Econ 2030 LSU extra practice

Suppose a parking garage has the following pricing schedule: 0-2 Hours, $5; 2-4 Hours, $10; 4-8 Hours, $15. The marginal (i.e., extra) cost of the fifth hour of parking is

$5

Suppose rational decision-maker Gena purchased a ticket to see Bruce Springsteen in concert. Suppose further that the price of a Springsteen ticket was $150 and Gena's reservation price for the ticket was $200. Gena's consumer surplus from this purchase was

$50 Ticket bought $150 Reservation Price $200 Consumer surplus $200-$150= $50

For ALL firms:

Profit = (P - ATC) x Q. Profit-maximizing rule: produce quantity Q* where MR = MC. Remain in business (i.e., produce Q* > 0) if P ≥ AVC. Shut down (i.e., produce Q* = 0) if P < AVC.

Suppose a profit-maximizing firm is earning positive accounting profits at its current level of output. Everything else held constant, the firm's economic profits are

ambigous

When marginal cost is greater than the average total cost at a particular level of output, average total cost must be

increasing

Engaging in trade with other countries allows the United States to consume outside of its

production possibilities frontier

Suppose the price of umbrellas decreases. Everything else held constant, this will cause the _____ umbrellas to _____.

quantity demanded of; increase (is buyers so quantity demanded)

Opportunity cost of attending yesterday's lecture in this course

what ever you could of done instead (study, sleep)

Percentage of tax borne by seller

(εD / (εD + εS)) x 100

Total Revenue

Price x Quantity Demanded

marginal benefit

additional benefit above what you have already derived

Suppose Remus decides to go fishing at Lake Pescaccio on his day off from work, but he faces a choice: he can fish the east, south, or west side of the lake. His expected catch for the day is as follows: 3 fish on the east side, 7 fish on the south side, or 5 fish on the west side. Everything else held constant, Remus' benefit of fishing the south side of the lake is _____ fish.

7 (what your receive)

Which of the following is a characteristic of a perfectly competitive market?

Firms face no barriers to entering the market

In perfect competition, P=MR at all levels of output. Thus

P = MR = MC at (and only at) the profit-maximizing level of output, Q*.

In a monopoly, P > MR at all levels of output. Thus,

P > MR = MC at (and only at) the profit-maximizing level of output, Q*.

Bagels Cookies Aurora 25 200 Eos 20 240 Is mutually beneficial trade possible between Aurora and Eos?

Yes

Opportunity cost of attending college

benefit of earning a salary

Suppose Petra's Plantain Plantation sells plantains in a perfectly competitive market. Suppose further that at her current level of production, Petra's marginal cost is $2.00 per kilo. If the market price of plantains is $1.75 per kilo, it can be concluded with certainty that Petra's economic profits are

decreasing P=MR=1.75 MC=2 worse off by 25 cents so profits are decreasing

sunk costs

costs already been incurred and cannot be recovered

If the marginal costs of doing something exceed the marginal benefits....

don't do it.

Suppose a store sells pairs of shoes for $30 each and is running a "buy one, get one 50% off" sale. Suppose further that you buy four pairs of shoes. The marginal (i.e., extra) cost of the fourth pair of shoes purchased is

$15

Percentage of tax borne by buyer

(εS / (εD + εS)) x 100

PRICE ELASTICITY OF DEMAND If Cause < Effect

Demand is "price elastic

Benefit

What is received

Justin is paid $10 per hour. Overtime pay for over 40 hours is rate time and one half of reg pay. ($15). Last wee he worked 42 hours. What is the marginal benefit of the 42nd hour?

$15 (if didn't work, would have received $0 so its the pay for that one hour)

Suppose rational decision-maker Harry has decided to attend a concert but he faces a choice: he can buy a ticket to see either Kim Boekbinder or Zoe Boekbinder. The price of a ticket to see Kim is $25 and the price of a ticket to see Zoe is $15. In making his decision, what is Harry's sunk cost?

