Exam 1
suppose the government has already produced 4 units of the public good. the amount individual B is willing coulentaritly to pay for the fourth unit is
$0
which of the following statements is correct
the parity ratio had generally declined over the past five decades
corss elasticity of demand measures how sensitive purchases of a specific product are to changes in
the price of some other product
a firm's supply curve is upsloping because
the production costs of additional units of output will rise with increase in production, thereby requiring product price to go up
which of the following statements best describes the parity concept that used to justify subsidies in the agricultural sector
the production of a given output entitles the producer to the same real income over time
it takes a considerable amount of time to increase the production of pork. This implies that
the short run supply curve for pork is less elastic than the long run supply curve for pork
important quotas on sugar may cost sugar consumers $2 billion per year. but this quota goes unchallenged because the $10 average annual cost per person is so small that probably not one voter in 200 knows the quota exits. this statement describes
the special interest effect
buyers will opt out of markets in which
there is inadequate information about sellers and their products.
which one of the following expressions best states the idea of opportunity cost
there is no such thing as free lunch
in part as a result of the US government's ethanol program, between 2005 and 2012 the inflation adjusted price of bushel of corn
tripled
in a free market economy, a product which entails a positive externality will ten to be
underproduced
Refer to the diagram where Price of agricultural products is measured along the vertical axis. If farmers produce a normal crop of Qn, their gross income
will be 0PnNQn
if the prices paid by farmers increase and the prices received by farmers decrease then the parity ration
will necessarily decrease
which of the following statements is true
Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.
which of the following is a determinant of supply
Product taxes and subsidies
which of the following is the best example of a supply side market failure
a firm keeps its production costs down by dumping its waste in the nearby river, adversely affecting water quality for residents in the area
the main determinant of elasticity of supply is the
amount of time the producer has to adjust inputs in response to a price change
which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity
an increase in supply
an economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that
bicycles are normal goods
farm programs such as those of the united state and the european union
cause a misallocation of agricultural resources internationally
if a firms demand for labor is elastic, a union-negotiated wage will
cause the firms total payroll expenses to decline
which of the following is a labor resource
computer programmer
A shift to the right in the demand curve for product A can be most reasonably explained by saying that
consumer preferences have changed in favor of A so that they now want to buy more at each possible rate
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
the demand for a product is inelastic with respect to price if
consumers are largely unresponsive to a per unit price change
when an economist says that the demand for a product has increased, this means that
consumers are now willing to purchase more of this product at each possible price
if the supply of product X is perfectly elastic, an increase in the demand for it will incrase
equilibrium quantity, but equlibrium price will be uncahnged
refer to the diagram for the corn market. What effect will a price support of B have on the gross income of farmers
gross income will increase from 0 AJH to 0 BCG
in the demand curve for what is price inelastic, then total farm income from wheat will be
higher in years of low yields and lower in years of high yields
the price elasticty of demand coefficient measures
how strongly buyers change their consumption of a product due to a change on its price
which of the following illustrates the basic idea of "parity" as a cornerstone of the us agricultural policy
if a bushel of corn exchanged for a pair of pants at a previous time, the dame rate of exchange should prevail today
which of the following is correct
if demand is elastic, a decrease in price will increase total revenue
a market price is referred to as the equilibrium price
if the amount producers want to sell is equal to the amount consumers want to buy at that price
which of the following statements is correct
if the demand for agricultural products is inelastic, a relatively small decrease in supply will increase gross farm incomes
you should decide to go to a movie
if the marginal benefit of the movie exceeds its marginal cost.
