Econ Midterm 1 Study Guide: Reading Worksheet/ Practice/Homework Problems

Explain whether each statement is true, false, or uncertain. a. As the price of pizza increases, the demand for pizza decreases.

False. As the price of pizza increases, the QUANTITY DEMANDED of pizza decreases. There is no change in demand.

Explain whether the following statement is true, false, or uncertain: The incidence of a tax depends on whether the government taxes sellers or buyers.

False. Is does not matter because the end result is exactly the same.

Explain whether the following statements are true, false, or uncertain. a. If the price of cookies increases, then the quantity demanded of cookies will increase.

False. Price and quantity demanded have a negative relationship (Law of Demand).

Consider the market for coffee illustrated in the graph below f. What would be the resulting price if the government imposed a quota of 8 units?

$6 non-binding quota

Suppose a market is initially in equilibrium at a price of $10 and a quantity of 12. A $4 tax is imposed, after which the quantity falls to 8n and the price paid by buyers increases to $11. b. What is the price received by sellers after the tax?

$7

Consider the market for coffee illustrated in the graph below e. What would be the resulting price if the government imposed a quota of 4 units?

$8

What are the three critiques of economic efficiency described in section 7.5 of your textbook?

1. Distribution matters (equity is important to account) 2. Willingness to pay reflects ability to pay, not just Marginal Benefit 3. Means matter, not just the ends

The graph below shows the production possibilities frontier for a campus bakery that makes apple cider and cinnamon donuts a. What is the opportunity cost of producing one additional donut

20 cider: 15 donuts 20/15 cider: 15/15 donuts 4/3 cider: 1 donut The opportunity cost of 1 more donut is 4/3 apple cider.

The graph below shows the production possibilities frontier for a campus bakery that makes apple cider and cinnamon donuts b. What is the opportunity cost of producing four additional ciders

20 cider: 15 donuts 20/5 cider: 15/5 donuts 4 cider: 3 donuts The opportunity cost of 4 additional ciders is 3 donuts.

Jade has midterms in economics and astronomy tomorrow and only has four hours left to study. The accompanying table provides the combinations of time spent studying economics and astronomy and her expected exam scores. a. Plot the production possibilities frontier for Jade's study options.

4 hrs on econ (38 points) and 0 hrs on astro (0 points 3 hrs on econ (35 points) and 1 hr on astro (13 points) 2 hrs on econ (30 points) and 2 hrs on astro (17 points) 1 hr on econ (20 points) and 3 hrs on astro (20 points) 0 hrs on econ (0 points) and 4 hrs on astro (22 points)

Explain why the demand curve has a negative slope.

An individual's demand curve slopes downward because each additional unit of a good isn't quite as beneficial as the one before (diminishing marginal benefit). Since rational buyers will continue purchasing more of a good until marginal cost (price) equals to marginal benefit, the demand curve is equivalent to the individual's marginal benefit curve, which is downward sloping due to diminishing marginal benefit.

For each of the following examples, determine whether supply changes for the indicated good and if so, explain why and illustrate using a graph. a. The government decides to tax oil companies to decrease carbon emissions. Good: oil

Decrease in supply (supply shifts left).

For each of the following examples, determine whether supply changes for the indicated good and if so, explain why and illustrate using a graph. b. The cost of lemons increases following a drought. Good: lemonade

Decrease in supply (supply shifts left).

Draw a market with a binding price ceiling. On your graph show the deadweight loss, consumer surplus, and producer surplus

Binding price ceiling creates a shortage

In one year, 20 golf courses opened on the East Coast. During that same year, CBS started broadcasting professional golf on TV, which sparked more interest in the sport. What would we expect to happen to the price and quantity of a game of golf on the East Coast during that year?

Both supply and demand will increase. If both supply and demand increase, the equilibrium quantity will increase. However, the equilibrium price could increase or decrease, depending on the magnitude of the shift in each curve.

For each of the following scenarios, determine whether demand changes for the indicated good and if so, explain why and illustrate using a graph. c. The government sends everyone checks for $1,400. Good: One-ply toilet paper (an inferior good)

Demand decreases because income increases are associated with a decrease in demand for inferior goods.

For each of the following scenarios, determine whether demand changes for the indicated good and if so, explain why and illustrate using a graph. a. It has just been reported that eating red meat is bad for your health. Good: red meat

Demand decreases, as this news results in a change in preferences away from red meat.

