micro midterm

If Faith attends college, it will take her four years, during which time she will earn no income. She will pay $50,000 for tuition, $12,000 for room and board, and $5,000 for books. If she spends the four years working rather than attending college, she will pay $18,000 for room and board, pay no intuition, and buy no books. Based on this information, Faith's economic cost of attending college would be $67,000 if, over the four years, she could earn

$18,000 instead of attending college.

The per-unit burden of the tax on buyers is

$200.

Suppose the government places a $5 per-unit tax on this good. The amount of deadweight loss resulting from this tax is

$25.

If the government imposes a price ceiling of $50 in this market, then producer surplus will decrease by

$300.

Suppose the price of the good is $400. Then, on the first unit of the good that is sold, producer surplus amounts to

$300.

As a result of the tax, buyers effectively pay

$32 for each unit of the good, and sellers effectively receive $16 for each unit of the good.

If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the good will sell for

$35 or slightly more.

When the price is $15, total revenue is

$4,500.

With free trade, the domestic price and domestic quantity demanded are

$40 and 800.

Janine would be willing to pay $50 to see Les Misérables, but she buys a ticket for only $30. Janine values the performance at

$50.

At equilibrium, total surplus is

$54.

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

$625.

The effective price received by sellers after the tax is imposed is

$8.

Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits?

$81

The loss of producer surplus as a result of the tax is

$9,000.

The slope of a line that passes through the points (20, 30) and (40, 14) is

-4/5.

On a certain supply curve, one point is (quantity supplied = 200, price = $2.00) and another point is (quantity supplied = 250, price = $2.50). Using the midpoint method, the price elasticity of supply is about

1.0.

Using the midpoint method, what is the price elasticity of supply between point B and point C?

1.44

If the production possibilities frontier shown for Arturo is for 100 hours of production, then how long does it take Arturo to make one burrito?

1/3 hour

The opportunity cost of 1 poem for Jordan is

1/3 novel.

If this economy devotes all of its resources to the production of gadgets, then it will produce

100 gadgets and 0 widgets.

The opportunity cost of this economy moving from point I to point H is

120 blankets.

Which of the following combinations of wheat and beef could Paul not produce in one 8-hour day?

13 bushels of wheat and 60 pounds of beef

Assume that Nick and Faldo each has 2 hours available. If each person divides his time equally between the production of wheat and cloth, then total production is

14 bushels of wheat and 27 yards of cloth.

The total surplus with the tax is represented by area

A+B+D+F.

Efficient production is represented by which point(s)?

A, B

Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna's demand for gas is represented by demand curve

A.

Which of these activities will most likely result in an external benefit?

An elderly woman plants a flower garden on the vacant lot next to her house.

Which of the following statements is not valid when the market supply curve is vertical?

An increase in market demand will increase the equilibrium quantity.

Barb's opportunity cost of setting up one computer is testing

Barb's opportunity cost of setting up one computer is testing

In the circular-flow diagram, firms produce

Both (a) and (b) are correct.

In 1776, the American Revolution was sparked by anger over

British taxes imposed on the American colonies.

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.

Sellers whose costs are greater than the equilibrium price are represented by segment

CH.

What is the difference between command-and-control policies and market-based policies toward externalities?

Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior.

Relative to a no-trade situation, which of the following comes with trade?

Consumer surplus decreases by $1,000 and producer surplus increases by $1,500.

Suppose a certain country imposes a tariff on a good. Which of the following results of the tariff is possible?

Consumer surplus decreases by $200; producer surplus increases by $100; and government revenue from the tariff amounts to $50.

It is not possible for this economy to produce at point

D.

All else equal, the approach of Thanksgiving would cause a move from

DB to DA.

Which of the following equations is valid for the deadweight loss of the tax?

Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

Drug addicts will have an even greater need for quick cash to support their habits.

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that

Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.

Which of the following statements is correct?

If the price is $12, the market quantity demanded is 9 units.

Which of the following is not an example of a market?

In the United States, a sick person cannot legally purchase a kidney.

Assume that Japan and Korea each has 2400 hours available. If each country spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 cars for 6 airplanes, then

Japan will gain from this trade, but Korea will not.

Assume Roland is required to pay a tax of $10 each time he mows a lawn. Which of the following results is most likely?

Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn.

Mary and Martha both can make cookies and cakes of the same quality, though Mary can make more of both cookies and cakes per hour than Martha. With the bake-sale quickly approaching, they want to make as many cookies and cakes as possible. In which of the following situations will the most cookies and cakes be made?

