Micro Homework

You are running a business producing faux leather wallets. Your current accounting costs are $2 million. Your current revenue is $2.5 million. If you were to switch to making faux leather belts, you estimate that your accounting profit would be $1 million. What is your current economic profit, in millions?

-0.50

The price of Gala apples rises from $5 per pound to $10 per pound. As a result, the quantity demanded falls from 10 million pounds to 5 million pounds. What is the Arc Own-Price Elasticity of Demand?

1

Your boss offers you a raise from $10 per hour to $15 per hour. As a result, you decide to drop a class and work 25 hours per work, rather than the 15 hours per week you were previously working. What is your Arc Price Elasticity of Supply?

1.25

The price of peanut butter rises from $1 per jar to $2 per jar. The quantity of grape jelly consumed falls from 6 million jars per year to 2 million jars. What is the arc cross-price elasticity of demand?

1.5

(This one is super easy.) You're running a business producing refrigerator magnets. Each magnet sells for $2. If you produce 50,000 refrigerator magnets, what is your total revenue?

100000.0

You take a new job, raising your income from $50,000 per year to $70,000 per year. As a result, you decide to take two vacations per year, instead of one. What is your Arc Income Elasticity of Demand?

2.00

Your business is making t-shirts. You've got a large warehouse that you're using for sewing your imported cotton. You also have 200 sewing machines. Your current explicit costs--including labor, capital, rent, and so on--are $2.3 million per year. Your next best opportunity is to use your facilities to produce socks and underwear instead. If you were to do that, you would earn $1.2 million in profits. What are your economic costs?

3.5 million

Which of the following is an example of third degree price discrimination? A)FSU provides you with financial aid due to your low family income and high grades. B)Netflix offers to let you renew your membership for $15 per year, or $10 per year if you renew for the next three years right now. C)Publix offers you a second bag of cheddar cheese for 50% off, if you buy the first bag at full price. D)A telepathic monopolist can read each customer's mind and charge each of them a different price, according to their willingness to pay.

A

Which of the following describes a movement along the demand curve, and not a shift of the demand curve? A)The price of MicroSD memory cards rises, and as a result, consumers buy fewer MicroSD memory cards. B)he price of corn falls, and as a result, consumers buy more corn. c)People buy fewer printed books due to a drop in the price of e-books. D)Because people hear that High Fructose Corn Syrup is unhealthy, they buy less of it, and as a result, food processing businesses choose to buy less corn at every price. E)A new, faster digital memory card format is released, and as a result, people buy fewer MicroSD cards.

A & B

In which of the following market structures are the firms price searchers? Recall that this means that firms can choose their price, rather than just passively accepting the market price. A)Oligopoly B)Monopolistic Competition C)perfect competition D)monopoly

A B D

Which of the following is an example of a binding price control? This is a "multiple answer" question, so there may be more than one correct answer. A)The price of bananas is $2 per pound. The government imposes a price ceiling at $1 per pound. B)The price of mobile phone data is around $15 per gigabyte per month. The government imposes a price ceiling of $5 per month. C)The price of steel is $300 per ton. The government imposes a price floor of $200 per ton. D)The price of cotton is $10 per bale. The government imposes a price floor of $15 per bale. E)The price of gasoline is $2 per gallon. The government imposes a price ceiling of $4 per gallon. F)The price of wheat is $20 per bushel. The government imposes a price floor of $5 per bushel.

A,B, & D

This is a multiple answer question, which means that more than one of these statements may be correct. Which of the following statements correctly describe the Perfectly Competitive Model? A)here is one seller, but there are many buyers. B)The goods being sold are identical. C)The marginal cost curve passes through the minimum points of average total cost and average variable cost. D)Price is determined by supply and demand E)Firms do not experience economies of scale. F)Firms that experience negative economic profit will eventually exit the market. G)A firm that raises its price above the equilibrium price will lose some sales, but not all sales. H)Marginal cost falls while marginal product is rising, and then marginal cost rises when diminishing returns occur.

B,C,D,& F

Which of the following is correct? A)Governments always suffer from incentives to waste resources, so governments should not be allowed to interfere in the economy. B)Markets are always imperfect, so governments must always interfere to fix them C)Governments and markets are both imperfect systems, in which people face incentives that sometimes lead to inefficient outcomes. D)Governments and markets complement each other, with each correcting the problems caused by the other, resulting in efficient outcomes.