Suppose the government is trying to decide between a tax on bottled water and a tax on La Croix (A brand name for sparkling, flavored water). For which tax would buyers bear a larger burden of the tax than sellers? Explain and illustrate using two supply and demand diagrams.

Buyers would bear the greater burden for the tax on bottled water. This is because the demand for bottled water is more inelastic than the demand for La Croix, since La Croix is a luxury good and bottled water is more of a necessity.

Consider the graph below. b. Calculate the amount of the consumer and producer surplus at the equilibrium quantity.

Consumer Surplus: 1/2*B*h 1/2*(5)*(2.5) =$6.25 Producer Surplus 1/2*B*h 1/2*(5)*(2) = $5

Consider the graph below. a. On the graph above, show the consumer surplus and the producer surplus when the market is in equilibrium.

Consumer surplus: Area below demand curve and above price Producer surplus: Area above supply curve and below price

Consider the market below. a. What is the consumer surplus, the producer surplus, and total surplus when the market is in equilibrium?

Consumer surplus: below the demand curve, above price 1/2 *B*H 1/2*(6)*(6) 1/2 *(36) 18 Producer surplus: above the supply curve, below price 1/2 *B*H 1/2*(6)*(4) 1/2 *(24) 12 Total Surplus: Consumer + Producer surplus 18 + 12 = 30

Draw a hypothetical demand curve for Netflix movies streamed on the internet. Show how demand is affected by the following: b. The price of streaming movies on Hulu (another streaming service) increases.

Demand increases because the price of a substitute good (Hulu) has gone up.

For each of the following scenarios, determine whether demand changes for the indicated good and if so, explain why and illustrate using a graph. b. More people travel during the summer months. Good: airline tickets

Demand increases during the summer months as the number of buyers increases because more people are traveling.

Draw a hypothetical demand curve for Netflix movies streamed on the internet. Show how demand is affected by the following: a. Consumers' income rises.

Demand increases.

Suppose a market is initially in equilibrium at a price of $10 and a quantity of 12. A $4 tax is imposed, after which the quantity falls to 8n and the price paid by buyers increases to $11. c. Which curve is relatively more elastic supply or demand?

Demand is relatively more elastic while supply is more inelastic

Use a supply and demand diagram to show what happens to equilibrium price and quantity for each of the scenarios described below. c. A new car is typically considered to be a normal good. What would happen to the equilibrium price and quantity of new cars if there is a recession where many people lose their jobs?

Demand would decrease. As a result, equilibrium quantity and price would decrease.

Use a supply and demand diagram to show what happens to equilibrium price and quantity for each of the scenarios described below. b. Warnings of a coming hurricane cause many residents of Louisiana to relocate to Texas for the short term. What would we expect to happen to the equilibrium price and quantity of hotels in Texas?

Demand would increase. As a result, equilibrium quantity and price would increase.

Which of the following statements are concerned with efficiency and which are concerned with equity? b. Funding public programs with lottery tickets is effectively a tax on low-income earners.

Equity

Suppose that the cross-price elasticity between Good A and Good B is -1.5 and the percentage change in quantity demanded of Good B is 15%. a. What is the percentage change in the price of Good A?

EC = % change in Quantity Demanded B / % change in Price A -1.5 = 15% / ? % The Price of Good A decreased by 10%. -10%

Suppose the price elasticity of demand for a good is -1.5. What is the associated change in price when quantity demanded decreases by 15%?

ED= % change in quantity demanded /% change in price -1.5 = -15%/ x x= 10%

Suppose the price of pencils decreases by 3%. In response, the quantity demanded of pencils increased by 1.5%. What is the elasticity of demand for pencils?

ED= % change in quantity demanded /% change in price = 1.5%/-3% = -0.5 (inelastic)

Which of the following statements are concerned with efficiency and which are concerned with equity? c. Taxes on food place a higher burden on households that spend a higher portion of their income on food.

Equity

Suppose that when the price of cereal rises by 10%, the quantity demanded of cereal falls by 20%. Based on this information, what is the price elasticity of demand for cereal? Is the demand for cereal perfectly inelastic, relatively inelastic, unitary elastic, relatively elastic, or perfectly elastic? Explain.

