MIcro Exam 2

Suppose you are given the following demand data for a product. Price Quantity Demanded $10 30 9 40 8 50 7 60 6 70 Using the regular percentage change formula, what is the price elasticity of demand when price decreases from $9 to $7? rev: 05_14_2018 Multiple Choice -1 -1.5 -1.75 -2.25

-2.25

Harry owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per 8-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. The MP of the second barber is rev: 06_21_2018 Multiple Choice $108. 18 haircuts. $240. 42 haircuts.

18 haircuts.

Asarta Inc. is polluting into a nearby fishing stream; doing so benefits them $40,000 a year. The fishermen are unhappy as their trout are dying off. Typically, the fishermen can catch trout and sell it to a local market where they can earn about $8,000 a year. Currently, Asarta Inc. has the rights to use the stream as they see fit. Which of the following is an optimal solution according to the Coase Theorem? rev: 04_09_2018 Multiple Choice Asarta Inc. could pay the fishermen $7,000 and keep polluting The fishermen could pay Asarta Inc. $4,000 to stop them from polluting Asarta Inc. could pay the fishermen $8,500 and keep polluting There is no optimal solution given the current property rights

Asarta Inc. could pay the fishermen $8,500 and keep polluting

Why is the marginal benefit of cleaning up pollution downward sloping? rev: 04_09_2018 Multiple Choice The benefit can only be seen if you clean large amounts of pollution so there is little marginal benefit otherwise. At first cleaning pollution makes a big difference but there are diminishing marginal returns for subsequent efforts. At first you see small effects to cleaning but then see larger differences because of diminishing marginal returns. Cleaning up pollution continues to cost the citizens in the area more and more.

At first cleaning pollution makes a big difference but there are diminishing marginal returns for subsequent efforts.

Juan purchased a parking pass to a specific lot from the university for $600. Another student, Cara, wants to park there because it's close to her dorm, but cannot because it is full. The Coase Theorem suggests that which of the following negotiations would lead to an optimal outcome? rev: 04_09_2018 Multiple Choice Cara buys a pass to another lot for $400 and trades that with Juan Cara pays Juan $400 to buy another parking pass Cara pays Juan $500 for his parking pass Cara pays Juan $650 for his parking pass

Cara pays Juan $650 for his parking pass

Use the following graph to answer the question. Between prices of $5.70 and $6.30 rev: 05_14_2018 Multiple Choice D2 is more elastic than D1. D1 is more elastic than D2. D1 and D2 have identical elasticities. D2 is noncomparable to D1.

D2 is more elastic than D1.

Use the graph below to answer the next question. Other things equal, an increase the wages of nurses in the United States would: rev: 06_21_2018 Multiple Choice shift from D3 to D2. shift from D2 to D3. move from b to a on D1. move from a to b on D1.

move from b to a on D1.

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called rev: 04_09_2018 Multiple Choice nondiscrimination. nonrivalry. nonexcludability. nontaxability.

nonexcludability.

Use the following information to answer the question below. It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. In the situation described above, we would expect an rev: 04_09_2018 Multiple Choice external cost resulting from the production of hydroelectric power. attainment of allocative efficiency in the market. underproduction of paper in the mills. overproduction of paper in the mills.

overproduction of paper in the mills.

In which instance will total revenues decline? rev: 05_14_2018 Multiple Choice price decreases and demand is elastic price increases and demand is unit-elastic price increases and Ed equals -.41 price increases and Ed equals -2.47

price increases and Ed equals -2.47

Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. Based on this information, we can say that rev: 06_21_2018 Multiple Choice profits will be increased by hiring additional workers. the restaurant is maximizing profits. profits will be increased by hiring fewer workers. marginal revenue product must exceed average revenue product.

profits will be increased by hiring fewer workers.

