Micro Final

The law of supply and demand tells us that A) a shortage will put upward pressure on price, causing Qd to fall and Qs to rise B) a surplus will put upward pressure on price, causing Qd to rise and Qs to fall C) a shortage will put downward pressure on price, causing Qd to fall and Qs to rise D) a surplus will put downward pressure on price, causing Qd to fall and Qs to rise E) only government can fix surpluses and shortages

A) a shortage will put upward pressure on price, causing Qd to fall and Qs to rise

A minimum wage imposed above the equilibrium wage will A) alter both the quantity demanded and the quantity supplied of labor B) have no effect on the quality demanded or quantity supplied of labor since the equilibrium wage will not change C) affect only the quantity of labor firms will demand at the higher wage, but does not affect the quantity supplied of labor D) cause only temporary unemployment, since the market will adjust and eliminate the surplus of workers

A) alter both the quantity demanded and quantity supplied of labor

The price elasticity of supply measures A) how much quantity supplied responds to a change in price B) how willing sellers are to sell more of a good as its price falls C) how willing buyers are to buy more of a good as its price rises D) how much the market responds to a change in one of the determinants of supply E) how much quantity supplied responds to a change in the price of a related good

A) how much quantity supplied responds to a change in price

All firms maximize profit by producing the quantity where

MC=MR

Explain why the free market is the best way to organize economic activity

The right people get the good and the correct quantity is produced. Voluntary, graph of buyers and sellers, graph of quantity demanded.

(True/False) A tax on a good increases producer's cost of production by the amount of the tax.

True

(True/False) Consumer surplus is defined as willingness to pay minus the price paid

True

(True/False) For a given supply curve, producer surplus decreases when the price in that market decreases.

True

(True/False) If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good.

True

(True/False) Most goods are normal goods

True

(True/False) The substitution effect causes people to purchase more of a good as its price falls relative to other goods.

True

The objective of a business is to a. produce as much output as possible b. maximize consumer surplus c. maximize revenue d. maximize profit

d. maximize profit

When the price of gasoline is $2 per gallon, Dave purchases 20 gallons per week. When the price of gasoline rose to $4 per gallon, Dave purchased 18 gallons per week. Dave's price elasticity of demand for gasoline is A) 3/19 B) 2/2 C) 2/9 D) 19/3 E) 1/10

A) 3/19

Which of the following is not true at the equilibrium price? A) Buyers will wish that they could buy more B) The amount that buyers want to buy is exactly equal to the amount sellers want to sell C) Price will only change if one of the determinants of demand or supply change D) Qd=Qs

A) Buyers will wish that they could buy more

Consider the market for public transportation. Suppose that people's incomes fall and public transportation is an inferior good. What impact will this have on producer surplus? A) It will cause producer surplus to increase B) It will cause producer surplus to decrease C) It will have no effect on producer surplus because this will only affect the demand curve

A) It will cause producer surplus to increase

Today's supply curve for gasoline could shift in response to A) a change in the expected future price of gasoline B) a change in today's price of gasoline C) a change in the number of buyers of gasoline D) All of the above

A) a change in the expected future price of gasoline

Goods 1 and 2 are complements if an increase in the price of Good 1 causes A) a decrease in demand for Good 2 B) a decrease in quantity demanded of Good 2 C) an increase in quantity demanded of Good 2 D) an increase in demand for Good 2

A) a decrease in demand for Good 2

Suppose a disease kills half of the cattle in the United States. What effect will this have on consumer surplus in the cattle market? A) CS increases B) CS decreases C) CS would double D) The effect of CS is ambiguous E) It wouldn't effect CS, just PS

B) CS decreases

Which of the following does not have an impact on the price elasticity of demand? A) The share of the good in the consumer's budget B) Changes in input prices C) Whether the good is a necessity or a luxury D) The time horizon E) The availability of close substitutes F) The way the market is defined

B) Changes in input prices

Suppose that the price of crude oil, an input in the production of gasoline, rises. What effect will this have on the revenue of gasoline sellers? (Hint: think about the corn example we did in class) A) Revenue will not be affected B) Revenue will increase C) Revenue will decrease D) I don't have enough information to answer

B) Revenue will increase

The sum of all the individual supply curves for a product is called A) total supply B) market supply C) aggregate supply D) elastic supply E) grand supply

B) market supply

Welfare economics is the study of A) government programs B) the economic well-being of people in a society C) the economic well-being of the poor D) the determination of the poverty line E) politics

B) the economic well-being of people in a society

Suppose there are four customers willing to pay the following amounts for haircuts: Lou $5, Ron $2, Donnie $8, Mary $6. Also, suppose there are four haircut shops with the following costs of production: Shop A $6, Shop B $3, Shop C $4, Shop D $8. Each shop has the capacity to produce only one haircut. For efficiency, how many haircuts should be given? A) 0 B) 1 C) 2 D) 3 E) 4

