Final Exam 2nd Semester ECON 201

Who bears the majority of a tax burden depends on whether the tax is placed on the buyers or the sellers (true or false: why?)

False depends on elasticites

when the price of hot dogs changes the demand for hot dogs

does not shift because the price of hot dogs is measured on the vertical axis of the graph

___________________ is the property of a resource allocation of maximizing the total surplus received by all members of society

efficiency

The ________________ is the quantity of out put that minimizes average total cost

efficient scale

_________________ is a measure of the responsiveness of quantity demanded or the quantity supplied to a change in one of its determinants

elasticity

at the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell

_________________ the business practice of selling the same good at different prices to different consumers

price discrimination

The ________________ measures how much the quantity supplied of a good responds to a change

price elasticty of supply

Consider the market for jelly beans. suppose that everyone in society (including firms) believe that the price of jelly beans will decline in the future. what will happen to the equilibrium price and quantity of jelly beans today?

price goes down, quantity impact unknown

New oak tables are normal goods. what would happen to the equilibrium prices and quantity in the market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables, and if the prices of the flue used in the production of the new oak tables increased

price will ruse and the effect on quantity is ambiguous

consider the market for Philadelphia Eagles bobble head dolls. now that they have won the super bowl. what impact do you think this will have on the equilibrium price and quantity for Eagle's bobble heads

prices will go up, quantity will go up

__________________ is the amount a seller is paid for a good minus the seller's cost of providing it

producer surplus

each of the following is a determinant of demand except

production technology

_________________ equals the total revenue minus total cost

profit

which of the following statements is an example of a positive, as opposed to normative, statement?

reducing emissions reduces days missed from school due to asthma

The property of society getting the most it can from its scare resources is called

Efficiency

A monopolist produces where P = MC = MR (true or false: why?)

False P > MC = MR

economists view the positive statements as

descriptive, making a claim about how the world is

if 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is about

0.63 and supply is inelastic

using the midpoint methods if the price falls from $60 to $40 , the absolve value of the price elasticity of demand is

1

mike and sandy are two woodworkers who both make tables and chairs. in one month, mike can make 4 tables or 20 chairs, where sandy can make 6 tables or 18 chairs. given this, we know that the opportunity cost of 1 chair is

1/5 table for Mike and 1/3 table for Sandy

The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them ti desirable market outcomes comes from whose 1776 book

Adam Smith

the law of supply states that, other things equal, an increase in

price causes quantity supplied increase

_____________ is the ability to produce a good using fewer inputs than another producer

Comparative Advantage

which of the following demonstrates the law of demand

DAVE BUYS MORE DONUTS AT $0.25. PER DONUT AT $0.50 PER DONUT OTHER THINGS EQUAL

A decrease in the price of creamer will increase an equilibrium and decrease the equilibrium quantity in the market for coffee (true or false: why?)

False It will increase the equilibrium quantity in the market of coffee

For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal (true or false: why?)

False PRICE not total revenue

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax (true or false: why?)

False When a good is taxed, the tax revenue collected by the government is less than the decrease in the welfare of buyers and sellers caused by the tax and deadweight loss

If the price of Coca Cola declines, the demand for Coca Cola will increase (true or false: why?)

False quantity demanded will increase

In the short run, if a firm produces nothing, total costs are zero (true or false: why?)

False still has to pay fixed costs

Along the elastic portion of a linear demand curve, total revenue rises as price rises (true or false: why?)

False total revenue falls as price rises

Something that causes a person to act is called an

Incentive

A ________ is a group of buyers and sellers of a particular good or service

Market

the ability of an individual to own and expertise control over scarce resources

Property Rights

__________ is the limited nature of society's resources

Scarcity

A _________ is a situation in which the quantity supplied is greater than the quantity demanded

Surplus

marginal cost of substitution

THE RATE AT WHICH A CONSUMER IS WILLING TO TRADE ONE GOOD FOR ANOTHER

A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level (true or false: why?)

True

A price ceiling set below the equilibrium price causes a shortage in the market (true or false: why?)

True

During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost (true or false: why?)

True

Suppose Hank and Tony can both produce corn. If Hank's opportunity cost of producing a bushel of corn is 2 bushels of soybeans and Tony's opportunity cost of producing a bushel of corn is 3 bushels of soybeans, then Hank has the competitive advantage in the production of corn (true or false: why?)

True

Suppose you sell a kayak for $600. but you were willing to sell it for $450. The buyer was willing to pay $650. The total surplus is $200 (true or false: why?)