Ed = % change in Quantity / % change in price = -20%/10% = -2 Relatively elastic, the quantity demanded is quite responsive to a change in price: a given percentage change in price results in a larger (in magnitude) percentage change in quantity.

Which of the following statements are concerned with efficiency and which are concerned with equity? a. Taxes cause distortions in markets and reduce economic surplus.

Efficiency.

Explain whether the following statements are true, false or uncertain. a. Fixed costs increase as output increases.

False, fixed costs are, by definition, "fixed." They do not change, regardless of how much output a firm produces.

Explain whether the following statements are true, false, or uncertain. c. Buyers will bear a greater burden of a tax if demand is less elastic than supply.

False, just as sellers would bear a greater burden of a tax if supply is less elastic than demand, sellers would receive a greater benefit of a subsidy if supply is less elastic than demand.

Suppose that the cross-price elasticity between Good A and Good B is -1.5 and the percentage change in quantity demanded of Good B is 15%. b. Are Good A and Good B complements or substitutes?

Good A and B are complements, since the cross-price elasticity is negative. As the price of A decreased, the quantity demanded of A increased, resulting in an increase in the demand for Good B. With a higher demand, the quantity demanded of Good B at any given price is now higher.

Consider Ron's demand for after school care for his children. The marginal benefit Ron receives for every hour of child care is provided in the accompanying table. a. Draw Ron's individual demand curve for child care. If an hour of child care costs $24, how many hours would Ron purchase each day?

He would purchase 2 hrs of service because the marginal benefit of $30 exceeds the marginal cost of $24.

Toyota uses a just-in-time production method to respond to consumer demand for its vehicles. In essence, this method relies on various cues to signal when new vehicles should be built rather than stocking inventory. This allows Toyota to respond very quickly to changes in consumer demand. Explain whether this system makes elasticity of supply relatively price-elastic or price-inelastic.

It is easy for Toyota to respond to changes in the price of its products, so price elasticity of supply is more price-elastic in this case. Changes in demand change the equilibrium price of a car, and, with the just-in-time method, Toyota can quickly supply more cars or fewer cars as needed.

The Epi-Pen is a life-saving device used by people with severe allergies. The U.S. manufacturer of the EpiPen raised its price by nearly 25% per year for nearly a decade. For each price increase of 25%, would quantity demanded change by more or less than 25%? Explain. (Hint: Think about whether the demand for EpiPens is inelastic or elastic).

It would change by less because EpiPens are inelastic, meaning buyers will not be as responsive to this price change given that there are few alternatives.

Neal is a coffee drinker. At the local coffee shop, the price of a cup of coffee is $3. Neal's total benefits from drinking coffee are indicated in the accompanying table. Use this information to calculate Neal's marginal benefit of consuming each cup of coffee. a. How many cups of coffee should Neal consume each day? Why?

Marginal Benefit: 8, 6, 3, 2, 1 Neal should consume 3 cups of coffee each day because at that point the marginal benefit is equal to the marginal cost, the price.

For each determinant of price elasticity of demand listed below, come up with an example of 2 goods. Using the given determinant, explain which of the two goods has a more elastic demand. More competing products: Specific brands versus categories of goods: Necessities versus luxury goods: Time and adjustment process:

More competing products: ex: detergent: more elastic gas: less elastic Specific brands versus categories of goods: ex: gold fish: more elastic crackers: less elastic Necessities versus luxury goods: ex: water: more elastic sparkling water: less elastic Time and adjustment process: ex: flight tomorrow: less elastic flight in a year: more elastic

Suppose a market is initially in equilibrium at a price of $10 and a quantity of 12. A $4 tax is imposed, after which the quantity falls to 8n and the price paid by buyers increases to $11. a. Illustrate the above scenario on a well-labeled supply and demand graph.

Pbuyers - tax = Psellers 11 - 4 = 7 Sellers bear a greater burden

Used car dealers often find that their sales increase during a recession. Is the income elasticity of used cars positive or negative? Explain.

Negative. During a recession, incomes decrease. As a result of decreasing income, the demand for used cars increases. Thus, used cars are an inferior good and the income elasticity is negative.

For each of the following examples, determine whether supply changes for the indicated good and if so, explain why and illustrate using a graph. c. A new public service announcement advertises that lemonade is a good source of vitamin C. Good: lemonade

No change. This would shift the demand curve for lemonade, not the supply curve.

