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Agricultural (Micro) Economics

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Several students are discussing the concept of price elasticity while standing in line at the campus bookstore. Which of the following quotations describes a price-inelastic demand for a product? ("overall spending" is the same as expenditures)

"A price increase really scares me. It wouldn't reduce my purchases of school supplies very much, but I know for sure that I'll end up spending a lot more than I was before."

Each day, Ted can wax 8 cars or wash 10 cars, and Tom can wax 3 cars or wash 5 cars. What is each man's opportunity cost of washing one car?

Ted - 0.80 wax jobs Tom - 0.60 wax jobs

In general, individuals and nations should specialize in producing those goods _________ other individuals and nations

for which they have the lowest opportunity cost compared to

In the 1980s television commentators were claiming that pretty soon the "US would have no comparative advantage in anything compared to Japan." This statement

does not make sense; a country might not have an absolute advantage in anything, but must have a comparative advantage somewhere

How will an increase in the birth rate affect the equilibrium price of land? The equilibrium price of land will _____ because _____ for land shifts to the ____

increase; demand; right

Once a week, Smith purchases a six-pack of cola and puts it in his refrigerator for his two children. He invariably discovers that all six cans are gone on the first day. Jones also purchases a six-pack of cola once a week for his two children, but unlike Smith, he tells them that each may drink no more than three cans. At both houses, the cost of drinking a cola is that it's not available to drink later, but, at Smith's house, there's always a chance your sibling will drink the cola. Thus, the cost of drinking a cola is

lower at the Smith's house than a Jones's

Among the following groups- senior executives, junior executives, and student-which is likely to have the most and which is likely to have the least price elastic demand for membership in the Association of Business Professionals? The group with the least price elastic demand:

senior executives

Suppose that in the last few seconds you devotes to question 1 on your exam you earned 4 extra points, while in the last few seconds you devoted to question 2 you earned 10 extra points. You earned a total of 48 and 12 points, respectively, on the two questions, and the total time you spent on each was the same. If you could take the exam again, how-if at all-should you reallocate your time between these questions?

spend more time on question 2 - you'll get more extra points on question 2 than you'll lose on question 1

According to recent studies by economists Frank Chaloupka and Michael Grossman, the price elasticity of demand for cigarettes for teenagers is 1.30 and for adults is 0.40. Which of the following explanations can help explain the difference in the size of elasticities?

spending on cigarettes represents a larger portion of the budget of teenagers than of adults

Among the following groups-senior executives, junior executives, and student -which is likely to have the most and which is likely to have the least price elastic demand for membership in the Association of Business Professionals? The group with the most price elastic demand:

students

Substitutes or complements or both: cloth diapers and disposable diapers

substitutes

T or F. If your professor requires a certain textbook for his/her course, your demand for the book is likely to be more price inelastic than if the book were merely recommended.

true

How would each of the following affect the US market supply curve for corn? A tornado sweeps through Iowa.

the supply curve would shift to the left

Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else's car is $3.50. You are going out this evening and your car is dirty. How much economic surplus would you receive from washing it?

$2.50

Tom is a mushroom farmer. He invests all his spare cash in additional mushrooms, which pro won otherwise useless land behind his barn. The mushrooms double in weight during their first year, after which time they are harvested and sold at a constant price per pound. Tom's friend Dick asks Tom for a loan of $200, which he promises to repay after one year. How much interest will Dick have to pay Tom in order for Tom to recover his opportunity cost of making the loan?

$200

At 2 percent increase in the price of milk causes a 4 percent reduction in the quantity demanded of chocolate syrup. What is the cross-price elasticity of demand for chocolate syrup with respect to the price of milk? Cross-price elasticity of demand:

-2

Ted can wax a car in 25 minutes or wash a car in 60 minutes. Tom can wax a car in 20 minutes or wash a car in 30 minutes. What is Tom's opportunity cost of washing a car?

1.5 wax jobs

Assume the price for a can of Red Bull is $3. When you enter the supermarket you are willing to pay $4 for the first can, $3.50 for the second can, $2.75 for the third can and $1 for the fourth can. How many cans should you buy?

2 (because your reservation price is lower than the price, so you will lost money)

Ted can wax a car in 25 minutes or wash a car in 60 minutes. Tom can wax a car in 20 minutes or wash a car in 30 minutes. What is Ted's opportunity cost of washing a car?

