ECO2023 HW

You're running a business producing refrigerator magnets. Each magnet sells for $2. If you produce 50,000 refrigerator magnets, what is your total revenue?

$100,000

You are running a business producing faux leather wallets. Your current accounting costs are $2 million. Your current revenue is $2.5 million. If you were to switch to making faux leather belts, you estimate that your accounting profit would be $1 million. What is your current economic profit, in millions?

-0.5

The price of peanut butter rises from $1 per jar to $2 per jar. The quantity of grape jelly consumed falls from 6 million jars per year to 2 million jars. What is the arc cross-price elasticity of demand?

-1.5

The price of Gala apples rises from $5 per pound to $10 per pound. As a result, the quantity demanded falls from 10 million pounds to 5 million pounds. What is the Arc Own-Price Elasticity of Demand?

1

Your boss offers you a raise from $10 per hour to $15 per hour. As a result, you decide to drop a class and work 25 hours per work, rather than the 15 hours per week you were previously working. What is your Arc Price Elasticity of Supply?

1.25

You take a new job, raising your income from $50,000 per year to $70,000 per year. As a result, you decide to take two vacations per year, instead of one. What is your Arc Income Elasticity of Demand?

2

Feudal lords along the Rhine River in the Holy Roman Empire often charged tolls to river traffic. Merchants carrying goods up or downstream had to pay tolls in order t be permitted to continue their journey. A problem arose, however, because there were many feudal lords with land by the river. Each lord wanted to earn as much as possible from taxing river traffic. As a result, they would sometimes charge so much that merchants would find it unprofitable to make the trip at all, so people up and down the river were unable to get many of the goods they wanted. This is an example of... A. the Tragedy of the Anticommons. B. the Tragedy of the Commons. C. a positive externality. D. adverse selection.

A

Paul makes fine silverware, jewelry, and other silver items. He's very productive, and can produce more quality silver pieces per hour than anyone else he knows. He is running his business by himself, however, and is considering taking on an assistant. Which of the following is, based on the Law of Comparative Advantage, a good reason to hire an assistant? A. Even if his assistant cannot operate the bellows as well as Paul can, or balance the books, or sweep, or do whatever other menial work as well as Paul can, an assistant can still be worth hiring. This is because hiring an assistant allows Paul to spend his time doing the really hard parts of his job--crafting silver into valuable goods. The assistant isn't as good at anything as Paul is, but the assistant is "good enough" at some things to make the business more productive overall. B. Working by oneself gets lonely and boring; work will be more fun and productive with someone to talk to. C. The assistant might turn out to be surprisingly skilled at silversmithing, and could one day outperform even Paul. D. Fine silver goods are part of a market that is likely to grow rapidly due to increasing income inequality. As a part of the population grows fantastically wealthy, producers of luxury goods--like Paul--will need to grow their businesses rapidly to satisfy these wealthy consumers. Paul will need an assistant just to keep up with the growing business.

A

Suppose you are willing to pay up to $70 for a new pair of shoes. You find a pair you like for $40 and buy them. The store that sold you those shoes would have been willing to sell them for as little as $35. Which of the following is correct? A. You are $30 better off, and the store owner is $5 better off. B. You are $5 better off, and the store owner is $30 better off. C. You are $35 better off, and the store owner is not better off at all. D. You are $40 worse off, and the store owner is $40 better off.

A

The surgeon general announces that wearing a hat significantly reduces your chance of getting skin cancer. Also, hats look cool (provided you choose the right kind) and you want to look cool, right? As a result, many more people buy and wear hats. What happens in the market for hats? A. Demand shifts to the right, price rises, quantity rises. B. Demand shifts to the right, price falls, quantity falls. C. Supply shifts to the right, price falls, quantity falls. D. Supply shifts to the left, price rises, quantity falls. E. The higher price of hats causes quantity demanded to fall.

A

To deal with the problem in the previous question, economists would suggest that the government implement... A. ITQs (individual transferable quotas). B. a subsidy for hunting. C. command-and-control regulations. D. a ban on hunting passenger pigeons.

A

Which of the following statements is correct? A. In equilibrium, Total Surplus is maximized. B. Total Surplus is Consumer Surplus minus Producer Surplus. C. Total Surplus is Producer Surplus minus Consumer Surplus. D. Total Surplus is maximized when the price is zero. E. When Total Surplus is maximized, this is inefficient.

A

Your business is producing bags of potato chips. Marginal product is falling. Marginal cost is $2. The price is $2.50. What should you do to maximize profits? A. Increase production. B. Leave production unchanged. C. Decrease production. D. Raise the price.