$15.

Suppose a store sells pairs of shoes for $30 each and is running a "buy one, get one 50% off" sale. Suppose further that you buy four pairs of shoes. The marginal (i.e., extra) cost of the third pair of shoes purchased is

$30

You rent a car for $29.95. The first 150 miles are free, but each mile there after is 15 cents. You plan to drive it 200 miles. What is the marginal costs of driving the car?

$7.50 (for the 50 miles that aren't free) + the cost of gas.

Suppose Andrea, a rational artist, recently sold her painting, City #1, for $325. Suppose further that her reservation price for selling the painting was $250. Andrea's producer surplus from this sale was

$75 $325-$250= $75

Suppose Remus decides to go fishing at Lake Pescaccio on his day off from work, but he faces a choice: he can fish the east, south, or west side of the lake. His expected catch for the day is as follows: 3 fish on the east side, 7 fish on the south side, or 5 fish on the west side. Everything else held constant, Remus' opportunity cost of fishing the south side of the lake is _____ fish.

5 (the next best alternative not chosen)

Buyers

BUYERS Benefit: get good/service; something of value; what the good/service is worth reservation price: maximum price willing and able to pay Cost: give up; pay; actual price

Bagels Cookies Aurora 25 200 Eos 20 240 Who has the comparative advantage in the production of bagels? Cookies?

Bagels- Aurora Cookies- Eos

Bagels Cookies Aurora 25 200 Eos 20 240 Who has the absolute advantage in the production of bagels? Cookies?

Bagels- Aurora Cookies-Eos

PRODUCER SURPLUS (PS)

Benefit - Cost = Actual Price - Reservation Price Sellers

CONSUMER SURPLUS (CS)

Benefit - Cost = Reservation Price Buyers - Actual Price

Suppose that Brussels sprouts are an inferior good. Suppose further that incomes in the country are decreasing. How will their behavior change?

Buy more and price will go up

Suppose that Brussels sprouts are a normal good. Suppose further that incomes in the country are increasing. Which side of the Brussels sprout market is directly affected by this change in income? (I.e., Who in the Brussels sprout market will notice the change and react to it?)

Buyers (higher income will spend more. Normal good, so when income goes up, demand increases)

Suppose that limes and coconuts are complements in consumption. Suppose further that the price of limes increases. Which side of the coconut market is directly affected by this change? How will their behavior change? What will be the result?

Buyers, demand for coconuts will go down.

Suppose that chicken and turkey are substitutes in consumption. Suppose further that the price of chicken decreases. Which side of the turkey market is directly affected by this change? How will their behavior change? What will be the result?

Buyers, the demand for turkey decrease, price will go down as well because fewer people want it

Coconuts and bananas are complements Price of coconuts increases and a fungal disease kills ten percent of the worlds banana crops. The demand for bananas will __________, everything else held constant.

Decrease! Price of both coconuts and bananas increase

PRICE ELASTICITY OF DEMAND Cause > Effect

Demand is "price inelastic

PRICE ELASTICITY OF DEMAND Cause = Effect

Demand is "unit elastic

Rationality

Do something if the benefit is at least as great as the opportunity cost at the time the decision is taken

Buyers Cause: Change in actual price

Effect: Change in Quantity demanded (-)

Sellers Cause: Change in actual price

Effect: Change in quantity supplied (+)

Vitals EKG Camilla 18 6 Elizabeth 28 7 Who has the absolute advantage in blood and who has the comparative advantage in EKG.

Elizabeth and Camilla

Suppose rational decision-maker Gena was considering purchasing a ticket to see Bruce Springsteen in concert. Suppose further that the price of a Springsteen ticket was $150 and Gena's reservation price for the ticket was $200. Instead of buying the Springsteen ticket, however, Gena chose to go to a free Beth Patterson concert. Everything else held constant, it can be concluded with certainty that Gena's consumer surplus from seeing Beth Patterson was

Greater than or equal to $50

Tony, rational, reservation price of $500 for selling. Buyer made an offer and Tony accepted. How much did Tony sell it for?