C

Suppose the arc own-price elasticity of demand for potatoes is 0.2, and the arc price elasticity of supply is 0.4. If a $5 per pound tax is imposed on potatoes, which of the following is correct? A)The burden of the tax will fall primarily on the government. B)The burden of the tax will fall more heavily on producers. C)The burden of the tax will fall more heavily on consumers. D)The burden of the tax will fall equally on producers and consumers.

D

The surgeon general announces that wearing a hat significantly reduces your chance of getting skin cancer. Also, hats look cool (provided you choose the right kind) and you want to look cool, right? As a result, many more people buy and wear hats. What happens in the market for hats?

Demand shifts to the right, price rises, quantity rises.

our current business (producing ice cream) is providing an economic profit of -$150,000 per year. If this is representative of your future profit (that is, if you expect things to stay like this, with profits staying negative), what would economist tell you to do?

Exit the ice cream market and do something else instead (perhaps smoothies?).

To deal with the problem in the previous question, economists would suggest that the government implement...

ITQS (individual transferable quotas)

Suppose the arc own-price elasticity of demand for gasoline is 0.15. Which of the following is correct?

If the price of gasoline rises by 1%, the quantity demanded will fall by 0.15%.

The market for russet potatoes is in equilibrium, and it's a perfectly competitive increasing-cost industry. The price of potatoes is currently $6 per 100-pound sack. Low carbohydrate diets suddenly become popular, and many people substitute cauliflower and other vegetables for potatoes. As a result, demand for potatoes falls. What will happen to the price of potatoes in the short run and in the long run?

In the short run, the price of potatoes falls below $6, perhaps to $4. In the long run it rises a bit, perhaps to $5.

You hire another worker to produce pizza in your pizza restaurant. The number of pizzas per hour you can produce goes from 60 to 90. You then hire another worker, and the number of pizzas you can produce per hour goes from 90 to 110. When you hired this last worker, you encountered...

The Law of Diminishing Returns.

A man goes on vacation to a nation of cannibals (don't ask why; it's just the setup of the joke). One day he is walking through the city and he sees a butcher shop. Signs in the window say: "Psychologist brains, $20 per pound" "Engineer brains, $50 per pound" "Economist brains, $100 per pound" The tourist is surprised, and says to the butcher "Wow, I had no idea economist brains were so popular. Is it because they think economists are so smart, and eating them makes the diner smarter?" The butcher scoffs and says "Are you kidding? Do you know how many economists it takes to get a pound of brains?" This joke makes sense and is funny because...

The supply of economists brains is very low (or limited), making the price high.

Suppose you are willing to pay up to $70 for a new pair of shoes. You find a pair you like for $40 and buy them. The store that sold you those shoes would have been willing to sell them for as little as $35. Which of the following is correct?

You are $30 better off, and the store owner is $5 better off.

The price of computer processors falls, and AMD, producer of computer processors and graphics processing units, reduces its output.

a decrease in quantity supplied

An increase in the price of steel causes car companies to reduce production.

a decrease in supply

Due to a programming error, millions of computer parts must be returned to their manufacturers to have their firmware replaced. This will take some time, and make computers and computer parts more scarce.

a decrease in supply

Consumer surplus is A)The difference between what a consumer is willing to pay, and what the consumer actually pays (the price). B)The area beneath the demand curve and above the price. C)A measure of the pleasure consumers get from consuming goods and services, net of the cost of obtaining those goods and services.

all of the above

Producer Surplus is... A)The difference between the price of a good, and the marginal cost to the firm of producing that good. B)The difference between what a firm receives for selling a good, and the minimum price at which it would have been willing to sell that good. C)The difference between what a firm receives for selling a good, and the opportunity cost of producing that good. D)The difference between what a firm receives for selling a good, and the value of the resources that must be used to produce that good. E)The benefit to producers from producing and selling a good.

all of the above

After getting a raise from $10 per hour to $12 per hour, Jamia persuades her boss to let her work more hours.

an increase in quantity supplied

A new robotic sewing machine allows textile companies to produce clothing more quickly and cheaply, and with fewer mistakes, than human-operated sewing machines.

an increase of supply

Your income elasticity of demand for flip-flops is -0.1. What sort of good are flip-flops for you?

