 d) 20,000
A student makes the following argument: A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium. A price ceiling, on the other hand, increases the amount of the product that consumers buy because it keeps the price below the competitive market equilibrium. Do you agree with the student's reasoning? To address this, first, determine a binding price floor and a binding price ceiling A binding price floor will be ----- the equilibrium price. A binding price ceiling will be ---- the equilibrium price.
above and below
With the price regulations, consumer surplus is equal to the area A. under the demand curve and above the supply curve for units consumed. B. under the demand curve for units consumed. C. under the demand curve and above the price for units consumed. D. above the supply curve and below the price for units produced and sold.
c. under the demand curve and above the price for units consumed.
The price of organic apples rises and apple growers find that their revenue decreases. Is the demand for organic apples elastic or inelastic? The demand for organic apples is ----.
elastic
If the demand for orange juice is elastic, will a decrease in the price of orange juice increase or decrease the revenue received by orange juice sellers? If the price of orange juice decreases, revenue will ---.
increase
Consider the polar case where the supply curve is perfectly elastic. Use the line drawing tool to draw a perfectly elasticelastic supply curve. Label this line 'S'. The price elasticity of supply when supply is perfectly elastic is ---- .
infinity
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency.
