Econ 202

Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Refer to Figure 5-8. Suppose the emissions reduction target is currently established at 8 million tons. What is the area that represents the cost of eliminating an additional 1 million tons?

A

Figure 4-6 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. Refer to Figure 4-6. What area represents consumer surplus after the imposition of the price floor?

A

Economists refer a to a market where buying and selling take place at prices that violate government price regulations as

A black market

Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are

Complements

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

Complements

Refer to Figure 3-2. A decrease in the price of the product would be represented by a movement from

B to A.

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the value of the deadweight loss at the equilibrium price of $15?

$0

Frieda is at her local florist to buy a dozen roses. She is willing to pay $75 for the roses, and buys them for $75. Frieda's consumer surplus from the purchase is

$0

Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of extra hours the nail salon is open as shown in the table above. She would have to hire a worker for those extra hours at a wage rate of $10 per hour. What is Lydia's marginal cost if she decides to stay open for an extra two hours instead of one hour?

$10

Suppose your expenses for this term are as follows: tuition: $10,000, room and board: $6,000, books and other educational supplies: $1,000. Further, during the term, you can only work part-time and earn $8,000 instead of your full-time salary of $20,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?

$23,000

In 2017, economists working at the U.S. Department of Treasury's Office of Tax Analysis have estimated that the marginal social cost of carbon dioxide emissions was about

$49 per metric ton

Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights, and the marginal cost of installing the street lights. Refer to Figure 5-16. How much is Amit willing to pay per street light to have 4 street lights installed?

$900

Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. If Mendonca chooses to produce 120 pounds of meat, how much vegetables can it produce to maximize production?

0 pounds of vegetables

Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora. Each country produces two goods, milk and honey. What is the opportunity cost of producing one gallon of milk in Bora Bora?

1.5 gallons of honey

Suppose Pump-U-Up lowers the price of its gym membership by 10 percent and as a result, Sweat-It-Out experienced a 16 percent decline in its gym membership. What is the value of the cross-price elasticity between the two gym memberships?

1.6

Santiago runs a comic book store in the town of East Arbor. He is debating whether he should extend his hours of operation. Santiago figures that his sales revenue will depend on the number of extra hours the store is open as shown in the table above. He would have to hire a worker for those extra hours at a wage rate of $18 per hour. Using marginal analysis, by how many hours should Santiago extend his store's hours of operations?

4 hours

A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?

Marginal Revenue

A restaurant sells a large soft drink at a fixed price of $1.79. A term used by economists to describe the money received from the sale of an additional large soft drink is

Marginal Revenue

In economics, the term ________ refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.

Market

Refer to Figure 6-1. The demand curve on which elasticity changes at every point is given in

Panel C

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that

People are rational

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transportation is

Positive

Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.Refer to Figure 5-6. What is the market equilibrium output level?

Q1

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

Rationally

A tragedy of the commons occurs when a resource is

Rival and nonexcludable

Does either Ireland or Scotland have an absolute advantage and if so, in what product?

Scotland has an absolute advantage in producing both products.

Assume that when the price of cantaloupes is $2.50 the demand for cantaloupes is unit-elastic, and that the demand curve for cantaloupes is linear and downward sloping. If firms lower the price of cantaloupes to $2.00 which of the following statements can be made regarding the price elasticity of demand for cantaloupes?

The demand for cantaloupes at $2.00 must be inelastic.

Suppose a decrease in the supply of paper results in an increase in revenue. This indicates that

The demand for paper is inelastic

Which of the following describes how a positive externality affects a competitive market?

The externality causes a difference between the private benefit from consumption and the social benefit.

At a price of $20, Daphne sells 35 hand-painted dog collars per week. When she raised her price to $25, she sold 28 per week. Based on this information, the demand for her dog collars is

Unit Elastic

Jewelry manufacturers produce a range of products such as rings, necklaces, bracelets, and brooches. What fundamental economic question are they addressing by offering this range of items?

What to produce?

A decrease in the demand for incandescent light bulbs due to changes in consumer tastes, accompanied by a decrease in the supply of incandescent light bulbs as a result of government restrictions, will result in

a decrease in the equilibrium quantity of incandescent light bulbs; the equilibrium price may increase or decrease.

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source?

a lack of clearly defined and enforced property rights

An example of a factor of production is

a vintner hired by a vineyard.

Rayburn Reed is a highly talented photographer. He has chosen to specialize in photography because of all of the following except

his opportunity cost of pursuing another career is very low.

Which of the following is a source of market failure?

incomplete property rights or inability to enforce property rights

The larger the share of a good in a consumer's budget, holding everything else constant, the

more price elastic is a consumer's demand.

