Intro to Microeconomics - Exam 1

The graph shows the demand and supply of bungee jumps in Xtremeland. The government decides to impose an excise tax on bungee jumps to help pay for the high number of back and neck injuries. What would the government's tax revenue be if it imposes a tax of $80 on each jump?

$1,600,000

Which statement describes the equity-efficiency trade‑off?

Actions intended to make economic outcomes fairer may cause efficiency to decrease.

Diana and Graham live in an area of Brooklyn with rent control. Both are looking for an apartment to rent. Diana has a job paying $20 per hour, and Graham has a job paying $15 per hour. Both value an apartment equally. What is the most likely outcome?

Graham will spend more time than Diana searching for an apartment.

Which of the choices illustrates the law of demand?

Sue wants to buy more candy bars at $1 than at $2.

The demand curve for running shoes has shifted to the right. What could have caused it?

an increase in the income of buyers of running shoes

In the simplest circular-flow model, households supply _____ and demand _____.

factors of production; goods and services

The demand curve

is a graphical representation of the relationship between price and quantity demanded.

In the United States, taxes tend to be regressive at

state and local levels

A shift of the demand curve for fried chicken would not be caused by a change in:

the price of fried chicken.

Which is the best definition of efficiency?

when nobody can be made better off without making someone worse off

The benefits principle of taxation means individuals pay according to:

whether and how much they use a good or service.

Coffee and tea are substitutes in consumption. If there is an increase in the price of coffee, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus in the tea market:

will increase

If the technology of producing peanut butter improves, total surplus in the peanut butter market:

will increase

Peanut butter and jelly are complements in consumption. Assuming that the supply curve of peanut butter is upward-sloping, if there is a decrease in the price of jelly, producer surplus in the peanut butter market:

will increase

When a new medical report extols the health advantages of grapefruit, assuming an upward-sloping supply curve, producer surplus in the grapefruit market:

will increase

The table contains the supply and demand schedule for Bluefin tuna. Suppose all countries agree to limit tuna fishing to a total of 15,000 tons per year through a strictly enforced licensing program for fishermen. At the new fishing quota, what is the quota rent per pound of Bluefin tuna?

$1.35

Using the table of marginal tax rates shown below, calculate how much a person filing as head of household and earning $60,985 will owe in taxes assuming it is this is their sole source of income and that there are no exemptions or deductions.

$10,098.75

The table contains information on the price per month and the monthly demand and supply of online music streaming subscriptions. What are the equilibrium price and quantity?

$10.40 ; 290

Consider the accompanying supply and demand graph. Consumer surplus is ____ and producer surplus is ____ .

$11.25; $8.75

Refer to the graph below. The government imposes a quota limiting sales of lobster to 1,000 pounds. According to the figure, the quota rent per pound is:

$2.50

Refer to the graph below. A price floor of $15 would result in deadweight loss of:

$20

What is total surplus in the market for beds at a youth hostel depicted in this graph?

$2000

Refer to the graph below. If the government imposes a quota limiting sales of crab to 250 pounds, the deadweight loss will be equal to:

$2500

How much total surplus would be lost if there were a quota of eight sandwiches that could be legally exchanged? Use the graph below to calculate the answer.

$3

Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip was $120 but has now increased to $150, the gain in producer surplus is equal to:

$70

The number of seats in a football stadium is fixed at 70,000. The team raises the price of a ticket from $30, at which 70,000 are sold, to $40, and it sells 60,000 tickets. Assume a straight-line downward-sloping demand curve. The price change caused a change in the consumer surplus of:

-$650,000

Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. According to this finding, the price elasticity of demand for gas is:

0.2

The state of Texas recently saw a gasoline price increase of 5%, which brought about a fall in the quantity of gasoline purchased of 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

0.2; inelastic

Shobha has a linear production possibility frontier in bracelets and necklaces. In one hour, she can produce 5 bracelets or 10 necklaces. What is the opportunity cost to make 1 necklace?

0.5 bracelet

If the price of a good increases by 10%, and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:

1.5

Consumer surplus in the market for corn depicted in this graph is equal to ____ . Pay close attention to the units shown in the graph.

12500

Suppose three producers of glassware are willing to produce glass vases, depending on the price at which they can sell them, according to the table below. What would be the market supply quantity at a price of $150?

15 vases

A farmer produces both beans and corn on her farm. If she must give up 16 bushels of corn to be able to get 6 bushels of beans, then her opportunity cost of 1 bushel of beans is

2.67 bushels of corn

Suppose a government decides to initiate a state tax of 5% on all sales. Using the table below, a poor household will spend _____% of its annual income on the sales tax, while a wealthy household will spend _____% of its annual income.

