Econ 1201 Midterm

Which factor is MOST likely to shift the supply curve for milk to the left?

a tax on each gallon of milk produced

If a demand curve is downward sloping, a decrease in supply with no change in demand will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.

decrease; increase

If the price of a good exceeds the competitive equilibrium price, then:

firms produce more than the efficient quantity.

Economic signals:

guide decision makers in their transactions in the marketplace.

(Figure: Demand for Bananas) Use Figure: Demand for Bananas. If bananas are a normal good, an increase in the incomes of consumers could be represented as a:

shift from D1 to D2.

(Figure: Cell Phones and Automobiles) Use Figure: Cell Phones and Automobiles. Technological improvements will likely:

shift the production possibility frontier outward to PPF2.

An excise tax that the government collects from the producers of a good:

shifts the supply curve upward.

(Figure: The Market for Microeconomics Textbooks) Use Figure: The Market for Microeconomics Textbooks. Suppose the government believes that microeconomics textbooks are too expensive and wants to make them more affordable, ensuring that they are available to students. Given a price ceiling of $80, the market outcome would be a _____ of _____ textbooks.

shortage; 30

Sabrina has gone out to lunch three times this week. She has some extra money, so she decides to go out to lunch a fourth time. Which economic principle does this statement BEST represent?

"How much" is a decision at the margin.

You decide whether to eat one more slice of cheesecake based on how hungry you feel. Which economic principle does this statement BEST represent?

"How much" is a decision at the margin.

If you pay a price exactly equal to your willingness to pay, then your consumer surplus is:

$0.

(Figure: The Market for Green Tea) Use Figure: The Market for Green Tea. In the green tea market, the pretax equilibrium price is $3, and the pretax equilibrium quantity is 20 cups. An excise tax, charged on suppliers, is levied on each cup of green tea. Based on the graph, the incidence of the tax on suppliers is:

$0.75.

(Figure: The Market for Audiobooks) Use Figure: The Market for Audiobooks. A price floor of $15 would result in deadweight loss of:

$20.

(Figure: Demand and Supply of Sugar) Use Figure: Demand and Supply of Sugar. Given the initial equilibrium of S1 and D, any price below _____ will exert pressure for the price to _____.

$25; rise

The state of Texas recently saw a gasoline price increase of 5%, which brought about a fall in the quantity of gasoline purchased of 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

0.2; inelastic

When the price of fountain pens decreases from $3 to $1, the quantity of fountain pens demanded increases from 100 to 200 pens. What is the price elasticity of demand, obtained using the midpoint method?

0.67.

The state sales tax as we know now can best be described as being

Regressive

Romulus and Remus each consume 2 loaves of bread at the current price. If Romulus values each loaf of bread less than Remus values each loaf of bread, then:

Remus's consumer surplus is greater than Romulus's.

(Figure: The Demand for Winter Gloves) Use Figure: The Demand for Winter Gloves. The price elasticity of demand over the segment DE, computed using the midpoint method, is:

0.71.

A price floor often results in:

black markets, or underground transactions in the good.

(Table: Movie Downloads) Two consumers, Ariel and Abbie, like to download movies to their iPhones. The table Movie Downloads shows their willingness to pay for each downloaded movie. If an individual movie can be downloaded for $1, what is the total consumer surplus received by these consumers?

$11 (Can't go below WTP)

(Figure: Monthly Supply of Lattes) The figure Monthly Supply of Lattes represents the monthly supply of lattes at a local cafe. At $3 per latte, the cafe produces 120 lattes per month. The producer surplus received by this bakery is equal to:

$180.

(Figure: The Market for Alaskan Lobster) Use Figure: The Market for Alaskan Lobster. The government imposes a quota limiting sales of lobster to 1,000 pounds. According to the figure, the quota rent per pound is:

$2.50.

If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over $50,000 is taxed at 20%, then a family earning an income of $75,000 will pay a MARGINAL tax rate of _____%.

20

(Table: Production Possibilities Schedule I) Use Table: Production Possibilities Schedule I. If the economy produces two planes per period, it can also produce, at most, _____ trains per period.

24

(Table: The Market for Kombucha) Use Table: The Market for Kombucha. The table shows the quantity demanded (Qd) and quantity supplied (Qs) of kombucha at various prices. If the government imposes a price ceiling of $3 per bottle of kombucha, the quantity of kombucha supplied will be _____ bottles.

8

Label each demand and supply curve with the type of elasticity that best describes it. Note that graph E requires three labels.

