Econ 1110 Prelim 1

Beckham owns a stadium with capacity of 600 seats. He knows that his inverse demand curve is PD = 70 - (1/60)Q. What is the equilibrium market price for his stadium in order to sell out the seats? a. $50 b. $55 c. $60 d. $65 e. $73.3

c.

Consider the apple market from the previous question. Suppose black market trading does take place. What is the black-market price predicted to be?

$3.75 - look at the demand price for 150 pounds

The table shows demand and supply information for the market for Bowtrunkles, a magical creature known for being able to pick locks. The Magical Congress of the USA (MACUSA) is concerned about the number of Bowtrunkles in the country and would like to restrict supply of Bowtrunkles. Answer the following in the space below: What is the equilibrium price of Bowtrunkles if there is no government intervention in this market? What is the quantity traded in the market if MACUSA imposes a price ceiling at $87?

$50; 180

Paradise Island has a fixed supply of land that can be rented on an annual basis. It is fixed at 5,000 square feet. The annual demand for land rentals on Paradise Island is given as PD = 26,000 - 5Q. At the market equilibrium, what is the exact value of the own price elasticity of demand using the point formula?

-(1/25) Plug in Q=5000 into the demand function we get P*=26000-5•5000=$1000. Now just plug into formula: nD = (dQD/dP)•(P*/Q*) = (-1/5)•(1000/5000) = -(1/25)

A change in the price of sun screen lotion from $14 to $12 per bottle changes the quantity supplied from 24 to 20 bottles per month. Using the (midpoint) arc formula the own price elasticity of supply in this part of the supply curve is approximately equal to

1.18 Set it up as %change in quantity supplied divided by %change in price. [24-20]/22 / [14-12]/13 = 26/22 = 1.18

The demand curve for traditional vinyl records is given by QD = 90 - P and the supply curve is given by QS = 2P. At the market equilibrium, use the POINT formula to calculate the exact own price elasticity of demand at the market equilibrium. After taking the absolute value, the own price elasticity of demand is:

0.5

Consider the following supply and demand schedules in the local apple market. A new study shows that apple consumption improves health outcomes. The local government therefore wants to make apples more affordable and imposes a price ceiling of $2.50/pound on apples. Assume no black market activity. What is the quantity traded in the regulated equilibrium?

150 pounds

The demand curve for yoga mats is given by Qd = 150 - 2P and the supply curve is given by Qs = 1P. At the market equilibrium, use the POINT formula to calculate the exact own price elasticity of demand at the market equilibrium. After taking the absolute value, the own price elasticity of demand is:

2

For this question, use the table showing supply and demand. What is the value of consumers' surplus at the market equilibrium?

27 P*=10 and Q*=5 units, so CS = 22+18+15+12+10 - 50 = 27.

Suppose that the quantity demanded of sirloin beef at Ithaca's local butcher increased from 4 to 8 pounds per month when the price fell from $12.00 per pound to $10.00 per pound. Using the (midpoint) arc formula, calculate the own price elasticity of demand using this information. After taking the absolute value, the own price elasticity of demand is______________________ and demand would be said to beprice _________________________.

3.67; price elastic

For this question, use the table showing supply and demand. What is the value of consumers' surplus at the market equilibrium?

5 units will be traded, CS = 27.

Which of the areas in the figure represents the change in producers' surplus caused by the given transaction tax? a. Areas b + g + d b. Areas b + g c. Areas b + g + d + i + f d. Areas a + b + h + g e. Cannot be determinedfrom the information given.

a

Consider the following perfectly competitive market for oranges: QD = 60 - 5P (demand) and QS = 5P and (supply)Now suppose that demand for oranges increases by 20 units at each price. After the increase in demand, which of the following is correct? a. The equilibrium price increases by $2, and the quantity traded increases by 10. b. The equilibrium price increases to $8, and the quantity traded decreases to 40. c. The equilibrium price increases by $2, and the quantity traded increases by 20. d. The equilibrium price is unchanged, and the quantity traded increases by 20. e. None of the above are correct.

a.

From the list below, which one of the questions would be considered a normative question? a. Should the government provide health insurance for any individual who cannot afford it? b. What will happen to the speed with which new drugs are developed if the government places price controls on prescription drugs? c. Why is the infant mortality rate higher in the United States than in most other developed countries? d. Will physicians' incomes increase or decrease if national health insurance is instituted in the United States? e. Will supporting milk prices increase farmers' income?

a.

