ECO 201 Final

According to the Law of Comparative Advantage, if Brazil and British Columbia were to specialize and trade with each other A) Brazil should produce Coffee and British Columbia should produce Salmon B) Brazil should produce Salmon and British Columbia should produce Coffee C) Brazil should produce both goods and British Columbia should try to produce something else D) British Columbia should produce both goods and Brazil should try to produce something else

A) Brazil should produce Coffee and British Columbia should produce Salmon (Brazil specializes in coffee and British Columbia specializes in Salmon because they both have a comparative over each other in the respective industries. (Brazil can produce more coffee per salmon that British Columbia and British can produce more Salmon per coffee than Brazil.))

!!* which of the following resources is an example of a capital resource, in economic terms? A) a new 3-D printer used at a local engineering firm B) a newly discovered vein of coal found in eastern Kentucky C) a newly hired pharmacist at the Kroger on Euclid Avenue D) A new technology that makes cars more fuel efficient

A) a new 3-D printer used at a local engineering firm (The 3-D printer is a capital resource because it is a tool used in the production of goods.)

Demand for which of the following goods/services is likely to be the LEAST elastic in a Minnesota winter? A) a sweatshirt B) a blue hooded sweatshirt with fur-lined pockets C) a blue hooded sweatshirt D) a hooded crew- neck sweatshirt E) a blue sweatshirt

A) a sweatshirt (The narrower the definition of a good, the more elastic its demand is. In the answer choices for this question, the broadest good is a sweatshirt, which would therefore be the least elastic in a Minnesota winter. One way to think about this is to consider each good directly. If we look at the most narrowly defined answer choice, a blue hooded sweatshirt with fur-lined pockets, we can think rationally and say that if the price of that good went up, there would be lots of other choices of warm sweatshirts to buy. These other sweatshirts are close substitutes, and so a blue hooded sweatshirt with fur-lined pockets would have very elastic demand. A sweatshirt, on the other hand, is very broadly defined. If the price of sweatshirts go up, there are not many close substitutes and so many people will continue to buy the sweatshirts regardless of the increase in price. This means that it is relatively inelastic. Thus, the least elastic good is a sweatshirt.)

Suppose that the government allows firms to emit sulfur dioxide and pollute the air as long as the firms pay the government $70 per ton of sulfur dioxide emitted. This approach to handling pollution is an example of A) an emission charge B) the Coase theorem C) a marketable permit D) none of the above answers are correct

A) an emission charge (The Coase Theorem is when private parties come up with an economically efficient solution to an issue among themselves without government intervention. An emission charge is when the government puts a tax on pollution produced. Marketable permits regulate the level of emission by only allowing a certain amount of pollution. Usually, these permits can be traded among other parties so that firms can purchase the ability to produce more pollution, but the overall level of pollution can be regulated by the government. In this case, the government allows firms to emit as much sulfur dioxide as they'd like as long as they pay a tax per ton of sulfur dioxide produced. Since the government is taxing each unit of pollution but not regulating the overall level of pollution, this is an emission charge.)

Due to the recent success of UK athletic teams, Wildcats T-Shirts become more popular. We would expect A) both the equilibrium price and quantity to increase B) both the equilibrium price and quantity to decrease C) the equilibrium price to increase and the equilibrium quantity will decrease D) the equilibrium price to decrease and the equilibrium quantity will increase

A) both the equilibrium price and quantity to increase (since demand is shifting to the right, supply will shift to meet it)

More oranges are grown in Florida than North Dakota because Florida's warm climate gives it a ________ in growing oranges. A) comparative advantage B) public advantage C) revenue advantage D) producer advantage E) planning advantage

A) comparative advantage (Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. Florida's warm climate gives it the comparative advantage in orange growing over North Dakota because Florida's opportunity cost of producing oranges is lower than North Dakota's. North Dakota would be able to use fewer resources to produce another good since it doesn't have the climate conducive to orange growing that Florida has.)

Which of the following correctly describes the equilibrium effects of a per- unit tax, in a market with NO externalities? A) consumer surplus, producer surplus, and social surplus all decrease B) consumer and producer surplus increase but social surplus decreases C) consumer and producer surplus decrease but social surplus increases D) consumer surplus, producer surplus, and social surplus all increase

A) consumer surplus, producer surplus, and social surplus all decrease (In a market with no externalities, the deadweight loss from a per-unit tax is taken directly from the producer and consumer surplus. Thus, the consumer and producer surplus would decrease. Social surplus is the sum of consumer and producer surplus, so if consumer and producer surplus decrease, then social surplus would decrease as well.)

Chuck drives past the same gas station every day. He realizes that the gas station always changes its prices on Tuesdays but keeps the price steady the rest of the week. On Saturday, Chuck turns on the news and hears a report projecting that the price of gasoline is going to increase. Holding all else constant, what do you think would happen to Chuck's demand for gasoline on Monday? A) his demand would shift to the right B) his demand would shift to the left C) you would see a movement down on his demand curve but no shift D) you would see a movement up on his demand curve but no shift E) you would see nothing happen to his demand curve until the price changed on Tuesday

A) his demand would shift to the right (his demand shifts to the right because it is increasing)

* The _________ states that the opportunity cost of producing a good always rises as you produce more of it. A) law of increasing opportunity cost B) law of positive economics C) law of demand D) production possibilities frontier (PPF) model E) zero-sum game

A) law of increasing opportunity cost (This is the definition of the law of increasing opportunity cost.It is true because as more resources are used to produce a good, there are even fewer resources to produce another good. You are then decreasing the resources that could be used in the other good, making it more scarce and thus giving it higher value.)