A: perfectly elastic B: perfectly inelastic C: unit-elastic D: unit-elastic E: elastic - unit-elastic - inelastic F: perfectly elastic

(Figure: Equilibrium in the Market for Mechanical Pencils) Consider the figure Equilibrium in the Market for Mechanical Pencils. At the equilibrium price, this market's total producer and consumer surplus equals area:

AIF (whole triangle)

(Figure: Shifts in Demand and Supply III) Use Figure: Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose a wet and sunny year increases the nation's strawberry crop by 20%. Which panel BEST illustrates how this event will affect the market for strawberries?

B

(Figure: The Market for Amazon Echo) Use Figure: The Market for Amazon Echo. The figure shows the pre-tax and post-tax positions—S1 and S2, respectively—of the supply curve for the Amazon Echo. The transfer of consumer surplus to the government is equal to area:

B

(Figure: Speedboats and Pomegranates I) Use Figure: Speedboats and Pomegranates I. The figure shows the production possibility frontiers for two countries that produce only pomegranates and speedboats. The axes of the two graphs are measured in equivalent units. The United States is operating at point M, and Belarus is operating at point N. The opportunity cost of producing an additional ton of pomegranates would be greater in:

Belarus.

During the Obama administration, the development of low‑cost batteries for electric cars received large amounts of federal funding via subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero‑emissions electric vehicles, where there is an upward‑sloping supply curve and a downward‑sloping demand curve. In which direction will demand and supply shift?

Both curves will shift right.

(Figure: Winners and Losers from Rent Control) Use Figure: Winners and Losers from Rent Control. Consider the market for apartments. After the imposition of a price ceiling (rent control), the deadweight loss is given by area:

C

Suppose that in your state, the minimum wage is $12 per hour. Yet, you notice that many fast-food restaurants have posted help wanted signs for jobs paying $15 per hour. What does this tell you about the minimum wage and the availability of restaurant work in your town?

Few workers are willing and able to work fast-food jobs for minimum wage.

Which of the following statements describes efficiency? I. A situation in which producers make the highest profits possible. II. A situation in which we cannot produce more of one good without producing less of another good. III. A situation in which we produce the goods and services that people value most highly.

II and III

Which statement(s) is/are FALSE? I. Quantity controls set below the market equilibrium quantity drive a wedge between the demand price and the supply price of the good. II. The difference between the demand price and the supply price at the quota limit is consumer surplus. III. Quantity controls have no undesirable side effects.

II and III

If the government's goal is to increase the tax revenue from an existing tax on a particular good by increasing the tax rate itself, what has to be true about the particular good?

None of these three possible answers listed here are correct answers.

(Figure: Producer Surplus in the Market for Baseballs) Consider the figure Producer Surplus in the Market for Baseballs. At a price of P2, the producer surplus equals the area:

P2M0. Largest triangle possible above supply curve

The circular-flow diagram ignores a number of real-world complications in the interest of simplicity. Which of the following factors is ignored?

That many sales that firms make are not to households but to other firms.

In a product market where the price elasticity of demand is significantly less than the price elasticity of supply, who would pay most of a new tax that would be levied on the product? (Note that elasticity values are viewed in absolute terms)

The consumer would pay the larger share

One day, a local theme park charges $40 per person for admission, and 10,000 people visit the park. On another day, the park charges $60 per person, and 20,000 people pay to enter the park. Which explanation best describes why the park sees an increase in attendance when the price is higher?

The low-attendance day falls on an autumn Wednesday, while the high-attendance day falls on a summer Saturday.

When the economy experiences shortfalls or excesses of spending, government policies can be used to address the imbalances. Which statement does NOT address such imbalances, realized during the coronavirus pandemic?

There is fear of recession and uncertainty about the future in a post COVID-19 reality.

Which of the following situations would likely cause the price elasticity of demand for a good to be more elastic in it's value, that is, greater than 1?

This good in question is part of a very narrowly defined market

Which statement best characterizes the relationship between the elasticity of demand, price, and total revenue?

When demand is elastic and price falls, total revenue rises.

Which of the following situations would likely make the dead weight loss of a binding price floor very large?

When the demand and or the supply curves are highly elastic with very gradual slopes.

In which situation would the dead weight loss of a binding price floor be minimized?

When the demand and or the supply curves are highly inelastic with steep slopes.

The price of good X falls and the demand for good Y decreases. We can conclude that:

X and Y are substitutes.

If the price elasticity of demand for basketball shoes is 4:

a 20% decrease in the price of shoes will increase quantity demanded by 80%.