Mary and Martha both specialize in what they are better at making.

Which of the following statements is correct?

Neither Bob's consumer surplus nor Charisse's consumer surplus can exceed Allison's consumer surplus, for any price of an orange.

At the private market outcome, the equilibrium price will be

P1

the overuse of antibiotics leads to the development of antibiotic-resistant disease. Therefore, the external cost of antibiotic overuse is represented by

P3a-P3b

An optimal tax on pollution would result in which of the following?

Producers will internalize the cost of the pollution.

Which of the following expressions can be used to compute the price elasticity of demand?

Q2-Q1/Q1+Q2 * P1-P2/P2-P1

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

Sellers set the price of the product.

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases.

Spain is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Spain imposes a $5 tariff on chips. As a result,

Spanish consumers of chips lose and Spanish producers of chips gain.

Which of the following statements is correct?

Supply curve C is more inelastic than supply curve D.

Which of the following statements is correct?

The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general.

Which of the following statements is correct?

The demand for iPads is more elastic than the demand for tablets in general.

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

The equilibrium quantity is greater than the socially optimal quantity.

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?

The marginal cost of the 25th house, if it is built, will equal $250,000.

Which of the following is correct?

The minimum wage is more often binding for teenagers than for other members of the labor force.

Which of the following events would cause a movement upward and to the right along the supply curve for mangos?

The price of mangos rises.

Suppose the United States had a short-term shortage of farmers. Which mechanisms would adjust to remove the shortage?

The prices of food and the wages of farmers would adjust.

Which of the following is not true when the price of a good or service falls?

The total value of purchases before and after the price change is the same.

Which of the following statements is true about point G for this economy?

There is unemployment at point G.

Which of the following statements is not correct?

When the price is $6, there is a surplus of 8 units.

Which of the following would cause a movement along the supply curve for cupcakes?

a decrease in the price of cupcakes

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?

a decrease in the price of wool shirts and a decrease in the price of raw cotton

For a country that is considering the adoption of either a tariff or an import quota on a particular good, an important difference is that

a tariff raises revenue for that country's government, while an import quota does not.

Tradable pollution permits

a. are widely viewed as a cost-effective way to reduce pollution. b. have helped reduce carbon emissions in Canada. c. have helped reduce sulfur dioxide emissions in the United States.

The production possibilities frontier is used to illustrate some basic economic ideas, including

a. scarcity. b. opportunity cost. c. economic growth.

If a binding price ceiling is imposed on the baby formula market, then

a. the quantity of baby formula demanded will increase. b. the quantity of baby formula supplied will decrease. c. a shortage of baby formula will develop.

In communism, central planners decide which of the following?

a. what goods and services will be produced b. how much will be produced c. who will produce and consume the goods and services

Betty has

an absolute but not a comparative advantage producing good x.

When demand is inelastic, an increase in price will cause

an increase in total revenue.

Most economists view the United States' experience with trade as

an ongoing experiment that confirms the virtues of free trade.

According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

an upside-down U.

For a price ceiling to be binding in this market, it would have to be set at

any price below $7.

Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should

be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.

Suppose that the demand for digital cameras is elastic, and the supply of digital cameras is inelastic. A tax of $20 per camera levied on digital cameras will decrease the effective price received by sellers of digital cameras by

between $10 and $20.

A government-imposed price of $6 in this market is an example of a

binding price ceiling that creates a shortage.

Consider the market for portable air conditioners in equilibrium. A summer of unseasonably cool weather would cause

both the equilibrium price and quantity to decrease.

The demand for salt is inelastic, and the supply of salt is elastic. The demand for caviar is elastic, and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt, and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on

buyers of salt and the sellers of caviar.

The outer loop of the circular-flow diagram represents the flows of dollars in the economy. Which of the following does not appear on the outer loop?

capital

The Get-There-Safe Bus company incurs an average cost of $45 for each passenger it carries on its trip from Atlanta to Chattanooga. In advance of a particular trip, four seats remain unsold. The bus company could increase its profit only if it

charged any ticket price above $0 for the four remaining seats.

Patterns of trade among nations are primarily determined by

comparative advantage.

The price elasticity of demand for a good measures the willingness of

consumers to buy less of the good as price rises.

An early frost in the vineyards of Napa Valley would cause a(n)

decrease in the supply of wine, increasing price.

An increase in the price of a good will

decrease quantity demanded.

Both tariffs and import quotas

decrease the quantity of imports and raise the domestic price of the good.