When incomes fall by 20%, quantity demanded of specialty baked goods falls by 50%. Speciality baked goods are: A) luxuries B) necessities C) substitutes for mass- produced bread D) inferior goods E) complements to butter

A) luxuries (Luxury goods are goods where quantity demanded increases when incomes rise. In the same way, if incomes fall, then quantity demanded of luxury goods decreases. This is also true of normal goods, by the way, but when incomes fall, the quantity demanded of luxury goods decreases by a greater amount than the quantity demanded of normal goods. Since income is falling by 20% and quantity demanded is falling by 50%, specialty baked goods are luxuries. Another way to check this is to use the income elasticity equation: Ex= (%change in quantity demanded) / (% change of income) = Q1d - Q0d/(Q1d+Q0d)/Y1-Y0/(Y1+Y0) If we plug these numbers into this equation, the income elasticity of demand is 2.5. When income elasticity of demand is positive and greater than 1, the good is a luxury.)

When pollution (a negative externality) is created by firms, which of the following is NOT a valid way for the government to restore the social optimum? A) offer a subsidy to firms to reduce their production cost B) require firms to install pollution- abatement equipment C) require firms to change production techniques to reduce emissions D) levy a tax on the production of the good E) require firms to pay for the environment damage they create

A) offer a subsidy to firms to reduce their production cost (When there is a negative externality, the government wants to reduce production of the good. Theu usually do this through taxation on the good or on production of the good but can find other policies to enact that decrease the negative externality. A subsidy on the production cost is NOT a way for the government to restore the social optimum when there is a negative externality because a subsidy will decrease the cost of production for the firm and will lead them to produce more of the good, and therefore more of the negative externality.)

According to economists, one reason few professional athletes have Master's is that the: A) opportunity cost of going to graduate school is too high B) marginal benefit of going to graduate school is too high C) marginal cost of going to graduate school is too low D) opportunity cost of going to graduate school is too low

A) opportunity cost of going to graduate school is too high (professional athletes would have to give up the opportunity of earning hundred thousand/ millions of dollars to not play their sport and instead pursue higher education)

Dave makes $25,000 per year and pays 10% in taxes. Charlotte makes $75,000 per year and pays 15% in taxes. Lou makes $400,000 per year and pays 25% in taxes. This is best described as a A) progressive tax B) proportional tax C) regressive tax

A) progressive tax (A progressive tax is when those who make a greater income pay a greater tax rate. In this case, as each person's income increases their tax rate increases so this is a progressive tax.)

which good/ transaction below will have the highest asymmetric information? A) purchasing an iphone from a stranger from craigslist B) buying cadbury brand chocolates from kroger C) buying a new mercedes c class from the mercedes benz dealership D) purchasing apples from farmer's market E) purchasing an iphone from apple store

A) purchasing an iphone from a stranger from craigslist (Asymmetric information is when the buyer and seller do not have the same amount of information about the good being sold. There is more likely to be asymmetric information from sellers who feel less at risk for getting in trouble for their actions. Established brands, therefore, are less likely to have asymmetric information, as is anyone who relies on the sale of the goods for their entire income. Buying an iPhone from a stranger from Craigslist will likely have the highest asymmetric information because they are probably not relying on the sale for their whole income, and so the stranger is less worried about his credibility affecting his sales- because he's likely only selling the one (or just a few) good.)

if the cross- price elasticity of demand between Breezed Detergent and Faber Detergent is a relatively large positive number, then it indicates that A) the 2 brands of detergent are close substitutes B) the 2 brands are probably made by the same company C) consumers have a distinct preference for one brand versus the other D) detergents are necessities

A) the 2 brands of detergent are close substitutes (The cross-price elasticity of demand between two goods is positive if the two goods are substitutes, 0 if the two goods are unrelated, and negative if the two goods are complementary goods. Since the cross-price elasticity of demand between the two detergents is a relatively large positive number, the two goods are close substitutes.)

Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy? A) the government B) producers C) consumers D) consumers and producers E) the government, consumers, and producers

A) the government (by definition)

!! Imagine that a technological innovation reduces the costs of producing high-quality steel. what happens to the supply of steel? A) the supply of steel increases B) the supply of steel decreases C) reduced production costs for steel have no effect on the supply of steel

A) the supply of steel increases (Factors that can shift the supply curve are input prices, the number of sellers, changes in technology, and the expectations of buyers. This question states that a technological change is decreasing costs of production of steel, so the supply of steel would increase with a shift right.)

All of the following are examples of "command and control" solutions to externalities except A) trading in pollution rights between electrical utility companies B) the requirement that cars all use unleaded fuel C) the "no smoking" signs posted in public buildings D) automobile emissions testing requirements E) restrictions on the transportation of hazardous wastes

A) trading in pollution rights between electrical utility companies (Command and control solutions to externalities are when the government imposes laws and/or regulations that directly regulate the amount produced of the good with the negative externality. Market-based policies, on the other hand, incentivize producers to produce at more socially optimal levels. In this problem, all of the answers are command-and-control policies except for A because A allows for companies to trade their pollution rights and can therefore incentivize companies to produce less pollution since they can trade their pollution rights with other companies in a way that benefits them.)

If the demand and supply curve for computers is: D = 100 - 6P, S = 28 + 3P. Where P is the price of computers, what is the quantity of computers bought and sold at equilibrium? A) $6; 64 B) $8; 52 C) $5; 80 D) $4; 66

B) $8; 52 (by setting 100-6P = 28 + 3P, solving for P)

In the opening scene of the classic Eddie Murphy comedy Beverly Hills Cop, Axel Foley, a Detroit police officer, is stopping a cigarette cross state lines. Which way do you suspect the smugglers were moving the cigarettes, based on economic theory? A) From the high- tax North to the low- cost South B) From the low- cost South to the high- tax North

B) From the low- cost South to the high- tax North (Smugglers would want to buy cigarettes where they cost less and sell them in a place where they cost more. This way, they buy them for the lowest market price they can, and then they sell them for a higher price in another place where the market price is higher. If they sell them for just below the market price in the high-cost North but above the market-price in the low-cost South, consumers in the high-cost area will benefit and smugglers will make a profit.)

