Econ 2302 Exam 1

Use the figure below to answer the following question. What is the amount of government revenue after the government imposes the excise tax on the market?

$32

Use the figure below to answer the following question. What is the amount of producer surplus after the government imposes the excise tax on the market?

$32

If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by

5%

When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. The price elasticity of demand for this product is

-1.5

Use the following table to answer the question below. Number of Units Total Utility 1 100 2 190 3 270 4 340 5 400 6 450 What is the marginal utility of the second unit?

90 utils

Dave's opportunity cost of producing 1 pound of green beans is ______ pound(s) of corn.

2

If the dealership is currently charging $25,000 for a new car, at the end of the month there will be:

a surplus of 125 cars.

Who has the comparative advantage in the production of corn?

Jake

The fish in the ocean are what type of market resource?

Land

Which best expresses the law of diminishing marginal utility?

The more a product is consumed, the smaller the marginal utility received from the product.

Which situation is consistent with the law of diminishing marginal utility?

The more pizza Joe eats, the less he enjoys an additional slice.

A point or combination that is on the production possibilities frontier is

attainable and efficient

Use the figure below to answer the following question. The equilibrium point in the market is the point at which the S and D curves intersect. At equilibrium, producer surplus would be represented by area

b

Which best expresses the law of diminishing marginal utility?

the more a product is consumed, the smaller the marginal utility received from the product.

The opportunity cost of an action is always equal to:

the next-best alternative for the resources used to undertake the action.

Assuming suppliers produce 75 lawnmowers per week:

this quantity is allocatively inefficient because the marginal cost of producing the last lawnmower exceeds the marginal benefit to consumers

The passage of time increases the elasticity of demand for many goods because:

time allows people to discover more substitutes for goods

The economizing problem is essentially one of deciding how to make the best use of

limited resources to satisfy unlimited economic wants.

If an individual has a comparative advantage in the production of a good, then this individual has the

lowest opportunity cost in the production of the good.

In a market, buyers want to pay the _____ possible price and sellers want to charge the _____ possible price.

lowest; highest

During a recession, median income falls by 15%. If the demand for grapes falls by 12%, then grapes are a(n) ______ good with an income elasticity of demand of ______.

normal; 0.8

A point outside (to the right of) the production possibilities frontier is

not attainable

A producer's minimum acceptable price for a particular unit of a good

equals the marginal cost of producing that particular unit.

Which of the following statements is correct?

total utility is the sum of marginal utilities

Hector would like to buy a new pair of soccer cleats. Hector prefers Adidas to Puma brand soccer cleats. But Hector chooses to buy the Puma brand cleats instead. Which of the following reasons for Hector's choice is consistent with rational consumer choice?

The price of Puma brand soccer cleats was less than the price of Adidas brand soccer cleats

When a competitive market maximizes economic surplus, it implies that the

combined consumer and producer surplus is maximized.

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

consumer surplus

An increase in the price of product B leads to an increase in the demand for product C. This indicates that products B and C are

substitute goods

a. Given the information above, what is Emmanuel's optimal amount of time spent gardening each week? b. If Emmanuel were to spend 2 hours each week gardening: c. If Emmanuel were to spend 6 hours each week gardening:

a. 4 hours b. marginal benefit would exceed marginal cost by $12 c. marginal cost would exceed marginal benefit by $12

Examine the demand and supply schedule for butter in the following table. The USDA sets a minimum price of $1.50 per pound of butter. a. What would equilibrium quantity and equilibrium price be in absence of price support program? b. Add the price floor of $1.50 to the figure. c. What is monthly Qd and Qs with price support program? d. Shade in deadweight loss associated with price floor imposed on market for butter and calculate deadweight loss.

a. Equilibrium quantity: 100 million pounds of butter Equilibrium price: $ 1 b. on the graph - horizontal line across top of graph, endpoints of (70,1.5) and (130, 1.5) c. Quantity demanded: 80 million pounds of butter Quantity supplied: 125 million pounds of butter d. on the graph - triangle points (100, 1.0) and (80,1.5) and (80, 0.6) Deadweight loss: $ 9 million

Government officials in Kansas impose an excise tax of $0.30 per gallon of gasoline sold in the state. The tax is paid by suppliers. table shows demand and supply schedules both with and without the excise tax. a. What is tax revenue generated by the excise tax on gasoline? b. Indicate on graph deadweight loss generated by tax on gasoline.

a. Tax revenue: $ 0.4 billion b. Graph: triangle with one point where demand meets supply (with tax), where demand meets supply and then at (1.2, 2.4) Deadweight loss: $ 0.003 billion

Use the supply schedule below to answer the questions that follow. Supply of Umbrellas Price ($/umbrella) Quantity Supplied $120 5,000 100 4,000 80 3,000 60 2,000 40 1,000 20 0 a. Use the supply schedule to graph the supply curve. b. What is quantity of umbrellas supplied if the market price is $60? c. Suppose market price rises from $60/umbrella to $80/umbrella. The quantity of umbrellas supplied will _____________ by _________ umbrellas.

a. plot points (upward slope) b. 2,000 umbrellas c. increase; 1,000

An economist for a bicycle company predicts that, all else held constant, an increase in consumer incomes will increase the demand for bicycles. This prediction assumes that

bicycles are a normal good

graph represents market for artichokes at a Midwest farmers' market. Suppose equilibrium price is $3 per pound and equilibrium quantity is 100 pounds of artichokes per week. Using graph, show area representing economic surplus in market, and determine how much economic surplus is generated in market each week.