A

In which of the following market structures are the firms price searchers? Recall that this means that firms can choose their price, rather than just passively accepting the market price. A. Monopolistic Competition B. Oligopoly C. Perfect Competition D. Monopoly

A, B, D

Which of the following is an example of a binding price control? This is a "multiple answer" question, so there may be more than one correct answer. A. The price of mobile phone data is around $15 per gigabyte per month. The government imposes a price ceiling of $5 per month. B. The price of wheat is $20 per bushel. The government imposes a price floor of $5 per bushel. C. The price of steel is $300 per ton. The government imposes a price floor of $200 per ton. D. The price of cotton is $10 per bale. The government imposes a price floor of $15 per bale. E. The price of gasoline is $2 per gallon. The government imposes a price ceiling of $4 per gallon. F. The price of bananas is $2 per pound. The government imposes a price ceiling at $1 per pound.

A, D, F

Suppose the arc own-price elasticity of demand for potatoes is 0.2, and the arc price elasticity of supply is 0.4. If a $5 per pound tax is imposed on potatoes, which of the following is correct? A. The burden of the tax will fall more heavily on consumers. B. The burden of the tax will fall more heavily on producers. C. The burden of the tax will fall equally on producers and consumers. D. The burden of the tax will fall primarily on the government.

A.

About 55% of Americans of voting age vote in national elections. An economist would say that... A. those Americans who have voted have all mistakenly concluded that their votes are decisive and will change the outcome of the election. B. up to 45% of voting-age Americans do not find the benefits of voting to be greater than the costs, so they rationally abstain from voting. C. about 45% of Americans have irrationally concluded that their votes do not matter, and so they have mistakenly abstained from voting. D. those voters who have abstained should be forced to vote or face punishment

B

The Law of Demand says that if the price of strawberries falls from $4 per pound to $3 per pound, the quantity of strawberries purchased by consumers will... A. stay the same. B. rise. C. fall. D. rise by 25%.

B

The passenger pigeon, a migratory bird, is quickly being hunted to extinction. No individual hunter has an incentive to refrain from shooting at them, as every bird one hunter doesn't kill is just a bird some other hunter will kill. This is an example of... A. none of the above. B. the Tragedy of the Commons. C. a Public Good. D. the Tragedy of the Anticommons.

B

Winston Churchill goes to a party, and asks an attractive, high-status woman "Madam, would you sleep with me for five million pounds?" The woman says "Prime Minister, I'm shocked! Well, I suppose I would." Churchill then asks "Would you sleep with me for five pounds?" The woman responds "Why, what kind of woman do you think I am?" Churchill says "We have already determined that, madam; now we are merely haggling over the price." This woman's behavior obeys the... A. Law of Comparative Advantage. B. Law of Supply. C. Law of Unintended Consequences. D. Law of Demand.

B

You hire another worker to produce pizza in your pizza restaurant. The number of pizzas per hour you can produce goes from 60 to 90. You then hire another worker, and the number of pizzas you can produce per hour goes from 90 to 110. When you hired this last worker, you encountered... A. The Law of Diminishing Marginal Utility. B. The Law of Diminishing Returns. C. The Law of Demand. D. The Law of Supply.

B

Which of the following describes a movement along the demand curve, and not a shift of the demand curve? A. A new, faster digital memory card format is released, and as a result, people buy fewer MicroSD cards. B. The price of corn falls, and as a result, consumers buy more corn. C. Because people hear that High Fructose Corn Syrup is unhealthy, they buy less of it, and as a result, food processing businesses choose to buy less corn at every price. D. The price of MicroSD memory cards rises, and as a result, consumers buy fewer MicroSD memory cards. E. People buy fewer printed books due to a drop in the price of e-books.

B & D

Which of the following statements correctly describe the Perfectly Competitive Model? A. There is one seller, but there are many buyers. B. The goods being sold are identical. C. The marginal cost curve passes through the minimum points of average total cost and average variable cost. D. Price is determined by supply and demand. E. Firms do not experience economies of scale. F. Firms that experience negative economic profit will eventually exit the market. G. A firm that raises its price above the equilibrium price will lose some sales, but not all sales. H. Marginal cost falls while marginal product is rising, and then marginal cost rises when diminishing returns occur.

B, C, D, F, H

Gerald T. Moneybottom loves trees so much that he bought the entire Amazon rain forest and fenced it off, preventing any logging. In doing so, he caused a number of valuable endangered tree species to be saved, resulting in new medicines being developed. It also resulted in a lot of carbon dioxide being absorbed, slowing global warming. Gerald T. Moneybottom is providing... A. a tragedy of the commons. B. a negative externality. C. a positive externality. D. path dependence.

C

The cross-price elasticity of demand for good X is -0.79, relative to good Y's price. How are goods X and Y related? A. They are substitutes. B. Both goods violate the law of supply. C. They are complements. D. They are both normal goods.

C

The market for razor blades is in equilibrium. Then, two things happen at the same time. First, a new company, Barry's Razors, enters the market with its precision German-made razors (heavily advertised on podcasts, because that's where all the hip kids' ears are these days). Second, a new medical cream is invented that will prevent the growth of new hair in whatever area to which it is applied (it is not permanent, and has no side effects, except that it makes the user strongly dislike swimming, inflicting medical irony on professional swimmers). What is the effect of these two things (a new razor producer enters the market, and a new drug can prevent the regrowth of hair) in the market for razors? A. Price rises, quantity falls. B. Price falls, quantity falls. C. Price falls, quantity is indeterminate. D. Price is indeterminate, quantity falls.