Use the figure below to answer the following question. What is the amount of deadweight loss after the government imposes the excise tax on the market? rev: 05_10_2018 Multiple Choice $4 Correct $32 $36 $2

$4

Wayne's Jacket Shop sells Wayne's jackets for $20 each. Wayne finds that his total revenues change according to the number of workers he hires, as shown in the table below. Workers Total Revenue 1 $1,000 2 1,400 3 2,000 4 1,600 5 800 What is the marginal revenue product of the third worker? rev: 06_21_2018 Multiple Choice $600 $667 $400 $6,000

$600

Answer the next question(s) based on the following information for Manfred's Shoe Shine Parlor. Units of Labor Total Product Marginal Product Total Revenue 0 0 1 14 14 $42 2 10 3 30 90 4 35 5 39 117 6 126 7 44 2 132 Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. If the wage rate is $11, how many workers will Manfred hire to maximize profits? rev: 06_21_2018 Multiple Choice 1 3 2 5

5

Under pure competition, the market price of an output is $3. The output schedule of a firm using input X is listed in the table below. If the price of input X is $12, how many units of input X will the firm employ to maximize profits? Units of X Marginal Product 1 10.0 2 9.9 3 8.8 4 7.7 5 6.6 6 5.5 7 4.4 8 3.3 9 2.2 rev: 06_21_2018 Multiple Choice 4 7 9 5

7

Use the following competitive market diagram for product Z to answer the question below. Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial external benefits associated with the production of Z, then rev: 04_09_2018 Multiple Choice an output smaller than G would improve resource allocation. an output greater than G would result in a more efficient allocation of resources. the government should levy a per-unit excise tax on Z to shift the demand curve to the left. efficient resource allocation occurs at output G and price B because the market mechanism does not measure all benefits.

an output greater than G would result in a more efficient allocation of resources.

The price elasticity of demand is negative because of Multiple Choice the law of demand. percent-changes being used in the formula. scarcity. the midpoint formula.

the law of demand.

Among the following examples, the one that best illustrates a public good is a(n) rev: 04_09_2018 Multiple Choice laptop used by a student in a college or university. movie produced by a Hollywood company. bike path around a city or town. airline ticket bought by a vacationer.

bike path around a city or town.

Use the following supply and demand graph for product X to answer the question below. If there are positive externalities from the consumption of product X, then the socially optimal demand curve would be rev: 04_09_2018 Multiple Choice to the right of line D on the graph. to the left of line D on the graph. an upward-sloping line. at the position of line D on the graph.

to the right of line D on the graph.

Suppose there is a decline in the demand for the product labor is producing. Furthermore, the price of capital, which is complementary to labor, increases. Thus, the demand for labor rev: 06_21_2018 Multiple Choice may either increase or decrease. will increase. will not change. will decrease.

will decrease

If a 5% cut in the price of a product causes the quantity demanded to rise by 10%, the demand is rev: 05_14_2018 Multiple Choice perfectly elastic. elastic. unit elastic. inelastic.

elastic

Which of the following is an example of a negative externality (additional social cost)? rev: 04_09_2018 Multiple Choice falling property values in a neighborhood where a disreputable nightclub is operating an increase in the value of land you own when a nearby development is completed the higher price you pay when you buy a heavily advertised product the costs paid by a company to build an automated factory

falling property values in a neighborhood where a disreputable nightclub is operating

Harry owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. Harry should rev: 06_21_2018 Multiple Choice not hire the second barber because he is less productive than the first barber. not hire the second barber because he will diminish profits. hire the second barber because he will add $28 to profits. hire the second barber because he will add $108 to profits.

hire the second barber because he will add $28 to profits.

The supply of cars will be more elastic rev: 05_14_2018 Multiple Choice in the short run than in the long run. the greater the quantity demanded. in the long run than in the short run. the lower the quantity demanded.

in the long run than in the short run.

You are the sales manager for a software company and have been informed that the absolute value of the price elasticity of demand for your most popular software is less than 1. To increase total revenues from that product, you should rev: 05_14_2018 Multiple Choice decrease the price of the software. hold the price of the software constant. increase the supply of the software. increase the price of the software.

increase the price of the software.