the demand for agricultural products rises less rapidly than income. this means that the demand for agricultural products is
income inelastic
since 1950 us farm exports have
increased as a percentage of us farm output
the reason for the long run decline of the agricultural industry is that the
increases in the demand for farm products have been less that the increase in the supply of farm products
where there is asymmetric information between buyers and sellers
markets can produce inefficient outcomes
irving tiller received an insurance payment because his wheat crop sold for a price below an established threshold. Under the agricultural act of 2014, tiller received payment under
price loss coverage
which of the following has been an effect to the US government's ethanol program
prices for beef, pork, and chicken have rise
the market system does not produce public goods because
private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them
according to the coase theorem
private individuals can often negotiate their own resolution of externality problems, without the need for government intervention
market failure is said to occur whenever
private markets do not allocate resources in the most economically desirable way
the law of supply indicates that, other things equal
producers will offer more of a product at high prices than at low prices
the supply curve shows the relationship between
product price and quantity supplied of the product
the formula for cross elasticity of demand is percentage change in
quantity demanded of X/percentage change in price of Y
the demand schedules for such products as eggs, bread, and electricity tend to be
realitivly price inelastic
the demand for agricultural products is
relatively inelastic with respect to price
The demand for a luxury good whose purchase would exhaust a big portion of one's income is
relatively price elastic
refer to the diagram for the corn market. as the result of a supported corn price of B
a surplus of LG will result
Refer to the diagram, in which S is the market supply curve and S 1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach
an over allocation of resources to this product
refer to the diagram for the corn market. assuming no externalities, a price support of B causes
an over allocation of resources to this product
a cap and trade program
assigns a property right to polluting the atmosphere
professional buyers of antiques often have more information about the value of antique objects than do the sellers. this illustrates
asymmetric information
assume in a competitive market that price is initially above the equilibrium level. We can predict that price will
decrease, quantity demanded will increase, and quantity supplied will decrease
People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a
demand side market failure
in 2015, farmer lactose dairy farm lost money. under the agricultural act of 2014 dairy margin protection program, which of the following events would have triggered payments to farmer lactose
either the price of milk falling too low of the price of feed rising too high
movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an
elastic demand to see movies in the afternoon
Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will
increase, quantity demanded will decrease, and quantity supplied will increase
if the price elasticity of demand for a product is unity, a decrease in price will
increase the quantity demanded, but total revenue will be unchanged
if the demand for product X is inelastic, a 4 pecent decrease in the price of X will
increase the quantity of X demanded by less than 4 percent
Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is
$1
between 2002 and 2011, US farmers received yearly direct subsidies from the federal government averaging about
$20 billion
for plan D marginal costs and marginal benefits are
$28,000 and $12,000 respectively
refer to the above table. In this market, the equilibrium price and quantity will be
$5 and 7 units
a demand curve
indicates the quantity demanded at each price in a series of prices.
Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is
inelastic
the parity ratio
is the ratio of prices received by farmers to prices paid by farmers
we would expect the cross elasticity of demand between pepsi and coke to be
positive, indicating subsitute goods
in which of the following instances will the toal revenue of a firm decline
price rises and demand is elastci
which of the following statements about the agriculture price policy is correct
price supports induce an over allocation of resources to farm products
Acreage allotment programs were designed to
reduce the supply of agricultural products
public choice theory would suggest that the lobbing of congress by farm organizations for legislation that would increase the appropriations for the US government fo rargriucultral programs is an example of
rent seeking behavior
farm groups spend considerable amounts of money to maintain an denlarge political support for farm subsidies. this illustrates
rent-seeking activity
the price elasticity of supply measures how
responsive the quantity supplied of X is to changes in the price of X
An effective price ceiling will
result in a product shortage.
An effective price floor on wheat will
result in a surplus of wheat.
market failures
result in overproduction of underproduction of a good
refer to the above table. if demand decreased by 4 units at each price, what would the new equilibrium price and quantity be
$3 and 5 unit
Refer to the table. If the economy is producing at production alternative C, the opportunity cost of producing 3 additional units of consumer goods will be
1 unit of capital goods
Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is
1.37
it is estimated that the price elasticity coefficient for farm products is 0.2. therefore, in order for consumers to increase their purchases of farm products by 10 percent, the prices of these products would have to fall
50 percent
if in a certain year the indices of prices received and paid by farmers were 115 and 142 respectively, the parity ratio (in percentage terms) would be
81
If the demand curve for product B shifts to the right as the price of product A declines, then
A and B are complementary goods
suppose the income elasticity of demand for toys is +2.00. This means that
a 10 percent increase in income will increase the purchase of toys by 20 percent
In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by
a change in buyer tastes
the economic perspective entails
a comparison of marginal benefits and marginal costs in decision making
measured in terms of farm employment and the number of farms, agriculture in the US has been
a declinin gindustry
suppose that a firm has pricing "pricing power" and can segregate its market into two distinct groups based on differences in elasticity of demand. The firm might charge
a higher price to the group that has the less elastic demand
