ECN 250 Exam Two

The graph to the right shows the U.S. demand and supply for leather footwear. Under autarky, the deadweight loss is:

$15 (graph on numer 42 on phone)

Refer to the diagram to the right. What is the marginal benefit of the last unit produced:

$Pb (add graph pic on 48 from phone)

In September 2012, the average price of gasoline in the United States was $3.91 per gallon and consumers bought 5 percent less gasoline than they had during September 2011, when the average price was $3.66 per gallon. Based on these numbers, what was the price elasticity of demand for gasoline from September 2011 to September 2012:

-0.76

Bryce and Tina are artisans who produce homemade candles and soap. The table to the right lists the number of candles and bars of soap Bryce and Tina can each produce in one month. Select the statement that accurately interprets the data in the table:

1. Bryce has a comparative advantage in making soap 2. Tina has a comparative advantage in making candles 3. Bryce has a greater opportunity cost than Tina for making candles 4. Neither Bryce nor Tina has an absolute advantage in making soap. 5. Tina has an absolute advantage in making candles (add pic from 54 on phone)

Consider the following hypothetical scenarios- Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away. Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away. Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store?

1. In either scenario if I think a $15 savings is worth the 20-minute trip OR 2. In none of these scenarios if I think the $15 saving is not worth the 20-minute trip

Sarita and Gabriel own S&G Bakery. The table to the right lists the number of pies and cakes Sarita and Gabriel can each bake in one day. Select the statement that accurately interprets the data in the table:

1. Sarita's opportunity cost for baking cakes is less than Gabriel's. 2. Sarita has a comparative advantage in baking cakes 3. Gabriel has a comparative advantage in baking pies 4. Sarita has an absolute advantage in baking pies and cakes

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply:

1.22

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of cross-price elasticity between the two movie club memberships:

1.6

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand:

1.62

Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is:

180

The figure to the right shows the U.S. demand and supply for leather footwear. Suppose the government allows imports of leather footwear into the United States. What will be the quantity demanded:

20 units (add graph from 74 on phone)

Since 1953, the United States has imposed a quota to limit the imports of peanuts. The figure to the right illustrates the impact of the quota. If there was no quota, how many pounds of peanuts would domestic consumers purchase:

28 million (add pic from 55 on phone)

Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. The table to the right shows his total utility from different quantities of the two items. What is Keegan's optimal consumption bundle:

3 Pita Wraps and 4 Bubble Teas (add table on 93 from phone)

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be:

80 units of utility

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger that it's substitution effect, a good must be _____ and make up a _____ portion of a consumer's budget:

???

Refer to the diagram to the right which shows a market with a positive externality. The private profit maximizing output level is:

?????? (add graph pic from 62 on phone)

Suppose the value of the price elasticity of demand is -3. What does this mean:

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent

Studies show that the income elasticity of demand for wine is approximately five. What does this mean:

A one percent increase in income leads to a five percent increase in wine consumption

Consider the following pairs of items- a. shampoo and conditioner b. Iphones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity:

A&B Shampoo and conditioner and Iphones and earbuds

A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called:

Behavioral economics

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. The figure to the right shows the impact of this tariff. The loss in domestic consumer surplus as a result of the tariff is equal to the area:

C+D+E+F (add graph pic on 46 from phone)

Economists usually assume that people act in a rational, self-interested way. In explaining how consumers make choices this means that economists believe:

Consumers make choices that will leave them as satisfied as possible given their incomes, tastes and the prices of goods and services available to them

Since 1953 the United States has imposed a quota to limit the imports of peanuts. The figure to the right illustrates the impact of the quota. What is the area that represents the deadweight loss as a result of the quota:

E+M (add graph pic on 82 from phone)

Refer to the figure to the right which shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Identify the area that shows the deadweight loss from overfishing:

EKH (add graph pic from 64 on phone)

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is:

Elastic

Economists assume that people's tastes are identical:

False

Trade only occurs if there are only winners, and no losers, as a result of the trade:

False

Refer to the table above, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for Italian submarines (sub) sandwiches and tacos. Assume that the price of the sub sandwiches is $4 and the price of tacos is $2. When Harry's income is $14 he buys two Italian sub sandwiches and three tacos. The last column lists the values of the marginal utility per dollar for tacos when the price of tacos decreases to $1. Complete this statement. As a result of the change in price:

Harry's purchasing power has increased. If tacos are a normal good for Harry he will buy more tacos. This is an example of the income effect of a price change

Which of the following could explain why the demand for table salt is inelastic:

Households devote a very small portion of their income to salt purchases

Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue:

It is assuming the demand for attending the school is elastic

Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers:

It is perfectly elastic

Which of the following activities creates a negative externality:

Keeping a junked car parked on your front lawn

The demand for all carbonated beverages is likely to be _____ the demand for Dr. Pepper:

Less elastic than

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is:

Negative, so Sefton considers potatoes to be an inferior good

The average price of gasoline in your neighborhood is $3.53 per gallon. Your neighbor, Diana tells you that you can "save a lot" by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is $3.46 per gallon. However, she cautions you that there are usually long lines at that station. Is her suggestion beneficial to you:

No, if one factors in the non-monetary opportunity costs (driving time and waiting in line), it could prove more costly to go to the lower-priced gasoline station

The highest-valued alternative that must be given up to engage in an activity is the definition of:

Opportunity cost

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation:

People measure the value of a good in terms of its purchase price

The "tragedy of the commons" refers to the phenomenon where:

People overuse a common resource

Because producers do not bear the external cost of pollution:

Private production exceeds the economically efficient level

Refer to the diagram to the right which shows a market with a negative externality. The efficient output level is:

Qa (add graph from 69 on phone)

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service. The value of the service to each of them is $50 and it costs $80 to hire a housecleaner. Suppose Bella is lazy and a spendthrift and Sefronia suspects that Bella will be willing to pay $80. What is Sefronia likely to do, given that she is as rational as any other person:

She might claim that she is not willing to pay for a housecleaner, hoping that Bella would pay the entire $80

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as it desires. If any firm tries to lower the rate to $19, it will not be able to hire any janitor. What does this indicate about the supply of janitorial services curve:

Supply is perfectly price elastic

One reason for the success that firms have in getting the government to erect barriers to foreign competitors is that jobs lost to foreign competitors are easy to identify but jobs created by foreign trade are often hard to identify. Which of the following is a second reason:

The costs that tariffs and quotas impose on consumers are large in total but relatively small per person

Assume that an economist has estimated the price elasticity of demand values in the table above. Use the data in the table to select the correct statement:

The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be (add table from 80 on phone)

Over longer periods of time, increases in oil prices provides firms with incentives to explore and recover oil. What does this indicate about the long run price elasticity of supply of oil:

The elasticity coefficient is likely to be higher in the long run than in the short run

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are evidence of:

The failure of consumers to take into account nonmonetary opportunity costs

The social cost of cutting trees for firewood in a government forest is:

The increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. Which of the following is true:

The marginal utility per dollar spent on books exceeds that of video rentals

Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because:

The marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars

If Canada imports fishing poles from Mexico and Mexico imports bacon from Canada, which of the following would explain this pattern of trade:

The opportunity cost of producing fishing poles in Canada is higher than the opportunity cost of producing bacon in Mexico

The publisher of a magazine gives his staff the information in the table to the right. He tells the staff, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue being exactly equal to our cost." Which of the following statements is correct: Current Price- 2.00 per issue Current Sales- 150,000 copies per month Current Revenue- $300,000 per month Current Total Costs- $450,000 per month

The publisher's analysis is correct only if they demand is perfectly inelastic

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that:

The two brands of detergents are close substitutes

Which of the following statements about elasticity of demand is false:

The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic

The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lime Fizz Soda. The price of an ice cream cone is $2 and the price of Lime Fizz Soda is $1. Use this information to select the correct statement:

We cannot determine how many ice cream cones and cans of Lime Fizz Soda will maximize Lee ʹ s utility because we are given only the marginal utility per dollar values. We also need to know the marginal utility for each quantity

The amount of income a consumer has to spend on the foods and services is known as:

a budget constraint

Refer to the diagram to the right. The dead weight loss due to the externality is represented by the area:

abf (add graph pic from 78 on phone)