Kramer wants to start a rickshaw business in New York City, for the drivers he recruits homeless people. Unfortunately for Kramer, New Yorkers feel uncomfortable by the idea or being pushed around by homeless people. Kramer's situation is an example of: A) invisible hand B) Invisible handshake C) Invisible foot D) people face trade offs

B) Invisible handshake (The invisible handshake is the social and cultural forces that contribute to how a market works. Because of the many social biases against homeless people, it's likely that many people would be uncomfortable being driven around by a homeless person, thus an example of the invisible handshake.)

Which of the following is an example of spending on goods and services in the circular flow model? A) Belinda purchases a new computer for her tax-preparation business. B) Javier buys 800 square feet of wood flooring for his vacation home. C) Celeste buys fresh herbs at the farmers' market to use in her restaurant. D) Timmy purchases a new examination table for use in his veterinary clinic.

B) Javier buys 800 square feet of wood flooring for his vacation home. (this is a personal purchase for personal use)

An example of a factor of production at West Sixth Brewing Company is A) a bottle of beer produced by West Sixth. B) a brewer hired by West Sixth. C) a loan payment by West Sixth.. D) the beer exported by West Sixth.

B) a brewer hired by West Sixth. (a brewer is someone who works directly with producing the beer and the only one who does this)

If smartwatches are considered substitutes for smartphones, then the decline in the price of smartwatches would, all else equal, A) increase the price of smartphones. B) decrease the price of smartphones. C) decreases the quantity of smartphones demanded. D) decreases the demand of smartphones demanded

B) decrease the price of smartphones. (since they are products which are in "competition" with each other as they are substitutes, then when one's price decreases the other's price must decrease as well)

Keeneland horse park raised the general ticket prices from $5 and $7 for the Fall 2021 meet. If their goal is to increase total revenue, Keeneland is hoping the price elasticity of demand is _________ A) elastic B) inelastic C) perfectly elastic D) unitary elastic E) perfectly inelastic

B) inelastic (Keeneland is hoping that the price elasticity of demand for their tickets is inelastic because they would want their increase in price to have little effect on the quantity demanded. An inelastic elasticity of demand means that a change in price has little effect on quantity demanded, so revenue would likely increase.)

Under the proposed laws in Indonesia, unmarried couples who "live together as a husband and wife" could be jailed for six months or face a maximum fine of 10 million rupiah ($710). As a result, fewer couples will choose to live together. This is an example of: A) invisible handshake B) invisible foot C) invisible hand D) none of the above

B) invisible foot (This is a case of the invisible foot rather than the invisible hand because people's actions are being influenced by government.)

!!* the unfair competition argument states that A) newly established industries dont have the experience like industries in more established countries B) lack of regulations in other countries causes goods to be produced at lower prices C) trade reduces the number of jobs in the US D) individuals, firms, or nations can gain by specializing in the production of goods they can produce cheaply and exchange them for goods they cannot produce at low opportunity costs

B) lack of regulations in other countries causes goods to be produced at lower prices (The Unfair Competition Argument is an argument for protecting domestic producers of a good by restricting foreign producers of the good by imposing tariffs, restrictions, or quotas on those imports. A seller in a country with fewer regulations will likely face fewer costs and will be able to sell their products for less than a seller in a country with more regulations. This hurts those domestic producers who are unable to compete with the prices set by foreign importers.)

which of the following is an example of a positive externality? A) raising the speed limit to 60 mph in school zones B) planting trees along a sidewalk which add beauty and create shade C) permitting smoking on commercial airplanes D) a police department stops enforcing DUI laws

B) planting trees along a sidewalk which add beauty and create shade (A positive externality is when the production of a good creates benefit to society along with the buyer and seller of the good. The socially optimal output level of the good is higher than the market output level. Planting trees that add beauty and shade is a positive externality because it gives benefit to anyone who walks along that sidewalk.)

The market for footballs is perfectly competitive. If all else is held constant and the price of leather decreases, we would expect that the equilibrium quantity of footballs would: A) fall and the equilibrium price would rise B) rise and the equilibrium price would fall C) fall and the equilibrium price would fall D) rise and the equilibrium price would rise E) fall and the equilibrium price would remain constant

B) rise and the equilibrium price would fall (since the cost of production is now less)

!! what is a trade war? A) countries that export dangerous goods to each other B) tariffs and retaliation C) two countries using ship to blockade each other's exports D) a verbal dispute in the world trade organization E) one country dumps exports into another country, which responds with an antidumping duty

B) tariffs and retaliation (A trade war is when one country retaliates against another country by imposing tariffs and restrictions on imports from that country. This makes it more difficult for the importing country to sell in the other country and thus hurts their economy.)

you may have noticed several little delivery "robots" across campus. these starship robots charge a delivery fee that ranges from $3 to $5. your professor is more likely to use these robots for food delivery than students because: A) the opportunity cost of waiting in line for food is higher for students than for professors B) the opportunity cost of waiting in line for food is higher for professors than for students C) both professors and students have the same opportunity cost of waiting in line for food D) both professors and students have the same opportunity cost of using the delivery robot

B) the opportunity cost of waiting in line for food is higher for professors than for students (The opportunity cost is what you give up by choosing one good over the other. Even though the price of the delivery robot would be the same for professors and students, the delivery fee would be more difficult for the students to pay since they have little money compared to the professor. The professor gives up more by standing in line since the money he is saving means less to him than it would to the student.)

Henry raised his quantity demanded of hockey pucks from 100 to 150 when the price fell from $5 to $3 per puck. Using the midpoint method, his absolute value of price elasticity of demand is: A) 1.00 B) 0.40 C) 0.80 D) 1.25

C) 0.80 (The midpoint method for finding price elasticity of demand is Q2-Q1/(Q2+Q1)/2/P2-P1/(P2+P1)/2. Plugging in the values from this question we get: 150-100/(150+100)/2/3-5/(3+5)/2 = -0.80. However, we are taking the absolute value, so the answer is 0.80.)