If these are the only four buyers in the market, then when the price increases from $1.00 to $1.50, the market quantity demanded

decreases by 7 units.

When studying how some event or policy affects a market, elasticity provides information on the

direction and magnitude of the effect.

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

elastic, and the demand curve will be horizontal.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

Central planning refers to

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

Suppose Harry, Darby, and Jake are the only demanders of sandwiches and that the market demand violates the law of demand. Then, in the table, the value of x must be

greater than or equal to 7.

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions.

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg

increases.

When an externality is present, the market equilibrium is

inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

Normative conclusions

involve value judgments.

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

it adversely affects the allocation of resources.

If this economy moved from point P to point N, then

it still would not be producing efficiently.

When the government imposes taxes on buyers or sellers of a good, society

loses some of the benefits of market efficiency.

When a surplus exists in a market, sellers

lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated.

In the short run, an increase in the money supply is likely to lead to

lower unemployment and higher inflation.

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

luxuries

The price ceiling

makes it necessary for sellers to ration the good.

Public policies

may be able to improve either economic efficiency or equality.

A price floor set at $5 will

not be binding.

Assume, for Mexico, that the domestic price of beets without international trade is higher than the world price of beets. This suggests that, in the production of beets,

other countries have a comparative advantage over Mexico and Mexico will import beets.

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that

people face trade-offs.

The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in

performing an experiment in an economic system.

Danita rescues dogs from her local animal shelter. When Danita's income rises by 7 percent, her quantity demanded of dogs biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is

positive, and dog biscuits are a normal good

The supply curve for a good is a line that relates

price and quantity supplied.

Demand is said to be inelastic if the

quantity demanded changes proportionately less than price.

The imposition of a binding price ceiling on a market causes

quantity demanded to be greater than quantity supplied.

Which of the following is not an effective method of reducing negative externalities?

relying on voluntary compliance

When quantity demanded increases at every possible price, the demand curve has

shifted to the right.

Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose the following: • x = 2. • The current price of a sandwich is $3.00. • The market quantity supplied of sandwiches is 5. • The slope of the supply curve is 1. Then there is currently a

shortage of 5 sandwiches, and the equilibrium price of a sandwich is between $3.00 and $5.00.

You wear either shorts or sweatpants every day. You notice that sweatpants have gone on sale, so your demand for

shorts will decrease.

When a binding price ceiling is imposed on a market to benefit buyers,

some buyers will not be able to buy any amount of the good.

If there is currently a shortage of 20 units of the good, then the law of

supply and demand predicts that the price will rise by $2 to eliminate the shortage.

A rational decision maker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.

The government's benefit from a tax can be measured by

tax revenue.

Juanita has an absolute advantage in

testing cellular phones and a comparative advantage in testing cellular phones.

A shortage exists in a market if

the current price is below its equilibrium price.

When a relevant variable that is not named on either axis changes,

the curve will shift.

A very hot summer in Atlanta will cause

the demand for jackets to decrease

Which of the following will cause a decrease in consumer surplus?

the imposition of a binding price floor in the market

One reason we need government, even in a market economy, is that

the invisible hand is not perfect.

Several arguments for restricting trade have been advanced. Those arguments do not include

the no-deadweight-loss argument.

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

the requirement that decision makers bear the full costs of their actions

If there is a shortage of farm laborers, we would expect

the wage of farm laborers to increase.

If the supply of a product increases, then we would expect equilibrium price

to decrease and equilibrium quantity to increase.

Suppose the government imposes a tax of P' - P'''. The area measured by J+K+L+M represents

total surplus after the tax.

Following the imposition of a price floor $3 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting shortage is

0 units.

If a 20% change in price results in a 15% change in quantity supplied, then the price elasticity of supply is about

0.75, and supply is inelastic.

According to Adam Smith, the success of decentralized market economies is primarily due to

individuals' pursuit of self-interest.

The goal of industrial policy should be that

industries yielding the largest positive externalities should receive the biggest subsidies.

Between point A and point B on the graph, demand is

inelastic.

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be

inelastic.

"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the

infant-industry argument.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

At the quantity Q2, the marginal value to buyers

is P2, and the marginal cost to sellers is P3.

The income elasticity of demand for caviar tends to be

high because buyers generally feel that they can do without it.

Welfare economics is the study of

how the allocation of resources affects economic well-being.

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would

increase by 6%.

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would

increase by less than $1,000.

The movement from Da to Db in the market for potato chips could be caused by a(n)

increase in the price of a pretzels.

A decrease in the price of a good would

increase the quantity demanded of the good

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a

rectangle.

