Quiz 4, Exam 1, ECON 1100 Final Exam, Microeconomics Exam one

Normative microeconomic statement

"Two large business firms that control a market should not be allowed to merge together"

The tax generates tax revenue of _____ and a deadweight loss of _____.

$128 ; $16

When an $8 per unit tax is imposed on this market, producer surplus changes from _____ to _____.

$200 (1/2*40-20*20); $128 (1/2*40-24*16)

The price paid by customers after the tax is _____; after paying the tax, sellers keep ______.

$24 ; $16

In free market equilibrium total consumer and producer surplus is equal to _____.

$400 ($200 + $200)

The marginal benefit of the 60th unit is equal to _____ and the marginal cost of the 60th unit is equal to _____.

$5 ; $15

The equilibrium price of a pumpkin in this market is:

$6 because the quantity supplied of pumpkins is equal to the quantity demanded of pumpkins at a price of $6 per pumpkin

Use the midpoint formula to calculate the price elasticity of demand coefficient for a product of quantity demanded is 30 when price is $3 & quantity demanded is 20 when price is $5

0.8

The opportunity cost of 1 car is:

1 boat for Country A and 2 boats for Country B

If a 10% increase in the price of a product results in a 5% decrease in the quantity demanded of the product, then the absolute value of the price elasticity of demand coefficient is _____ and demand is said to be ______.

1/2 ; inelastic

If a 20% increase in consumer income results in a 5% increase in the quantity of potato chips sold, then the income elasticity for potato chips is equal to

1/4 & potato chips are a normal good

This firm will produce ______ units of output and earn total revenue equal to _____.

100 ; $1,100

If the quantity demanded of coffee decreased by 10% when the price of coffee increased by 15%, the price elasticity of demand for coffee is ——and the demand for coffee is said to be ——

2/3; inelastic

If there is a price ceiling of $5, then the quantity exchanged (bought and sold) in this market will be equal to _____.

20

If the marginal product of the fourth worker is 6, then the total output when four workers are hired is _____ and the marginal product of the fifth worker is _____.

24 ; -2

If a 5% increase in the price of a product results in a 10% decrease in the quantity demanded of the product, then the absolute value of the price elasticity of demand coefficient is ___ and demand is said to be ____

2; elastic

which of the following will lead to a decrease in the demand for water skis?

A decrease in the price of knee boards (a substitute good)

Which of the following would lead to a decrease in the supply if desktop computers, ceteris paribus?

An increase in the wages paid to desktop computer factory workers

A downward-sloping line

An inverse (negative) relationship between two variables

Which of the following pairs of goods is most likely to have a cross elasticity greater than zero

Beef & chicken

Loaded Terminology

Both Republicans and Democrats propose "stupid" economic policies

Demand Shifters

C- Consumers (more consumers, more demand; less consumers, less demand) R- Related good's price (substitute good- one good can replace the other good; or complement good- both goods are consumed together) I- Income (normal good- a positive relationship between income and demand; inferior good- a negative relationship between income and demand T- Tastes/ preferences (more popular, more demand; less popular, less demand) E- Expectations (expect price to be higher in the future, more demand now, less demand in the future)

If this economy is capable of producing on PPF2, production is efficient at point(s):

E and F

If the demand function is linear and downward-sloping, demand is

Elastic on the top portion, unit elastic in the middle, & inelastic on the bottom portion of the demand function

When is there neither a shortage or surplus in a market?

Equilibrium

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

High barriers to entry

If the public transit system raises its fares and experiences an increase in total revenue as a result, the demand for public transportation in this price range is

Inelastic

Which of the following is a normative microeconomic statement?

Most U.S. corporations have profit margins that are too high.

If the demand for RC Cola increases following a decrease in income, then:

RC Cola is an example of an inferior good

If the demand for RC Cola increases following a decrease in income, then:

RC cola is an example of an inferior good.

Supply Shifters

S- Sellers (more sellers, more supply; less sellers, less supply) I- Input prices (higher input prices, less supply; lower input prices, more supply) R- Regulation- taxes or subsidies (taxes decrease supply; subsidies increase supply) O- Other potential output (price increases or other potential output decreases supply of existing output) T- Technology (better technology, more supply) E- Expectations (expect price to be higher in the future; less supply now, more supply in the future)

Division Fallacy EX:

The U.S. unemployment rate declined last month; therefore, the unemployment rate in Collin County decreased in the last month

Composition fallacy EX:

The minimum wage law benefited me; therefore, the minimum wage law benefits the entire U.S. labor force

Which of the following would be expected to decrease the demand for textbooks?

a decrease in college enrollment

which of following would be expected to increase the supply of copy machines?

a decrease in the cost of manufacturing copy machines .