!!*Which of the following is an example of a "how much" decision?* A) Zander has torn up his front yard and is debating whether to plant grass or install a rock garden B) you received a nice birthday check from your grandmother and are deciding on whether to spend it on a trip to New York or a trip to San Francisco C) Dinah's Diner is only open for breakfast and lunch. Dinah is trying to decide whether to open for dinner as well D) Sergio quit his job to go back to school full time

C) Dinah's Diner is only open for breakfast and lunch. Dinah is trying to decide whether to open for dinner as well (This is a "how much" decision because the "how much" question is a way to determine whether the benefit of producing more of a good will outweigh the cost of producing that good. Essentially, the "how much" question asks what the optimal amount is to produce. This is a "how much" decision because Dinah needs to decide whether the extra revenue from opening for dinner will outweigh the costs of opening for dinner (like buying food, paying waiters and cooks, etc.).)

In which of the following cases is the Coase theorem most likely to solve the externality? A) chemicals from manufacturing plants in the midwest are causing acid rain in canada B) polluted water runoff from farms is making residents of a nearby town sick C) Ed is allergic to his roommate's cat D) industrialization around the world is causing global warming

C) Ed is allergic to his roommate's cat (The Coase Theorem is the idea that, without transaction costs, if two parties have an issue they should be able to come to an economically efficient decision without the need for government regulation. The only answer choice that could be solved without government intervention is Ed's allergy to his roommate's cat. The other answer choices are all issues that are much more serious and that would be unable to be solved between just the parties involved.)

!!* Which of the following statements about sunk costs is FALSE? I. Sunk costs are those that cannot be recovered, no matter what future action is taken II. Because sunk costs cannot be recovered, they are irrelevant for future decision- making III. The presence of sunk costs can affect future decision- making, if they are large enough A) II and III only B) II only C) III only D) I and III only

C) III only (Part I is the definition of a sunk cost so it must be true. Part II is also true because it doesn't make sense to use a sunk cost for future decision-making since the cost was paid in the past and cannot be recovered. Part III, however, is false because it doesn't matter how large the sunk cost is; it still cannot be changed by new decisions in the future and thus shouldn't be considered in future decision-making.)

Peloton treadmills were recently found to pull pets and children under the machine. Before this discovery was made, many people bought and used these treadmills. They were unaware of this potential danger. When market fails such where one party (Peloton) has more information than the others (consumers), we refer the situation as ___________ and due to its presence, the actual market output level will be _____________ A) negative externality; lower than the true socially optimal output level B) asymmetric information; lower than the true socially optimal output level C) asymmetric information; higher than the true socially optimal output level D) positive externalities; determined by the government

C) asymmetric information; higher than the true socially optimal output level (This is simply the definition of asymmetric information: when one party has more information than the other about the good. Because there is potential danger involved, these machines have a negative externality, meaning that the socially optimal level is lower than the market output level. So, in this question, the situation has asymmetric information, and the actual market output level will be higher than the true socially optimal output level.)

which of the following goods would have the most inelastic demand? A) ski vacations B) luxury cars C) bread D) big screen tvs

C) bread (Inelastic demand is when a change in price has very little effect on the quantity demanded. Goods that are necessities have relatively inelastic demand. Between these answer choices, the only one that is a necessity is bread, so bread would have the most inelastic demand.)

At the farmer's market in Irvine, California, the price of avocados is set at $3 each. At that price, 120 avocados are supplied but only 100 are purchased. the price of avocados in Irvine should A) stay the same B) increase C) decrease

C) decrease (since the market is not clearing, there is an excess supply of avocados at $3 which should induce suppliers to reduce quantity supplied and price)

!!* which of the following best describes a trade surplus? A) imports are greater than exports B) imports equal exports C) exports are greater than imports D) increased competition to produce goods

C) exports are greater than imports (This is simply the definition of a trade surplus; it's when you are receiving more than you are giving, or importing more than you are exporting.)

!! Recent court ruling will reduce the cost of in-app purchases within the iphone system. This would lead to ____________ for iphones causing the price of iphones to _________________ and the quantity demanded for iphones to ________________ A) increases in supply; increase; rise B) increases in supply; decrease; fall C) increases in demand; increase; rise D) increases in demand; decrease; rise

C) increases in demand; increase; rise (The law that causes in-app purchases to decrease would cause a shift in the demand curve to the right. This is because government regulations are one of the factors that cause a shift in the demand curve, and since the law helps consumers, demand would increase rather than decrease, meaning the overall quantity demanded would also increase.With higher demand, sellers would increase price as well.)

The amount you pay for insurance on your car is an example of a(n): A) external cost B) third- party cost C) marginal private cost D) marginal social cost

C) marginal private cost (A marginal private cost is cost of one additional unit of a good to that person, not including its social or environmental costs. In this case, the amount you pay in car insurance is a marginal private cost because it is only the personal cost of insurance to you and does not include any social or environmental costs.)

Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of a(n): A) equilibrium price B) black market price C) price ceiling D) price floor E) raion price

C) price ceiling (If the law is limiting the maximum amount that a lender can charge a borrower, then this is a price ceiling because the government is saying that no price can be charged that is higher than the price the government has decided. A price ceiling exists as a benefit to the buyer, so this law helps the borrower to not be taken advantage of by the lender.)

If the U.S. government places a quota on wheat, it is to A) restrict the quantity of what U.S. wheat producers can sell abroad B) raise government revenues from imports of wheat to the United States C) restrict the quantity of wheat that can be imported D) shift the domestic supply curve to the right in order to lower domestic wheat prices

C) restrict the quantity of wheat that can be imported (a quota is a measure used by governments to limit imports)

Economics professors are well aware of the importance of incentives. Which of the following situations shows the use of a positive incentive? A) students who show up late to class will not be allowed in the classroom B) students who do not have a doctor's note will not be allowed to take an exam at a different time C) students who attend 90% of the classes will earn 3% points in their final D) students can choose to do extra credit at the end of the semester

C) students who attend 90% of the classes will earn 3% points in their final (since this will encourage more students to attend class, something they should already be doing)

!! Because cell phones and Landline telephones are ___________, an decrease in price of cell phones would cause the demand for landlines telephones to ___________ A) substitute; increase B) complements; decrease C) substitute; decrease D) complements; increase

C) substitute; decrease (A substitute for one good is a good that can replace it. Since cell phones and landline phones serve a similar function, they can replace each other and are substitutes. When the price for one good decreases, the demand for its substitute also decreases because people will choose the lower-priced good between two substitutes.)

