Econ final exam
The supply of a good will be more inelastic when
firms' response to a price change is limited by the limited capacity of their production facilities.
Deciding if a power company will generate electricity from wind power or coal answers the economic question of
how the products will be produced
If the government removes a binding price ceiling from a market, then the price paid by buyers will
increase, and the quantity sold in the market will increase
A rent ceiling below the equilibrium rent will result in
increased search time for an available apartment
When studying how some event or policy affects a market, elasticity provides information on the
magnitude of the effect on the market
Money solves the dilemma of a double coincidence of wants by serving as a
medium of exchange
From time to time, the Federal Reserve buys back government bonds from the private sector through a process called
open market purchases
As a result of the changing variety and quality of goods that the typical consumer purchases each year, many economists argue that the consumer price index might
overstate inflation
When economists assume that people are rational and respond to incentives, they mean
people act in their own self-interest
A government-imposed price of $14 in this market of equilibrium at $20 is an example of a
price ceiling that creates a shortage
Suppose that there is a decrease in the price of seed and fertilizer at the same time as a decrease in incomes. What would you expect to happen to the price and quantity of tomatoes (assuming tomatoes are a normal good)?
price to fall and quantity to be ambiguous
Which of the following factors influences supply?
prices of complement goods prices of substitute goods
Which of the following is not a factor of the demand for a good or service?
prices of resources
Decentralized competitive markets will not work in the absence of
private property rights
Suppose the equilibrium price of toothpaste is $2 a tube, 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 supplied increases
Market equilibrium price for TVs is $700 and 300 TVs are sold per day, however recent government legislation has made it so all TVs must be priced at $900. Which of the following is most likely to occur in the market for TVs?
quantity supplied will be greater than quantity demanded and there will be a surplus
A grower of commercial Christmas trees can raise blue spruce and Douglas fir. Therefore, an increase in the expected market price of Douglas firs tends to
reduce the supply of blue spruce trees.
Price controls cause resources to be misallocated by distorting the
signals of consumers' willingness to pay and eliminating the incentives for suppliers to supply.
When a price ceiling is imposed on a market in an effort to benefit buyers,
some buyers benefit, and some buyers are harmed
Increasing prices act as a signal to
suppliers to increase the quantity supplied in those markets
Suppose the federal government makes it mandatory for employers to provide health insurance to all employees. Assuming the new mandate applies to homebuilders, the
supply of new homes is likely to decrease.
Suppose a bakery purchases a bag of flour, a pound of butter, and a box of salt and bakes 100 loaves of bread which it will sell to consumers. Which of the goods will be counted in GDP?
the 100 loaves of bread
Producer surplus is
the amount a seller is paid minus the cost of production
Microeconomics is best described as the study of
the choices made by individual households, firms, and governments.
If land suitable for growing corn is also suitable for growing soybeans, and soybeans were found to prevent cancer
the cost of growing corn would rise.
If the price of a DVD player falls, then in the market for DVD's
the demand curve shifts rightward
Bananas and apples are substitutes. When the price of bananas falls, and a technological advance in apple production occurs at the same time
the equilibrium price of apples falls and the equilibrium quantity of apples might rise or fall
The law of demand can be explained as
the higher the price, the smaller the quantity demanded, ceteris paribus
Each point on a supply curve represents
the lowest price for which a supplier can profitably sell another unit
Suppose that the quantity of cars demanded exceeds the quantity of cars supplied. We would expect
the price of cars will increase
In general, how a sales tax is divided between buyers and sellers is determined by
the relative elasticities of supply and demand
Corn is used to produce tortillas. If the price of corn increases
the supply of tortillas decreases.
If the marginal benefit of producing a good exceeds the marginal cost of producing that good
we should produce more of the good in order to achieve efficient resource use
The 3 key economic questions include all of the following
"how do we produce these products?" "what products do we produce?" "who consumes the products?"
Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Her producer surplus from sharpening knives is
$1.85 (0.95 + 0.70 + 0.20)
Firms are willing and able to sell 10 guitars per day at a price of $350 per guitar. What price will firms require to sell 10 guitars per day if there is a tax of $25 per guitar?
$375 ($350 + $25)
An electrician quits her current job, which pays $40,000 per year. She can take a job with another firm for $45,000 a year or work for herself. The opportunity cost of working for herself is
$45,000
To cover all her costs of production, Sarah must sell her first bushel of pecans for at least $100. She ends up selling this bushel for $150. Sarah earns producer surplus of
$50
How much revenue would a $12 tax on strawberries create?
($17.5)(5.5) = $96 aka (price per unit)(#of units sold)= total revenue
In the market for t-shirts, how much deadweight loss would a $24/shirt tax create?
100(P2 - P1)(Q2 - Q2) = 100(42-30)(12-20) = 96(100) = $9600
There are ________ Federal Reserve Banks located in different parts of the United States
12
The Federal Reserve was created in
1913
Cruelle can purchase fur coats for $1500 each. She values the first coat at $4500, the second at $3000, the third at $1500, and the fourth at $500. How many coats will Cruelle buy?
3
Which of the following would not shift the supply curve?
A fall in the price of the good
What would cause the supply of broccoli to increase?
