Micro Econ chap 3

trade

allows specialization, which reduces costs

Productivity is defined as the

amount of goods and services produced from each unit of labor input

Refer to Figure 5-3. At a price of $70 per unit, sellers' total revenue equals

$1,050

Suppose that you have received $650 as a birthday gift. You can spend it today or you can put the money in a savings account for a year and earn 2 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is

$663

If the number of buyers in a market decreases, then

demand will decrease

Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier?

(200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars)

Refer to Figure 3-3. If the production possibilities frontier shown for Tanek is for 120 hours of production, then how long does it take Tanek to make one burrito?

.4 hours

Refer to Figure 3-3. If Tanek and Barb both spend all of their time producing burritos, then total production is

0 tacos and 500 burritos

If a 16 percent increase in price for a good results in a 7 percent decrease in quantity demanded, the price elasticity of demand is

0.44

Assume that Indonesia and India can switch between producing rice and bananas at a constant rate. ​ Labor Hours Needed to Make 1 Unit ofRiceBananasIndonesia25India42 ​ Refer to Table 3-12. India's opportunity cost of producing bananas is

0.5 units of rice. This is lower than Indonesia's opportunity cost of producing bananas.

Refer to Figure 5-6. Using the midpoint method, what is the price elasticity of supply between points D and E?

0.53

Nick and Tabitha are two woodworkers who both make tables and chairs. In one month, Nick can make 9 tables or 27 chairs, whereas Tabitha can make 16 tables or 48 chairs. Given this, we know that the opportunity cost of 1 chair is

1/3 table for Nick and 1/3 table for Tabitha.

Refer to Table 4-2. If these are the only four buyers in the market, then the market quantity demanded at a price of $2.00 is

14 units (Bert and Ernie problem)

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

40 percent

Assume that Brad and Theresa can switch between producing wheat and producing beef at a constant rate. ​ Minutes Needed to Make 1Bushel of WheatPound of BeefBrad1012Theresa610 ​ Refer to Table 3-10.What is Teresa's opportunity cost of producing one bushel of wheat?

5/3 pounds of beef

Refer to Table 3-8. If the production possibilities frontier is bowed outward, then how many coats are produced when 8 blankets are produced?

50

Which of the following changes would not shift the demand curve for a good or service?

A change in the price of the good or service.

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

Adam Smith

Refer to Figure 3-4. If point A represents Alvina's production and point B represents Jane's production,

Alvina produces 200 pitchers of lemonade and 100 pizzas while Jane produces 180 pitchers of lemonade and 180 pizzas

Which of the following demonstrates the law of demand?

Ashlyn buys more donut holes at $0.25 per donut hole than at $0.50 per donut hole, other things equal.

Which of the following is likely to have the most price inelastic demand?

Athletic shoes

If China is capable of producing either shoes or toy trains or some combination of the two, then

China's opportunity cost of shoes is the inverse of its opportunity cost of toy trains.

When the government implements programs such as progressive income tax rates, which of the following is likely to occur?

Equality is increased and efficiency is decreased

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Which of the following is an important cause of inflation in an economy?

Growth in the quantity of money in the economy

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

You are considering staying in college another semester so that you can complete a major in finance. In deciding whether or not to stay you should

compare the cost of staying one more semester to the benefits of staying one more semester.

Your professor loves her work, teaching math. She has been offered other positions in the corporate world that would increase her income by 15 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

cost of teaching increased.

Aiden and Zaria charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, six people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have six or five cars parked on their lawn does not affect their costs. From this information it follows that

they would do better charging $15 than $10

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

they choose not to trade with one another.

The opportunity cost of an item is

what you give up to get that item

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. ​ Machine Minutes Needed to Make 1ToothbrushHairbrushZimbabwe310Portugal56 Refer to Table 3-4. Which of the following represents Zimbabwe's and Portugal's production possibilities frontiers when each country has 60 minutes of machine time available?

zim - 6 hair, 20 tooth Portugal - 10 hair, 12 tooth

For a self-sufficient producer, the production possibilities frontier

is the same as the consumption possibilities frontier.

Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many years, the two countries traded, each completely specializing according to their respective comparative advantages. Now war has broken out between them and all trade has stopped. Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily output of the two countries to decline by

15 blankets and 35 meals

Table 4-3 ​ Refer to Table 4-3.If the law of supply applies to this good, then Q1 could be

170

Refer to Figure 4-2. If these are the only two consumers in the market, then the market quantity demanded at a price of $6 is

19 units

Refer to Table 3-2. Assume that England and France each has 40 labor hours available. If each country devotes 10 to production of bread and 30 to production of lemonade, then total production is

24 units of bread and 15 units of lemonade

Refer to Figure 3-2. If the production possibilities frontier shown is for two months of production, then which of the following combinations of peanuts and cashews could Peru produce in two months?

3 pounds of peanuts and 150 pounds of cashews

Refer to Figure 3-5. Suppose Peru decides to increase its production of emeralds by 1. What is the opportunity cost of this decision?

30 rubies

Refer to Figure 3-4. If Jane produces only pizzas, she can produce

300 pies per day

Refer to Table 3-11. Assume that Cuba and Denmark each has 6 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by

36

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 20 bushels of corn and 800 bushels of oats. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by

380 bushels of corn and 100 bushels of oats

Refer to Table 3-2. Which of the following combinations of bread and lemonade could France produce in 20 hours?