Tusker owes money for taxes to the city of Lexington. This owed money is called a __________ A) tax base B) tax benefits C) tax liability D) tax rate

C) tax liability (The definition of a tax liability is the amount of a tax that is owed. If Tusker owes money for taxes, this owed money is a tax liability.)

Rachel received a stimulus check from the government. Her preferences on how to use the money we're in this order: 1) put in savings account 2) go on a trip out to Yellowstone national park 3) buy a new ipad. Rachel decided to put it away in a savings account: the opportunity cost of this actions is A) the interest gained from investing in stocks B) a new ipad C) the experience of a trip out to Yellowstone national park D) all of the above

C) the experience of a trip out to Yellowstone national park (The opportunity cost of making one decision is what you give up by making that decision. A more specific definition of the opportunity cost is what you give up by not choosing the next best alternative. Since Rachel's next alternative to putting her money in a savings account is to go on a trip to Yellowstone, the opportunity cost of putting the money in a savings account is the trip to Yellowstone.)

One strategy Tusker might use to be elected mayor of Lexington is to place a binding price ceiling on rent for student apartments. What will happen if Tusker gets elected and is able to pass such a law? A) the price ceiling will increase the number of apartments available for rent B) the price ceiling will cause the demand curve to shift C) the price ceiling will cause students to sleep in their cars or to move in with their friends because they won't be able to find a place to live D) the price ceiling will cause the supply curve to shift E) the price ceiling will decrease the number of students who want to rent an apartment

C) the price ceiling will cause students to sleep in their cars or to move in with their friends because they won't be able to find a place to live (f a law is passed that places a binding price ceiling on rent for student apartments, rent prices will be lower than the market equilibrium level. Because of this, there will be a shortage of apartments and a greater quantity demanded than quantity supplied. If landlords can't price rents at the market equilibrium level, some sellers will drop out of the market and decide not to rent out their apartments at all. Since there will be a shortage of apartments available, students will have to sleep in their cars or move in with their friends because they won't be able to find a place to live.)

If a drought in Ecuador reduces the amount of bananas grown, then A) the demand curve of Ecuador bananas shifts to the left B) the demand curve of Ecuador bananas shifts to the right C) the supply curve of Ecuador bananas shifts to the left D) the supply curve of Ecuador bananas shifts to the right

C) the supply curve of Ecuador bananas shifts to the left (because it is decreasing)

!! select the normative statement A) there are 3.8 million fewer american aged 30 to 44 today than there were a decade ago B) the weight of the earth is 6 septillion metric tons C) the tax rate on the top earners should be 85% D) a rise in average temperatures will increase the demand for sunscreen products

C) the tax rate on the top earners should be 85% (A normative statement is opinion-based rather than a positive statement which is fact-based. Saying that the tax rate should be 85% is normative because it expresses an opinion and is not a direct fact.)

You explain to your roommate Surya, who makes beaded headbands, about an economic theory which asserts that consumers will purchase more of a product at lower prices than they will at higher prices. She contends that the theory is incorrect because over the past two years she has lowered the price of her headbands and yet has seen a decrease in sales. How would you respond to Surya? A) Surya is right; she has evidence to back her claim. The theory must be wrong. B) Surya is right; correlation does imply association. C) I will explain to her that she the past two years are sunk cost and should be considered as evidence. D) I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income.

D) I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income. (If income has gone down over time faster than her prices, then even if she decreases her prices her sales may still be decreasing.)

Price controls are usually enacted A) when policymakers believe that the market price of a good or service is unfair to buyers or sellers B) as a means of raising revenue for public purposes C) when policymakers tax a good D) all of the above are correct

D) all of the above are correct (Usually policymakers do not want to interfere with the efficiency of the market and the prices and quantities that naturally arise from the decisions of buyers and sellers. However, if policymakers believe that the market price is unfair to either buyers or sellers, they will enact price controls (like price ceilings or price floors) to make the price of the good more fair to all parties.)

When trade is voluntary, who benefits? A) the seller B) the buyer C) no one benefits D) both the buyer and the seller E) trade is never voluntary

D) both the buyer and the seller (by definition)

who benefits from voluntary trade? A) buyers B) sellers C) the government D) buyers and sellers E) buyers and the government

D) buyers and sellers (The purpose of voluntary trade is to make both the buyer and the seller better off. Since the trade is voluntary, if it were going to make one of them worse off, then that person would not agree to trade.)

the university enforced a mask mandate for all buildings within the university campus. the assumption was that if a professor can manage a small classroom and enforce the mask mandate then every professor (no matter the size of the class) can also easily do so for their class. this policy violates the: A) correlation implies causation B) ceteris paribus assumption C) reverse causality issue D) fallacy of composition

D) fallacy of composition (A fallacy of composition is when someone assumes that something is true in all situations because it is true for some situations. Because it is true that it would be relatively easy for a professor to mandate masks in a small class, it is a fallacy of composition to say that Dr. Patel could easily enforce mask mandates in a large class in Kincaid. In reality it would be much more difficult to mandate masks in a small class than a large class.)

if the government wanted to give people a negative incentive not to save money, what would be the appropriate policy? A) providing individuals, a subsidy to save their money B) providing funding for an advertising campaign encouraging people to spend more money C) informing individuals that saving money causes people not to spend money, which will cause them to lose their jobs D) imposing a tax on individuals for saving their money E) informing consumers about all that they could buy with their money with the hope that they spend more

D) imposing a tax on individuals for saving their money (A negative incentive is when someone wants to take something away from you to encourage you to take a specific action. In this case, the government wants to encourage people not to save their money. The only negative incentive in this list is D. Imposing a tax on saving money would encourage people not to save their money by taking some money away from them.)