A new technology that allows farmers to harvest broccoli in half the time
A price floor is
A) a legal minimum on the price at which a good can be sold. B) often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. C) a source of inefficiency in a market. D) All of the above are correct. D
Producers of DVDs are able to lower the wage rate they pay to their workers. You predict
A) the price of DVDs will rise. B) the supply curve for DVDs will shift leftward. C) the supply curve for DVDs will shift rightward. D) the quantity of DVDs supplied will decrease. C
Demand for coffee worldwide has been increasing over the last several years. Back in October 2015, the Huffington Post reported, "If the world doesn't find a way to produce more coffee, and fast, it's very possible that we could see a shortage." Which of the following responses exhibits sound economic reasoning?
Actually, no, it's not possible. As long as prices are allowed to adjust to equilibrium there can be no shortage, or surplus, of coffee
Demand for coffee worldwide has been increasing over the last several years. Back in October 2015, the Huffington Post reported, "If the world doesn't find a way to produce more coffee, and fast, it's very possible that we could see a shortage." Which of the following responses exhibits to sound economic reasoning?
Actually, no, it's not possible. As long as prices are allowed to adjust to equilibrium there can be no shortage, or surplus, of coffee
The article Cavemen Discovered Recycling discusses which key economic concept?
All people everywhere face scarcity.
Which of the following statements is TRUE?
As more sellers enter a market, the supply of the product will increase Firms respond to high prices for their product by offering a larger quantity for sale
Which of the following statements would Steven Landsburg, the author of the article The Power of Incentives, most likely agree with?
Better safety equipment in racecars will increase the likelihood of accidents
Which of the following is true about the statements below? i) Increasing the price of alcohol is likely to decrease the amount of student drinking. ii) Campuses that wish to deter student drinking should ban alcohol.
Both statements are examples of Positive Economics Both statements are examples of Normative Economics
The average price for a basket of goods bought by a typical U.S. consumer is measured by the
CPI
What would happen to the equilibrium price and quantity of hamburgers, if the price of pizza (a substitute for hamburgers) increased at the same time there was a decrease in the price of beef?
Equilibrium quantity would increase and the change in price depends on the magnitude of the two shifts.
The one organization that has the power to change the total amount of reserves in the banking system is the
Federal Reserve System
You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. George, who is one of your advisors, says that the best way to avoid a shortage of oranges is to take no action at all. Charles, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Otto, a third advisor, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Which of your three advisors is most likely correct?
George
explains why supply curves slope upward to the right?
Increasing marginal costs
Which of the following is an example of an expectation of inflation?
Producers expect their prices on average to be higher next year Producers expect the prices they pay for raw materials to be higher next year Workers expect that the prices they pay for goods and services will be higher next year
There are several criticisms of the minimum wage. Which of the following is one of those criticisms?
The minimum wage often hurts those people who it is intended to help
The following quote was in response to an earthquake that hit Japan: "But if one can look past the devastation, there is a silver lining. The need to rebuild a large swath of Japan will create huge opportunities for domestic economic growth, particularly in energy-efficient technologies, while also stimulating global demand and hastening the integration of East Asia."
The speaker is incorrect and is falling prey to the Broken Window Fallacy
If the price of paper goes up, what will happen to the supply books?
The supply curve will decrease and shift to the left
the equilibrium price of apples rises and the equilibrium quantity of apples might rise or fall
Whether or not the statement is true or false depends on the good in question
Which of the following events would result in an increase in equilibrium price and an ambiguous change in equilibrium quantity?
a decrease in supply and an increase in demand
What are the institutions that help foster the appropriate incentives for economic growth?
a dependable legal system, property rights, and competitive and open markets
Economists generally believe that rent control is
a highly inefficient way to help the poor raise their standard of living
A small change in a variable is
a marginal change
Suppose the government wants to encourage Americans to exercise more, so it imposes a price ceiling in the market for in-home treadmills. As a result,
a shortage of treadmills will develop
Which of the following statements is correct?
a. When supply is more elastic than demand, sellers pay more of the tax. b. When demand is more inelastic than supply, sellers pay more of the tax. c. When demand is more elastic than supply, sellers pay more of the tax. d. When supply is more inelastic than demand, buyers pay more of the tax. c.
The Latin phrase ceteris paribus means that when a relationship between two variables is being studied
all other variables are held fixed
One benefit of trade is it
allows for increased specialization and mass-production techniques that lower per unit costs of production
Suppose that the price elasticity of supply is 0.8 and the price increases by 10%. We would predict
an 8% increase in quantity supplied (0.8 x 10)
Which of the following will not cause economic growth?
an increase in consumer spending
How can the Federal Reserve actually increase the money supply?
by purchasing more government bonds in the open market
An effective minimum wage will
cause inefficiencies due to excessive job search
Price ceilings and price floors
cause surpluses and shortages because price cannot adjust to the market equilibrium price.
By engaging in specialization and trade, two individuals can
consume at points beyond their individual production possibilities frontiers
If the government imposes a tax in the market for oil that reduces the amount of oil bought and sold in the market 100 barrels below equilibrium output, the resulting loss in surplus is called
deadweight loss
The CPI overstates inflation because it
does not account for consumers substituting away from high-priced goods
Lower U.S. interest rates cause the value of the dollar to
fall, making U.S. goods relatively cheaper on world markets
As the price of a product falls, the demand for the product increases, ceteris paribus
false
Gains from trade are largest when two parties are similar in terms of opportunity costs of production
false