Saying that an unemployment rate of 8% is too high is:

a normative statement.

If an economy is efficient:

all opportunities to make people better off without making other people worse off have been exploited.

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Canada has an absolute advantage in producing:

apples only.

(Figure: The Market for Summer Sandals) Use Figure: The Market for Summer Sandals. The government recently levied a $10 tax on the producers of summer sandals. What area or areas in the graph identify tax revenue?

b + d

(Figure: Price Controls in the Market for Strawberries) Use Figure: Price Controls in the Market for Strawberries. An effective price floor would be at price _____, and a _____ would result from the difference between quantities _____.

b; surplus; f and e

If the cross elasticity of demand between cheese and yogurt is positive, then:

cheese and yogurt are substitutes.

(Figure: Dreamliners and Small Jets) Use Figure: Dreamliners and Small Jets. On this figure, points A, B, E, and F indicate:

combinations of dreamliners and small jets that society can produce, using all of its factors efficiently.

The price of matcha tea increases by 10%, and as a result, Cassandra purchases fewer biscotti. For Cassandra, matcha tea and biscotti are:

complements.

Ariana bought a new pair of shoes at Nordstrom. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these shoes!" This BEST represents the concept of:

consumer surplus.

If the government levies an excise tax in a market whose supply curve is perfectly elastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____.

consumers; zero

A trade-off involves weighing

costs and benefits.

(Figure: The Demand for Digital Movies) Use Figure: The Demand for Digital Movies. If the price of online movies increases from $6 to $8, total revenue _____, which means that demand is _____.

decreases; elastic

It is very easy for Evelyn to find inexpensive inputs for her business. Evelyn's supply is therefore likely to be:

elastic.

If demand and supply are both very elastic, a decrease in the rate of an excise tax will likely:

increase the amount of revenue collected by the government.

An economic model:

is a simplified version of reality used to understand real-world economic conditions.

Trade can be beneficial to an economy because:

it enables more goods and services to be obtained at a lower opportunity cost.

Spaghetti and lasagna are substitutes. Holding all other things constant, this means that if the price of spaghetti increases, the demand for:

lasagna will increase.

A decrease in efficiency means that an economy has:

made more people worse off without making others better off.

(Table: Matcha Tea and Coho Salmon Production Possibilities II) Use Table: Matcha Tea and Coho Salmon Production Possibilities II. This table shows the maximum amounts of matcha tea and Coho salmon, both measured in pounds, that Colombia and Washington can produce if each produces just one good. Colombia has a comparative advantage in the production of:

matcha tea only.

If a tax system is designed to minimize the sum of the deadweight loss due to distorted incentives and the administrative costs of taxation, its principal goal is:

maximizing efficiency.

If a market is in equilibrium:

no individual will be better off doing something different.

Income tax rates are such that Sir Robin of the Hood earns $35,000 per year and pays $7,000 in taxes, while the Sheriff of Nottingham's tax collector, Sir Guy of Gisborne, earns $1 million per year and pays $200,000 in taxes. This tax is:

proportional.

Which of the following is a microeconomic topic?

reasons why a consumer buys more cheese

Which of the following topics would be studied in macroeconomics?

recessions

Brian and Luisa must pay an income tax. Both Brian and Luisa pay $10,000 in taxes each year, but Brian earns $200,000, and Luisa earns $100,000. From this information, you can infer that this tax is:

regressive.

The total producer surplus in the California cheese market is the:

sum of the individual producer surpluses in this market.

(Figure: The Market for Milk) Use Figure: The Market for Milk. If a government price floor of $1.10 is imposed on this market, inefficiency will result in the form of a _____ of _____ gallons of milk.

surplus; 3

(Scenario: The United States and Germany) Use Scenario: The United States and Germany. Given this information, the country that has the absolute advantage in barley is _____, and the country that has the absolute advantage in aluminum is _____.

the United States; Germany

Price elasticities of demand and supply do NOT play a major role in determining:

the administrative costs of imposing an excise tax.

If tax efficiency is the only goal, a tax system should be designed to minimize:

the deadweight loss and its administrative costs.

A sushi chef prepares a California roll for a customer. Which of the following factors is physical capital?

the knife use to cut the sushi

Which factor does NOT determine the price elasticity of demand?

the slope of the supply curve

Suppose one parent picks up their child from day care, while the other parent stays home to make dinner. This is an example of the principle that:

there are gains from trade.

