Econ Exam 1
If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a
20 percent decrease in the quantity demanded
Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also, suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country's maximum consumption of new radios and televisions per year will be
300 radio and 100 television in Radioland, 100 radios and 300 television in Teeveeland
What is the opportunity cost to Footville of increasing the production of shoes from 400 to 600?
300 socks
Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15 percent, then the quantity supplied of cheese will increase by
9 percent in the short run and 21 percent in the long run
Which of the following changes would not shift the demand curve for a good or service?
A change in the price of the good or service
If a surplus exists in a market, then we know that the actual price is
Below the equilibrium price, and quantity supplied is greater than quantity demanded
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy
Inelastic
Absolute advantage is found by comparing different producers'
Input requirements per unit of output
If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then
Iowa has a comparative advantage in the production of corn
Which of the following statements is correct?
Neither Bob's consumer surplus nor Charisse's consumer surplus can exceed Allison's consumer surplus for any price of the orange.
The market demand curve
Represents the sum of the quantities demanded by all the buyers at each price of the good
What will happen in the market for shotgun-shell ammunition now if buyers expect higher shotgun-shell prices in the near future?
The demand for shotgun-shell ammunition will increase.
In which market will the majority of the tax burden fall on buyers?
The market shown in graph (b)
TRUE or FALSE: Points inside the production possibilities frontier represent feasible levels of production.
True
The opportunity cost of an item is
What you give up to get that item
Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will
be shared by the buyers and sellers of fast-food French fries but not necessarily equally.
Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?
one-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers
Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?
$8
The vertical distance between points A and B represents a tax in the market. The deadweight loss associated with this tax amounts to
$80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.
Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier?
(200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars)
The slope of the curve between points A and B is
-5
If the production possibilities frontier is bowed outward, then which of the following could be the maximum number of tennis balls produced when 300 tennis rackets are produced?
4,500
Arturo's opportunity cost of one burrito is
4/3 tacos and Dina's opportunity cost of one burrito is 2 tacos
If this economy devotes all of its resources to the production of dryers, then it will produce
80 dryers and 0 washers
Trade
Allows specialization, which reduces cost
Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be
Between P1 and P2
If the price of the product is $110, then who would be willing to purchase the product?
Calvin, Sam, and Andrew
At equilibrium, producer surplus is represented by the area
D+H+F.
Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by
D1
Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes to increase if number two grade potatoes are an inferior good?
Decrease in consumer income
Two goods are substitutes when a decrease in the price of one good
Decreases the damn for the other good
For which of the following goods is the income elasticity of demand likely highest?
Diamonds
Economists sometimes give conflicting advice because
Economists have different values and scientific judgments
The distinction between efficiency and equality can be described as follows:
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
At the equilibrium price, the quantity of the good that buyers are willing and able to buy
Exactly equals the quantity that sellers are willing and able to sell
A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton
Is equal to 1
An economy's production of two goods is efficient if
It is impossible to produce more of one good without producing less of the other
Which of the following demonstrates the law of demand?
Jayden buys more donuts when price of donuts fell Kendra buys fewer snickers after increase in its price
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?
Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn.
Which of the following is an example of a positive, as opposed to normative, statement?
Prices rise when the government prints too much money
Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax
Quadruples
The phenomenon of scarcity stems from the fact that
Resources are limited
As a student, Jordyn spends 40 hours per week writing term papers and completing homework assignments. On one axis of her production possibilities frontier is measured the number of term papers written per week. On the other axis is measured the number of homework assignments completed per week. Jordyn's production possibilities frontier is a straight line if
She can switch between writing term papers and completing homework assignments at a constant rate
Which of the following industries has a marginal cost that is close to zero?
Software
Which of the following causes the price paid by buyers to be different than the price received by sellers?
Tax on the good
Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,
The equilibrium quantity decreases, and the equilibrium price is unchanged
When computing the opportunity cost of attending a concert you should include
The price you pay for the ticket and the value of your time
Which of the following is not a determinant of the price elasticity of demand for a good?
The steepness or flatness of the supply curve for the good
When a country has a comparative advantage in producing a certain good,
Then specializing in the production of that good and trading for other goods could allow that country to consume at a point beyond its production possibilities frontier.
When two variables have a positive correlation,
They tend to move in the same direction
TRUE or FALSE: It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every good than it takes German workers.
True
Which of the following statements is correct?
Who bears the burden of a tax depends on the price elasticities of supply and demand.
Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,
a shortage of treadmills will develop
When the price ceiling is enforced in this market and the supply curve for gasoline shifts from S1 to S2,
a shortage will occur at the new market price of P2
The decrease in total surplus that results from a market distortion, such as a tax, is called a
deadweight loss
A tax on the sellers of coffee will increase the price of coffee paid by buyers,
decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
When the price rises from P1 to P2, consumer surplus
decreases by an amount equal to B+C.
Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the
quantity demanded of toothpaste decreases and the quantity of toothpaste that firms want to supply increases
Producer surplus is
the amount a seller is paid minus the cost of production
Taxes on labor may distort labor markets greatly if
the number of hours many part time workers want to work is very sensitive to the wage rate
A simultaneous increase in both the demand for tablets and the supply of tablets would imply that
the value of tablets to consumers has increased, and the cost of producing tablets has decreased.
For which pairs of goods is the cross-price elasticity most likely to be positive?
Pens and pencils
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that
People face tradeoffs
When the government redistributes income from the wealthy to the poor,
People work less and produce fewer goods and services
When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is a) 1.50, and an increase in price will result in an increase in total revenue for
0.67, and an increase in price will result in an increase in total revenue for good A.
Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?
He should sell the car now for $3,800
A popular celebrity that is paid highly for her time should probably not mow her own lawn because
Her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her
Which of the following is not a result of rent control?
Higher quality housing
Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?
Kate and William will agree to a new price somewhere between $85 and $100.
Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax?
Markets B and D only
Suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay
More than $40; because the marginal benefit will exceed the marginal cost
A competitive market is a market in which
No individual buyer or seller has any significant impact on the market price
Which of the following conclusions should not be drawn from observing this graph?
No other factors besides the frequency of service affect the number of passengers
Chloe's college raises the cost of room and board per semester. This increase raises Chloe's opportunity cost of attending college
Only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Chloe's incentive to attend college
What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?
Quantity will fall, and the effect on price is ambiguous
If a tax is levied on the sellers of flour, then
buyers and sellers will share the burden of the tax.
Suppose the government imposes a tax of P' - P'''. The area measured by J represents
consumer surplus after the tax.
The section of the demand curve from A to B represents the
elastic section of the demand curve.
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
lower both price and total revenues
Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market
may increase, decrease, or remain unchanged.