2.4 wax jobs

Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 2 hours to replace a set of brakes. Who has the comparative advantage in what?

Bill has a comparative advantage in brake replacement Nancy has a comparative advantage in clutch replacement

What will happen to the equilibrium price and quantity of beef, if the price of chicken feed increases? (assume that chicken and beef are substitutes).

Both will increase

If people demand less of product A when the price of B rises, then A and B are:

Complements

Which sentence in this paragraph does not make sense: "A study shows that eating a clove of garlic a day can help prevent heart disease, causing many consumers to demand more garlic. The increase in demand results in a rise in the price of garlic. Consumers, seeing that the price of garlic has gone up, reduce their demand for garlic. This causes the demand for garlic to decrease and the price of garlic to fall. Therefore, the ultimate effect of the study on the price of garlic is uncertain."

Consumers, seeing that the price of garlic has gone up, reduce their demand for garlic.

Assume the market for wine grapes in California was in equilibrium in 2012. 2013 was a very good year for California wine-grape growers, who produced a bumper crop. What would have occurred now at the original 2012 equilibrium price, and thus what happened to the equilibrium price in 2013 itself?

In 2013, there would have been excess supply (surplus) at the old 2012 equilibrium price, and thus the new 2013 equilibrium price is lower than the 2012 equilibrium price.

Martha and Sarah have the same preferences and incomes. Just as Martha arrived at the theater to see a play, she discovered that she had lost the $10 ticket she had purchased earlier. Sarah also just arrived at the theater planning to buy a ticket to see the same play when she discovered that she had lost a $10 bill from her wallet. If both Martha and Sarah are rational and both still have enough money to pay for a ticket, is one of them more likely than the other to go ahead and see the play anyway?

Martha and Sarah would make the same decision

Susan can pick 4 pounds of coffee beans in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee beans in an hour or gather 4 pounds of nuts. Each works 6 hours per day. Together, what is the maximum number of pounds of coffee beans the two can pick in a day? What is the maximum number of pounds of nuts the two can gather in a day?

Maximum amount of coffee beans: 36 pounds per day Maximum amount of nuts: 36 pounds per day

Neither has an absolute advantage in brake replacement Nancy has an absolute advantage in clutch replacement

You are considering using a frequent-flyer coupon for a spring break trip to Florida. -The regular ticket would cost $500 w/o coupon -All other costs of the trip are $1,000 -The most you would be willing to pay for such a vacation is $1,350 (your value of the trip) -Your only alternative use for using the coupon is going to Boston to a wedding after spring break (which you are for sure going on) -the ticket to Boston would cost $400 if you do not use the coupon. Should you use the coupon for the Florida trip?

No, because $1,350 < $1,400 (= $1,000+$400)

OC of replacing a set of brakes for Nancy is 0.50 of a clutch replacement OC of replacing a set of brakes for Bill is 0.33 of a clutch replacement

When are people willing to pay higher prices for Christmas presents, on December 24 or on September 24? Why?

On December 24, because their demand for present is highly price-inelastic on that day

What does the following statement indicate: "I would never buy a Miley Cyrus CD. You couldn't even give me one for nothing." The demand curve is

Perfectly vertical at quantity 0

Which of the following product classifications is likely to have a demand curve with the highest price elasticity?

Subaru outbacks

Susan can pick 4 pounds of coffee beans in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee beans in an hour or gather 4 pounds of nuts. Each works 6 hours per day. Now suppose Susan and Tom were gathering the maximum number of pounds of nuts when they decided that they would like to begin picking 8 pounds of coffee beans per day. Who would pick the coffee beans and how many pounds of nuts would they still be able to gather?