Which of the following is a correct statement about a minimum wage law? A) it reduces costs for employers B) it ensures that all who want a job can get a job with a high enough wage C) it is a price ceiling law that makes wages higher than the market equilibrium price D) it causes prices to rise as producers pay more for labor E) it is a price floor law that forces wages to be lower than the market equilibrium price

D) it causes prices to rise as producers pay more for labor (a minimum wage law is enacted as a binding price floor that does not allow firms to pay less for labor than the minimum wage, even if the market equilibrium wage is lower than the minimum wage. Because it is a price floor, quantity of labor supplied will be greater than quantity of labor demanded and there will be a surplus of labor. Based on the answer choices, the only one that makes sense is that the minimum wage law will cause prices to rise because producers will have to pay more for labor than they would have had to pay at the market equilibrium without a minimum wage law.)

A professional hockey arena has a maximum seating capacity of 20,000 people. the price elasticity of supply is: A) inelastic B) relatively elastic C) elastic D) perfectly inelastic E) perfectly elastic

D) perfectly inelastic (Price elasticity of supply is the change in the quantity supplied when price changes. Since a hockey arena has a set number of seats (20,000), the quantity supplied will always be 20,000 regardless of the price of the tickets. Therefore, since the quantity supplied never changes, the price elasticity of supply is 0, and the price elasticity of supply is perfectly inelastic.)

!! All of the following are potential "unintended consequences" that the U.S. might experience as a result of the trade war EXCEPT: A) more people might begin "smuggling" to avoid tariffs B) Some U.S. companies might move to other countries C) some domestic producers might face higher costs for some of their inputs D) prices that domestic consumers pay for most products will decrease

D) prices that domestic consumers pay for most products will decrease (A trade war is when acountry imposes tariffs or restrictions on imports from another country. A is true because US companies may be unable to get the inputs they need from another country's imports legally and may resort to smuggling instead. B is true because some US companies might move to other countries in order to avoid the higher prices and restrictions that they now face for their inputs. C is true because importers may have to raise the prices of the inputs that will be bought by US companies in order to afford the tariffs. D is false because if US companies are facing higher prices for their inputs, these costs will be passed onto consumers through higher prices on products.)

!! Which of the following is motivated by an equality concern? A) following the implementation of subsidies for energy conservation, household demand for rooftop solar panels increased quite significantly in California B) the united network for organ shoring advocates a system of rationing scarce kidneys that would favor young patients over old to wring more life out of donated organs C) the united states offers patent protection to pharmaceutical manufacturers to prevent others from duplicating their products D) some states have transferred funds to food bank programs to increase benefits to lower- income families

D) some states have transferred funds to food bank programs to increase benefits to lower- income families (The definition of equality is "the property of distributing economic prosperity uniformly among the members of society." Therefore, this is an equality concern because the states are increasing the benefits to lower-income families to try and make prosperity more even among citizens.)

Recently, there has a been a nationwide shortage of White Claws and Popeyes Chicken Sandwich. This implies: A) the market is in equilibrium for both products B) there is an increase in supply for both products C) the current market price is above the market equilibrium for both products D) the current market price is below the market equilibrium for both products

D) the current market price is below the market equilibrium for both products (demand has outpaced supply below the market equilibrium)

which of the following is FALSE concerning market economies? A) the United States has a market economy B) a market economy allocates resources through the decisions of many firms and households as they interact for goods and services C) Prices and self- interest guide the decisions of firms and households D) the government organizes economic activity in a way that promotes well-being for the country E) a market economy is guided by an "invisible hand"

D) the government organizes economic activity in a way that promotes well-being for the country (A market economy is one that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. A is true because in the US, prices and products are determined by the interactions of buyers and sellers. B is true because it is the definition of a market economy. C is true because everyone wants to be better off so they will look for the items they want the most at the lowest prices. D is false because a market economy is decentralized and is not controlled by the government. E is true because the invisible hand is the unseen forces that move a free market economy.)

Dwight is buying a car. He is choosing between three models, a Honda Accord priced at $26,000, a Ford Fusion priced at $25,000 or a Toyota Camry priced at $24,000. If he chooses the Camry what is his opportunity cost? A) The Fusion B) $24,000 C) The Accord D) whichever vehicle would have been his second best choice, after the Camry

D) whichever vehicle would have been his second best choice, after the Camry (since one's opportunity cost is whatever is your next best choice)

When the price of erasers increases from $1.50 to $2.50, the quantity demanded of pencils is unchanged. The cross- price elasticity of demand between erasers and pencils is ______________ because erasers and pencils _____________ A) 1; are substitutes B) 1/2; are complements C) 0; are normal goods D) -1/2; are complements E) 0; are unrelated

E) 0; are unrelated (The cross-price elasticity of demand is as follows: Exz = (% change Qdx) / (% change Pz) = Q1dx - Q0dx / (Q1dx + Q0dx) / P1z - P0z / (P1z + P0z) Since the quantity demanded of pencils is unchanged, the percent change in quantity is 0, so the overall cross-price elasticity of demand is 0. When the cross-price elasticity of demand between two goods is 0, the two goods are not related. This is because the change in price of one good has no effect on the quantity demanded of the other good.)

What good is most likely to have an income elasticity of demand equal to 8? A) a doctor's visit B) toilet paper C) used clothing D) college coursework E) a five-star hotel

E) a five-star hotel (Luxury goods have income elasticities of demand that are positive and greater than 1. An income elasticity of demand of 8 would be characteristic of a very luxury good. Looking at all the options, we can see that the only truly luxury, high-class, and expensive good is a five-star hotel.)