Graph: fill in from y axis to demand line to supply line (dotted horizontal is in the middle ish) Economic surplus: $ 400

graph represents weekly demand/supply for game console market. a. What is the equilibrium price and quantity? b. Show area of producer surplus on graph, and then determine how much producer surplus is generated in market each week.

Graph: fill in from y axis to supply line and go up to intersection point then back to y axis a. Price: $ 250 Quantity: 60 game consoles b. Producer surplus: $ 4500

The graph represents the weekly demand and supply for the game console market. a. What is the equilibrium price and quantity? b. Show area of consumer surplus on graph, and then determine how much consumer surplus is generated in market each week.

Graph: fill in from y axis to top of demand line and horizontally from the intersection point back to y axis a. Price: $ 250 Quantity: 60 game consoles b. Consumer surplus: $ 9000

Which of the following best describes the opportunity cost of attending a free concert at the local coffee shop?

The chance to play the latest video game with your roommate while you were at the concert

Assume gov't imposes $0.75 excise tax on sale of 2 liter bottle of soda. tax is to be paid by producers of soda. figure below shows annual market for 2 liter bottles of soda before and after tax is imposed. a. Before tax is imposed, equilibrium price is _____ per bottle and equilibrium quantity is _____ billion bottles. b. After tax is imposed, consumers pay price of _______ per bottle. c. After excise tax is imposed, price (or amount) producers keep after tax is paid is ______ per bottle. d. After tax is imposed, equilibrium quantity is ______ billion bottles. e. gov't is able to collect __________ billion of tax revenue from tax.

a. $1.50; 4 b. $2.00 c. $1.25 d. 3 e. $2.25

table below presents production possibilities schedules for cities of Venice and Florence, each of which produces pasta and wine. Production Possibilities Schedules for Venice and Florence Venice Florence Pasta (lb) Wine (bottles) Pasta (lb) Wine (bottles) 100 0 50 0 50 25 25 10 0 50 0 20 a. What is Venice's opportunity cost of producing one pound of pasta? b. What is Venice's opportunity cost of producing one bottle of wine? c. What is Florence's opportunity cost of producing one pound of pasta? d. What is Florence's opportunity cost of producing one bottle of wine? e. ____________ has comparative advantage in producing pasta and _____________ has comparative advantage in producing wine.

a. 0.5 bottle of wine b. 2 pounds of pasta c. 0.4 bottle of wine d. 2.5 pounds of pasta e. Florence, Venice

table below depicts demand for sunscreen at Daytona Beach. Demand for Sunscreen Price Quantity Total Revenue $16.00 0 ? 14.00 1,000 ? 12.00 2,000 ? 10.00 3,000 ? 8.00 4,000 ? 6.00 5,000 ? 4.00 6,000 ? 2.00 7,000 ? 0.00 8,000 ? a. Fill in total revenue column. b. When price of a bottle of sunscreen decreases from $14.00 a bottle to $12.00 a bottle, what is change in total revenue? c. When the price of a bottle of sunscreen decreases from $10.00 a bottle to $6.00 a bottle, what is the change in total revenue? d. When the price of a bottle of sunscreen decreases from $4.00 a bottle to $2.00 a bottle, what is the change in total revenue? e. When the price of sunscreen is in the range of $14.00 per bottle to $12.00 per bottle, demand is: f. When the price of sunscreen is in the range of $4.00 per bottle to $2.00 per bottle, demand is: g. Total revenue for sunscreen is maximized at a price of: h. When total revenue for sunscreen is maximized, demand is:

a. 0; 14,000; 24,000; 30,000; 32,000; 30,000; 24,000; 14,000; 0 b. $10,000 c. $0 d. $-10,000 e. elastic f. inelastic g. $8 h. unit-elastic

table presents market supply schedule for laptop computers in "Initial Market Quantity Supplied" column. Suppose a new firm, NF Computers, enters market with supply schedule shown in "Quantity Supplied by NF Computers" column. a. Fill in new market supply schedule Market Supply of Computers Price | Initial Mrkt Qnty Supplied | Qnty NF Comp | New Qnty Supd $500 1,000 75 ? 475 900 69 ? 450 800 63 ? 425 700 54 ? 400 600 45 ? 375 500 36 ? 350 400 27 ? 325 300 18 ? b. At a price of $425 per laptop computer, entry of NF Computers will increase the quantity of computers supplied by ________ computers, resulting in total market quantity of __________ computers.