If the own price elasticity of demand for Cheer detergent is -3.0, then a a. 12 percent drop in price leads to a 36 percent rise in the quantity demanded. b. 12 percent drop in price leads to a 4 percent rise in the quantity demanded. c. $1,000 drop in price leads to a 3,000-unit rise in the quantity demanded. d. $1,000 drop in price leads to a 333-unit rise in the quantity demanded. e. 12 percent rise in price leads to a 36 percent rise in the quantity demanded.

a.

Suppose the government introduces a price ceiling on the milk market. Assume demand and supply are typically shaped. Assume that the price ceiling is set to be less than what the equilibrium price would be if there was no government intervention in the market. Based on our model we predict that a. there will be a decrease in the quantity of milk traded. b. there will be no change in the price at which milk trades. c. there will be an increase in the value of net social surplus. d. there will be an increase in producers' surplus. e. there will be excess supply in the milk market.

a.

Computer hardware and software are complements. Both goods are traded in perfectly competitive markets. Suppose there is a fall in the price of inputs used to make microchips for computer hardware. Our model of demand and supply would predict which one of the following? a. An increase in the equilibrium price of hardware, and decrease in the equilibrium quantity of software traded. b. A decrease in the equilibrium price of hardware, and an increase in the equilibrium price of software. c. An increase in the equilibrium quantity of hardware traded, and a decrease in the equilibrium quantity of software traded. d. A decrease in the equilibrium quantity of hardware traded, and a decrease in equilibrium quantity of software traded. e. A chronic shortage in the hardware market.

b.

Consider the demand and supply figure. If the government imposes a price floor of $2 in this market, the result of this floor will most likely be a. excess demand. b. nothing interesting. c. that demand will shift leftward. d. excess supply. e. none of the above.

b.

Consider the demand and supply graphs for X, Y and Z as illustrated. In each market the initial market price is $30 and initial quantity traded is 30 units. The government plans to place a tax of $t/unit on one of these markets. In which market would this tax raise the most revenue? a. Market X b. Market Y c. Market Z d. We do not have enough information to know. e. The same amount of revenue would be raised in each market.

b.

Consider the figure with Demand and Old and New Supply. The change in net social surplus as a result of the increase in supply a. is areas 7 + 8 + 9 b. is areas 3 + 4 + 5 + 6 c. is areas 1 + 2 + 3 + 4 d. is areas 1 + 2 + 3 + 4 + 5 + 6 e. cannot be determinedfrom the information given.

b.

Jim, Pam, Dwight and Kelly are asked to spend 24 hoursmaking paper airplanes and paper hats for the upcoming company party. The table shows the maximum number of airplanes or hats that each employee can make during 24 hours. Workers can produce any linear combination of their extreme values. The group decides to assign the tasks efficiently. Suppose Dwight is making both airplanes and hats. Given that information, which one of the following statements is true? a. Jim is making only hats. b. Pam is making only planes. c. Jim, Pam and Kelly are also producing some of both. d. Kelly is not making hats. e. Everyone is making planes.

b.

Suppose that the demand function for cups of coffee at a local cafe in London is as follows: QD = 600 + 7F - 0.5J + 1.9G.Which one of the following statements is most true? a. Variable G is most likely the price that the coffee shop owner paid for her coffee beans. b. Variable J could not be the price of tea, which is a substitute for coffee. c. The demand for coffee must be vertical. d. If coffee satisfies the "law of demand" then F is most likely the price of coffee per cup. e. Variable F is most likely the price of donuts - since everyone in London likes to eat a donut with their coffee.

b.

The post hoc, ergo propter hoc fallacy is a. naively assuming something about the way the economic world ought to be. b. the error of reasoning that concludes that if event A happened today and event B happens tomorrow, then event A necessarily caused event B. c. an expression that means "other things being equal." d. the error of reasoning that concludes that what is true for one is necessarily true for all. e. the error of reasoning that concludes that if A and B happen today and are correlated, then event A caused event B.

b.