C) 2

Suppose that hamburgers are a normal good. You observe that both the equilibrium price and quantity of hamburgers have fallen over time. Which of the following would be most consistent with this observation? A) Consumers have experienced an increase in income and hamburger production technology has improved B) The price of hotdogs has risen and the price of hamburger buns has fallen C) Consumer tastes have changed so as to prefer hamburgers less than before D) The demand curve for hamburgers must be positively sloped

C) Consumer tastes have changed so as to prefer hamburgers less than before

Which of the following is not true of the free market equilibrium? A) Free markets allocate the supply of goods to the buyers who value them most highly B) Free markets allocate the demand of goods to the sellers who can produce them at the least cost C) Free markets result in every consumer buying some quantity of the good D) Free markets produce the quantity of goods that maximize the sum of consumer and producer surplus

C) Free markets result in every consumer buying some quantity of the good

How do economists measure value? A) They use the cost of production B) They use the difference between willingness to pay and the price of the good C) They use the willingness to pay D) They use total surplus

C) They use willingness to pay

Suppose that you are a product manager in charge of planning production of three products. The table below contains information on the income elasticity of the three products. Product Income elasticity X -0.30 Y 1.50 Z 0.20 Which product would you plan to produce more of if consumer incomes were decreasing by 7%? A) Z B) Y C) X

C) X

An allocation is said to be efficient if A) it maximizes CS B) it minimizes PS C) the government says it is D) it maximizes TS

D) It Maximizes TS

"Floridians are relieved that the storm produced no fatalities but homowners face weeks of rebuilding. Matters are made worse by the soaring prices of plywood and other building materials that always follow in a hurricane's path. Complaints of profiteering and price gouging have not deterred firms from raising their prices by over 100 percent." Which of the following is the best explanation for the price increases referred to in the article? A) The hurricane reduced the number of suppliers of building materials B) The hurricane created an artificial shortage of building materials C) There was a reduction in supply as firms shipped plywood and other materials to locations not affected by the storm D) The hurricane caused an increase in the demand for building materials E) It's a government conspiracy

D) The hurricane caused an increase in the demand for building materials

Which of the following is not a determinant of demand? A) How many buyers there are in the market B) Expectations about the price of the good next month C) The price of a substitute good D) The price of an input E) Whether the good is an inferior good F) The price of a complementary good G) Preferences

D) The price of an input

If Madison paid $70 for her shirt and got $30 of consumer surplus, she A) found a good sale B) was willing to pay $40 C) underpaid D) was willing to pay $100 E) overpaid

D) was willing to pay $100

Suppose the price elasticity of demand is equal to 8/9 while the percent change in quantity is equal to 2/3. What is the percent change in price? A) 27/16 B) 1 C) 16/27 D) 4/3 E) 3/4

E) 3/4

Joe has ten baseball gloves and Sue has none. A baseball glove costs $50 to produce. If Joe values an additional glove at $100 and Sue values a baseball glove at $40, then to maximize A) equity, Joe and Sue should fight for the glove B) equity, Joe should receive the glove C) consumer surplus, both should receive a glove D) efficiency, Sue should receive the glove E) efficiency, Joe should receive the glove

E) efficiency, Joe should receive the glove

Consider the market for a good that is in fixed supply. Suppose that demand for this good increases. Which of the following is correct? A) Equilibrium price will fall and equilibrium quantity will rise B) Equilibrium price will remain unchanged and equilibrium quantity will rise C) Equilibrium price will fall and equilibrium quantity will fall D) Equilibrium price will rise and equilibrium quantity will fall E) Equilibrium price will rise and equilibrium quantity will rise F) Equilibrium price will rise and equilibrium quantity will remain unchanged

F) Equilibrium price will rise and equilibrium quantity will remain unchanged

(True/False) A decision maker takes an action if and only if the marginal cost is larger than the marginal benefit

False

(True/False) An increase in the price of potato chips will shift the demand curve for potato chips to the left

False

(True/False) Consider a pizza shop in a college community. If two new restaurants open up on the same block as the pizza shop, student's demand for pizza will become more inelastic if the students view the food served at the other restaurants as good alternatives to pizza

False

(True/False) If person A has a willingness to pay of $100 for a particular good and person B has a willingness to pay of $1000 for the same good, we can conclude that person B has a larger income than person A.

False

(True/False) If two goods are complements, the cross price elasticity of demand will be positive

False

(True/False) Producing more than the free market quantity of a good or service increases total surplus.

False

(True/False) Shep goes to his favorite coffee shop every morning and always buys one large latte, no matter whether there is a special or not. Shep's price elasticity of demand is one.

False

(True/False) The price elasticity of demand is constant along a linear demand curve

False

(True/False) Total surplus is equal to the area below the supply curve and above the demand curve

False

(True/False) With perfectly competitive markets, it takes a long time for the market to move from one equilibrium to another.

False