Greater than or equal to $500

Voucher for a free concert ticket to see either Helen or Beth. You are rational. Reservation price for Helen is $25. Reservation price for Beth is $20. Which concert will you chose?

Helen

Sticks Bats Canada 2 4 USA 3 5 Employment in Canadian baseball bats __________.

Increase. They have the comparative advantage.

Voucher for a free concert ticket to see either Helen or Beth. You are rational. Reservation price for Helen is $25. Reservation price for Beth is $20. What is your sunk cost?

It is $0 because you didn't have to pay. If you did have to pay it would be $20.

Opportunity Cost Calculation:

Opportunity cost of what get = Productivity give up / Productivity get

Peaches Cream John 60 15 Yoko 50 10 Who has the absolute advantage in the production of peaches? Cream?

Peaches- John Cream- John

Peaches Cream John 60 15 Yoko 50 10 Who has the comparative advantage in the production of peaches? Cream?

Peaches- Yoko Cream- John They both have a comparative advantage so they can have a mutual beneficial trade.

Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 1.5 and the price elasticity of supply for it is 3.5. What percentage of the tax will be borne by the buyers? What percentage of the tax will be borne by the sellers? The price buyers pay for the good after the tax is levied will be _____ than the price they paid prior to the tax. The price sellers receive for the good after the tax is levied will be _____ than the price they received prior to the tax.

Percentage of the tax borne by the buyers- 70% Percentage of the tax borne by the sellers- 30% The price buyers pay for the good after the tax is levied will be more ($7) than the price they paid prior to the tax. The price sellers receive for the good after the tax is levied will be less ($3) than the price they received prior to the tax.

Suppose green grocer Artie ran a 20 percent-off sale on artichokes last week and his revenues from selling artichokes increased from the previous week. It can be concluded with certainty that the demand for Artie's artichokes is _____, everything else held constant.

Price elastic Qd will go up because TR goes up

Chicken and turkey are substitutes. Which will cause quantity of turkey demanded to increases.

Price of turkey decreases.

ECONOMIC SURPLUS (ES)

Reservation Price Buyers - Reservation Price Sellers

Sellers

SELLERS Benefit: get paid; actual price Cost: give up good/service; something of value; what good/service is worth reservation price: minimum price willing and able to receive

Suppose worker productivity increases in the watch industry. Which side of the watch market is directly affected by this change? How will their behavior change? What will be the result?

Seller, supply increases, prices go down

Suppose milk is the main input in the production of cream cheese. Suppose further that the price of milk increases. Which side of the cream cheese market is directly affected by this change? How will their behavior change? What will be the result?

Sellers, price of cream cheese will increase, supply less

PRICE ELASTICITY OF SUPPLY Cause < Effect

Supply is "price elastic

PRICE ELASTICITY OF SUPPLY Cause > Effect

Supply is "price inelastic"

PRICE ELASTICITY OF SUPPLY Cause = Effect

Supply is "unit elastic"

For the situation above, what is the opportunity cost of taking the job?

The earnings form current job and paying for other things with the money that would have been used for business school

Suppose rational decision-maker Charles faces a choice: he can either see Helen Gillet or Beth Patterson in concert. Suppose further that tickets to see Helen are $10 each while tickets to see Beth are $15 each. Everything else held constant, what is the opportunity cost of seeing Helen if Charles has not yet obtained a ticket to see either performer?

The expected pleasure of seeing Beth in concert.

Suppose rational decision-maker Charles faces a choice: he can either see Helen Gillet or Beth Patterson in concert. Suppose further that tickets to see Helen are $10 each while tickets to see Beth are $15 each. Everything else held constant, what is the benefit of seeing Helen if Charles has not yet obtained a ticket to see either performer?