a bumper crop (good harvest) of farm products causes
a large decline in the price of farm products because the demand for farm products is price inelastic
an extraordinarily small crop of farm products due to drought causes
a large increase in the price of farm products because the demand for farm products is inelastic
pigovian taxes
are used to correct negative externalities
darcy and rachel live down the hall from each other in the same dorm. darcy likes to play her music loudly down the hall, and rachel finds the music annoying. a coase theorem solution for this problem would be for
darcy and rachel to negotiate a mutually agreeable level of volume and/or selection of music
Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara
decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile
over the past several decades, farm employment in the US has
declined both absolutely and as a percentage of total employment
farm sahare of the us national output has
declined fro about 7 percent in 1950 to about 1 percent today
demand side market failures occur when
demand curves don't reflects consumers full willingness to pay for a good or service
a significant reason that increases in demand for agricultural products have been relatively small is because increases in the
incomes of the US consumers result in less than proportionate increases in their spending on agricultural products
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand ( D) for, or supply ( S) of, X; (2) the equilibrium price ( P) of X; and (3) the equilibrium quantity ( Q) of X. if X is a normal good, and increase in income will
increase D, increase P, and increase Q
if the goverment tighetns up on drug dealers and raises the costs of delaing iliigal drugs, then the drug addicts dollar expenditures to feed thier addiction will tend to
increase beacuse thier demand is price- inelastic
if the demand for bacon is relatively price elastic, a 10 percent decline in the price of bacon will
increase the amount demanded by more than 10 percent
the food stamp program is designed to
increase the demand for farm products
if the absolute value of price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will
increase the quantity demanded by about 25 percent
sellers will opt out of markets in which
information about buyers is inadequate, and some buyers can impose high costs on the sellers
a market
is an institution that brings together buyers and sellers
at the optimal quantity of a public good
marginal benefit equals marginal cost
microsoft charges a substantially lower price for a software upgrade than for the initial purchase of the software. this implies that microsoft views the demand curve for the software upgrade to be
more elastic than the demand for the original software
assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is
postive, and therefore X is a normal good
if a good that generates positive externalities was produced and priced to take into account these spillover benefits then it s
price and output would increase
the demand curve shows the relationship between
price and quantity demanded
the law of demand states that, other things equal
price and quantity demanded are inversely related
In this market, economists would call a government-set maximum price of $40 a
price ceiling
in this market, economists would call a government set minimum price of $50 a
price floor
an improvement in production technology will
shift the supply curve to the right
which of the following is a capital resource
software used by a firm
in 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are
substitute goods, and the higher price for oil increased the demand for natural gas
an increase in the excise tax on cigarettes raises the price of cigarettes by shifting
supply curve for the cigarettes leftward
if a firm finds that it can sell $13,000 worht of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then
the dmand for the prodcuct is elastic in the $6-$5 price rance
because of the free rider problem
the market demand for a public good is nonexistent or understand
the collective willingness of this society to pay for the second unit of this public good is
$6
refer to the above table. if supply decreased by 2 units at each price, what woul dhte new new equilibrium price be
$6 and 6 units
a consumers weekly income is $300, and the consumer buys 5 bars of chocolate per week. When income icreases to $330, the consumer buys 6 bars per week. The income elasticity of demand for chocolate by this consumer is about
2
if the marginal cost of producing this good at the optimal quantity is $4, the optimal quantity must be
3 units
If this good were a private good instead of a public one, the total quantity demanded at a $3 market price would be
4 units
the supply of product X is elastic if the price of X rises by
5 percent and quantity supplied rises by 7 percent
suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary who has five kids needing braces, selects the family dental coverage. this is an example of the
adverse selection problem
the misallocation of resources associated with price supports
affects both domestic and foreign economies
Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that
all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant
which of the following is an example of market failure
all of these
refer to the graph of the market for wheat. the government adopts. price support program for what and supports the wheat price at P2. The area of Q1ABQ2 would measure the
amount government will pay to wheat farmers
a recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. based on this information we can conclude that
beer and marijuana are complementary goods
black markets are associated with
ceiling prices and the resulting product shortages.
cost benefit analysis attempts to
compare the benefits and cost associated with any economic project or activity
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand ( D) for, or supply ( S) of, X; (2) the equilibrium price ( P) of X; and (3) the equilibrium quantity ( Q) of X. An increase in the prices of resources used to produce X will
decrease S, increase P, and decrease Q
if the parity ratio goes from 0.8 to 0.7, it means that the prices received by farmers had
fallen by 12.5 percent relative to the prices they paid
which of the following is an example of negative externality
falling property values in a neighborhood where a factory is emitting smoke in the atmosphere
refer to the diagram. If output changes fro a poor crop Qp to a bumper crop Qb
farm incomes will decrease
Which type of goods is most adversely affected by recessions?
goods for which the income elasticity coefficient is relatively high and positive
in a cap and trade program
government fixes the maximum amount of pollutant that firms can discharge and issues permits that firms can buy from and sell to each other
a price floor means that
government is imposing a minimum legal price that is typically above the equilibrium price.