According to the law of demand, an increase in the price of coffee leads to:

a decrease in the quantity demanded of coffee, ceteris paribus

Ceteris paribus, a decrease in the number of firms selling calculators will result in:

a decrease in the supply of calculators

A demand curve can be interpreted as:

a marginal benefit curve

A movement from a point inside the PPF to a point on the PPF is caused by:

a more efficient use of available resources

Law of Demand

a negative relationship exists between the price of a good and the quantity demand of that good, ceteris paribus.

Law of Supply

a positive relationship exists between the price of a good and the quantity supply of that good, ceteris paribus

Which of the following is not an example of government response to a market failure?

a private foundation donating computers to inner city schools

Economics

a social science that studies how societies allocate scarce resources to satisfy to satisfy virtually unlimited wants and needs

A free market economy is characterized by:

a system of private property, decentralized decision-making, and economic incentives such as the profit motive

False Cause EX:

after Obama was elected president, the IRS began significantly auditing tax returns of conservative groups

The long run is a period for which:

all inputs and all costs are variable

A positive externality occurs when:

an activity creates benefits that spill over to third parties

Beth quit her job as a computer programmer for a large corporation to begin her own computer repair business in her garage. To do this, she took $10,000 out of her retirement fund and hired her brother, Will, on an hourly basis. As a factor of production, Beth is best classified as _______, and Will is best classified as _______.

an entrepreneur; labor

Ceteris paribus, for a normal good, an increase in consumer income leads to:

an increase in demand and an increase in both equilibrium price and quantity

According to the law of demand and supply, a decrease in the supply of cell phones is most likely to have been caused by:

an increase in the cost of manufacturing cell phones

According to the model of demand and supply, a decrease in the supply of cell phones can be the result of:

an increase in the cost of manufacturing cell phones.

Ceteris paribus, a decrease in supply of a product leads to:

an increase in the equilibrium price of the product and a decrease in the equilibrium quantity of the product

The demand for potato chips will increase in response to all of the following except:

an increase in the number of firms producing potato chips

Which of the following would best explain an increase in the demand for jeans?

an increase in the number of schools that allow students to wear jeans.

according to the law of supply, an increase in the price of apples leads to:

an increase in the quantity supplied of apples, ceteris paribus

In order to move from PPF1 to PPF2 this economy needs:

an increase in the resources and/or technology used to produce both consumer and capital goods

In a PPF model, economic growth is illustrated by:

an outward shift of the PPF

Which of the following would be expected to decrease the demand for textbooks? a. an increase in the price of textbooks b. a decrease in college enrollment c. an increase in financial assistance to college students d. a decrease in the tuition per college class

b. a decrease in college enrollment

Which of the following will lead to a decrease in the demand for water skis? a. a decrease in the price of motor boats (a complementary good) b. a decrease in the price of kneeboards (a substitute good) c. an increase in the price of water skis d. a decrease in the price of water skis

b. a decrease in the price of kneeboards (a substitute good

All of the following would be expected to cause an economy's PPF to shift outward EXCEPT: a. an increase in the economy's stock of capital goods b. a reduction in the economy's rate of unemployment c. a larger and more productive labor force d. an improved production technology

b. a reduction in the economy's rate of unemployment

Scarcity exists...

because the wants and needs of society exceed the resources available to satisfy them

The economic burden (economic incidence) of a tax is borne by:

buyers if demand is highly inelastic and supply is elastic

Which of the following would BEST explain an increase in the demand for jeans? a. a decrease in income; assuming jeans are normal goods b. a decrease in the popularity of jeans c. an increase in the number of schools that allow students to wear jeans d. a decrease in the price of jeans

c. an increase in the number of school that allow students to wear jeans

If both countries produce the good for which each has a comparative advantage, Country A would produce______ and Country B would produce _____.

cars; boats

The downward-sloping portion of a LRAC curve implies:

constant returns to scale exist over that range of the curve

Which of the following would be expected to increase the supply of copy machines? a. a decrease in the number of firms manufacturing copy machines b. a decrease in the price of copy machines c. a decrease in the price of copy paper d. a decrease in the cost of manufacturing copy machines

d. a decrease in the cost of manufacturing copy machines

Which of the following is not an example of the factor of production called capital? a. computers used in a local bank b. cash registers at a restaurant c. an office building d. deposits in a corporate bank account

d. deposits

If a seller wants to increase revenue from the sale of a product with a price elasticity of demand coefficient of 1.6, then the seller should

decrease price because demand is elastic

If a seller wants to increase revenue from the sale of a product with a price elasticity of demand coefficient of 1.6, then the seller should:

decrease price because demand is elastic

A decrease in the demand for oranges with no change in supply will result in a ______ in the equilibrium price and a ______ in the equilibrium quantity

decrease; decrease

Ceteris Paribus, an increase in the supply for tortillas causes the equilibrium price of tortillas to _________ and the equilibrium quantity of tortillas to ________.