4.5;4

Suppose that a city government introduces a $0.50 excise tax on consumers of bottles of soda to improve the health of its citizens. What would be the new equilibrium quantity?

4000 bottles

Suppose the market for a hotel room is as follows: The quantity demanded of rooms is 0 when the price is $90 per night and 90 when the price is $10 per night. Quantity supplied of rooms is 0 when the price is $10 and 100 when the price is $80. It will help to draw a graph of supply and demand for this question. In equilibrium, ____ rooms are occupied by guests and total surplus is ____ .

50; $2,000

Producer surplus in the market for corn depicted in this graph is equal to ____ . Pay close attention to the units shown in the graph

7500

At which point on the graph is it possible to produce more tangerines without reducing the quantity of bananas that are also produced?

A (the one under the curve)

The figure shows the pre-tax and post-tax positions—S1 and S2, respectively—of the supply curve for a good. The revenue raised by the government as the result of this tax is equal to

B + D

Why is there no such thing as a completely "free" market?

Every market is subject to restrictions imposed by those who have the authority to do so and who may do so.

Vincent and Jean are two cooks who work in a village. Each of them can either bake cakes or make pizzas. Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Which cook has the absolute advantage in baking cakes?

Jean

Suppose the city council in a large city decides to pass a law which forces landlords to charge a maximum rent of $750/month for a one-bedroom apartment. Prior to the rent control, the average rent for a one-bedroom apartment was $1,750/month. Which is likely to occur as a result of the price ceiling?

Landlords will begin decreasing the quality of one-bedroom apartments by not making repairs or paying for upkeep.

You and other college students are deciding whether to major in music or engineering. You learn that there is a shortage of engineers, making it easy for engineering graduates to find employment, while there is a glut of musicians for whom finding a job is difficult. As a result, you and many other college students decide to major in engineering. Which economic principle does this illustrate?

Markets tend to move towards equilibrium as individuals respond to incentives.

In general, when consumers wish to purchase more goods and services than are readily available, the economy tends to see inflation. Which economic principle does this statement best represent?

Overall spending sometimes gets out of line with the economy's productive capacity.

The graph shows the market for office rental space. A $400 per month excise tax is imposed on firms selling office space. D is the demand curve, S1 is the supply curve in the absence of the tax, and S2 represents the supply curve that includes the tax. Who carries the heavier burden of the tax?

Producers

Consider the market for corn. What happens if there is an increased demand for corn tortillas and, at the same time, a new corn seed becomes available that dramatically increases the yield per acre?

The change in price is indeterminate; quantity increases.

Which statement is likely to be associated with inelastic supply?

The inputs necessary for production cannot readily be increased.

One day, a local theme park charges $40 per person for admission, and 10,000 people visit the park. On another day, the park charges $60 per person, and 20,000 people pay to enter the park. Which explanation best describes why the park sees an increase in attendance when the price is higher?

The low-attendance day falls on an autumn Wednesday, while the high-attendance day falls on a summer Saturday.

Suppose New Jersey produces only pharmaceutical products and medical treatments, with fixed amounts of land, labor, and capital resources. Which scenario best sets the stage for economic growth?

The percentage of New Jersey residents with a university degree rises from 15% to 23%.

Which statement is true, according to standard economic theory?

The true cost of a choice is what you must give up when choosing between alternatives.

There are several close substitutes for Tylenol, but relatively few substitutes for a complete medical examination. Therefore, all other things equal, you would expect the demand for:

Tylenol to be more elastic than the demand for medical examinations.

Why is the shape of the production possibilities frontier (PPF) often curved instead of straight?

Typically, some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for.

Which statement best characterizes the relationship between the elasticity of demand, price, and total revenue?

When demand is elastic and price falls, total revenue rises.

Andrew, a college student, loves drinking coffee late at night to study for exams. Having no income, he is used to buying cheap, bad-tasting coffee, such as Beanlightened, that he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year, and he decides he has had enough bad-tasting coffee. He ends up buying coffee daily from Starbucks, even though it costs significantly more than Beanlightened. Andrew's demand for Starbucks coffee changed as a result of

a change in income

A shift in the demand curve can be caused by

a change in one of the determinants of demand.

A shift in the supply curve can be caused by

a change in one of the determinants of supply.

An increase in the cost of paper would likely lead to which of the following?

a decrease in the supply of printed books

Which of the following could cause a country's production possibilities frontier to shift inward?

a natural disaster

An increase in price and an ambiguous change in quantity are most likely caused by:

a shift to the left of the supply curve and a shift to the right of the demand curve.