Suppose that the cross-price elasticity of wine with respect to beer is -0.23. Would producers of wine support a tax on beer?

No, because wine and beer are complementary goofs, and a tax would result in a higher price for beer and lower demand for wine.

You paid $13 for movie tickets. But 30 minutes into the film, you've seen enough! The acting is terrible, the plot is predictable, and the jokes are cringeworthy. According to economic theory, should you stay for the last hour? Explain.

No, the $13 spent on the ticket is a sunk cost. Sunk costs cannot be recovered regardless of what choice is made, so we should ignore sunk costs when making decisions.

Your friend has decided to become a social media influencer. They produce two goods: Instagram photos and TikToks. b. Re-draw the PPF from part (a). Show what would happen to the PPF if your friend downloaded a new app that lets them edit videos faster.

Only the Tik tok line would move right, while the IG would remain the same.

Your friend has decided to become a social media influencer. They produce two goods: Instagram photos and TikToks. a. Sketch your friend's production possibility frontier. Label a point A that is efficient, a point B that is inefficient, and a point C that is unattainable.

Point A: Efficient- A point on the line Point B: Inefficient- A point below the line Point C: Unattainable- A point beyond/ above the line

Spyder Cyder conducts a survey of students asking them their total benefit from consuming chai tea. Here are the results of their survey: Using the rational rule for buyers, complete the quantity demanded for each person when the prices are $6, $4, and $2 Also, calculate the market quantity demands which is the sum of the quantity demanded by each person.

Price: $6 Emma: 0 Alex: 2 Neha: 1 Market Quantity Demanded: 3 Price: $4 Emma: 1 Alex: 3 Neha: 2 Market Quantity Demanded: 6 Price: $2 Emma: 3 Alex: 4 Neha: 4 Market Quantity Demanded: 11

Consider the market for coffee illustrated in the graph below c. What would be the resulting quantity if the government imposed a price floor of $8?

Qd = 4

Consider the market for coffee illustrated in the graph below b. What would be the resulting quantity if the government imposed a price ceiling of $8?

Qd = 6 no effect

Consider the market for coffee illustrated in the graph below d. What would be the resulting quantity if the government imposed a price floor of $4?

Qd = 6 no effect

Consider the market for coffee illustrated in the graph below a. What would be the resulting quantity if the government imposed a price ceiling of $4?

Qd= 4

Draw a market with a binding quota. On your graph show the deadweight loss, consumer surplus, and producer surplus.

Quota is a vertical line that affects the demand curve.

Draw two demand curves. One that is relatively elastic and one that is relatively inelastic.

Relatively Elastic- Flat Relatively Inelastic- Steep

The graph depicts the market for furniture made from sustainable, man-made forests. The government wants to encourage buyers to buy such furniture and imposes a price ceiling of $250. What is the size of the shortage that occurs as a result of the price ceiling?

Shortage: 700 - 300 = 400 Shortage size = 400,000 Q furniture

During the economic downturn of 2008-2009, the unemployment rate increased to nearly 10%. At the same time, the price of college tuition and the number of college enrollees increased. Using the opportunity cost principle, explain why more people would enroll in college during this time period even as the price of college increased.

Since the unemployment rate increased, people have decided to pursue higher education in order to heighten their chances in the workforce, especially because these resources are limited. They are willing to follow through because this college is the next best alternative to getting a job.

One of the first major decisions that recent graduates face after college is choosing an apartment. Describe how someone might employ the cost-benefit principle in deciding which apartment to rent.

Specific answers will vary. However, you should explain how someone would weigh the costs and benefits of various apartment attributes. For example, perhaps someone is willing to pay $200 extra a month for an apartment with an in-unit washer and dryer. But these apartments cost $300 more than apartments without washers and dryers. In this case, the costs would exceed the benefits so they would not choose the apartment with the in-unit laundry.

Draw a market with a subsidy. On your graph show the deadweight loss that results from the subsidy.

Subsidy tax wedge is to the right

If the supply of Nike sneakers decreases, will the price elasticity of demand for Nuke Sneakers become more or less elastic?

Supply curve shift left, becoming more elastic.

Use a supply and demand diagram to show what happens to equilibrium price and quantity for each of the scenarios described below. a. Ice is a major component in the manufacture of smoothies. If the price of ice were to increase, what would happen to the equilibrium price and quantity of smoothies?