a. 1,075; 969; 863; 754; 645; 536; 427; 318 b. 54; 754

monthly market for U.S. steel production (in millions of tons/month). increase in price of iron ore shifts the supply curve to left, decreasing supply by 200,000 tons at each price. (200,000 tons = 0.2 mill tons.) a. Fill in new supply schedule in table Market for U.S. Steel Price Initial Demanded Initial Supplied New Quantity Supplied $650 1.1 2.1 ? 640 1.2 2.0 ? 630 1.3 1.9 ? 620 1.4 1.8 ? 610 1.5 1.7 ? 600 1.6 1.6 ? 590 1.7 1.5 ? 580 1.8 1.4 ? 570 1.9 1.3 ? 560 2.0 1.2 ? b. What are initial equilibrium price and quantity in steel market? c. What are new equilibrium price and quantity in market?

a. 1.9; 1.8; 1.7; 1.6; 1.5; 1.4; 1.3; 1.2; 1.1; 1 b. P = $ 600 per ton Q = 1.6 million tons of steel c. P = $ 610 per ton Q = 1.5 million tons of steel

a. At a price of $60/bathing suit, what is quantity demanded? b. At a price of $50/bathing suit, what is quantity demanded? c. A decrease in price from $60 to $50 per bathing suit represents a ______ decrease in price. d. A decrease in price from $60 to $50 per bathing suit causes a ______ increase in quantity demanded. e. Using starting point method, at a price of $60 the price elasticity of demand for bathing suits is:

a. 20 bathing suits b. 30 bathing suits c. 16.67% d. 50% e. -3

Mountain Mack and Big Lake Bob spend their time carving fishing lures and duck decoys. table below shows their production possibilities schedules, which describe combinations of fishing lures and duck decoys each can carve efficiently in a week. a. If Mountain Mack splits his week evenly between carving fishing lures and duck decoys, what is the maximum number of fishing lures and duck decoys could he carve? b. If Big Lake Bob splits his week evenly between carving fishing lures and duck decoys, what is the maximum number of fishing lures and duck decoys could he carve? c. Combined, how many fishing lures and duck decoys could Mountain Mack and Big Lake Bob carve if each one split his week between the two products? d. Who has the comparative advantage in carving fishing lures? In carving duck decoys? e. If both Mountain Mack and Big Lake Bob choose to specialize in the product in which he has a comparative advantage, how many of each product could they produce together?

a. 20 fishing lures and 25 duck decoys b. 50 fishing lures and 15 duck decoys c. 70 fishing lures and 40 duck decoys d. Fishing lures: Big Lake Bob Duck decoys: Mountain Mack e. 100 fishing lures and 50 duck decoys

market supply of lettuce in a small town is shown in table. Supply of Lettuce Quantity Supplied (heads) Price ($/head) Initial New $2.00 300 ? 1.50 200 ? 1.00 100 ? 0.50 0 ? a. Suppose an increase in the cost of water decreases the production of lettuce heads by 30% at every price. Complete the new supply schedule in the table above. b. Graph the new market supply curve. c. At price of $1.50/head of lettuce, original quantity supplied was ________ heads and new quantity supplied is ____________ heads of lettuce.

a. 210, 140, 70, 0 b. plot points (2 upward sloping lines) c. 200; 140

The table below compares the marginal benefit Lucinda gets from Kewpie dolls and Beanie Babies. Lucinda's Marginal Benefit of Kewpie Dolls and Beanie Babies Kewpie Dolls Beanie Babies Kewpie Marginal Benefit ($) Beanie Marginal Benefit ($) 1 $15.00 1 $12.00 2 12.00 2 10.00 3 9.00 3 8.00 4 6.00 4 6.00 5 3.00 5 4.00 6 0.00 6 2.00 a. If the price of Kewpie dolls and the price of Beanie Babies are both $6, how many of each would Lucinda buy if she were rational? b. If Lucinda has only $18 to spend and the price of Kewpie dolls and the price of Beanie Babies are both $6, how many of each would Lucinda buy if she were rational?

a. 4 Kewpie dolls and 4 Beanie Babies b. 2 Kewpie dolls and 1 Beanie Baby

table shows quantity of birthday cakes supplied by 2 producers Individual and Market Supply of Birthday Cakes Quantity of Birthday Cakes Supplied Price ($) Producer A Producer B Market Total $14 160 440 ? 12 120 360 ? 10 80 280 ? 8 40 200 ? 6 0 120 ? 4 0 40 ? a. In the table, fill in the "Market" column. b. Graph the supply curves for Producer A, Producer B, and the market supply curve.