Which one of the following statements would be considered NORMATIVE? a. The supply curve for coffee in Watkins Glen is upward sloping. b. Coffee should be subsidized so everybody can afford their morning wakeup caffine. c. A binding price ceiling in the coffee market will cause excess demand. d. The market for coffee is perfectly competitive. e. An increase in price from $3.50 to $5.50 decreases the quantity demanded of coffee by 60.

b.

Which one of the following will increase the supply of popcorn at football games this fall? a. A decrease in the price of hot pretzels, a substitute in consumption for popcorn. b. A decrease in the price of popcorn popping oil, an input. c. A decrease in the number of companies making popcorn. d. An increase in the price of popcorn. e. An increase in the income of football fans.

b.

Cersei and Jaime rule a city and have just had a baby. It takes Cersei 25 minutes to feed a baby and 50 minutes to hear a petition. Jaime takes 15 minutes to feed a baby and 45 minutes to hear a petition. Which one of the following statements is true? a. Jaime has a comparative advantage in feeding a baby because Jaime can do it faster than Cersei. b. aime has a comparative advantage in hearing petitions relative to Cersei. c. Jaime has a comparative advantage in feeding the baby relative to Cersei. d. They can't gain from specialization. e. Cersei has a comparative advantage in feeding the baby relative to Jaime.

c.

Consider the PPF for Ivyland. As resources in Ivyland are reallocated and the economy moves from point A to point B a. the marginal opportunity cost of widgets decreases. b. the total opportunity cost of widgets increases at a decreasing rate. c. the marginal opportunity cost of gadgets decreases. d. the economy becomes more efficient. e. None of the above are true.

c.

Consider the figure with Demand and Old and New Supply. The change in consumers' surplus as a result of the increase in supply a. is areas 5 + 6 b. is areas 5 + 6 + 7 + 8 c. is areas 2 + 3 + 4 d. is areas 5 + 6 - 2 e. cannot be determinedfrom the information given.

c.

Consider the global market for paper on the right. Suppose that the government levies a tax of $2 per sheet on suppliers in this market. Which one of the following statements about the post-tax equilibrium is true? a. More paper will be traded. b. No one bears the economic price incidence of the tax. c. Demanders bear the complete economic price incidence of the tax. d. The supply curve is perfectly inelastic. e. None of the above are true.

c.

Consider the graph. Suppose it illustrates the situation after the government has put a binding price floor into law. Which one of the following statements is true? a. The price floor could be L. b. There will be a shortage of N-M units. c. M units will be traded. d. There will be a surplus of K-C units. e. The regulated equilibrium occurs at point F.

c.

If an economy experiences unemployment, it would show up as a point a. on the production possibilities curve, but on one of the axes. b. outside the production possibilities curve. c. inside the production possibilities curve. d. on the production possibilities curve. e. on a production possibilities curve which has shifted inward towards the origin.

c.

Refer to the table. Kanye, Elvis, and Elton can either compose songs or write tales. The table shows the maximum number of songs and tales that can be written by each of these three writers (or any linear combination). If they want to compose 8 songs and 13 tales efficiently each week, how should they specialize in production? a. None of the writers specialize. b. Elvis and Elton specialize in songs and Kanye specializes in tales. c. Elton and Kanye specialize in tales and Elvis specializes in songs. d. Elvis and Kanye specialize in songs and Elton specializes in tales. e. Elvis and Kanye specialize in tales and Elton specializes in songs.

c.

Santa has two helpers: Buddy the elf and Rudolf the reindeer. Both are capable of making presents and pulling the sleigh. Rudolf makes 4 presents in one hour and can pull the sleigh to 2 cities in one hour. Buddy makes 5 presents in one hour and can pull the sleigh to 3 cities in one hour. Both work for eight hours per day. Which one of the following statements is TRUE? a. Rudolf has an absolute advantage in pulling the sleigh. b. Rudolf should refrain from working because he has no absolute advantage in anything. c. Buddy has a comparative advantage in pulling the sleigh. d. Buddy has a comparative advantage in making presents. e. Rudolf has a comparative advantage in pulling the sleigh.

c.

Suppose that the weekly supply function for pumpkin cookies is typically shaped and is written as follows: QS = 2,000 - 4A + 3B - 32CWhich one of the following statements is most likely to be true? a. Variable B could be the price of pumpkins used to make the cookies. b. Variable B could be the price of milk that people drink along with their cookies. c. Variable B could be the price of pumpkin cookies. d. Variable A could be the number of firms making pumpkin cookies. e. Variable A could be an indicator of technological sophistication.

c.