The smaller the price elasticity of demand, the

smaller the responsiveness of quantity demanded to a change in price.

When negative externalities are present in a market

social costs will be greater than private costs.

When economists make positive statements, they are

speaking as scientists.

In a market economy,

supply and demand determine prices and prices, in turn, allocate the economy's scarce resources.

The price received by sellers in a market will increase if the government decreases a

tax on the good sold in that market.

The phrase "no such thing as a free lunch" means

people must face tradeoffs.

Denise values a stainless steel dishwater for her new house a $500, but she succeeds in buying one for $350. Denise's consumer surplus is

$150

You wish to purchase 10 piano lessons for yourself and for your brother, so you take bids from each of the sellers. You will take lessons at the same time, so one teacher cannot provide lessons to both of you. You must pay the same price for both sets of lessons, and you will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept?

$349

Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. Acme is left with how much money?

$8.00

The tax revenue that the government collects equals

(P3-P1)*Q1

Government policies designed to equalize the distribution of economic well-being include (i) the welfare system (ii) unemployment insurance (iii) progressive income tax

(i), (ii), and (iii)

The opportunity cost of 1 mixer for Miguel is

2 toasters.

If this economy devotes all of its resources to the production of blankets, then it will produce

360 blankets and 0 pillows.

For the rancher, the opportunity cost of 16 pounds of meat is

6.4 pounds of potatoes.

Juanita's opportunity cost of programming one cellular phone is testing

7.5 cellular phones and Shantala's opportunity cost of programming one cellular phone is testing 5/2 cellular phones.

Which of the following statements does not help to explain why government drug interdiction increases drug-related crime?

Government drug programs are more lenient now with drug offenders than they were in the 1980s.

When demand is inelastic, a decrease in price will cause

a decrease in total revenue.

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

a. the quantity of physicals demanded increases. b. there is shortage of physicals. c. the quantity of physicals supplied decreases.

Suppose an economy only produces two goods, robots and ice cream. Last month, the economy produced 10 robots and 200 gallons of ice cream. This month, the same economy produced 15 robots and 240 gallons of ice cream. Which of the following statements could explain this change?

a.This month, the economy reduced the unemployment of its resources. b. This month, the economy experienced an improvement in technology. c. This month, the economy experienced an increase in resources (all of the above)

A price floor is binding when it is set

above the equilibrium price, causing a surplus.

Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of pistachios decreases to equal the world price of pistachios, then

at the world price, the quantity of pistachios demanded in the country exceeds the quantity of pistachios supplied in that country.

Italy should specialize in the production of

boats and import cars.

Prices usually reflect

both the value of a good to society and the cost to society of making the good.

Price controls

can generate inequities of their own.

Germany should specialize in the production of

cars and import boats.

Two types of private solutions to the problem of externalities are

charities and the Golden Rule

In principle, we can

confirm or refute positive statements by examining evidence.

The goal of an economist who formulates new theories is to

contribute to an understanding of how the world works.

Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to

decrease and the quantity of gasoline supplied to decrease.

Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will maximize the deadweight loss(es) from the tax?

markets A and C only

On a downward-sloping linear demand curve, total revenue reaches its maximum value at the

midpoint of the demand curve.

Which of the following phrases best captures the notion of efficiency?

minimum waste

Maya should specialize in the production of

mixers and Miguel should specialize in the production of toasters.

"Ensuring Social Security is financially sound for future generations is an important use of taxpayer dollars" is an example of a

normative economic statement

When all market participants are price takers who have no influence over prices, the markets have

numerous buyers and sellers.

In which panel(s) of the figure would there be a shortage of the good at the price ceiling?

panel (b) only

A likely example of substitute goods for most people would be

pencils and pens.

Which of the following statements is correct

the loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120

If 110 units of the good are bought and sold, then

the marginal value to buyers is greater than the marginal cost to sellers

If 40 units of the good are bought and sold, then

the marginal value to buyers is greater than the marginal cost to sellers

As a result of the tax,

the market experiences a deadweight loss of $80.

In an economy in which decisions are guided by prices and individual self-interest, there is

the potential to achieve efficiency in production.

The law of supply and demand asserts that

the price of a good will eventually rise in response to an excess demand for that good.

A movement along the supply curve might be caused by a change in

the price of the good or service that is being supplied.

Efficiency is illustrated by

the production possibilities frontier only

When a particular negative externality affects a very large number of people, it is likely that

the solution to externalities suggested by the Coase theorem will not work.

Merve should specialize in the production of

wallets