4 units of bread and 10 units of lemonade

Refer to Table 4-1. If the law of demand applies to this good, then Q1 could be

40

Suppose there is a flood in St. Louis, Missouri, that destroys several beer bottling facilities. Which of the following would not be a direct result of this event?

Buyers would not be willing to buy as much as before at each relevant price.

Which of the following is the most correct statement about the relationship between inflation and unemployment?

In the short run, falling inflation is associated with rising unemployment

Suppose Jassie and Tucker can both produce two goods: toy cars and dinosaur figures. Which of the following is not possible?

Jim has a comparative advantage in the production of toy cars and in the production of dinosaur figures.

Which of the following is an example of an externality?

Malik's bird chirps loudly during the night, waking his neighbors.

The adage, "There ain't no such thing as a free lunch," means

People face tradeoffs

Suppose the state of Rhode Island passes a law that increases the tax on beer. As a result, beer consumers who live in Rhode Island start purchasing their beer in surrounding states. Which of the following principles does this best illustrate?

People respond to incentives.

Assume Ren buys coffee beans in a competitive market. It follows that

Ren cannot influence the price of coffee beans even if he buys a large quantity of them

Consider two individuals, Tanek and Kalene each of whom knits sweaters and makes hotdogs, respectively. The gains from trade between Tanek and Kalene are most obvious in which of the following cases?

Tanek's skills are such that he can only knit sweaters, and Kalene's skills are such that she can only make hotdogs.

Group of answer choicesWhich of the following would shift the supply of umbrellas to the left?

The number of firms making umbrellas decreases

Which of the following would shift the supply of umbrellas to the left?

The number of firms making umbrellas decreases.

Which of the following events could cause an increase in the supply of ceiling fans?

The number of sellers of ceiling fans increases

Which of the following events would cause the price of oranges to fall?

The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation's oranges.

Refer to Table 3-1. Assume that Celia and John each work 24 hours. What happens to total production if instead of each person spending 12 hours producing each good, Celia spends 18 hours producing wine and 6 hours producing bread and John spends 6 hours producing wine and 18 hours producing bread?

The total production of bread and wine each rise

Which of the following is not a characteristic of a perfectly competitive market?

There is no free entry or exit

Which of the following statements about trade is false?

With trade, one country must win and one country must lose

Which of the following changes would not shift the supply curve for a good or service?

a change in the price of the good or service

The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by

a decline in the rate of increase in U.S. productivity

Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes to increase if number two grade potatoes are an inferior good?

a decrease in consumer income

When society requires that firms reduce pollution, there is

a tradeoff because of reduced incomes to the firms' owners and workers.

When the government prevents prices from adjusting naturally to supply and demand, it

adversely affects the allocation of resources

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as

an externality

Refer to Figure 4-3. The shift from Da to Db is called

an increase in demand

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome,

an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

Refer to Figure 5-4. Total revenue when the price is P1 is represented by

areas B + D

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good

Total output in an economy increases when each person specializes because

each person spends more time producing that product in which he or she has a comparative advantage.

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. However, redistributing income from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between

efficiency and equality

The demand for grape-flavored Hubba Bubba bubble gum is likely

elastic because there are many close substitutes for grape-flavored Hubba Bubba.

Large or persistent inflation is almost always caused by

excessive growth in the quantity of money.

Soup is an inferior good if the demand

for soup falls when income rises

The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by

government actions that distort prices.

Central planning refers to

government guiding economic activity. Today many countries that had this system have abandoned it.

Refer to Figure 3-1. The rate of trade-off between producing chairs and producing couches depends on how many chairs and couches are being produced in

graph (a) only

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

has an absolute advantage in the production of that good

The principle of comparative advantage does not provide answers to certain questions. One of those questions is

how are the gains from trade shared among the parties to a trade?

Refer to Figure 5-7. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

increase

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

lower the price to increase total revenue

Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in Minnesota. If we add the respective quantities that each shop would produce and sell at each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so forth, we have found the

market supply curve

Market power refers to the

power of a single person or small group to influence market prices.

A demand schedule is a table that shows the relationship between

price and quantity demanded.

The phenomenon of scarcity stems from the fact that

resources are limited.

As a student, Jordyn spends 40 hours per week writing term papers and completing homework assignments. On one axis of her production possibilities frontier is measured the number of term papers written per week. On the other axis is measured the number of homework assignments completed per week. Jordyn's production possibilities frontier is a straight line if

she can switch between writing term papers and completing homework assignments at a constant rate.

Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction

shifts the demand curve for drugs to the left

Refer to Figure 4-7. At a price of $15, there would be a

shortage of 400 units

An example of a perfectly competitive market would be the

soybean market

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are

substitute goods

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes

If the number of sellers in a market increases, then the

supply in the market will increase

The production possibilities frontier illustrates

the combinations of output that an economy can produce

If something happens to alter the quantity demanded at any given price, then

the demand curve shifts

Which of the following events would cause a movement downward and to the left along the supply curve for kiwis?

the price of kiwis

Which of the following events would cause a movement upward and to the left along the demand curve for olives?

the price of olives rises

Which of the following is not held constant in a supply schedule?

the price of the good

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.