The government imposes a price ceiling below the equilibrium price. The price ceiling will cause:

a shortage of the good

Which of these taxes best exemplifies the ability-to-pay principle? -a tax break for families with low income -a tax on alcohol to fund enforcement of underage drinking laws -a tax on cigarettes who proceeds are used to fund smoking cessation programs -a tax on gasoline to fund road repair and public transportation

a tax break for families with low income

Which item best represents an excise tax? -your property taxes -a one-time local per capita tax of $50 -a tax of $0.53 per gallon of gas -a tax of 18% of your wages

a tax of $0.53 per gallon of gas

Which factor is most likely to shift the supply curve for milk to the left?

a tax on each gallon of milk produced

Producer surplus is shown graphically as the area

above the supply curve and below the market price.

A beneficial technological change is developed in the production of cranberries. At the same time, scientists discover that cranberries have significant health benefits. This will result in:

an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cranberries.

The basic proposition of the law of demand is that

as the price of a good increases, buyers tend to buy less.

An economic transaction in which one party trades a good or service for another good or services is called

barter

For which of the following decisions is marginal analysis LEAST beneficial?

deciding which college to attend

Determine how the equilibrium price and equilibrium quantity in the market for coffee changes if the following two occur: the price of tea, a substitute for coffee, decreases due to better weather, the price of coffee beans used to make coffee decreases Equilibrium price will ____ while equilibrium quantity ____ .

decrease ; might increase, decrease or stay the same

If a demand curve is downward sloping, a decrease in supply with no change in demand will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.

decrease; increase

Consider the market online music. Suppose that an economic downturn decreases household wealth and erodes consumer confidence. What would be the primary impact of this on equilibrium price? Assume that online music is a normal good.

decreases

The market price of cruise ship vacations has increased recently. Some economists suggest that the price increased because of an increase in the number of retirees. In other words, they believe that:

demand increased

If an increase in the price of a good leads to an increase in total revenue, the _____ curve is price _____.

demand; inelastic

Assume Italy and Egypt can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in Italy can produce 10 t of grain or 5 t of dates in a season. Each farmer in Egypt can also produce 10 t of grain or 25 t of dates. Which country has the comparative advantage in producing dates?

egypt

Unfortunately, you only have a few hours after work to do whatever you want this weekend. You would enjoy hanging out with friends at a concert they want to see, but you are not a fan of the band. You enjoy doing well in school and usually enjoy your studies, and so would rather study than go to the concert. There is a movie coming out this weekend that you would prefer to see instead of studying. The benefit of going to the concert is ____ and the opportunity cost is ____ .

enjoying the activity; missing the movie

Rice and potatoes are substitutes in consumption. If the price of rice rises and there is a bumper crop of potatoes, in the market for potatoes one would expect the equilibrium price to _____ and the equilibrium quantity to _____.

fall, rise, or stay the same; rise

Unfortunately, you only have a few hours after work to do whatever you want this weekend. You would enjoy hanging out with friends at a concert they want to see, but you are not a fan of the band. You enjoy doing well in school and usually enjoy your studies, and so would rather study than go to the concert. There is a movie coming out this weekend that you would prefer to see instead of studying. The benefit of studying is ____ and the opportunity cost is ____ .

getting better grades; missing the movie

The local river has so much pollution that three-eyed fish are forming. Regulations are therefore enacted to limit the amount of chemicals dumped into the river. This scenario illustrates which economic principle?

government intervention

Suppose a state government decides to initiate a state income tax. The first $50,000 of household income is tax- free, while any income above $50,000 is taxed at 10%. The marginal tax rate for a household earning $75,000 is:

greater than its average tax rate

If the percentage change in the quantity demanded of a good is greater than the percentage change in income and in the same direction, then this good will have an income elasticity _____ 1, and it is a(n) _____ good.

greater than; normal

Referring to the graph below, if the price is initially $10, then falls to $9, this will result in a(n) _____ in quantity demanded and a(n) _____ in total revenue.

increase; decrease

Suppose the U.S. government imposes a binding quota on the number of Japanese-made cars allowed into the United States. Assuming that Japanese-made cars and U.S.-made cars are substitutes in consumption, we would expect the price of Japanese cars to _____ and the price of U.S.-made cars to _____.

increase; increase

Stone and brick are substitutes in home construction. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Equilibrium price for bricks

increases

Which of the following explains why a production possibilities frontier or curve is often represented as concave (bowed out) from the origin?

increasing opportunity costs

Cristina gets a raise at work and feels like she can finally stop eating so many frozen foods and instead eat something better. Frozen foods, for her, are ____ good.

inferior

Farmers in developing countries want the United States to reduce the price supports that it gives to U.S. farmers because surplus agricultural products donated by the United States:

lead to agricultural surpluses and lower prices for farmers in developing countries.