a. 600, 480, 360, 240, 120, 40 b. graph price/producer A as one line, price/producer B as another line, and price/market total as third line (3 upward sloping lines)

The four demand curves shown below (A, B, C, and D) all differ in terms of their price elasticity of demand. a. All else the same, which demand curve is relatively more elastic: Demand A or Demand B? b. All else the same, which demand curve is relatively more inelastic: Demand A or Demand B? c. Looking at Demand C and Demand D, which of these two is perfectly inelastic? d. Looking at Demand C and Demand D, which of these two is perfectly elastic?

a. Demand B (slightly downward sloping line) b. Demand A (steep downward sloping line) c. Demand D (completely vertical line) d. Demand C (completely horizontal line)

Geppetto and Lewis both make puzzles and puppets for their toy stores. table below compares production possibilities schedules. a. Which producer has comparative advantage in producing puzzles? b. Which producer has comparative advantage in producing puppets? c. If both producers decided to trade with each other to stock their toy stores, which of the following is a range of terms of trade that would benefit both Geppetto and Lewis (1 puppet = x puzzles)?

a. Geppetto b. Lewis c. They would be willing to trade in the range of 2 puzzles per puppet to 5 puzzles per puppet.

The table below represents the quantity of rice demanded for selected countries. Quantity of Rice Demanded (millions of metric tons) Price Japan Taiwan S. Korea Market Total $600 6 0 1 ? 500 7 0.5 3 ? 400 8 1.0 5 ? 300 9 1.5 7 ? 200 10 2.0 9 ? a. Fill in market quantity of rice demanded (column "Market") for each given price. b. What is the quantity of rice demanded in the market (in millions of metric tons) if the market price is $400 per metric ton?

a. Market Total: 7, 10.5, 14, 17.5, 21 b. 14 million metric tons

average monthly demand/supply of 4' × 8' sheets of plywood from home building supply store. In any month when coastal states (Florida) are threatened by hurricanes, typical monthly demand increases by 600 sheets at every price. Imagine Florida passes a "price gouging" law that prevents home building supply stores from raising price of plywood when hurricanes threaten. a. When no hurricanes threaten Florida, and without "price gouging" law, what are equilibrium price and quantity in market? b. When hurricanes threaten Florida, and without "price gouging" law in place, what are equilibrium price and quantity in market? c. When hurricanes threaten Florida, with "price gouging" law, what are equilibrium price, quantity demanded, and quantity supplied? d. If "price gouging" law goes into effect, result of law during hurricane season will be:

a. P = $ 17 Q = 5,000 sheets b. P = $ 19 Q = 5,400 sheets c. P = $ 17 Qd = 5,600 sheets Qs = 5,000 sheets d. to create a shortage of 600 sheets of plywood

market for bicycles in rural Indiana. Suppose public spending improves bicycle lanes in rural areas. As a result, demand for bicycles shifts to right by 100 bicycles at every price. a. What are initial equilibrium price and quantity in bicycle market? b. What are new equilibrium price and quantity in market? c. Because of increased number of bicycle lanes in rural Indiana, equilibrium price of bicycles _________ and equilibrium quantity of bicycles _________.

a. P = $ 275 Q = 850 bicycles b. P = $ 300 Q = 900 bicycles c. increases by $25; increases by 50 bicycles

Both Geppetto and Lewis are toy store owners. They decide that they would like to trade puzzles and puppets in order to better stock their shelves. table below compares production possibilities schedules. a. Geppetto and Lewis agree to trade at a rate of 3 puzzles for each puppet. With those terms of trade, who is most likely to be the supplier of puzzles? Who is most likely to be the supplier of puppets? b. The two toy store owners agree to specialize and to trade 30 puzzles for 10 puppets. The terms of trade are still 3 puzzles for each puppet. How many puzzles and puppets will each one have after they complete their trade?

a. Puzzles: Geppetto Puppets: Lewis b. Geppetto: 70 puzzles and 10 puppets Lewis: 30 puzzles and 15 puppets

demand and supply schedules for sunscreen at a small beach Market for Sunscreen Price ($/bottle) Quantity Demanded Quantity Supplied $35 1,000 8,500 30 2,000 7,000 25 3,000 5,500 20 4,000 4,000 15 5,000 2,500 10 6,000 1,000 a. If price is $15/bottle, how many bottles of sunscreen are demanded and supplied? b. What is equilibrium price and quantity in market for sunscreen?

a. Qd = 5,000 bottles Qs = 2,500 bottles In this case, there would be upward pressure on price. b. P = $ 20 Q = 4,000 bottles

state whether it's example of income effect changing quantity demanded or change in income shifting demand. a. mean income in Detroit rises, people purchase more homes. b. price of frozen pizza decreases, it more popular among college students. c. A recession forces many people out of work, more people purchase ramen noodles than before. d. An increase in price of game consoles decreases sales, as fewer people can afford them.