Supply of smoothies would decrease. As a result, equilibrium quantity would decrease and equilibrium price would increase.

What would happen to the equilibrium price and quantity in the market for alcohol if the government decreased the alcohol tax on producers and a scientific study confirmed that drinking alcohol increased the rate of heart disease?

Supply will increase while demand will decrease. The equilibrium price will fall, but the equilibrium quantity could increase or decrease, depending on the magnitude of the shift in each curve.

Opportunity cost is not just about monetary cost; it includes anything other than the price of a good that a consumer gives up in order to buy his or her good of choice. Suppose you are shopping at the University of Richmond bookstore (also known as the Spider Shop) and cannot decide between two items: A UR sweatshirt that costs $50 and a UR t-shirt that costs $30. You only have $50 to spend. b. What is the opportunity cost of buying the t-shirt?

The $30 that could have been spent on something else.

In 2016, multiple E. coli outbreaks were linked to food served at Chipotle (a burrito restaurant chain). Following these outbreaks, Chipotle mailed out many coupons for free soft drinks. Using a graph, show how both the outbreak and coupons affected demand for Chipotle food. Explain why Chipotle sent out coupons for drinks even though the outbreaks were linked to the food.

The E. coli outbreak decreased the demand for Chipotle burritos. The drink coupons decreased the price of soft drinks at Chipotle, resulting in an increase in the quantity of soft drinks demanded. Since soft drinks and burritos at Chipotle are complements, we then expect the demand for burritos to increase.

The graph below shows the production possibilities frontier for a campus bakery that makes apple cider and cinnamon donuts c. Suppose that during final exam week, most student workers are not available to work at SpyderCyder. On the graph above, show how this would affect the PPF.

The PPF is going to shift left because it affects apple cider and cinnamon donuts

Jade has midterms in economics and astronomy tomorrow and only has four hours left to study. The accompanying table provides the combinations of time spent studying economics and astronomy and her expected exam scores. b. Suppose Jade spends the first two hours studying economics. What is the opportunity cost of spending the third hour studying for economics?

The opportunity cost is a 5-point increase on her econ exam, and 4 fewer points on her astronomy exam.

A new recycling program places recycling machines at local grocery stores. The machines accept glass and plastic bottles and in return give recyclers coupons that can be used at the store. The machine is used less than the recycling program organizers had hoped. How might the concept of opportunity cost explain this behavior?

The opportunity cost is the time it takes to recycle and expanding a different recycling tool.

Upon reading this article, some parents decide to give their children more chocolate in the hopes that they may one day become a Nobel Laureate. Why might this be a bad idea?

The relationship between chocolate and noble prizes is likely due to correlation not causation.

Opportunity cost is not just about monetary cost; it includes anything other than the price of a good that a consumer gives up in order to buy his or her good of choice. Suppose you are shopping at the University of Richmond bookstore (also known as the Spider Shop) and cannot decide between two items: A UR sweatshirt that costs $50 and a UR t-shirt that costs $30. You only have $50 to spend. a. What is the opportunity cost of buying the sweatshirt?

The t-shirt, plus the additional $20 that could be spent on something else.

Assume that the demand for Choco Candy Bites is price elastic. b. Use the relatively price-elastic demand curve from (a) and draw the entire market graph for Choco Candy Bites. Label the equilibrium price P1 and the equilibrium quantity Q1. If the supply curve for Choco Bites shifts to the left, will there be a relatively large or small change in P and Q? Indicate this on your graph. Label the new equilibrium price P2 and the equilibrium quantity Q2. Explain.

There is a relatively large change in Q and a relatively small change in P. The supply curve shifts to the left, increasing P. Demand is relatively price-elastic, so it will be very responsive to a change in price, explaining the relatively large change in quantity demanded. This will be relatively larger than the change in P.

As of April 6, 2022, there were 16,000 people on waitlists for subsidized and public housing with the Richmond Housing Authority and only 15 available units.[1] Use a supply and demand graph to illustrate the Richmond market for subsidized housing. Which symptom of disequilibrium is displayed in this example?

There is a shortage in the market for subsidized housing that is resulting in queuing (through the waitlists).

Assume that the demand for Choco Candy Bites is price elastic. c. Compare this change in P and Q to the changes that would result with a relatively price-inelastic demand curve. Explain.