flip flops are an inferior good

Your business is producing bags of potato chips. Marginal product is falling. Marginal cost is $2. The price is $2.50. What should you do to maximize profits?

increase production

Winston Churchill goes to a party, and asks an attractive, high-status woman "Madam, would you sleep with me for five million pounds?" The woman says "Prime Minister, I'm shocked! Well, I suppose I would." Churchill then asks "Would you sleep with me for five pounds?" The woman responds "Why, what kind of woman do you think I am?" Churchill says "We have already determined that, madam; now we are merely haggling over the price." This woman's behavior obeys the...

law of supply

The military and congressmen planning next year's budget are considering shutting down a naval reserve base in North Carolina. The base is old, and not as important to naval warfare as it once was (and for that matter, naval warfare is not as important as it once was). A congressperson from the district argues that the base should not be shut down, because doing so will destroy jobs in the area. To which common bias in economic thinking is this congressperson appealing?

make-work bias

Gerald T. Moneybottom loves trees so much that he bought the entire Amazon rain forest and fenced it off, preventing any logging. In doing so, he caused a number of valuable endangered tree species to be saved, resulting in new medicines being developed. It also resulted in a lot of carbon dioxide being absorbed, slowing global warming. Gerald T. Moneybottom is providing...

positive externality

A blizzard had stopped shipments of gasoline to the northeast United States. Now the snow has melted, and gasoline shipments resume. What does this (i.e., the resumption of shipments) do to the price of gasoline in the northeast united States?

price falls

The price of french fries rises. What does this do to the price of hamburgers?

price falls

Suppose a monopoly is earning positive economic profits. As a result of technological change, the monopoly's costs fall. What happens? It might help to draw the graph. Be sure to shift both the ATC and MC curves downward.

price falls and quantity rises

The market for razor blades is in equilibrium. Then, two things happen at the same time. First, a new company, Barry's Razors, enters the market with its precision German-made razors (heavily advertised on podcasts, because that's where all the hip kids' ears are these days). Second, a new medical cream is invented that will prevent the growth of new hair in whatever area to which it is applied (it is not permanent, and has no side effects, except that it makes the user strongly dislike swimming, inflicting medical irony on professional swimmers). What is the effect of these two things (a new razor producer enters the market, and a new drug can prevent the regrowth of hair) in the market for razors?

price falls, quantity is indeterminate

Acai is revealed by new research to be a "superfruit", and it will cure cancer, eczema, bigotry, and boredom. What does this new research do to the price of acai?

price rises

The price synthetic rubber rises. What does this do to the price of tires?

price rises

The Law of Demand says that if the price of strawberries falls from $4 per pound to $3 per pound, the quantity of strawberries purchased by consumers will...

rise

Your 3rd grade lunch buddy is willing to take a container of apple sauce from your lunch box in exchange for something in his or her lunch box. Your options are: Food item Value to you in number of applesauce containers 1 orange 1 applesauce container 1 Jello cube (lime flavored) 1.5 applesauce containers 1 cookie 2 applesauce containers

the cookie

The price of wheat is $5.00 per bushel. Then....nothing happens.

the price does not change

The cross-price elasticity of demand for good X is -0.79, relative to good Y's price. How are goods X and Y related?

they are complements

Feudal lords along the Rhine River in the Holy Roman Empire often charged tolls to river traffic. Merchants carrying goods up or downstream had to pay tolls in order t be permitted to continue their journey. A problem arose, however, because there were many feudal lords with land by the river. Each lord wanted to earn as much as possible from taxing river traffic. As a result, they would sometimes charge so much that merchants would find it unprofitable to make the trip at all, so people up and down the river were unable to get many of the goods they wanted. This is an example of...

tragedy of the anti commons

The passenger pigeon, a migratory bird, is quickly being hunted to extinction. No individual hunter has an incentive to refrain from shooting at them, as every bird one hunter doesn't kill is just a bird some other hunter will kill. This is an example of...

tragedy of the commons

true or false Equilibrium in perfect competition is efficient.

true

true or false in equilibrium, total surplus is maximized

true

About 55% of Americans of voting age vote in national elections. An economist would say that...

up to 45% of voting-age Americans do not find the benefits of voting to be greater than the costs, so they rationally abstain from voting.