a. change in income shifting demand b. income effect changing quantity demanded c. change in income shifting demand d. income effect changing quantity demanded

determine whether it is an example of income effect, substitution effect, or diminishing marginal utility. a. Sasha likes to treat herself to a small latte each afternoon. On Wednesdays, when coffee shop decreases price of lattes, Sasha buys a large latte instead. b. price of chicken nuggets rises from $3 to $3.50 for a box of six. price of hamburgers stays same. Mateo used to eat chicken nuggets three times a week. All else equal, he now eats them twice a week. c. Jack offers Victoria a plate of a dozen chicken wings. Victoria enjoys 1st wing the best, the 2nd wing a little bit less, and by 7th wing, she has had enough and chooses not to eat remaining 5 wings.

a. income effect b. substitution effect c. diminishing marginal utility

A tax on yachts would normally be considered a tax on wealthy consumers. Consider a $60,000 excise tax on producers for each yacht sold. graph illustrates demand/supply curves for yachts both before and after the tax is imposed. a. Total economic surplus before the tax is $24 million. Shade in this area on the graph. b. What is the consumer surplus generated after the imposition of the tax? Shade in this area on the graph. c. What is the producer surplus generated after the imposition of the tax? Shade in this area on the graph. d. What is total revenue generated from the tax? Shade in this area on the graph. e. What is total economic surplus generated after the imposition of the tax? f. What is deadweight loss generated after imposition of the tax?

a. picture of graph b. Consumer surplus after tax is $ 9.0 million. c. Producer surplus after the imposition of the tax is $ 4.5 million d. Tax revenue from the tax after the imposition of the tax is $ 9.0 million e. Total economic surplus after the imposition of the tax is $ 22.5 million f. The deadweight loss after the imposition of the tax is $ 1.5 million

Use the table below to complete the question. This table represents the demand for peaches in Hoboken, a town in New Jersey. Demand for Peaches Price ($) Quantity Demanded (lbs) $20 2 14 14 8 26 2 38 a. Graph the information presented in the table. b. If the market price for peaches is $8 per pound, what is the quantity of peaches demanded in Hoboken?

a. plot the points (downward slope) b. 26 pounds

Which of the following is the best synonym for "marginal" in economics?

additional

Use following graph for a market to answer question below. Which of the following could not explain the indicated increase in equilibrium price from P1 to P2?

an increase in production costs

When economists describe "a market," they mean

any place where, or mechanism by which, buyers and sellers interact to trade goods, services, or resources

The marginal benefit of an additional beach towel is $12. The marginal cost of producing an additional beach towel is $8. If producers are minimizing the average costs of production, then we can conclude:

beach towel production is not allocatively efficient but is productively efficient

The law of diminishing marginal benefit explains why

demand curves slope downward.

Jane's production possibilities schedule demonstrates that she

faces an opportunity cost when producing green beans.

Jane should specialize in the production of which good?

green beans

As a consequence of the problem of scarcity

individuals have to make choices from among alternatives.

If the elasticity of demand for baseball games is -0.57, then one can conclude that demand for baseball games is:

inelastic

Use the figure below to answer the following question. (graph with 2 supply lines) An increase in quantity supplied is depicted by a

move from point y to point x

The additional benefit of producing one more roast beef sandwich at a local deli is $2. The additional cost of producing one more roast beef sandwich is $3. To improve allocative efficiency:

producers should not produce one more roast beef sandwich because MC > MB

Use following diagram for corn market to answer question below. If the price in this market is $4 per bushel, there will be a

surplus, and the price will tend to fall.

Use the table below to answer the following question. Units Max Willingness to Pay Market Price 1 $14 $10 2 12 10 3 10 10 4 8 10 5 6 10 6 4 10 What is the value of consumer surplus?

$6

Use the following graph for a competitive market to answer the question below. Assume the government imposes a $2.25 tax on suppliers, which results in a shift of the supply curve from S1 to S2. The price the seller receives for the product after paying the tax is

??? (not $3.50)

When economists say that the demand for a product has decreased, they mean that

??? consumers are now willing and able to buy less of this product at each possible price

Bob, the owner of a local deli in town, needs to purchase something that economists would label as "capital" to help him produce sandwiches. Which of the following is an example of capital?

A meat slicer to cut ham for sandwiches

Samantha needs to purchase something that economists would label as "labor" to help her produce court documents for her law firm. Which of the following is an example of labor?

A stenographer who can type courtroom proceedings

The tools and machines used to produce a good or service are what type of market resource?

Capital

In deciding what to buy to maximize utility, the consumer should choose the good with the

highest marginal utility per dollar spent

Which of the following is a land resource?

natural gas

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?

"The different brands are almost identical. I always buy the cheapest."