You are the sales manager for a software company and have been informed that the absolute value of the price elasticity of demand for your most popular software is less than 1. To increase total revenues from that product, you should rev: 05_14_2018 Multiple Choice hold the price of the software constant. increase the supply of the software. increase the price of the software. decrease the price of the software.

increase the price of the software.

If the price elasticity of demand for a product is -2.5, then a price cut from $2.00 to $1.80 will _________ the quantity demanded by about ________. rev: 05_14_2018 Multiple Choice decrease; 2.5% increase; 25% increase; 250% increase; 2.5%

increase; 25%

The following graph is the production possibilities frontier of a nation: Refer to the graph. The combination "5 drill presses and 2 units of bread" indicates an rev: 05_10_2018 Multiple Choice inefficient combination for the nation. unattainable combination for the nation. efficient combination for the nation. ideal combination for the nation.

inefficient combination for the nation.

The following table is for a purely competitive market for resources. Number of Workers Total Product Product Price 0 0 $3 1 16 3 2 26 3 3 34 3 4 40 3 5 44 3 How many more workers will the firm hire when the wage rate is $15 instead of $30? rev: 06_21_2018 Multiple Choice 3 workers 1 worker 4 workers 2 workers

2 workers

Suppose the demand for strawberries rises sharply, resulting in an increased price for strawberries. As it relates to strawberry pickers, we could expect the rev: 06_21_2018 Multiple Choice MRC curve to shift downward. MRP curve to shift to the right. MP curve to shift downward. MRP curve to shift to the left.

MRP curve to shift to the right.

Which of the following situation would make transaction costs too high to negotiate and therefore the Coase Theorem would not apply? rev: 04_09_2018 Multiple Choice Many firms are in the area with different levels of pollution Many people are bothered by pollution in the area Only a few people are bothered by the pollution in the area One firm is the cause of the pollution

Many firms are in the area with different levels of pollution

What might happen to the equilibrium price and quantity of Disney World tickets if Universal Studios offers discounts to families? rev: 05_07_2018 Multiple Choice Price of Disney World tickets decreases, and quantity bought increases Price of Disney World tickets increases, and quantity bought decreases Price of Disney World tickets increases, and quantity bought increases Price of Disney World tickets decreases, and quantity bought decreases

Price of Disney World tickets decreases, and quantity bought decreases

How have companies like Uber and Lyft affected the ride-sharing market? rev: 05_07_2018 Multiple Choice Price of the rides decreased, and the quantity of rides have increased. Price and quantity of the rides have decreased. Price of the rides increased, and the quantity of rides have decreased. Price and quantity of the rides have increased.

Price of the rides decreased, and the quantity of rides have increased.

Why does producer surplus decrease as price decreases? rev: 05_10_2018 Multiple Choice Producers sell less of the good and receive less from the lower price. Consumers buy more of the good at the lower price. Producers sell less of the good while consumers buy even more of the good. Producers sell more of the good but receive less from the lower price.

Producers sell less of the good and receive less from the lower price.

What do interventions like hunting or fishing licenses do to the market for deer or fish? rev: 04_09_2018 Multiple Choice Act as an incentive for agencies to get more profit. Add more costs to hunters which increases the number of hunters. Provide clear property rights to reduce overconsumption. Distinguish why people can hunt or catch in that area.

Provide clear property rights to reduce overconsumption.

Due to a recent hurricane there is a major loss of sugarcane crops. At the same time in the U.S. consumers are eating healthier and cutting back on eating items that have sugar in them. How will this affect the price and quantity in the sugar market? rev: 05_07_2018 Multiple Choice Price increases and quantity is indeterminate Quantity increases and price is indeterminate Price decreases and quantity is indeterminate Quantity decreases and price is indeterminate

Quantity decreases and price is indeterminate

Sam uses Craig's Netflix account to watch movies and shows but does not actually pay for the service himself. This is an example of rev: 04_09_2018 Multiple Choice Scarcity The free-rider problem Specialization and trade Economic optimization

The free-rider problem

Which of the following is a consequence of free riders? rev: 04_09_2018 Multiple Choice The good or service is produced regardless. Consumers are better off by not having the good or service be produced. The good or service is never produced because not enough people paid to use it. The government always steps in to produce the good or service.