decrease; decrease

a decrease in the demand for oranges with no change in supply will result in a(n) __________ in the equilibrium price and a(n) ________ in the equilibrium quantity.

decrease; decrease

Ceteris paribus, an increase in the supply of tortillas causes the equilibrium price of tortillas to _____and the equilibrium quantity of tortillas to ______

decrease; increase

Assuming tomato juice is a normal good, an increase in consumer income will cause an increase in the ________ tomato juice and an _______in the price of tomato juice

demand for; increase

Assuming tomato juice is a normal good, an increase in consumer income will cause an increase in the _________ tomato juice and a(n) __________ in the price of tomato juice.

demand for; increase

In the circular flow model, the household sector _____ good and services in _____ markets.

demands; product

In the circular flow model, the business sector _____ the factors of production (inputs) in _____ markets.

demands; resource

An upward-sloping line illustrates a _____ relationship, indicating that as the value of one variable increases, the value of the other variable ______

direct (positive); increases

The firm is:

earning an economic profit of $200 in the short run

An outward shift of a production possibilities frontier illustrates that:

economic growth has occurred

The demand for generic shampoo is likely to be:

elastic if there are lots of good substitutes for generic shampoo available

If the demand function is linear and downward-sloping, demand is:

elastic on the top portion, unit elastic in the middle, and inelastic on the bottom portion of the demand function.

if the absolute value of the price elasticity of demand coefficient for movie tickets is 1.2, then demand for movie tickets is _________, and an increase in the price of movie tickets will lead to a(n) ________ in total revenue for movies theaters.

elastic; decrease

If the absolute value of the price elasticity of demand coefficient for fresh flowers is 1.8, then the demand for fresh flowers is _________, and a (n) __________ in price will lead to an increase in total revenue.

elastic; decrease.

If perfectly competitive firms are earning positive economic profits in the short run, the adjustment to long-run equilibrium includes firms _____ the market which causes market supply to _____ and market price to _____.

entering; increase; decrease

Assuming that everyone in the country is better off when a bridge is built in Alaska to serve a small community is an example of the:

fallacy of composition

Assuming that a policy designed to reduce the national rate of unemployment is going to benefit a specific individual living in Michigan is an example of the:

fallacy of division

A sick person is more likely to make others sick in the winter when everyone spends more time indoors. Concluding that sickness is the result of cold weather is an example of the:

fallacy of false cause

Market economies are characterized by all of the following except:

government control of capital

A firm selling in a perfectly competitive market faces a demand curve that is:

horizontal (perfectly elastic) at the market price because other firms in the market sell an output that is a perfect substitute for its output

Dressel decided to leave work an hour early in order to study an extra hour for his exam bc he determined that his best use of time was to study his second-best use of time was to work. Dressel's OPPORTUNITY is best measured by the:

hourly wage he would have earned if he stayed at work

Markets tend to move toward equilibrium

if prices are able to change ti clear surpluses and shortages

According to the law of demand, a decrease in the price of orange juice will, ceteris paribus:

increase the quantity demanded of orange juice.

If the price ceiling of $2 is removed, market forces will cause the price to:

increase to $3, which will cause quantity demanded to fall and quantity supplied to rise`

Ceteris paribus, an increase in the demand for tortillas cause the equilibrium price of tortillas to ________ and the equilibrium quantity of tortillas to _________.

increase; increase

Ceteris paribus, an increase in the demand for tortillas causes the equilibrium price of tortillas to ________ and the equilibrium quantity of tortillas to ________

increase; increase

The opportunity cost of producing more automobiles _____ as more automobiles are produced, reflecting the law of ______ opportunity costs

increases; increasing

Any point inside a production possibilities frontier represents:

inefficiency

if the public transit system raises its fares and experiences an increase in total revenue as a transit, the demand for public transportation in this price range is:

inelastic

The demand for a life-saving drug is likely to be:

inelastic because the drug is a necessity

In a perfectly competitive market, an individual firm:

is a price-taker and sells output at the price determined by the market forces of supply and demand

The ceteris paribus assumption is used to

isolate the relationship between two variables by holding other influences on the relationship constant

The ceteris paribus assumption is used to:

isolate the relationship between two variables by holding other influences on the relationship constant.