C

Which of the following is correct? A. Markets are always imperfect, so governments must always interfere to fix them B. Governments always suffer from incentives to waste resources, so governments should not be allowed to interfere in the economy. C. Governments and markets are both imperfect systems, in which people face incentives that sometimes lead to inefficient outcomes. D. Governments and markets complement each other, with each correcting the problems caused by the other, resulting in efficient outcomes.

C

Your business is making t-shirts. You've got a large warehouse that you're using for sewing your imported cotton. You also have 200 sewing machines. Your current explicit costs--including labor, capital, rent, and so on--are $2.3 million per year. Your next best opportunity is to use your facilities to produce socks and underwear instead. If you were to do that, you would earn $1.2 million in profits. What are your economic costs? A. $1.2 million B. $1.3 million C. $3.5 million D. $4.6 million

C

Your current business (producing ice cream) is providing an economic profit of -$150,000 per year. If this is representative of your future profit (that is, if you expect things to stay like this, with profits staying negative), what would economist tell you to do? A. Cut costs by laying off staff and using innovative technology. B. Invest in a larger ice cream production facility. C. Exit the ice cream market and do something else instead (perhaps smoothies?). D. Lobby the government for a bailout.

C

Consumer Surplus is... A. The difference between what a consumer is willing to pay, and what the consumer actually pays (the price). B. The area beneath the demand curve and above the price. C. A measure of the pleasure consumers get from consuming goods and services, net of the cost of obtaining those goods and services. D. All of the above.

D

Suppose a monopoly is earning positive economic profits. As a result of technological change, the monopoly's costs fall. What happens? A. price falls and quantity falls. B. price rises and quantity rises. C. price rises and quantity falls. D. price falls and quantity rises.

D

Suppose the arc own-price elasticity of demand for gasoline is 0.15. Which of the following is correct? A. If the price of gasoline rises by 1%, the quantity demanded will fall by 15%. B. If the quantity of gasoline rises by 1%, the price will fall by 0.15% C. If the price of gasoline rises by 1%, the quantity demanded will rise by 0.15%. D. If the price of gasoline rises by 1%, the quantity demanded will fall by 0.15%.

D

The market for russet potatoes is in equilibrium, and it's a perfectly competitive increasing-cost industry. The price of potatoes is currently $6 per 100-pound sack. Low carbohydrate diets suddenly become popular, and many people substitute cauliflower and other vegetables for potatoes. As a result, demand for potatoes falls. What will happen to the price of potatoes in the short run and in the long run? A. In the short run, the price of potatoes falls below $6, perhaps to $4. In the long run it falls even lower than that, perhaps to $3. B. In the short run, the price of potatoes falls below $6, perhaps to $4. In the long run it rises back up to the original price of $6. C. In the short run, the price of potatoes falls below $6. In the long run it rises above $6. D. In the short run, the price of potatoes falls below $6, perhaps to $4. In the long run it rises a bit, perhaps to $5.

D

The military and congressmen planning next year's budget are considering shutting down a naval reserve base in North Carolina. The base is old, and not as important to naval warfare as it once was (and for that matter, naval warfare is not as important as it once was). A congressperson from the district argues that the base should not be shut down, because doing so will destroy jobs in the area. To which common bias in economic thinking is this congressperson appealing? A. Anti-foreign bias B. Pessimistic bias C. Anti-market bias D. Make-work bias

D

Which of the following is an example of third degree price discrimination? A. Netflix offers to let you renew your membership for $15 per year, or $10 per year if you renew for the next three years right now. B. Publix offers you a second bag of cheddar cheese for 50% off, if you buy the first bag at full price. C. A telepathic monopolist can read each customer's mind and charge each of them a different price, according to their willingness to pay. D. FSU provides you with financial aid due to your low family income and high grades

D

Which of the following is correct? A. Equilibrium in monopoly is efficient if the firm has maximized profit. B. Equilibrium in oligopoly is always efficient because firms cannot collude. C. Equilibrium in monopolistic competition is never efficient because of deadweight loss. D. Equilibrium in perfect competition is efficient.

D

Your income elasticity of demand for flip-flops is -0.1. What sort of good are flip-flops for you? A. Flip-flops are a normal good. B. Flip-flops are a substitute. C. Flip-flops are a complement. D. Flip-flops are an inferior good.

D

Producer Surplus is... A. The difference between the price of a good, and the marginal cost to the firm of producing that good. B. The difference between what a firm receives for selling a good, and the minimum price at which it would have been willing to sell that good. C. The difference between what a firm receives for selling a good, and the opportunity cost of producing that good. D. The difference between what a firm receives for selling a good, and the value of the resources that must be used to produce that good. E. The benefit to producers from producing and selling a good. F. All of the above.

F