Econ Exam #2

Price Elasticity of Demand Fromula

% Change in Demand / % Change in Income

Cross Price Elasticity of Demand Formula

% Change in Quantity Demanded for x / % Change in Price for y

Price Elasticity of Supply Formula

% Change in Quantity Supplied / % Change in Price

Income Elasticity of Demand Formula

% Quantity Demanded / % Change in Income

Pay inequity among different workers in the same organization occurs because...

-different education or experience -customer discrimination -worker discrimination

contributes to higher wages of "superstars"

-selling of large quantities of product -network externalities -superior talent

A vertical demand curve indicates a price elasticity of demand that equals to

0

If property rights are not clearly defined and enforced, then

All of the above answers are correct

What is a market failure?

Inability of the free market to produce an efficient quantity of something.

Marginal Product of Capital (MPK)

MRPK = P x MPK is approximated interest or dividend

Marginal Revenue Product of Labor (MRLP)

MRPL = P x MLP is approximated market wage

Which of the following is not consistent with the efficient market hypothesis

News has no effect on stock prices

The long run is a period of time in which

The long run is a period of time in which

In the United States, many beekeepers travel from state to state, renting out their bee colonies to farmers for pollination services. This is an example of

a Coasian solution to a positive externality problem

An externality is

a benefit or cost experienced by someone who is not a producer or consumer of a good or service

the law of supply for capital markets states that...

a higher interest rate increases the quantity of savings supplied

A rent ceiling set below the equilibrium market rent for apartments will result in

a shortage and smaller social surplus

the tax will result in lower production, lower tax revenue, and higher DWL compared to inelastic market if...

a tax imposed on a market with elastic supply and demand

A compensatory differential is paid when

a worker needs incentive to work an unpleasant job

What are variable costs?

costs that change as output changes

The loss in total surplus resulting from a tax is called

deadweight loss

the Demand for Labor is...

derived from consumers demanding products from firms

the supply of capital is...

determined by savings

The big tradeoff in economics is the common reference to a tradeoff between

efficiency and equity

The sellers pay the entire sales tax levied on a good when demand is perfectly ________ or supply is perfectly ________.

elastic; inelastic

The incidence of sales tax is determined by the

elasticities of supply and demand

Explicit costs differ from implicit costs in that

explicit costs are paid in money, but implicit costs are often non-paid opportunity costs.

Opportunity cost equals

explicit costs plus implicit costs.

An effective minimum wage is a price ________ that ________ the quantity of low-skilled labor demanded

floor; decreases

Normal Goods

goods that have a positive income elasticity of demand

As an industry becomes more monopolistic, firms in that industry

have more control over the market price

Marginal Product of Labor

holding all else constant, employing one more worker, the firm generates more products per unit of time

An index fund

holds all the stocks in a given stock index in an attempt to mimic it

The Coase theorem states that

if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities

What causes market failure in the case of common resources or externalities?

incomplete property rights or inability to enforce property rights

if a tax is tripled, then DWL will

increase by a factor of 9

The marginal product of labor is equal to the

increase in the total product that results from hiring one more worker

Strong minimum wage regulations

increase unemployment among lower-skilled but not higher-skilled workers

If the efficient market hypothesis is correct, then

index funds should typically beat managed funds, and usually do when factoring in the fees

Price ceilings in the housing market create

inefficiency, housing deterioration, and black market activity

how can a firm raise money through the financial market?

issue debt and sell shares

Which of the following best describes average fixed cost?

it decreases continually as output is increased

Which of the following best describes the typical average total cost?

it decreases initially when output increases, but then increases

the existence of DWL unambiguously indicates that the ______ to society exceeds the ______ to a particular group of people the government is trying to help

loss, gain

When a negative externality exists, the private market produces

more than the economically efficient output level

The ʺtragedy of the commonsʺ refers to the phenomenon where

people overuse a common resource

Which of the following displays rivalry and excludability in consumption?

private goods

A tax where people whose income is over $100,000 pay 40% of their income in tax, and people whose income is less than $100,000 pay 15% of their income in tax is known as

progressive tax

A tax in which everyone pays 20% of their income is known as

proportional tax

Which of the following displays non-rivalry and non-excludability in consumption?

public goods

According to the efficient markets hypothesis, better than expected news about a corporation will

raise the price of the stock

A price floor

results in a surplus if the floor price is greater than the equilibrium price.

When the MP is higher than the AP, the AP will...

rise

A 5% tax levied on oranges at the supermarket is an example of

sales tax

A $2.00 per unit tax imposed on buyers will

shift the demand curve downwards by $2.00

A tax on sellers will

shift the supply curve upwards by the amount of the tax

when a tax is placed on consumers, the demand curve...

shifts to the left

A period of time in which the quantity of at least one factor of production used by a firm is fixed is called the

short run.

When a law states that $1 per gallon will be levied on producers of milk this is considered...

statutory tax incident

Dead Weight Loss

the amount of net benefit that a market has lost due to a tax

Economies of scale refer to the range of output over which

the average cost falls as output increases

What is marginal cost?

the extra cost of producing 1 more unit of output.

Producer Surplus

the extra money that producers earn by not having to sell their product at the lowest acceptable price

the more elastic demand is relative to supply..

the more of tax burden is paid by producers

Which of the following is an example of a fixed cost in a bicycle factory?

the mortgage payment on the property.

Cost, as measured by an accountant, generally does not include

the opportunity cost of the firm

the supply for a good is perfectly elastic when...

the quantity supplied is potentially infinitely responsive to changes in price

Cross-Price Elasticity of Demand

the responsiveness of demand to changes in price for a different good

Customer Surplus

the saving presented by the area below the demand and above price paid

Suppose that a market supply curve is highly inelastic and that the demand curve is highly elastic. If a tax is imposed on the buyers in this market

the sellers will bear a greater burden of the tax than the buyers.

the supply for a good is perfectly inelastic when...

the slope is undefined

What is total cost?

the sum of total variable cost and total fixed cost

When looking at price controls, DWL refers to..

the value to society that could have been generated without price controls

Efficiency Wages Theory argues

wages can be higher than equilibrium because it can reduce costs

Bond:

when a large firm takes out a loan

Firms that can reduce pollution at a low cost

will sell tradable pollution permits, and firms that can reduce pollution at a high cost will buy tradable pollution permits.