Susan; 32

The income of buyers in the market for Adirondack vacations increase

The demand curve would shift to the right

The publisher of a national newspaper recently lowered the price of the newspaper by 5%. The newspaper sold 10% more issues. The publisher was quoted saying, "the 5% decrease in price generated an increase in revenues." Which of the following statements best describes an economist's reaction to the publisher's claim:

The implied price elasticity of demand for the newspaper is 2 (= 10/5), and the increased revenue claim is quite possibly true

If an invention improves the technology to make widgets (for all widget products), then

The supply curve of widgets shifts to the rights

How would each of the following affect the US market supply curve for corn? A new and improved crop to action technique is discovered:

The supply curve would shift to the right

How would each of the following affect the US market supply curve for corn? The government offers new tax breaks to farmers

The supply curve would shift to the right

How would each of the following affect the US market supply curve for corn? The price of fertilizer falls

The supply curve would shift to the right

Evaluate the following statement: "I spend more money on orange juice even as the price of orange juice rises."

This indicates a violation of the Law of Demand

With trade and specialization

a country can consume a combination of goods that is on the right of the production possibilities curve

Each day, Ted can wax 8 cars or wash 10 cars, and Tom can wax 3 cars or wash 5 cars. Who has a comparative advantage in washing cars.

Tom

Ted can wax a car in 25 minutes or wash a car in 60 minutes. Tom can wax a car in 20 minutes or wash a car in 30 minutes. Who has a comparative advantage in washing cars?

Tom

The meal plan at University A lets students eat as much as they like for a fixed fee of $500 per semester. University B charges $500 for a book of meal tickets that entitles the student to eat 250 pounds of food per semester. If the student eats more than 250 pounds, he/she pays $2 for each additional pound; if the student eats less, he/she gets a $2 per pound refund If students are rational, at which university will average food consumption be higher?

University A

Yes, since $1,350 > $1,000

Suppose that, in an attempt to entice citizens to conserve energy, the government enacted regulation requiring that all air conditioners be more efficient in their use of electricity. After this regulation was implemented, government officials were then surprised to discover that people used even more electricity than before. Using the concept of price elasticity, which of the following statements best explains how this increase might have occurred?

because the regulation effectively reduced the price of cool air, consumers with sufficiently elastic demand might have bought substantially more of it

A 2% increase in the price of milk causes a 4% reduction in the quantity demanded of chocolate syrup. What is the cross-price elasticity of demand for chocolate syrup with respect to the price of milk? Are the two goods complements or substitutes?

complements

Substitutes or complements or both: birthday cake and birthday candles

complements

Substitutes or complements or both: tennis rackets and tennis balls

complements

Substitutes or complements or both: washing machines and dryers

complements

What can you conclude about the price elasticity of demand from statement: "the pizza delivery business in this town is very competitive. I'd lost half of my customers if I raised the price by as little as 10%. Demand is

elastic (but not perfectly elastic)

How will a new law mandating an increase in required levels of automobile insurance affect the equilibrium price and equilibrium quantity in the market for new automobiles?

equilibrium price will fall; equilibrium quantity will fall

Suppose the current issue of The New York Times reports an outbreak of mad cow disease in Nebraska, as well as the discovery of a new breed of chicken that gains more weight than existing breeds that consume the same amount of food. How will these developments affect the equilibrium price and quantity of chickens sold in the US?

equilibrium quantity will crease, but the effect on equilibrium price in unknown

Anna, Bertha, and Carina agree on meeting at "Fresh Choice," and all-you-can-eat buffet restaurant, for dinner. Anna and Bertha are already inside and paid, whereby Anna used a coupon for a free dinner and Bertha paid $9. Carina is still outside and has not paid. Suddenly all three of the get sick, so sick that they really don't feel like eating. If all three understand the difference between sunk costs and opportunity costs, what is true:

if Anna and Bertha are too sick to eat anything then they should not do it and instead leave, because the $9 (for Bertha) and the foregone opportunity to use the fee coupon some other time (for Anna) are sunk costs and should not matter for the decision whether to eat something or not

For each long-distance call anywhere in the continental US, a new phone service will charge users $0.30 per minute for the first 2 minutes and then $0.02 per minute for additional minutes in each call. Tom's current phone service charges $0.20 per minute for all calls, and his calls are never shorter than 7 minutes. If Tom's dorm switches to the new phone service, the average length of his calls would

increase

If the income elasticity of demand is negative, then the good is a

inferior good

If demand for coffee is relatively price inelastic, then what effect will an increase in the supply of coffee have? (remember what happens to the equilibrium price when supply increases)