There will be a relatively smaller change in Q and a relatively larger change in P. The supply curve shift-to-the-left increases P, and consumers will respond to this shift by lowering their quantity demanded, bringing the market back into equilibrium. Consumers are not as responsive to a change in price, so Q will change by less than P.

You've probably come across locations along the highway where there's an Exxon-Mobil gas station on one side of the street and a Shell gas station on the other. The two gas stations are often selling gasoline at exactly the same price. Why is this occurring?

This illustrates perfect competition where the firms are selling the exact same product (gas) at the same price, which happens to follow the market price.

A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate?

This scenario illustrates diminishing marginal product. This occurs because the marginal product of an input (worker) declines as more input is used.

Explain whether the following statements are true, false, or uncertain. b. If the price of Apple iPhones increases, then the demand for Samsung cell phones will increase.

True. Apple and Samsung phones are substitutes. If the price of iPhones increases, the quantity demanded of iPhones will decrease and people will substitute towards Samsung phones, resulting in an increase in demand for Samsung phones.

Explain whether the following statements are true, false or uncertain. c. An individual firm's supply curve is upward sloping because of diminishing marginal product.

True. Diminishing marginal product results in an upward sloping marginal cost curve, and the individual firm's supply curve is equivalent to their marginal cost curve.

Explain whether each statement is true, false, or uncertain: A key characteristic of economic models are assumptions that simplify the real world and allow us to answer specific questions.

True. Economic models are created to answer specific questions, but they are only assumptions and are subject to change.

Explain whether the following statements are true, false or uncertain. b. If marginal product of an input is falling, then marginal cost must be rising.

True. If marginal product of an input is diminishing while the per unit cost of that input remains constant, then marginal cost will increase. This is because costs are continuing to increase at a constant rate while output increases at a slower rate. Since MC = change in TC / change in Q, this means MC increases.

True or False. If supply is more inelastic than demand, then a per unit subsidy will benefit sellers more than buyers. Explain using a graph.

True. Sellers will benefit more.

Explain whether the following statements are true, false, or uncertain. b. Buyers will bear a greater burden of a tax if demand is less elastic than supply.

True. The greater incidence of the tax falls on buyers when demand is inelastic relative to supply.

Explain whether each statement is true, false, or uncertain. b. When demand increases, the quantity demanded at any given price increases.

True. When demand increases, the demand curve shifts right. Thus, at any given price the quantity demanded is now higher.

Explain whether each statement is true, false, or uncertain. c. If the demand and supply in a market both increase, the equilibrium price will increase.

Uncertain. If both supply and demand increase, the equilibrium quantity will increase. However, the equilibrium price could increase or decrease, depending on the magnitude of the shift in each curve.

Classify each scenario based on whether the individual acts as a seller or a buyer. a. Dodger starts a dog-walking business. b. Angie lists her used guitar on Craigslist. c. Melanie sends in her application to University of Richmond. d. John puts his house on the market. e. Vanessa is hired as a pilot for American Airlines. f. Brendon asks his friends to help him move.

a. Seller (supplying a service) b. Seller (Selling a guitar) c. Buyer (buying a service) d. Seller (Supplying her labor) e. Buyer (In demand of help/service)

As life expectancy in the United States increases, which of the following is likely to happen to the demand for items such as health care, cancer treatments, and nursing facilities? a. Demand will decrease because the cost of these items is increasing. b. Demand will increase because the cost of these items is falling. c. Demand will increase because there will be more buyers in these markets. d. Demand will stay the same because these changes affect supply, not demand.

c. Demand will increase because there will be more buyers in these markets.

After Preeya lost her job, she found she was going on vacation less often. How would she describe this to an economist? a. Vacations are a normal good and, as my income decreased, my demand curve shifted to the right. b. Vacations are an inferior good and, as my income decreased, my demand curve shifted to the right. c. Vacations are a normal good and, as my income decreased, my demand curve shifted to the left. d. Vacations are an inferior good and, as my income decreased, my demand curve shifted to the left.

c. Vacations are a normal good and, as my income decreased, my demand curve shifted to the left.