According to the theory of comparative advantage, countries gain from trade because A) trade makes firms behave more competitively, reducing their market power B) all firms can take advantage of cheap labor C) output per worker in each firm increases D) world output can rise when each country specializes in what its does relatively best E) every country has an absolute advantage in producing something

E) every country has an absolute advantage in producing something (world output can rise when each country specializes in what its does relatively best. if every country specializes then they are able to achieve their maximum output of goods and then can trade with each other for goods they couldn't produce at an efficient rate compared to other countries)

Wine and cheese are complementary goods because they are consumed together. What would you expect to happen to the equilibrium quantity of cheese if the price of wine increased and all else is held constant? A) it would increase because of a supply shift B) it would increase because of a demand shift C) it would stay the same because of both a demand and a supply shift D) it would decrease because of a supply shift E) it would decrease because of a demand shift

E) it would decrease because of a demand shift (the demand shifts left since the market for wine, the complement, experiences a price increase)

"no matter the price, I will always buy 20 tacos a week. I love tacos" this statement reflects a price elasticity of demand that is: A) perfectly elastic B) elastic C) unitary D) inelastic E) perfectly inelastic

E) perfectly inelastic (The definition of perfectly inelastic is when the quantity demanded of a good will be the same no matter the price of the good. The person quoted in this problem says they will always buy 20 tacos a week, no matter the price. Therefore, the quantity demanded is the same no matter the price of the tacos, and this price elasticity of demand is perfectly inelastic)

The infant-industries argument is used to A) Promote indiscriminate free trade B) promote a new industry that employs unskilled labor C) protect textiles, especially children's wear, in most countries D) Promote lower tariff rates on imports E) support the protection of newly established industries from foreign competition

E) support the protection of newly established industries from foreign competition (The infant-industries argument says that newly established industries don't have the economies of scale like industries in other, more established countries. Therefore, this argument supposes the industry needs trade protection until they can be internationally competitive.)

Market for white claw hard seltzer- a lower- calorie alternative to beer. 2 shocks to that market: shock 1: people are becoming more health conscious when it comes to choosing their preferred alcohol intake. Shock 2: government increased the taxes on carbonated based alcoholic drinks A) the equilibrium price will be indeterminate and the equilibrium quantity will go up B) the equilibrium price will go up and the equilibrium quantity will go up C) the equilibrium price will go down and the equilibrium quantity will be indeterminate D) the equilibrium price will be indeterminate and the equilibrium quantity will go down E) the equilibrium price will go up and the equilibrium quantity will be indeterminate

E) the equilibrium price will go up and the equilibrium quantity will be indeterminate (The price will increase due to the added tax, but the equilibrium quantity is indeterminate since price rises and demand also shifts right.)

The need to study economics would cease to exist if: A) the government stopped controlling people's actions B) people were free to make decisions on their own C) people put forth required to attain the goods and services they wanted D) people earned more than they spent E) there were enough resources to produce all the goods and services people would like to obtain

E) there were enough resources to produce all the goods and services people would like to obtain ( The definition of economics is the study of how society manages its scarce resources. If there were no scarce resources and everyone could produce everything they could ever want, then economics would not exist.)

True or False? Price ceilings are enacted by the government to help producers.

False (Price ceilings limit the price that a good can be sold for. This helps consumers and hurts producers because consumers will be paying less than what the market price might have been if no price ceiling were set.)

True or False? The 6% Kentucky State sales tax is assessed on tangible goods, but not on services.

False (This used to be true, however within the past few years the 6% Kentucky State sales tax has been expanded to also include some services.)

True or False? when a positive externality is present, from society's point of view, the actual market output level is higher than the socially optimal output level.

False (When a positive externality is present, that good produces more good for society than the benefit that its sale gives to buyers and sellers. Since the social benefit is higher than what the market output level is, the market output is lower than the socially optimal output level.)

True or False? Any point inside a PPF is considered efficient

False (any point along the PPF curve is considered efficient)

True or False? Imagine if someone invented a pill called the Patel. Every day you take the Patel, you will not die, get sick or even age. Suppose there are only 5 million Patels made in a year in an economy that has a population of 20 million. If the economy operates as a command economy, then the pill is most likely to go to wealthier individuals who can pay higher prices so everyone in the economy will not get a patel

False (it would not be based of willingness to pay, rather who the government decides will get the pills)

True or False? When the price of a cup of coffee rises, consumer surplus fall because some buyers enter the market.

False (Based on the normal supply and demand graph, as price increases, quantity demanded decreases. If the price of a coffee cup rises, buyers will exit the market. Consumer surplus will fall because there are fewer buyers willing to pay the higher price, and those who are willing to pay more now have a smaller difference in price between the highest they're willing to pay and the actual price. For example, if one customer is willing to pay $4 for a cup of coffee and another is willing to pay $1, their consumer surplus is $3 when the price of the coffee is $1. If the price rises to $2, the second consumer will no longer buy the coffee, and the consumer surplus is now $2, which is one dollar less than the previous consumer surplus. So, when the price of a cup of coffee rises, consumer surplus falls because some buyers exit the market.)

True or False? The Lexington economy is improving, and average income levels are rising. You are the stock manager at a small local grocery store and you have a very small display area for honey. You estimate that the income elasticity for locally grown Kentucky Home is 1.1 (YD = 1.1). The income elasticity for a national brand, Big Bee Honey is -0.2 (YD = -0.2). Given your limited shelf space, if you can only stock one brand of honey in your store, you should stock Big Bee Honey.

False (The income elasticity is positive when a good is a normal or luxury good and negative when the good is an inferior good. When incomes rise, more normal and luxury goods will be purchased and fewer inferior goods. Therefore, if the average income of Lexington is increasing, more normal goods will be purchased, so Kentucky Honey is likely to be purchased more often and Big Bee Honey is likely to be purchased less often. The store should stock Kentucky Honey.)

True or False? The economists at JET consulting consider campbell's soup to be an inferior good. during a recession, when the income in the economy is decreasing, economists at JET consulting would expect the demand curve for campbell's soup to shift to the left

False (because soup is considered an inferior good so demand would increase when incomes shrink)

True or False? Consider the market for craft hard cider produced in Lexington. 1) Several new producers (brewers) have entered the market and 2) income levels in Lexington have increased and hard cider is a normal good. As a result of these 2 changes occurring simultaneously, what is the overall impact on the equilibrium price of hard cider in central Kentucky? Equilibrium price will definitely increase.