it will decrease the total revenue of coffee growers

Suppose that Colorado State administrators propose to increase revenue for the college by raising tuition for all students. The college administrators must be assuming that the (absolutely value of the) price elasticity of demand for education is

less than 1.0

Once a week, Smith purchases a six-pack of cola and puts it in his refrigerator for his two children. He invariably discovers that all six cans are gone on the first day. Jones also purchases a six-pack of cola once a week for his two children, but unlike Smith, he tells them that each may drink no more than three cans. If the children use cost-benefit analysis each time they decide whether to drink a cola and if the benefit of drinking a cola is the same at both houses, then the cola will last

longer at Jones's house than at Smith's

Imagine the following two situations. In the first situation, you are about to buy a $25 computer game at the nearby campus store when a friend tells you that the same game is on sale at downtown store, which is a 30-minute walk away, for only $15. In the second situation, you are about to buy a $2,020 laptop at the nearby campus store when a friend tells you that the same computer is on sale at a downtown store for only $2,010. Assume that your opportunity costs of making the trip to the downtown store are in both situation $5. A rational decision-maker should

make the same decision in both situations

To decide whether to increase an activity by one unit you should compare

marginal benefits and marginal costs

Is the demand for a particular brand of car, like a Chevrolet, likely to be more or less price-elastic than the demand for all cars? It's likely to be ____ price-elastic because of the availability of ______.

more; substitutes

After graduation from college, you will receive a substantial increase in your income from a new job. If you decide that you will eat more in "casual-dining" style restaurants like Chili's and Applebee's and less in fast-food places like McDonald's and Wendy's, then for you eating out at casual-dining style restuarants would be considered a

normal good

The true opportunity costs of your college education consist of

only the explicit and implicit costs you would not have accrued had you chosen a full-time job instead of a college education; explicit = tuition, fees, and books, implicit = foregone wages

What can you conclude about the price elasticity of demand from this statement: "My economics professor has chosen to use the Frank et al. textbook for this class. I have no choice but to buy this book, no matter what the price is." This student's demand for the Frank et al. textbook is, at least within a certain price range,

perfectly inelastic

An Arizona student claims to have spotted a UFO over the desert outside of Tucson. How will this claim affect the supply (not the quantity supplied) of binoculars in Tucson stores?

supply will not change. The demand for binoculars is likely to increase, leading to an increase in price and quantity supplied (but no change in supply)

Buyers in the market for gas-powered cars learn of an increase in the price of electric cars (a substitute for gas-powered cars).

the demand curve shift to the right

Buyers in the market for electric cars learn of an increase in the price of electric cars

the demand curve would remain unchanged

Buyers in the market for pizza read a study linking pepperoni consumption to heart disease

the demand curve would shift to the left

Residents of your city are charged a fixed weekly fee of $10 for garbage collection. They are allowed to put out as many cans as they wish, The average household disposes of five garbage cans per week under this plan. Now suppose that your city changes to a "tag" system. Each garbage can must have a tag affixed to it; the tags cost $2 each and are not reusable. What effect do you think that introduction of the tag system will have on how many garbage cans will be put out?

the number of garbage cans put out will probably be lower under the new "tag" system

Taxicab fares in Cleveland are subject to maximum price regulations (= price ceilings) set by the city government. Suppose that that the local taxi companies petition the city council to raise the fares to generate higher revenues. A local citizen action group opposed to the far increase claims that any increase in fares will actually lead to lower taxi revenues. Based on these views

the taxi companies believe the demand for taxi rides is price inelastic, while the citizen action group believes the demand is price elastic

The 1990 "yacht tax" caused a large loss in jobs and it collected less revenue than expected, because demand for luxury yachts made in the US is

very price-elastic

Having a comparative advantage in a particular task means that

you give up less to accomplish that task than others

would not make either trip

You and your friend Joe have identical tastes. At 2pm, you go to the Ticketmaster outlet and buy a $30 nonrefundable ticket to a basketball game to be played that night in Syracuse, 50 miles away. Joe plans to attend the same game, but because he cannot go to the Ticketmaster outlet, he plans to buy his ticket at the game. Tickets sold at the game are only $25. At 4pm, an unexpected snowstorm begins , making the prospect of the drive much less attractive (but ensuring good seats). If both you and Joe are rational, is one of you more likely to attend the game than the other?

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