The expected pleasure of seeing Helen in concert plus $5.

Suppose that Brussels sprouts are a normal good. Suppose further that incomes in the country are increasing. How will their behavior change? (I.e., buy/sell more/less.)

They will buy more and price will go up

Vitals EKG Camilla 18 6 Elizabeth 28 7 Can mutually beneficial trade occur?

Yes, Elizabeth has a comparative advantage of vitals. Not the same ratio so you know they can trade. Elizabeth 4:1 Camilla 3:1

Suppose you currently earn $30,000 a year. You are considering a job that will increase your lifetime earnings by $300,000 but requires a MBA. The job will also mean attending business school for 2 years at an annual cost of $25,000. You already have a bachelor's degree, for which you spent $80,000 in tuition and books. Which information is relevant to your decision whether to take the job?

You need the marginal costs and benefits. Sunk cost (bachelor's degree) is irrelevant

A decrease in the hourly wage rate, everything else held constant, will cause _____ in the marginal cost of an extra hour of leisure.

a decrease

Sunk Cost

a monetary expenditure incurred regardless of the option chosen irrelevant to the decision

Change in total revenue: Decrease if...

a) price increases and demand is price elastic. b) price decreases and demand is price inelastic.

Change in total revenue: Increase if...

a) price increases and demand is price inelastic. b) price decreases and demand is price elastic.

marginal costs

additional costs to you over and above the costs you have already included (does not include sunk cost)

Ramen= inferior good National income is decreasing Productivity of ramen induction increases. Equilibrium price of ramen will ________.

be ambiguous (can not predict price)

Coconuts and bananas are complements Price of coconuts increases and a fungal disease kills ten percent of the worlds banana crops. Equilibrium price of bananas will _____ and the equilibrium quantity of bananas will _________.

be ambiguous (cannot predict price) and decrease (disease)

Opportunity cost of taking Econ 2030

benefit of earning a salary or taking another course

opportunity cost

benefit that you might have gained from choosing the next best alternative

Suppose that Brussels sprouts are an inferior good. Suppose further that incomes in the country are decreasing. Which side of the Brussels sprout market is directly affected by this change in income?

buyers

Brussels sprout are the main ingredient in dog treats. Demand for Brussels sprouts decrease. Price of dog treats _____ and quantity of treats ________.

decrease, increase

If there are few substitutes for gasoline, then the _____ gasoline would tend to be price _____, everything else held constant.

demand for, inelastic

If the marginal benefits of doing something exceed the marginal cost...

do it

Sellers will bear the entire burden of an excise tax if demand is perfectly _____.

elastic

Last month Gene increased the price on all the jeans he sells at his local boutique by 15 percent. If the number of pairs of jeans that he sold decreased by 20 percent, it can be concluded with certainty that the demand for Gene's jeans is price _____ and his revenues for the month _____, everything else held constant.

elastic, decreased

Suppose Al owns a donut shop. He pays his employees $80,000 per year and his inventory costs him $20,000 per year. Prior to running the donut shop, Al worked on a television show and earned $50,000 per year. (Assume these are the only costs he faces.) The total revenue of the store per year is $180,000. What is Al's... a) explicit cost? b) implicit cost? c) accounting profit? d) economic profit?

explicit cost- $100,000 (how much have to pay) implicit cost- $50,000 (he gave up this salary) accounting profit- $80,000 ($180,000 - $100,000) economic profit- $30,000 ($180,000-$100,000-$50,000)

Suppose Danielle is considering opening her own beauty salon. She anticipates the following costs per year: Furniture: $20,000Equipment: $30,000Rent: $36,000Coloring products: $40,000Styling products: $43,000 Danielle is withdrawing $50,000 from her savings account that pays 2 percent interest per year to purchase furniture and equipment and is quitting her current job that pays $40,000. She expects that the total revenues from the new business in the first year will be $200,000. What is Danielle's... a) explicit cost? b) implicit cost? c) accounting profit? d) economic profit?