If demand for a product is price elastic, the absoulute value of the price elasticity
greater than one
the demand for agricultural products
has a price elasticity coefficient of about 0.20 to 0.25
unlike a private good a public good
has benefits available to all including non payers
because government price supports cause surplus agricultural production, government policies have been designed to
increase demand and decrease supply of farm products
if turnips are an example of an inferior good, then a decrease in the demand for turnips could happen due to
increase in consumer incomes
with a fixed level of farm production, a increase in demand for a corp (shown by rightward shift of the demand curve) will cause a
large drop in price if demand is quite inelastic
suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is
less than 1, and therefore supply is inelastic
farm employment in the united states amount to about what percentage of the total employment in 2015
less than 2 percent
the economizing problem is one of deciding how to make the best use of
limited resources to satisfy virtually unlimited wants
when economists say that people act rationally in their self-interest, they mean that individuals
look for and pursue opportunities to increase their utility
if the demand for an agricultural product is inelastic, a bumper crop will
lower price and decrease total revenues
the equilibrium price and quantity in a market usually produce allocative efficiency because
marginal benefit and marginal cost are equal at that point
one consequence of the long-run problem faced by farms has been a
massive exit of workers from agricultural to other sectors of the economy
if an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that
more consumer goods can only be produced at the cost of fewer capital goods
suppose that a 20 percent increase in the price of good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is
negative, and therefore these goods are complements
we would epect the cross elasticity of demand between dress shirts and ties to be
negative, indicating complementary goods
if one persons consumption of a good does not preclude others consumption the good is said to be
nonrival in consumption
the two main characteristics of a public good are
nonrivalry and nonexcludability
The demand for most products varies directly with changes in consumer incomes. Such products are known as:
normal goods
Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of
opportunity costs
wehn producers do not have to pay the full cost of producing a product, they tend to
overproduce the product because of a supply side market failure
there is an adverse selection problem in the market for used cars because
owners of poor quality cars have a strong incentive to sell their cars, which owners with high high quality used cars have more incentive to keep their cars
refer to the diagram for the corn market. As a consequence of a price support of B, consumers will
pay a higher price, B rather than A, for the product
the basic formula for the price elasticity of demand coefficient is
percentage change in quantity demanded/percentage change in price
a demand curve that is parallel to the horizontal (quantity) axis is
perfectly elastic
a firm can sell as much as it wants at a constantprice. demand is thus
perfectly elastic and and absolute price elasticity will be very large
if quantity demanded is completely unresponsive to price changes (as for gasoline) demand is
perfectly inealstic and absolute price elasticity will equal zero
a straight line demand curve that is completely vertical to the horizontal (quantity) axis is
perfectly inelastic
refer to the table. over the $6-$4 price range, supply is
perfectly inelastic
on the basis of cost benefit analysis government should undertake
plan B
Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is
positive, and therefore X is a normal good
if the income elastity of demand for store brand macaroni and chees is -3.00, this means that
store brand macaroni and cheese is an inferior good
if some activity (e.g. Research & Development) creates external benefits as well as private benefits, the economic theory suggests that the activity ought to be
subsidized
supply side market failures occur when
supply curves don't reflect the full cost of producing a good or service
what two conditions must hold for a competitive market to produce efficient outcomes
supply curves must reflect all costs of production and demand curves must reflect consumers full willingness to play
the main reason for the high rice of antiques is taht
supply is realitivly inelastic and demand increases over time
of government set a minimum price of $50 in the market, a
surplus of 21 units would occur
Refer to the diagram, in which S is the market supply curve and S 1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should
tax producers so that the market supply curve shifts leftward
If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then
the absolute price elasticity of demand is 1.15
a positive externality or spillover benefit occurs when
the benefits associated with a product exceed those accruing to people who consume it
suppose that a large tree on betty's property is blocking chucks view of the lake below. betty accepts chucks offer to pay betty $100 for the right to cut down the tree. this situation describes
the coase theorem
we would expect
the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.
suppose the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers goes down from $16 to $14 billion. thus
the demand for peanuts is inelastic
the elasticity of demand for a product is likely to be greater
the greater the amount of time over which buyers adjust to a price change
which statement best characterizes the long run decline the the agricultural industry
the growth in the supply of farm products has exceeded the growth in the demand for such products, causing falling farm product prices and falling farm income
which of the following best describes the short run problem faced by farms
the highly inelastic nature of agricultural demand, together with fluctuation in exports of farm goods, has caused small year-to-year fluctuation in farm output to result in highly unstable farm incomes
an incrase in demand will increase equilibrium price to a greater extent
the less elastic the supply curve
consumer surplus arises in a market because
the market price is below what some consumers are willing to pay for the product
a production possibilities curve shows
the maximum amounts of two goods that can be produced assuming the full use of available resources.
because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even though it is federally subsidized. this illustrates
the moral hazard problem
which of the following best describes the main problem faved by farms in the long run
the supply of farm products has increased relative to the demand for the, and, because demand is inelastic, farm prices and incomes have therefore declined
suppose that mcih and cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that
the third unit should be produced
a negative or spillover cost occurs when
the total cost of producing a good exceeds the costs borne by the producer
Productive efficiency refers to
the use of the least-cost method of production
as it applies to insurance, the adverse selection problem is the tendency for
those most likely to collect on insurance to buy it
As it applies to insurance, the moral hazard problem is the tendency for
those who buy insurance to take less precaution in avoiding the insured risk
which of the following goods will least likely suffer a decline in demand during a recession
toothpaste
economists consider governments to be wasteful
whenever they over or underallocate resources to a project
suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price
will increase, but equilibrium quantity will be unchanged