The good or service is never produced because not enough people paid to use it.

How could the free rider problem be solved? rev: 04_09_2018 Multiple Choice The government subsidized people to provide the public good. The government taxes people and uses the revenue to provide the public good. The market will adjust and fix itself so the public good will be provided without interference. The public good is ignored and never produced.

The government taxes people and uses the revenue to provide the public good.

The relationship between a consumer's monthly income and monthly consumption of four products, W-Z, is shown below. Quantity Consumed Income W X Y Z $4,000 45 90 20 0 5,000 60 180 10 15 Which product listed is an example of an inferior good? rev: 05_14_2018 Multiple Choice Y Z W X

Y

The governor has proposed to clean up all trash on the side of the highway. The project is estimated to cost the tax payers and additional $15,000. The city will benefit by having a clean highway which will entice tourists to stop along their routes. The project is estimated to bring in $18,000 of revenue from the highway being cleaned. Should the governor continue with the project? rev: 04_09_2018 Multiple Choice Yes, the project will bring in $3,000 more in MB than MC. No, the project will not bring in enough benefit to cover the costs. No, the benefit from the project will only be $3000. Yes, the tax payers wanted the highway cleaned up.

Yes, the project will bring in $3,000 more in MB than MC.

We would expect the cross-price elasticity of demand between coffee and rev: 05_14_2018 Multiple Choice tea to be negative, but positive between coffee and cream. tea to be positive, but negative between coffee and cream. tea, and coffee and cream to both be negative. tea, and coffee and cream to both be positive.

tea to be positive, but negative between coffee and cream.

We would expect rev: 05_14_2018 Multiple Choice the demand for Coca-Cola to be relatively more inelastic than the demand for soft drinks in general. none of these to hold true. the demand for Coca-Cola to be relatively more elastic than the demand for soft drinks in general. no relationship between the price elasticity of demand for Coca-Cola and the price elasticity of demand for soft drinks in general.

the demand for Coca-Cola to be relatively more elastic than the demand for soft drinks in general.

A nation can produce two products: steel and wheat. The table below is the nation's production possibilities schedule: Production Possibilities Schedule Product A B C D E F Steel 0 1 2 3 4 5 Wheat 100 90 75 55 30 0 In moving from combination E to F, the opportunity cost of an additional unit of steel is rev: 05_10_2018 Multiple Choice 1 unit of steel. 5 units of steel. 30 units of wheat. 0 unit of wheat.

30 units of wheat

The following data relate to the supply schedule of a product. Price Quantity Supplied $5 100 10 200 15 250 20 300 25 350 30 500 Using the regular percentage change formula, what is the price elasticity of supply when price increases from $15 to $20? rev: 05_14_2018 Multiple Choice perfectly elastic elastic unit elastic inelastic

Inelastic

Use the following graph for a competitive market to answer the question below. A price floor of $10 per unit will result in a rev: 05_07_2018 Multiple Choice No shortage or surplus shortage of 200 units. surplus of 200 units. 50 units being traded.

No shortage or surplus

Use the following graph Suppose Asarta Inc. is polluting yucko and they have been tasked with cleaning up some of their waste. The company decides to clean up Q tons of yucko—are they cleaning up enough? rev: 04_09_2018 Multiple Choice Yes, because the MC > MB No, because the MB > MC Yes, because the MB > MC No, because the MC > MB Next Visit question mapQuestion 15 of 20 Total 15 of 20 Prev

No, because the MB > MC

Asarta Inc. is polluting into the nearby aquifer and the citizens of Buttersville demand that this be cleaned up. If the benefit to cleaning up the aquifer is estimated to be about $125,000 and the cost is estimated at $130,000, will the aquifer get cleaned? rev: 04_09_2018 Multiple Choice Uncertain, with the information given. Yes, because the benefit is high. No, because the costs outweigh the benefits. Yes, because the benefits outweigh the costs.