Consider the market below. b. Suppose a per-unit tax of $5 is added, after which the price paid by buyers increases to $7. Calculate and show on the graph above the: i. Price received by sellers ii. Consumer surplus iii. Producer surplus iv. Tax revenue v. Deadweight loss

i. Price received by sellers $2 ii. Consumer surplus 1/2 *B*H 1/2*(3)*(3) 1/2 *(9) 9/2 = 4.5 iii. Producer surplus 1/2 *B*H 1/2*(3)*(2) 1/2*(6)= 3 iv. Tax revenue L*W (3)*(5)=15 v. Deadweight loss 4.5 + 3 = 7.5

If the income elasticity of coffee is equal to 1.5, then coffee is an example of a _____ good

normal good EI > 0

Which of the following statements are concerned with efficiency and which are concerned with equity? d. Deadweight loss is not a part of the tax revenue collected by the government but is a consequence of taxes.

Efficiency.

Eleanor works at a department store and is paid by the hour. She can work as many hours as she wants each week. When not at work, Eleanor likes to spend her time reading. The store recently increased her hourly wage. What do you think will happen to the amount of time Eleanor spends working each week? Why? Discuss using the concept of marginal thinking.

Eleanor will likely increase the amount of time she spends working each week. The marginal benefit of each additional hour of work has increased since her wage has gone up, so she will increase her work hours until the marginal benefit of each additional hour of work equals the marginal cost of the missed reading time, at which point, she will switch to reading.

Explain whether each statement is true, false, or uncertain. b. If the price of corn increases, the supply curve for popcorn would shift to the right.

False. This is an increase in the cost of an input, meaning that the supply of popcorn would decrease and shift to the left.

Explain whether each statement is true, false, or uncertain: When trade occurs between a buyer and a seller, only the buyer gains economic surplus from the transaction.

False. Trade is the voluntary exchange of goods and services. The buyer and seller only agree to trade if the trade increases their economic surplus. Thus, if a trade occurs we can infer that both the buyer and the seller gain economic surplus form the transaction. There are gains from trade.

James works as a Nurse Practitioner at a government-funded clinic in Richmond. If James agrees to work at this clinic for two years, he will be eligible for the Virginia Nurse Student Loan Forgiveness Program and $40,000 of his student debt will be forgiven. James earns $90,000 per year working at the government clinic. He also has a job offer to work at a private cardiovascular clinic that would pay $110,000 per year. However, he would have to work 10 more hours per week at the cardio clinic. His willingness to pay to avoid those extra hours of work is $10,000 per year. Both clinics are in the same area and his commute to work costs about $2,000 per year. James also completed a cardiovascular care training class last year which cost him $15,000. Should James agree to the loan forgiveness program and work at the government clinic for 2 more years? Or should he accept the job offer at the cardio clinic?

He should stay at the government clinic because using the cost-benefit principle, we see that the benefits of staying outweighs the cost Benefit: Staying at Gov. Clinic Loan Forgiveness 40k Salary (90k x 2) 180k Total: 220k Cost: Staying at Gov. Clinic Salary (110k x 2) 220k Extra 10 hrs x 2 -20k Total: 200k

Consider Ron's demand for after school care for his children. The marginal benefit Ron receives for every hour of child care is provided in the accompanying table. b. What would happen to Ron's demand for child care if they receive a salary increase at work? On a single graph, sketch Ron's demand for child care before and after the salary increase.

His individual demand curve would increase.

Use the cost-benefit principle to evaluate the following: You are about to buy a laptop for $1,000 and the salesperson tells you that the model you want to buy is on sale for $995 at the store's other branch, which is a 20-minute drive away. Would you make the trip?

I would not make the trip because the cost outweighs the benefits in this situation. The cost is the gas spent for this 20 min drive and the benefit is $5.

2. For each pair of goods listed below, determine which good has a relatively more elastic demand and explain. a. Coca-Cola vs. Soft Drinks b. Demand for coal during WWII vs demand for coal during the entire 20th century c. Demand for coal during WWII vs demand for coal during the entire 20th century

a. Coca-Cola vs. Soft Drinks Coca-Cola is more elastic because it is a specific brand versus soft drinks which are a category of goods b. Demand for coal during WWII vs demand for coal during the entire 20th century Demand during the entire 20th century is more elastic because its over a longer period of time, and quantity demanded is more responsive to changes in price in the long run. c. Netflix subscription vs internet service Netflix is more of a luxury good, while internet service is more of a necessity, so the demand for Netflix is more elastic.