explicit cost- $169,000 (20,000+30,000+36,000+40,000+43,000) implicit cost- $40,000 + (0.02 x 50,000) = $41,000 accounting profit- $31,000 ($200,000 - $169,000 = $31,000) economic profit- -$10,000 ($200,000-$169,000-$41,000) because economic profit is negative, she is worse off than if she kept her previous job

Quantity Price per Unit Total Cost 0 25 10 1 25 15 2 25 30 3 25 55 4 25 90 5 25 135 What is the firm's fixed cost? What is the variable cost of producing two units of output? What is the marginal cost of the second unit produced? What is the firm's total revenue from selling two units of output? What is the marginal revenue from the second unit sold? What is the firm's profit-maximizing level of output?

fixed cost- 10 (look at 0 quantity) variable cost of producing two units of output- 20 (total cost-price per unit) marginal cost- 15 (one cost 15, two cost 30, so 30-15= 15) firm's total revenue- 50 marginal revenue- 28 profit maximizing level of output- (55-30=25 MC=MR-P)

The _____ the proportion of a consumer's budget a good makes up, everything else held constant, the more price elastic demand will be for the good.

greater (rent goes up, will move because large portion-elastic. Price of salt goes up, still buy because small portion of budget- inelastic)

If the price a firm charges for a good is greater than its average total cost of producing it, then the firm is earning an economic profit _____ zero.

greater than

The quantity producers are willing and able to sell is ___-__the quantity consumers are willing and able to purchase. There is a ________ of the good and overtime, everything held constant, the price in the market will decrease.

greater than, surplus

Ramen= inferior good National income is decreasing Productivity of ramen induction increases. Supply of ramen will _______.

increase

Suppose lawn mower sellers, but not buyers, expect the price of lawn mowers to increase next month. Everything else held constant, the equilibrium price of lawn mowers will _____ and the equilibrium quantity transacted will _____ TODAY.

increase, decrease

Suppose lawn mower buyers, but not sellers, expect the price of lawn mowers to increase next month. Everything else held constant, the equilibrium price of lawn mowers will _____ and the equilibrium quantity transacted will _____ TODAY.

increase, increase

For a profit-maximizing firm, the goals of an advertising campaign are to _____ demand for the company's product and make it more price _____.

increase, inelastic

If a 6 percent increase in price results in a 4 percent _____ in quantity supplied, it can be concluded with certainty that supply is _____.

increase, inelastic

If a 4 percent decrease in price results in a 6 percent _____ in quantity demanded, it can be concluded with certainty that demand is _____.

increase; price elastic

Peaches Cream John 60 15 Yoko 50 10 Suppose in a ten-hour day Yoko produces 40 cream and picks 250 peaches. On that day Yoko's level of production was

inefficient 4 hours on cream 5 hours on peaches only use 9/10 hours

Buyers will bear none of the burden of an excise tax if supply is perfectly _____.

inelastic

Suppose Tony, a rational painter, has a reservation price of $500 for his painting 'Banana Head'. Suppose further that a potential client liked the painting and made him an offer that Tony rejected. It can be concluded with certainty that the client's offer was _____ $500.

less than

Suppose Chris, a rational art collector, has a reservation price of $700 for Rosemary's painting Shark. Suppose further that Chris purchased the painting. We know with certainty that the price of Shark was _____ $700.

less than or equal to

Suppose you observe a market in which, at a given point in time, the quantity producers are willing and able to sell is greater than the quantity consumers are willing and able to purchase. Thus we say that there is a _____ of the good and over time, everything else held constant, the price in the market will _____.

surplus; decrease

In a market, a surplus exists when _____ is greater than _____.

the quantity supplied; the quantity demanded

Suppose Charles spends $150 each and every month on paint, no matter what the price of paint is in a particular month. From this it can be concluded with certainty that Charles' price elasticity of demand for paint is

unit elastic