No, because the costs outweigh the benefits.

How might a problem like the Bird Flu which can make thousands of birds sick and scare consumers about possible problems with eating items like chicken or eggs affect the market for chicken? rev: 05_07_2018 Multiple Choice Price increases and quantity is indeterminate Quantity decreases and price is indeterminate Quantity increases and price is indeterminate Price decreases and quantity is indeterminate

Quantity decreases and price is indeterminate

Use the following table to answer the question below. Alexandra's Production Possibilities Schedule Natalia's Production Possibilities Schedule Number of Scarfs Knitted per day Number of Sweaters Knitted per day Number of Scarfs Knitted per hour Number of Sweaters Knitted per hour 0 4 0 4 3 3 2 3 6 2 4 2 9 1 6 1 12 0 8 0 If Alexandra were to export a good, which one(s) would she export? rev: 05_10_2018 Multiple Choice Neither sweaters nor scarves Sweaters Both sweaters and scarves Scarves

Scarves

An improvement in production technology will Multiple Choice shift the supply curve to the left. shift the supply curve to the right. shift the demand curve to the left. increase equilibrium price.

Shift the supply curve to the right

f a good that generates negative externalities were priced to take these negative externalities into account, its rev: 04_09_2018 Multiple Choice price would decrease, and its output would increase. price would remain constant and output would increase. price would increase, and its output would decrease. price would increase but its output would remain constant.

price would increase, and its output would decrease.

The market system does not produce public goods because rev: 04_09_2018 Multiple Choice their production seriously distorts the distribution of income. private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them. there is no need or demand for such goods. public enterprises can produce such goods at lower cost than can private enterprises.

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.

When economists say that the demand for labor is a derived demand, they mean that it is rev: 06_21_2018 Multiple Choice related to the demand for the product or service labor is producing. based on the desire of businesses to exploit labor by paying below equilibrium wage rates. based on the assumption that workers are trying to maximize their money incomes. dependent on government expenditures for public goods and services.

related to the demand for the product or service labor is producing.

The demand for a luxury good whose purchase would exhaust a big portion of one's income is rev: 05_14_2018 Multiple Choice perfectly elastic. relatively inelastic. relatively elastic. unit-elastic.

relatively elastic.

The concept of price elasticity of demand measures the Multiple Choice slope of the demand curve. extent to which the demand curve shifts as the result of a price decline. number of buyers in a market. sensitivity of consumer purchases to price changes.

sensitivity of consumer purchases to price changes.

Use the graph below to answer the next question. Other things equal, an increase the aging population in the United States would do what to the demand for nurses? rev: 06_21_2018 Multiple Choice move from a to b on D1 move from b to a on D1 shift from D3 to D2 shift from D2 to D3

shift from D2 to D3

Use the graph below to answer the next question. Other things equal, a decrease in the price of computers would cause a rev: 06_21_2018 Multiple Choice move from b to a on D1 for computer programmers. shift from D2 to D3 for computer programmers. move from a to b on D1 for computer programmers. shift from D3 to D2 for computer programmers.

shift from D2 to D3 for computer programmers.

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be rev: 04_09_2018 Multiple Choice taxed. subsidized. prohibited. left alone.

subsidized.

A negative externality or spillover cost (additional social cost) occurs when rev: 04_09_2018 Multiple Choice firms fail to achieve allocative efficiency. the total cost of producing a good exceeds the costs borne by the producer. the price of the good exceeds the marginal cost of producing it. firms fail to achieve productive efficiency.

the total cost of producing a good exceeds the costs borne by the producer.