Which of the following lists only the factors that would cause a decrease in the supply of an item? a. A fall in input prices; an increase in productivity; a fall in the price of a substitute-in-production. b. A rise in the price of a substitute-in-production; a rise in the price of a complement-in-production; an expectation that the price of the item will rise in the future. c. A decrease in the number of sellers in the market; a fall in the price of a complement-in-production; an increase in productivity. d. A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.

d. A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production.

Which of the following will not cause a shift in the demand for baseballs? Explain. a. Very good weather b. A decrease in the price of baseball bats c. An increase in the number of nine-year olds d. An increase in the price of baseballs e. All of the above will shift the demand curve for baseballs.

d. An increase in the price of baseballs. A change in the price of a good results in movement along the demand curve to a different quantity demanded, not a shift in the demand curve.

If the cross-price elasticity of demand between Good A and Good B is 3 and the price of Good B increases, we can expect to see a(n) ________ change in the quantity demanded for Good A. Explain. a. Zero b. Relatively smaller percentage c. Infinite percentage d. One-for-one percentage e. Relatively larger percentage

e. Relatively larger percentage In order for the cross-price elasticity to be greater than one, it must be that, for any percentage increase in price of Good B, the resulting increase in the price of Good A is larger.

Explain whether each statement is true, false, or uncertain. a. When the price of haircuts increases, the supply of haircuts decreases.

False, when the price of haircuts increases the QUANTITY SUPPLIED of haircuts INCREASES.

Explain whether the following statements are true, false, or uncertain. a. A subsidy will decrease the price paid by buyers and the price received by sellers.

False. A subsidy will decrease the price paid by buyers and increase the price received by sellers.

The economic models of decision making discussed thus far in class can be applied to the analysis of crime. For example, consider the choice of whether to violate the speed limit while driving. What are the costs and benefits associated with this choice? How does the government intervene to increase the expected costs of speeding and incentivize people to follow the speed limit?

Costs: is that you could get caught and have to pay a speeding ticket, or perhaps even face other more severe consequences like losing your driver's license or getting in a car accident. Benefits: are your value of time saved by driving faster and any intangible benefits, such as enjoying driving fast. The government intervenes in multiple ways to incentivize people to follow speed limits: ticketing, radar, speed bumps, making roads narrower or curvier, and driver education.

If the price elasticity of demand for bicycles is -0.75, what percent change in price will result in a 3% decrease in quantity demanded?

Ed = % change in Quantity / % change in price -0.75 = -3% / ? % ? = 4 An increase in price of 4%.

Spyder Cyder conducts a survey of students asking them their total benefit from consuming chai tea. Here are the results of their survey: Using the table calculate the marginal benefits for each student

Emma: 4, 3, 2, 1 Alex: 8,6,4,2 Neha: 6, 4, 3, 2

The graph below shows the production possibilities frontier for a campus bakery that makes apple cider and cinnamon donuts d. Now suppose that the owners of SpyderCyder invest in an apple juicer, a machines that makes it possible to juice apples for cider more quickly. On the graph above, show how this would affect the PPF.

The PPF will become steeper since only the apple cider is being changed or affected

Your friend has decided to become a social media influencer. They produce two goods: Instagram photos and TikToks. c. Re-draw the PPF from part (a). show what would happen to the PPF if your friend quit their day job to focus on becoming an influencer.

The PPF would increase or move to the right.

Imagine that a city council decides that the market price for rental apartments is too high. It passes a law that establishes a rental price ceiling of $600 per month. The result of the price ceiling is a shortage. Which of the following has caused the shortage of apartments? a. Both suppliers and demanders. Landlords will reduce the supply of apartments, and the demand from renters will increase. b. A spike in demand from many student s who want to rent cheap apartments. c. The drop in supply caused by apartment owners pulling their units off the rental market and converting them into condos for sale. d. The change in price as a result of the price ceiling set by the city council.

d. The change in price as a result of the price ceiling set by the city council.

You eat M&Ms every day. When you go to the store to buy some, you find that M&Ms are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive? a. Consumers are now purchasing fewer M&Ms compared to other types of chocolates. b. A new robot has been installed at the Mars chocolate company that reduces the time needed to produce M&Ms by half. c. A new study finds that the benefits of eating chocolate are not as great as previously thought. d. The supply of cacao beans, used to produce chocolate, has fallen around the world.

d. The supply of cacao beans, used to produce chocolate, has fallen around the world.