Suppose the perfectly competitive market for white rice has typical supply and completely elastic demand. At the market equilibrium, a. consumers' surplus equals producers' surplus. b. there is dead weight loss. c. consumers' surplus is zero and producers' surplus is positive. d. net social surplus is zero. e. net social surplus equals consumers' surplus.

c.

The table shows the daily demand and supply information for the pizza market at Florida's Disney World. Suppose the current volume of trade is observed to be Q = 1000 slices? Which one of the following statements is true? a. The market is in its natural equilibrium. b. There is a price floor equal to $1.75 in the market. c. There is a price ceiling of $1.75 in the market. d. There is a quantity quota of 500 slices in the market. e. None of the above.

c.

Watkins Glen Racing College has just opened its doors in the village of Watkins Glen, New York. Due to the numbers of new students who are moving to Watkins Glen to attend the school, demand for housing units has sharply increased. Assume that the supply of housing in Watkins Glen is typically shaped (that is, positively sloped) and that supply cannot shift in the short run. How would the short run equilibrium quantity of housing units traded and total expenditure on housing units change? a. Quantity has stayed the same, total expenditure has increased. b. Quantity has increased and total expenditure has decreased. c. Quantity has increased and total expenditure has increased. d. Quantity has decreased and total expenditure has decreased. e. There is not enough information to answer this question.

c.

A change in the price of shampoo from $6 to $8 per bottle changes the quantity demanded from 14 to 10 bottles per month. Using the (midpoint) arc formula, and taking the absolute value, the own price elasticity of demand in this part of the demand curve is approximately equal to a. 1 b. 2/4 c. 4/2 d. 7/6 e. 6/7

d.

Consider only Japan and the U.K. Suppose the marginal opportunity cost of a tea bag in terms of sugar in Japan is 2 grams. Suppose the marginal opportunity cost of a gram of sugar in the U.K. is 3 tea bags. If the two countries trade without government restrictions, transportation costs are negligible, and markets are competitive, then the likely terms of trade for tea bags will fall in the range of a. 4 to 5 grams of sugar per tea bag. b. 3 to 4 grams of sugar per tea bag. c. 2 to 3 grams of sugar per tea bag. d. 1/3 to 2 grams of sugar per tea bag. e. 1/4 to 1/2 grams of sugar per tea bag.

d.

Consider the market for energy drinks (like Gatorade) in California. The Surgeon General gives several speeches on the health risks and consequences of dehydration. And people take notice. A sunny summer encourages Californians to exercise more. At the same time a drought in California raises the price of water, an important ingredient for making energy drinks. Which one of the following statements is correct concerning the energy drink market? a. Both equilibrium price and equilibrium quantity must increase as a consequence of these events. b. Both equilibrium price and equilibrium quantity must decrease as a consequence of these events. c. Equilibrium price must increase and equilibrium quantity must decrease as a consequence of these events. d. Equilibrium price must increase but we don't know what will happen to equilibrium quantity as a consequence of these events. e. Equilibrium quantity must increase but we don't know what will happen to equilibrium price as a consequence of these events.

d.

Consider the market for ground beef represented by the figure, which is initially in equilibrium at point J. Assume that ground beef is an inferior good. Which one of the following could explain a movement to a new equilibrium at point M? a. A change in tastes away from hamburgers combined with an increased price for cattle feed. b. An increase in buyers' incomes combined with a cost-saving technological improvement. c. A decrease in the price of hot dogs combined with an increased price for labor. d. A decrease in buyers' incomes combined with a decrease in the number of acres owned by cattle ranches. e. A drop in the population combined with an increased price for an alternate form of packaged beef.

d.

Consider the market for ground beef represented by the figure, which is initially in equilibrium at point J. Which one of the following is correct if the market equilibrium has shifted to point K? a. There is an excess supply of 50,000 pounds at the price of $1.00. b. The demand decreased due to a lower price substitute. c. There is an excess demand of 25,000 pounds at the price of $1.00. d. The shift in supply will cause a temporary shortage, which will disappear when the price rises to $1.50. e. Both demand and the quantity demanded have dropped.

d.