When there are fewer substitutes, demand tends to be

less elastic

Which example is a quota?

limits on the number of bushels of clams that can be caught in New Jersey

A tax that takes a ____ percentage of income as income ____ is a ____ tax.

lower ; rises ; regressive

The seaport town of New Monopoly has become extremely popular with shipping companies due to its superior location. The port has become so congested that ships must wait hours every day just to dock. The mayor of New Monopoly realizes that the congestion at the port costs the shipping companies and his town money. This is an example of

market failure

Historic examples of price ceilings include all of the following EXCEPT: -Price controls in the US during World War II -Roman Emperor Diocletian's edict on prices -Minimum wages -Rent controls in major cities

minimum wages

Which is NOT an example of a resource? -machinery -land -money -labor

money

Over longer periods of time, demand tends to become

more elastic

A decrease in the price of eggs will result in a(n):

movement along the demand curve for eggs

If a quota is set above the equilibrium quantity, there will be:

no immediate effect

When a market is in equilibrium, and there is no outside intervention to change the equilibrium price:

no mutually beneficial trades are missed

A statement that the minimum wage should be increased is a:

normative statement

In a competitive market, all of the choices along the production possibility frontier display ________________ efficiency, while the specific choice on the frontier that society picks is the one with _______________ efficiency.

productive; allocative

The U.S. government limits the amount of sugar that can be purchased from foreign sugar producers. Select the term that best fits the scenario.

quota

An efficient way to finance the provision of city services such as street cleaning would be to charge all city residents a lump-sum tax. Such a tax would be:

regressive

Using the table below, what is the nature of this income tax system?

regressive

If a rent ceiling is set at $1,100 in the graph below:

rent will remain at $1,000.

Which good is most likely to have a vertical supply curve?

sculptures by Michelangelo

What would happen if the price of kayaks increased?

sellers would offer more kayaks for sale.

Livia starts using a new baking technique, and she can now do twice as much of everything. In a single day, Livia can now make 10 cakes or 8 pies, rather than the 5 cakes and 4 pies she could previously bake. Livia's production possibility frontier has _____, and her opportunity cost of making pies _____.

shifted right; is unchanged

The table contains the demand and supply schedule for apartments in a city. Suppose the city council feels that the equilibrium rent is too high and imposes a price ceiling of $750/month. This price ceiling will result in a ____ .

shortage of 4500

Refer to the graph below. Suppose the government believes that microeconomics textbooks are too expensive and wants to make them more affordable, ensuring that they are available to students. Given a price ceiling of $80, the market outcome would be a _____ of _____ textbooks.

shortage; 30

Economics is the

study of the consumption, production, and distribution of goods and services.

You notice that the price of Blu-ray players falls and the quantity of Blu-ray players sold increases. You suspect that _____ Blu-ray players shifts to the _____.

supply of; right

Suppose the price of real estate increases by 40% in New York City next year. If the quantity of new homes supplied does not change, the price elasticity of _____ will be perfectly _____ in New York City next year.

supply; inelastic

Suppose that Paulie and Vinny each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny each can produce in 1 hour, respectively, if they devote all of their time and effort into making the good. Paulie has a comparative advantage in ____ and Vinny has a comparative advantage in ____.

t-shirts; ice cream

Consumer surplus is equal to the difference between

the maximum price a buyer is willing to pay and the market price.

Which factor is important in determining the price elasticity of supply?

the time the producer has to adjust inputs and outputs

Suppose there is a limit on the number of taxi cabs that can circulate in a city, a system enforced by the issuance of taxi medallions which prove that the operator of the taxi cab is licensed to operate in the city. What is the likely effect on the market for tax medallions if the city allows ride-share private operators to pick up passengers in the city?

the value of the medallions will decline.

The demand for a good will increase if:

there is an increase in the number of consumers in this market.

Market equilibrium occurs when:

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.

Kate and Sarah own a bakery together. The two figures illustrate the production possibilities available to them if they work at their bakery for 8 h a day. Answer the question using these figures.

total production of bread will be 12 loaves, and the total production of cake will be 8 units.

Choose the economic term that is best described by the statement "Everything you do requires giving up something (time, money, etc.)."

tradeoffs