False (the supply curve will shift to the right and demand curve shifts right so equilibrium price is uncertain)

True or False? Crumzz is running a lunch special where they decreased their prices of all sandwiches from $7.99 to $5.99. They should experience an increase in demand.

False (they should expect an increase in quantity demanded)

True or False? Consumers demanded googly eyes. The economy provided for that need. This represents an example of a Command economy.

False (In a command economy, prices and production are determined by a central body, not by the buyers. The situation described in this example represents a market economy.)

True or False? Assume that Y represents a person's weight measured in pounds and X represents the number of cheeseburgers consumed per week. The relationship between these 2 variables is most likely to be negative and stochastic

False (Since a person's weight typically increases when the number of cheeseburgers consumed increases, this is a positive relationship. Positive relationships are when as one variable increases, the other increases OR when one variable decreases, the other decreases. A negative relationship describes a situation when as one variable increases, the other decreases. This relationship would be stochastic, however, because a person's weight is not influenced solely by the number of cheeseburgers they eat.)

True or False? Kenyans producing, selling or even using plastic bags will risk imprisonment of up to four years or fines of $40,000 from Monday, as the world's toughest law aimed at reducing plastic pollution came into effect. This is an example of invisible hand in action.

False (The invisible hand describes how price is determined naturally through the actions of buyers and sellers. A law that is enacted would not be an example of the invisible hand because the consequences are the result of government intervention instead of the free market.)

True or False? A college must decide if it wants to offer more financial literacy classes. This decision involves answering the economic question of "how to produce"

False, since the actual question the college should ask is what to produce.

True or False? Say the elasticity of demand for University of Kentucky basketball tickets is -0.80. This implies that a 10% increase in price will lead to a 8% decrease in quantity demanded for Kentucky Basketball tickets.

True (The equation for elasticity of demand = (% change in quantity demanded)/(% change in price). Using this equation, we can plug in our values to see that elasticity of demand = (-8%)/(10%) = -0.80.)

True or False? In thinking about the economic role of government we break activity down into 2 primary functions: protective and productive

True (When the government sets policies, the economic purpose of a law is either to protect consumers or producers or to increase economic production in some capacity.)

True or False? To produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B. We can conclude that Farmer A has an absolute advantage over Farmer B in producing wheat.

True (absolute advantage refers to who can produce the most efficiently)

True or False? The Law of Supply states that an increase in the price of a product will lead to a increase in the quantity of the product supplied, ceteris paribus

True (an increase in price induces a supplier to increase the quantity supplied)

True or False? The equation for Local Taco's production possibilities curve is Shrimp Taco (S) = 13 - 1/2 Fish Taco (F), where S and F are 2 tacos that it can produce. The opportunity cost to Local Taco of producing an extra Shrimp Taco is 2 Fish Tacos.

True (the slope of the line (slope = 1/2) indicates that 1 shrimp taco is worth 2 fish tacos)

True or False? According to the Laffer curve, tax rate levels of 0% and 100% will bring in 0 tax revenue.

True (This is true because if you look at the Laffer curve, you can see that there is zero tax revenue at the left end of the graph (where the tax rate is 0%) and at the right end of the graph (where tax rate is 100%).)

True or False? Markets are inefficient when homework answers are shared on GroupMe (text messaging app). Unless there is government (Patel) intervention, the market fails: It tends to over provide answers than what's considered optimal.

True (This is true because when answers are shared on GroupMe, many students tend to cheat and will get more answers correct than what they would have gotten if the answers were not shared. This means the number of answers each student gets correct is higher than what would be optimal (based on their own knowledge) and the market is inefficient.)

True or False? An economic model is a simplified version of reality used to analyze real- world economic situations

True (all models simplify reality to improve our understanding of it. This is the case of an economics model)

True or False? Hong Kong used to be a command economy. However, now it is one of the freest economies- operates under Free Market rules. HK traded off equality for efficiency when it transitioned from Command to Free Market

True (command economies put a focus on equality while free market economies put a focus on efficiency)

True or False? Some studies have shown that eating chocolate before a test can increase brain activity, thereby causing students to score higher on exams. when these findings were announced, the price and quantity sold of chocolate increased in college towns

True (since this was a positive shock for chocolate)

True or False? A market includes both buyers and sellers

True (A market must include both buyers and sellers because buyers create the demand and sellers create the supply.)

True or False? When Dr. Patel's income increased, he increased his usage of air condition (AC) at home and at the same time, he started driving less when traveling to different states. For Dr. Patel, AC is a normal good and driving is an inferior good

True (A normal good is a good where the quantity produced increases when a person's income increases. An inferior good is a good where the quantity produced decreases when a person's income increases. Since Dr. Patel's income increased and his usage of AC increased, AC is a normal good. Since Dr. Patel's income increased and he started driving less, driving is an inferior good.)

!! True or False? Bruce Springsteen and his band are on a concert tour. In a town in Iowa the show did not sell out. 1,000 tickets remain unsold. This implies that the face-value (selling price) of the tickets is above the true equilibrium ticket price.

True (In a market economy, the equilibrium price is where the quantity supplied equals the quantity demanded. In this case, there is a surplus because the quantity supplied is greater than the quantity demanded, meaning that the price would need to be decreased in order to bring it to the equilibrium price. Therefore, the current price is above the equilibrium ticket price.)

True or False? suppose that Tusker goes to the store to buy Tennis Balls (T) and Frisbees (F). The following equation represents her production possibility frontier: T=8-1/2F. For Tusker, the opportunity cost of producing 1 Tennis Ball is 2 Frisbee

True (Since the production possibilities frontier is modeled by T = 8 -1/2F, the slope is -1/2, meaning that for every 1 ball that is produced,2 fewer frisbees are produced. The slope is equivalent to the opportunity cost of producing one good over the other.)

True or False? The Law of Demand states that an increase in the price of a product will lead to a decrease in the quantity of the product demanded, ceteris paribus

True (This is the definition of the Law of Demand: when the price of a good is higher, the demand for a good will be lower.)