The basic truth that underlies the study of economics is the fact that we all face

scarcity

Use the figure below to answer the following question. If actual production and consumption occur at Q1

there is a deadweight loss of b + d

Use following graph for milk market to answer question below. In this market, equilibrium price is ____ and equilibrium quantity is ____

$1.50 per gallon; 28 million gallons.

Use the figure below to answer the following question. What is the amount of deadweight loss after the government imposes the excise tax on the market?

$4

Mountain Mack spends his time carving fishing lures and duck decoys. If Mountain Mack spends all of his time carving fishing lures he can carve 40 lures in a week. If he spends all of his time carving duck decoys he can carve 50 decoys in a week. For every 10 duck decoys Mountain Mack carves he must give up 8 fishing lures. Fill in the values in the table to complete Mountain Mack's production possibilities schedule.

Mountain Mack's Production Possibilities Schedule Fishing Lures Duck Decoys 40 0 32 10 24 20 16 30 8 40 0 50

Which of the following statements is correct?

When marginal utility is positive, an increase in the quantity consumed will increase total utility.

The utility of a good or service

is the satisfaction or happiness one receives from consuming it.

Assume that Alex would like to purchase a combination of product A and product B such that, after he is done spending his limited income, the MUa / Pa = 8 and MUb / Pb = 4. To maximize utility without spending more money, Alex should

purchase more of product A and less of product B.

Assume that Clara purchases a combination of products Y and Z such that, after she is done spending her limited income, MUy/Py = 25 and MUz/Pz= 15. Based on the equal marginal principle, Clara

should have purchased more Y and less Z.

When economists say that the supply for a product has decreased, they mean that the

supply curve has shifted to the left

For which of the following products is demand likely to be the most inelastic?

table salt

Pam sees that the price of bananas has risen in the grocery store. All else equal, she decides to buy more tangerines than she normally purchases. From the information given, you might conclude that:

tangerines and bananas are substitutes.

Alex has allocated his income in such a way that the marginal utility of the last unit of product X he consumes is 40 utils and that of the last unit of Y is 16 utils. If the unit price of X is $5, then the price of Y must be

$2 per unit

Use the table below to answer the following question. Units Market Price Minimum Acceptable Price 1 $10 $2 2 10 4 3 10 6 4 10 8 5 10 10 6 10 14 What is the value of producer surplus in the table above?

$20

Use the following table to answer the question below. Price/Unit Quantity Demanded/Year Quantity Supplied/Year $5 2,000 0 10 1,800 300 15 1,600 600 20 1,400 900 25 1,200 1,200 30 1,000 1,500 In this competitive market, the price and quantity will settle at

$25 and 1,200 units.

Use the figure below to answer the following question. What is the amount of consumer surplus after the government imposes the excise tax on the market?

$32

After graduating from high school, Adam is thinking about going to college. The college tuition is $15,000 a year. Instead of going to college, Adam could take a full-time job that pays $25,000. What is Adam's opportunity cost of attending college for one year?

$40,000

The table below describes the total and marginal benefit Elvis gets from eating fried peanut butter and banana sandwiches. Elvis' Benefits of Fried Peanut Butter and Banana Sandwiches Fried PBB Sandwiches Total Benefit ($) Marginal Benefit ($) 1 42 42 2 66 24 3 75 4 81 5 78 -3 What is the marginal benefit of the 4th fried peanut butter and banana sandwich?

$6

Dave's opportunity cost of producing 1 pound of corn is ______ pound(s) of green beans.

1/2

The table below presents the choices faced by a feudal lord in ancient China. Feudal China's Production Possibilities Terracotta Statues Porcelain Vases 7 35 6 45 5 55 4 65 3 75 What is the opportunity cost of producing the 5th terracotta statue?

10 porcelain vases

Use the following information to answer the question below. Cloe is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents each and hard candies cost 80 cents each. The marginal utilities derived from the consumption of each product are as shown in the following table. Which combination would maximize Cloe's total utility given her $4 budget?

2 chocolates and 4 hard candies

If Jane produces 40 pounds of green beans, she can produce _______ pounds of corn.

40

As the manager of a golf resort, you want to increase the number of tee times sold by 10%. Your staff economist (and junior caddy) has determined that the price elasticity of demand for tee times is -1.5. To increase sales by the desired amount, how much should you decrease the price of a tee time in percentage terms?

6.67%

Which of the following scenarios would likely shift the supply curve for potatoes to the right (increase in supply)?

A new harvester enables farmers to bring in ripe potatoes twice as fast as they did before

If a 5% cut in the price of a product causes the quantity demanded to rise by 10%, the demand is

elastic

The ability to see a market need and to organize inputs to meet that need is what type of market resource?

Entrepreneurial ability

Which of the following is not an assumption of the decision-making process followed by consumers to maximize utility?