A PPF can be _____, illustrating _____ opportunity costs

linear; constant

The purpose of setting a price ceiling below the equilibrium price is to:

maintain a low price for buyers in the market

division fallacy

making the incorrect assumption that if technological advance is beneficial for society as a whole, it is therefore also beneficial for every individual

Assuming no market failures, an efficient level of an output exists when:

marginal benefit is equal to marginal cost

Prices above equilibrium lead to ______, while prices below equilibrium lead to ______

market surpluses and decrease in price; market shortages and increase in price

The perfectly competitive model assumes the gaol of firms in the marketplace is to:

maximize profit

Ceteris paribs, if demand and supply both increase at the same time, equilibrium price _______ and equilibrium quantity _______

may rise, fall, or stay the same, depending on the size of the two shifts; increases

Ceteris paribus, if demand and supply both increase at the same time, equilibrium price ________ and equilibrium quantity ________ .

may rise, fall, or stay the same, depending on the size of the two shifts; increases

The marginal rate of transformation

measures the opportunity cost of moving from one point to another along the production possibilities curve

Products that generate negative externalities tend to be:

overproduced by private markets

The law of demand states that:

price and quantity demanded are inversely (negatively) related, ceteris paribus

The law of supply states that:

price and quantity supplied are directly related, ceteris paribus

The responsiveness of buyers to changes in the price of a product is measured by:

price elasticity of demand

Goods that are both non-rival and non-excludable are:

pure public goods

In the market for used cars, a shortage of used cars would, ceteris paribus:

put upward pressure on the price of used cars

A market is in equilibrium when:

quantity supplied and quantity demanded are equal

Technological improvements that reduce cost of manufacturing smaller personal computers combined with an increase in the demand for smaller personal computers results in an increase in equilibrium:

quantity, but the change in equilibrium price depends on the size of the shifts.

Technological improvements that reduce the cost of manufacturing smaller personal computers combined with an increase in the demand for smaller personal computers result in an increased equilibrium:

quantity, but the change in the equilibrium quantity depends on the size of the shifts

Assume a wireless company has hired you as a consultant to help determine what price to charge for local weekday airtime. You establish that the price elasticity of demand for local weekday airtime is 0.62. if the goal of the company is to increase the revenue generated from the sale of weekday are time, you should advice the company to:

raise the price of weekday air time because demand is inelastic

Ceteris Paribus, a decrease in the supply of grape juice combined with an increase in the demand for grape juice causes the equilibrium price of grape juice to:

rise, but the effect on equilibrium quantity cannot be determined from the information given

Ceteris paribus, a decrease in the supply of grape juice combined with an increase in the demand for grape juice causes the equilibrium price of grape juice to:

rise, but the effect on equilibrium quantity cannot be determined from the information given.

A market _____ occurs when the quantity demanded exceeds the quantity supplied, while a market ______ occurs when the quantity supplied exceeds the quantity demanded

shortage; surplus

If the demand for a book is elastic at a price of $25 and the goal of selling the book is to maximize total revenue, the price of the book:

should be lowered below $25.

Economic models

simplifications of reality that describe or predict real world behaviors and outcomes

In the circular flow model, the business sector _____ goods and services in _____ markets.

supplies; product

In the circular flow model, the household sector _____ the factors of production (inputs) in ______ markets.

supplies; resource

In the circular flow model, firms in the business sector ______ goods and services in product markets and _______ inputs in resource markets.

supply; demand

A market price of $8 per pumpkin will lead to a:

surplus of 300 pumpkins (600 supplied - 300 demanded = 300)

If quantity supplied exceeds quantity demanded, the resulting market _____ motivates firms to _____ product price.

surplus; lower

A PPF for two outputs is drawn assuming that:

the amount of resources currently available for production is fixed

Microeconomics focuses on

the decisions and behaviors of individual households, firms, and markets

If price and quantity demanded are inversely related, then:

the demand function is downward-sloping

If cotton clothing becomes more popular at the same time that the supply of cotton decreases, then basic supply and demand analysis predicts that:

the equilibrium price of cotton clothing will increase but the change in the equilibrium quantity of cotton clothing cannot be determined from the information given

In a competitive capitalist (market) economy:

the interaction of individual demanders and suppliers determines output prices

Macroeconomics focuses on

the measurement and analysis of the economy as a whole

The opportunity cost of labor used by government to build a dam is:

the output that could have been produced by labor in its next best use

The production possibilities frontier (PPF) shows all the combinations of two different outputs that can be produced with:

the resources and technology currently available

Assume teenagers in a town can either baby sit or rake leaves to earn money on the weekends. Ceteris paribus, if the price paid for an hour of baby sitting increases relative to the price paid for an hour of leaf raking, then:

the supply of teens available to rake leaves is likely to decrease.

The Tragedy of the Commons refers to:

the tendency to use common resources more than is desirable from society's point of view

The typical firm in a perfectly competitive industry earns zero economic profit ( a normal profit) in the long run because:

there are no barriers preventing new firms from entering the industry and competing away positive economic profits in the long run

Costs that must be paid in the short run even when no output is produced are called:

total fixed costs

Demand that is perfectly elastic graphs as a(n):

vertical line

Cetris Paribus, the demand for a product will be more price inelastic when

▪️product is a necessity ▪️there are very few close substitutes available ▪️very little time is allowed for consumers to adjust to a price change