Sunk costs:

are costs that have already been paid and cannot be recaptured in any significant way

Optimal decisions are made:

at the margin

Which of the following is not a common mistake made by consumers:

being overly pessimistic about their future behavior

Demand for a luxury items, such as a yacht, is likely to be:

both income and price elastic

Which of the following goods would have the most inelastic demand:

bread

If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because:

buyers of steel are more sensitive to a price change if they have more time to adjust to the price change

Which of the following is an example of a quasi-public good:

cable television

Which of the following products comes closest to having a perfectly inelastic demand:

cholesterol medication in general

If the cross-price elasticity of demand for goods X and Y is negative, this means the two goods are:

compliments

The observation that people tend to value something more highly when they own it than when they don't is called:

endowment effect

Once a country has a comparative advantage in producing a product, it cannot lose that advantage:

false

The process of countries becoming more open to foreign trade and investment is known as outsourcing:

false

Which of the following is an example of a product that is non-excludable and rivalrous:

free concert (with limited seating) in a park

Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as:

free riding

An item has utility for a consumer if it:

generates enjoyment or satisfaction

A demand curve that is horizontal indicates that the commodity:

has a large number of substitutes

Which of the following is a source of market failure:

incomplete property rights or inability to enforce property rights

Protectionism:

is the use of trade barriers to protect domestic firms from foreign competition

If demand is inelastic, the absolute value of the price elasticity of demand is:

less than one

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised her price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is:

perfectly inelastic

If firms do not increase their quantity supplied when price changes, then supply is:

perfectly inelastic

According to a study by the Center for Neighborhood Technology, homes located within one-half mile of frequently-used public transportation held their value much better during the recent housing market downturn than did those without easy access to public transportation, and the greater home values reflect greater demand for neighborhoods in close proximity to public transportation. In addition to higher home values, the study found that close proximity to public transportation offers lower transportation costs, a wider variety of travel options, and access to more employment opportunities. Higher home values which result from close proximity to public transportation are an example of a ______ due to the public transportation:

positive externality

In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage. One reason for this is:

production of most goods involves increasing opportunity costs

It is difficult for a private market to provide the economically efficient quantity of a public good because:

public goods produce positive and negative externalities

Which of the following displays these two characteristics: nonrivalry and excludability:

quasi-public goods

Free trade ______ living standards by ______ economic efficiency:

raises;increasing

When there are few close substitutes available for a good, demand tends to be:

relatively elastic

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would:

remain constant

Jill Borts believes that the price elasticity of demand for her economics textbook is relatively inelastic. She argues "I was told I had to purchase a book written by Hubbard and O'Brien that is required by my instructor. If I wanted to buy a mystery novel I would have many authors to choose from. Therefore, the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct:

she is correct

Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim's website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his website, despite the nearly $200,000 he had invested in his education. In making his decision, the $200,000 he spent on his education:

should be ignored since it represents a sunk cost

Health Clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior:

some people are overly optimistic about their future behavior

Absolute advantage is:

the ability to produce more of a good or service than competitors when using the same amount of resources

Refer to the diagram to the right. Suppose that the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows:

the effect of a negative externality in the production of a good (add graph pic on 47 from phone)

When there is an externality in a market:

the externality will move the market to an economically efficient equilibrium !!!!! LOOK THIS ONE UP

The substitution effect of an increase in the price of Raisin Bran refers to:

the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, cause consumers to buy less Raisin Bran

When the price of audio books, a normal good, falls causing your purchasing power to rise, you buy more of it due to:

the income effect

When demand is price elastic, a fall in price causes total revenue to rise because:

the increase in quantity sold is large enough to offset the lower price

The slope of a demand curve is not used to measure the price elasticity of demand because:

the slope of a linear demand curve is not constant ?????

The ratio at which a country can trade its exports for imports from other countries is called:

the terms of trade

The income effect of a price increase for a Giffen good outweighs the substitution effect:

true

The demand curve for a Giffen good is:

upward-sloping

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded:

will decrease by 45 percent

Consider a downward-sloping demand curve. When the price of an inferior good increases, the income and substitution effects:

work in opposite directions and quantity demanded decreases