The consumer does not consider the prices of the products.

graph represents market for artichokes at a Midwest farmers' market. Suppose equilibrium price is $3 per pound and equilibrium quantity is 100 pounds of artichokes per week. Using the graph, show the area representing consumer surplus in this market, and then determine how much consumer surplus will be generated by the market each week.

Graph: fill in from y axis to top of demand line and the horizontal dotted line Consumer surplus: $ 300

Using the graph above, shade in the deadweight loss when a price ceiling of $10 is imposed in the market for AA batteries, and then calculate the amount of the deadweight loss.

Graph: start at intersection point and go to the left by one quantity along the supply and demand lines (forms a triangle) Deadweight loss: $ 15

Executives at an advertising agency want to increase the demand for the energy drink it promotes. What advice should they give the producer?

Hire a prominent athlete to demonstrate the benefits of the drink

Jake's Production Possibilities Schedule vs. Jane's Production Possibilities Schedule Who has the comparative advantage in the production of green beans?

Jane

Lucinda prefers chrysanthemums to gardenias. Chrysanthemums are priced lower than gardenias. Lucinda chooses not to buy the chrysanthemums. Which of the following reasons for Lucinda's choice is consistent with rational consumer choice?

Lucinda would rather spend her income on other goods.

Which of the following transactions would take place in the resource market?

Lyndsay worked 40 hours this week as a cashier at the local hardware store.

Which of the following scenarios would likely shift the supply of cars to the left (decrease in supply)?

The price of steel and aluminum increase

Use the figure below to answer the following question. At equilibrium, consumer surplus would be represented by the area

a

Use the figure below to answer the following question. At equilibrium, economic surplus is represented by the area

a + b

Use the following table to answer the question below. Cloe is given $4 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents each and hard candies cost 80 cents each. The marginal utilities derived from the consumption of each product are as shown in the following table. If Cloe buys either chocolates or hard candies one piece at a time, what will be her first two purchases?

a hard candy, followed by another hard candy

Emmanuel likes gardening. He grows zucchini that he sells at the local farmers' market. The table below describes the benefits and costs Emmanuel faces as he decides how many hours to dedicate to his garden each week. a. Complete the "Marginal Benefit" and "Marginal Cost" columns in the table below. Emmanuel's Gardening Benefits and Costs Hrs Grdg Total Bnft ($) Marg Bnft ($) Total Cost ($) Marg Cost ($) 1 $21 ? $3 ? 2 39 ? 9 ? 3 54 ? 18 ? 4 66 ? 30 ? 5 75 ? 45 ? 6 81 ? 63 ? 7 84 ? 84 ? b. Graph the marginal benefit and marginal cost points calculated in part a.

a. Marginal Benefit ($) Marginal Cost ($) 21 3 18 6 15 9 12 12 9 15 6 18 3 21 b. plot the points (makes an X)

table and graph describe supply of umbrellas per month in Peoria. a. Using the regular percentage change method, what is the price elasticity of supply starting at a price of $40 per umbrella and moving to a price of $60 per umbrella? b. Using the regular percentage change method, when the price of umbrellas falls from $100 per umbrella to $80 per umbrella, the decrease in price is a _________ % decrease. c. If the elasticity of supply for umbrellas is 1.1, then an increase in the price of umbrellas of 20% will _________ the quantity supplied by _____ %.

a. 2 ± 0.01 b. 20 ± 0.01 the decrease in quantity supplied is a 25 ± 0.01 % decrease. Therefore, the elasticity of supply is 1.25 ± 0.01 c. increase; 22 ± 0.01 %.

Suppose that Biff enters a hot dog eating contest. He enjoys hot dogs, so he gladly pays the $20 entry fee. Biff realizes there is very little chance that he will actually win the contest. He just likes the idea of being able to eat all the hot dogs he wants. The table below shows Biff's utility from eating hot dogs. a. Use the table below and fill in the values for marginal utility. Hot Dogs and Biff's Utility Hot Dogs Total Utility Marginal Utility 5 48 — 6 52 ? 7 54 ? 8 55 ? 9 54 ? 10 51 ? b. Use table to graph Biff's total utility and marginal utility for hot dogs. c. If Biff is rational, and has no intention of winning hot dog eating contest, what is optimal number of hot dogs he will eat? What is maximum level of utility he can reach from eating that # of hot dogs?

a. 4, 2, 1, -1, -3 b. plot the points from first 2 columns c. graph hots dogs and marginal utility Optimal number of hot dogs: 8 Maximum utility: 55

Tom likes to collect Batman and Superman comic books. The table below presents his total and marginal utilities for both types of comic books. a. Assume the price of a Batman comic book is $1, and the price of a Superman comic book is $2. Fill in the values for the marginal utility per dollar for Batman and Superman comic books in the table below. b. Suppose Tom has $5 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy? c. Now suppose Tom has $10 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy?