Consider the national market for units of college education (measured by credit hours) on the right. Suppose that the government grants a subsidy of $100 per credit hour to demanders in this market. Which one of the following statements about the post-subsidy equilibrium is true? a. The final demand price PD is now higher. b. The government will collect several dollars in revenue from college education. c. The value of net social surplus in now higher than it was before. d. More credit hours will be traded and both demanders and suppliers will be better off. e. More credit hours will be traded but only demanders will be better off.

d.

Consider the regional market for prunes on the right. Suppose that the government grants a subsidy of $1 per pint of prunes to demanders in this market. Which one of the following statements about the post-subsidy equilibrium is true? a. The final demand price PD is now higher. b. The government will collect several dollars in revenue from the sale of prunes. c. The value of net social surplus in now higher than it was before. d. More prunes will be traded and both demanders and suppliers will be better off. e. More prunes will be traded but only demanders will be better off.

d.

Suppose that the market for peanuts in the U.S. can be represented by the supply and demand diagram. Attempting to avoid issues with peanut allergies, suppose the government imposes a quantity quota on this market at Q = Q'. Assume that prior to the imposition of the quota, the price in the market was P* and the quantity sold was Q*. Which one of the following consequence is true regarding the impact of the quota? a. Consumers' surplus post quota equals area A, and producers' surplus post quota equals areas B+C+D+E+F. b. Producers' surplus increases by the area B+C+G, and consumers lose area B+D in surplus. c. Deadweight loss due to the quota equals the area D+F+G. d. Producers' surplus increases by the area B, but producers lose the area F. e. There is a chronic shortage in the market.

d.

Suppose that the quantity demanded for turkey at Ithaca's local butcher increased from 9 to 11 pounds per month when the price fell from $3.00 per pound to $2.00 per pound. The own price elasticity of demand for turkey, using the (midpoint) arc formula is: a. -0.67 b. -2.0 c. -1.5. d. -0.5 e. not defined

d.

The government wants to reduce the consumption of electricity by 5 percent. If the own price elasticity of demand for electricity is -0.4, then the government should a. raise the price of electricity by 0.125 percent. b. raise the price of electricity by 2 percent. c. raise the price of electricity by 0.08 percent. d. raise the price of electricity by 12.5 percent. e. lower the price of electricity by 0.4 percent.

d.

What is the likely effect on the domestically produced lumber market of imposing quotas on the import of lumber cut and milled in Canada? a. The demand curve for domestic lumber shifts to the left. b. The supply curve for domestic lumber shifts to the right. c. The supply curve for domestic lumber shifts to the left. d. The demand curve for domestic lumber shifts to the right. e. Both the demand and the supply curves for domestic lumber shift to the left.

d.

Which one of the following is primarily a normative statement? a. Increasing the fines for fare evasion in public transportation will result in more ticket revenue. b. Creating large conservation regions can improve the chances of survival for endangered species. c. People often behave in ways that economists consider irrational. d. The size of commission fees in financial markets should be closely monitored so that rewards are equally shared. e. Several agents acting in their own selfish interest can sometimes lead to inefficient outcomes.

d.

Which one of the following will increase the demand for soda in the local soda market? Soda is an inferior good. a. An increase in income of the town. b. A decrease in the price of corn syrup, an input. c. A decrease in the price of orange juice, a substitute in consumption. d. A decrease is the price of French fries, a complement in consumption. e. A health campaign discouraging the consumption of sugary drinks like soda.

d.

A careless research assistant has presented her professor with the following unlabeled equation representing the market for tea bags: Q = 600 - 7K + 3R - 4Y. The professor then spends numerous hours trying to figure out what the equation represents. Which one of the following is a plausible best guess? a. It is a supply function where K represents the price of tea bags. b. It is a supply function where R represents the cost of the tea leaves. c. It is a demand function where Y represents the price of coffee, a substitute in consumption for tea. d. It is a demand function where K represents consumer income and tea bags are a normal good. e. It is a demand function where R represents the number of people in the market.

e.

Assume that the rental housing market in Corning, NY is perfectly competitive with typically shaped demand and supply curves. It is announced that a new college, Chemung University, will open in two years bringing with it an arrival of new students. In anticipation of students moving to Corning to attend Chemung University, construction of new rental units increases. Assuming no other changes to the rental housing market, what would good economists predict will happen to the equilibrium price and quantity of rental housing units in that market once Chemung University opens? a. Quantity must decrease, and price must increase. b. Quantity must decrease, and price must decrease. c. Quantity must increase, and price must increase. d. Quantity must increase, and price must decrease. e. There is not enough information for good economists to answer this question.

e.