(Figure: Apple Cider and Soybeans) Use Figure: Apple Cider and Soybeans. If this economy is producing at point A and wants to produce at point B, it must:

use its existing resources more efficiently, as opportunity costs are zero.

A normative statement is a statement regarding:

what should be.

Along a straight-line downward-sloping demand curve, a decrease in the market price of a good:

will increase consumer surplus.

Suppose you pay $14 to see George Clooney in his next movie and that Mr. Clooney receives $40 million for appearing in it. This means that:

you and George Clooney benefit from this transaction.

You can spend $300 on either a pair of new Air Jordan sneakers or a new skateboard. If you choose to buy the Air Jordans, the opportunity cost is:

your enjoyment of the new skateboard.

Oregon recently became the first state to adopt legislation capping housing rents statewide. Indicate how Oregon's policy will affect landlords, renters, and the quality of rental units available.

Affect on landlords reduced incentive to offer housing for rent might not be able to pay for repair costs Affect on renters a lot of time and effort needed to find housing might not be able to find housing to rent might illegally sublet the housing Affect on rental units condition worsens quality falls

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose excessive rainfall destroys one-third of the nation's radish crop. Which panel BEST illustrates how this will affect the market for radishes?

C

(Figure: Supply of Bananas) Use Figure: Supply of Bananas. A rise in the prices of inputs (e.g., labor, fertilizer, and fuel) used to produce and transport bananas could be represented in the figure as a movement from:

C to A.

(Figure: Supply and Demand in the Peach Market) Use Figure: Supply and Demand in the Peach Market. The market is in equilibrium at point C. Suppose most people drink peach juice in the afternoon with champagne. What will be the new equilibrium point in the peach juice market if a law banning alcohol passes?

D

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market.

Equilibrium price increases Equilibrium quantity decreases. Supply shifts left, demand stays same

Lumber and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of lumber increases due to new regulations for the logging industry. Shift one or both curves in the graph to illustrate the impact this change will have on the market for bricks.

Equilibrium price increases Equilibrium quantity increases. Demand shifts right 1, supply doesn't change

Which statement is CORRECT?

If the government can make the tax system fairer without sacrificing efficiency, it should do so to maximize equity.

The graph represents the market for soft drinks. Suppose that one of the industry's major suppliers of soft drinks has decided to exit the market to focus on its snack foods. At the same time, the average price of soft drinks has increased and the total amount of soft drink sales has increased. Manipulate the graph to demonstrate these changes in the market for soft drinks.

Increase demand x 2, Decrease supply x 1

Suppose everyone in a small town decided to save more and spend less. How will this affect an economy? (In macroeconomics, this is called the paradox of thrift.)

It will decrease the overall level of income, since one person's spending is someone else's income.

The graph depicts five demand curves. Please rank each curve in terms of elasticity. A curve that is more elastic than another curve for any given quantity can be considered more elastic.

Most-least: CEBDA

Which of the following factors is key to a well-functioning market?

a right of individuals and firms to use and dispose of their private property as they see fit

In a situation in which there are technological improvements, we generally see:

a shift in the production possibility frontier outward.

(Figure: Price Control in the Market for Gasoline) Use Figure: Price Control in the Market for Gasoline. Dramatic increases in the price of gasoline have led the government to impose a price ceiling. One effective price ceiling would be the price indicated at point _____, creating a _____ equal to the difference between points _____.

d; shortage; i and h

(Figure: Market Demand for Oranges) Consider the figure Market Demand for Oranges. The amount by which the total benefits of oranges to consumers exceed consumers' total expenditures on oranges is called _____. If the price of oranges is B, this quantity is depicted by the area _____.

consumer surplus; BCD

If the income elasticity of electric cars is positive:

electric cars are a normal good.

When a market is in equilibrium, and there is no outside intervention to change the equilibrium price:

no mutually beneficial trades are missed.

(Figure: Production Possibilities and Circular-Flow Diagram) Use Figure: Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram, capital that used to flow to firms producing bananas now flows to firms producing pineapple. This adjustment would be BEST represented in the production possibilities diagram by a move from point A toward:

point B (a decrease in banana production and an increase in pineapple production).

A binding minimum wage will MOST likely lead to a situation where:

some unskilled workers have a difficult time finding a job.

Aminah has a calculus exam tomorrow. However, a free lecture by one of her favorite authors is taking place this evening. Aminah decides to attend the lecture instead of studying for her exam. Aminah's opportunity cost of attending the lecture is:

the transportation and time cost of getting to the lecture itself plus the reduction in her calculus exam grade as a result of not studying tonight.