a. Batman Comic Books Superman Comic Books Quantity Marginal Utility/$ Quantity Marginal Utility/$ 0 — 0 — 1 (40) 1 (29) 2 (28) 2 (17) 3 (20) 3 (7) 4 (6) 4 (2) 5 (0) 5 (1) 6 (-10) 6 (0) 7 (-20) 7 (-4) b. 3 Batman comic book(s) and 1 Superman comic book(s) c. 4 Batman comic book(s) and 3 Superman comic book(s)

table represents how Marco feels about chocolate candy bars. a. Fill in the missing values for total utility and marginal utility. Suppose Marco currently has two candy bars. You tell Marco you will give him either a soda, which gives him 22 utils of happiness, or two additional candy bars. b. Which is he likely to prefer?

a. Chocolate Candy Bars and Marco's Utility Choc Candy Total Utility Marginal Utility 0 0 — 1 25 ? (25) 2 ? (42) 17 3 54 ? (12) 4 ? (62) ? (8) 5 66 4 6 ? (65) -1 b. a soda

The table below provides Mountain Mack's production possibilities schedule, which describes various combinations of fishing lures and duck decoys he can carve efficiently in a week. Mountain Mack's Production Possibilities Schedule Fishing Lures Duck Decoys 40 0 32 10 24 20 16 30 8 40 0 50 a. Graph Mountain Mack's production possibilities frontier using the information in the table above. b. Which of the following combinations of fishing lures and duck decoys is unobtainable to Mountain Mack in one week's worth of carving? c. Which of the following combinations of fishing lures and duck decoys is an efficient combination?

a. plot the points (makes a downward slope) b. 10 fishing lures and 40 duck decoys c. 16 fishing lures and 30 duck decoys

Consider the circular flow model to answer the questions that follow. a. In the circular flow model, households provide inputs to firms through the ____________ and in exchange receive ___________ from firms. b. In the circular flow model, firms receive _____________ from households when households purchase goods and services in the _________________

a. resource market, income b. expenditures, product market

Use the figure below to answer the following question. The diagram shows three supply curves for wheat. Which of the following would cause the supply of wheat to shift from S1 to S3?

an increase in the cost of maintaining the equipment used in wheat farming

A person should consume more of something when its marginal

benefit exceeds its marginal cost.

The decision-making process followed by consumers to maximize utility assumes that

consumers behave rationally, attempting to maximize their satisfaction.

Assume that the graphs show a competitive market for the product stated in the question. Select the graph above that best shows the change in the market for chicken when the price of a substitute, such as beef, decreases.

graph (2) Demand line is moving to the left

Use the figure below to answer the following question. If output level increases from Q2 to Q3, marginal cost of product

increases while its marginal benefit decreases and the market no longer achieves allocative efficiency.

A higher price reduces the quantity of a product demanded because

individuals will buy less of the product and more of its substitutes.

Sharon purchases two products, X and Y, with a given fixed budget. The marginal utility she receives from the last unit of X she consumes is 60 utils, and the marginal utility she receives from the last unit of Y she consumes is 30 utils. The price of X is $2.00, and the price of Y is $1.00. Based on the equal marginal principle, these data suggest that Sharon

is maximizing her total utility from the given fixed budget.

Markets can:

make buyers and sellers better off.

When studying human behavior, economists assume rational self-interest. This means that people

make decisions based on some desired outcome.

Mia wants to buy a book. The economic perspective suggests that Mia will buy the book if the

marginal benefit of the book is greater than or equal to its marginal cost.

We would expect the cross-price elasticity of demand between dress shirts and ties to be __________, indicating that they are_____________

negative; complements

The table below shows the utility schedule for a consumer of candy bars. Candy Bars Consumed Total Utility 0 0 1 5 2 9 3 12 4 14 5 15 6 15 7 13 The consumption of which candy bar yields the greatest marginal utility?

not fifth sixth ?

The demand curve shows the relationship between

price and quantity demanded

The law of demand states that, all else held constant,

price and quantity demanded are inversely related.

Use the figure below to answer the following question. The diagram above shows three supply curves for apples. A movement from point a to point b is caused by a change in the

price of apples in the market

Which one of the following is not assumed to be constant when the supply curve for a product is drawn?

price of the product

The law of supply indicates that, all else held constant,

producers will be willing and able to offer more of a product at high prices than at low prices.

The concept of price elasticity of demand measures the

sensitivity of consumer purchases to price changes.

Which of the following defines marginal utility?

the additional satisfaction or happiness received from the consumption of an additional unit of a good or service

When price of Nike soccer balls decreased, Ronaldo purchased more Nike soccer balls and fewer Adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?

the substitution effect

People do not always purchase all of the things they want.

true

The satisfaction or happiness one gets from consuming a good or service is called

utility