Consider the demand and supply graphs for X, Y and Z as illustrated. In each market the initial market price is $30 and initial quantity traded is 30 units. The government plans to place a tax of $t/unit on these markets. In which market would the economic price incidence of the tax fall entirely on demanders? a. Market X b. Market Y c. Market Z d. We do not have enough information to know. e. None of the above.

e.

Consider the national market for sugar. A recent report highlights the negative health impacts of consuming too much sugar. At the same time there is a terrible drought in the southern states that farm sugar. Which one of the following statements is correct concerning the sugar market? a. Equilibrium price and equilibrium quantity must increase as a consequence of these events. b. Equilibrium price and equilibrium quantity must decrease as a consequence of these events. c. Equilibrium price will increase and equilibrium quantity will decrease as a consequence of these events. d. Equilibrium price will definitely increase but we don't know what will happen to equilibrium quantity as a consequence of these events. e. Equilibrium quantity will definitely decrease but we don't know what will happen to equilibrium price as a consequence of these events.

e.

Consider the regional market for pairs of mittens on the right. Suppose that the government levies a tax of $2 per pair on mittens traded. Which one of the following statements about the post-tax equilibrium is true? a. More mittens will be traded. b. No one bears the economic price incidence of the tax. c. Demanders bear the complete economic price incidence of the tax. d. If demanders send the tax revenue to the government then they will bear the economic price incidence of the tax, otherwise suppliers will. e. None of the above are true.

e.

Migration is a politically sensitive topic. Much of the discussion is centered around the effect of migrants on labor markets. Suppose the government builds a wall and consequently decreases the number of migrants allowed into the country. Suppose also that the only exogenous effect this policy has is that it decreases the supply of labor in the economy. Which one of the following predictions is most correct based on a perfectly competitive model of demand and supply in the labor market? a. The equilibrium market price of labor (wages) will definitely increase and the equilibrium quantity traded (employment) could go up or down. b. Employment will definitely increase but wages could go up or down. c. Both wages and employment will definitely increase. d. Both wages and employment will definitely decrease. e. Wages will definitely increase and employment will definitely decrease.

e.

Suppose that a competitive market exists in the U.S. for both domestically made sugar and Brazilian made sugar. Suppose the U.S. government slaps a binding import quantity quota on Brazilian made sugar sold in the U.S. Which one of the following is the best prediction of the consequence of the quota? a. The market price of U.S. made sugar falls and the market price of Brazilian made sugar rises. b. Only the market price for Brazilian made sugar rises. c. The quantity exchanged in both the Brazilian made sugar market and the U.S. made sugar market decreases. d. Only the market price of U.S. made sugar increases. e. The equilibrium price of both Brazilian made sugar and U.S. made sugar increase.

e.

The country of Lowlandia is inhabited by four individuals: Tony, George, Paul, and Jacques. Residents of Lowlandia can produce two goods, magazines and loaves of bread. The table shows the maximum amounts of each output they each can produce per week. Their individual PPF's are linear between these amounts. If the desired level of bread production is 12, how should the inhabitants specialize? a. Tony and George in bread, Paul and Jacques in magazines. b. Tony in bread, George and Jacques in magazines, and Paul in both goods. c. Paul in bread, Jacques and George in magazines, and Tony in both goods. d. Jacques in bread, Tony, George and Paul in magazines. e. Paul in bread, Tony and George in magazines, and Jacques in both.

e.

The figure with wine and cars shows the production possibility frontier for an economy that produces only those two goods. Which one of the following statements is true? a. The marginal opportunity cost of a car at point B is greater than the marginal opportunity cost of a car at point A. b. Point A is more efficient than point E. c. Point A is better than point E. d. The marginal opportunity cost of wine is smaller at point A than it is at point B. e. None of the statements above are true.

e.

Which one of the following will result in an increase in quantity demanded with no shift in the demand curve? a. An increase in income. b. An increase in the good's desirability. c. An increase in the price of a substitute in consumption. d. An increase in the price of a complement in consumption. e. A shift in the supply curve to the right.

e.