True

The housing shortages caused by rent control are larger in the long run than in the short run because both the supply of housing and the demand for housing are more elastic in the long run (true or false: why?)

True

When the market price is above the equilibrium price, suppliers are unable to sell all they want to sell (true or false: why?)

True

indifference curve

a curse that shows consumption bundles that give the consumer the same level of satisfaction

suppose scientists provide evidence that chocolate pudding increase the bad cholesterol level of those who eat it. we would expect to see

a decrease in the demand for chocolate pudding

inferior good

a good for which an increase in incomes reduces the quantity demanded

GIFFEN good

a good for which an increase in which the price raises the quantity demanded

normal good

a good for which an increase income raises the quantity demanded

cartel

a group of firms acting in unison

monopolistic competition

a market structure in which many firms sell products that are similar but not identical

Oligopoly

a market structure in which only a few sellers often similar or identical products

prisoners dilemma

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually person

Nash equilibrium

a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen

dominant strategy

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

trade between countries

allows each country to consumer at a point outside its production possibilities frontier

the opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the

amount of the other good that must be given up

collusion

an agreement among firms, in a market about quantities to produce or prices to charge

A supply curve slopes upward because

an increase in price gives producers an incentive to supply a larger quantity

suppose the government imposes a 50 cent tax on the sellers of packets of chewing gum. the tax would

discourage market activity

A ___________________ is a legal maximum on the price at which a good can be sold

price ceiling

if demand is price inelastic, then

buyers do not respond much to a change in price

The fall in total surplus that results from a market distortion, such as a tax, is called the

deadweight loss

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it is called ___________________

consumer surplus

by definition, exports are

goods produced domestically and sold abroad

a new line of toupees is introduced for bald professors. consider this is a normal good. suppose that professor's incomes rise. in addition, assume the number of suppliers of the toupees increases. what impact will these events have on the equilibrium price and quantity for the new toupee

impact on price is unknown. Quantity will go up

______________________ are input costs that do no require an outlay of money by the firm

implicit cost

economists are particularly adept at understanding that people respond to

incentives

The __________________ measures how much the quantity demand of a good responds to a change in consumers income

income elasticity of demand

a rightward shift of a demand curve is called an

increase in demand

a movement downward and to the right alone a demand curve is called an

increase in quantity demanded

a movement upward and to the right curve along a supply curve us called an

increase in quantity supplies

A good for which, other things being equal, an increase in incomes leads to a decrease in demand is called an

inferior good

The increase is output that arises from an additional unit of input is called the

marginal product

The __________________ is the change in total revenue from an additional unit sold

marginal revenue

when a single person has the ability to influence market prices there is

market power

A firm that is the sole seller of a product without any close substitutes is called a

monopoly

Claims that attempt to prescribe how the world should be are called

normative statements

Sophia is planning her activities for a hot summer day. she would like to go to the local swimming pool and see the latest blockbuster movie but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. this illustrates the basic principle that

people face tradeoffs

if at the current price, there is a surplus of a good, then

sellers are producing more than buyers wish to buy

a short run decision by a firm not to produce anything is called a

shutdown

Two goods for which an increase in the price of one leads to an increase in the demand for the other are called

substitues

A cost that has already been committed and cannot be recovered is known as a

sunk cost

the manner in which the burden of a tax is shared among participation in a market is known as _______________________

tax incidence

substitution effect

the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution

income effect

the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve

a shortage exists in a market if

the current price is below the equilibrium price

budget constraint

the limit on the consumption bundles that a consumer can afford

you are In charge of the local city owned aquatic center. you need to increase revenue generated by the aquatic center in order to meet expenses. the mayor advises you to increase the price of a day pass. the city manager recommends reducing the price of a day pass. you realize that

the mayor thinks demand is inelastic, and the city manager thinks demand is elastic

assume the market for pork is perfectly competitive. when one pork buyer exits the market,

the price of pork does not change

efficiency is illustrated by

the production possibilities frontier only

game theory

the study of how people behave in strange situations

the opportunity cost of going to college is

the value of the best opportunity a student gives up to attend college

________________ is the amount paid by buyers and received by sellers of a good

total revenue

which is the most accurate statement about trade

trade can make every nation better off

when can two countries gain from trading two goods

two countries could gain from trading two goods under all of the above conditions

perfect complements

two good with right angle indifference curves

perfect substitutes

two goods with straight line indifference curves

the opportunity cost of an item is

what you give up to get that item

The maximum amount that buyer will pay for a good is called the

willingness to pay