Tesla opened its Gigafactory near Sparks, Nevada to produce lithium-ion batteries for both its automobiles and its Powerwall energy storage products. Figure 2-7 shows changes to its production possibilities frontier at the Gigafactory in response to new developments and different strategic production decisions. Assume a technological advancement greatly reduces the cost to produce batteries for its automobiles. This is best represented by the

movement from E to F in Graph A.

Table 2-10 shows the output per day of two pet groomers, Tammi and Horace. They can either devote their time to grooming dogs or bathing cats. What is Horace's opportunity cost of bathing a cat?

one and a half groomed dogs

Cross-price elasticity of demand is calculated as the

percentage change in quantity demanded of one good divided by percentage change in price of a different good.

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

Economists argue that the level of pollution should be

reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society.

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then

the price elasticity of demand for teapots is greater than 1 in absolute value.

Refer to Figure 4-9. Suppose the market is initially in equilibrium at price P1 and now the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax? For demand curve D1

the producer bears a greater share of the tax burden if the supply curve is S2

Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $9,

the quantity supplied is greater than the economically efficient quantity.

Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $3,

the quantity supplied is less than the economically efficient quantity.

If in the market for oranges the supply has increased, then

the supply curve for oranges has shifted to the right.

Assume that the price for swimming pool maintenance services has risen and sales of these services have fallen. One can conclude that

the supply of swimming pool maintenance services has decreased.

Refer to Figure 5-7. What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

the value of the area QBBEQE

A demand curve shows

the willingness of consumers to buy a product at different prices.

If the market for a product is broadly defined, then

there are few substitutes for the product and the demand for the product is relatively inelastic.

The midpoint formula is used to measure the elasticity of demand between two points on a demand curve

to ensure that we have only one value of the price elasticity of demand between two points on a demand curve.

Adam Smith's behavioral assumption about humans was that people

usually act in a rational, self-interested way.

Society faces a trade-off in all of the following situations except

when some previously unemployed workers find jobs.

A decrease in the equilibrium price for a product will result

when there is an increase in supply and a decrease in demand for the product.

Economists are reluctant to state that price controls are desirable or undesirable because

whether the gains from the winners exceed the losses from the losers is not strictly an economic question.

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter. If the Coase theorem holds and the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction

would be the same as if it would be if the owners of the smelter were legally liable.

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

zero

All of the following are examples of public goods except

Clean Water Systems

Refer to Table 6-3. Over what range of prices is the demand elastic?

Between $14 and $16

One segment of the circular flow diagram in the figure shows the flow of goods and services from market C to economic agents A. What is market C and who are economic agents A?

C = factor markets; A = households

A convenience store owner in Philadelphia was worried that the implementation of the 1.5 cents per ounce tax on sweetened beverages would cause the quantity demanded to fall by so much that he would be in a worse situation if he passed the tax on to customers by raising prices than if he did not raise prices. If raising the price of sweetened beverages would cause the owner to receive less total revenue from the sale of sweetened beverages, the demand for sweetened beverages is

Elastic

Refer to Table 6-6. Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

Elastic

If at a price of $50, Ghani sells 20 hand-made leather cell-phone covers but at a price of $60, zero units are sold. Based on this information, the demand for his cell-phone covers is

Elastic or Perfectly Elastic

Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What should he do?

He should sell the machine now to make the most profit.

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would

Internalize the externality

Seth is a competitive body builder. He says he has to have his 12-oz package of protein powder to "feed his muscles" every day. On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?

It is perfectly inelastic

Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones." Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and by how much?

Its profit will be $700 higher

One segment of the circular flow diagram in the figure shows the flow of labor services from market K to economic agents J. What is market K and who are economic agents J?

K = factor markets; J = firms

Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones." Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 3,000 cell phones?

Marginal Cost

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.

Which of the following exemplifies the tragedy of the commons?

The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

Assume that California Merlot is a normal good. Prices of California Merlot have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots?

The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right.

How does the decreasing use of traditional cameras affect the market for traditional camera film?

The demand curve for traditional camera film shifts to the left.

In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant?

The demand curve shifts to the left

In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?

The demand curve shifts to the right.

How does the construction of a market demand curve for a private good differ from that for a public good?

The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.

"Because chips and salsa are complements, an increase in the price of chips will cause the demand for salsa to decrease. This initial shift in demand for chips results in a higher price for chips; this higher price will cause the demand curve for chips to shift to the right." Which of the following correctly comments on this statement?

The statement is false because a change in the price of chips would not change the demand for chips.

Assume that microbrewery beer is a normal good. Prices of microbrewery beer have risen steadily in recent years. Over this same period, prices for fermenting vats used in beer making have also risen and consumer incomes have fallen. Which of the following best explains the rising prices of microbrewery beer?

The supply curve for microbrewery beer has shifted to the left more than the demand curve has shifted to the left.

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

Transactions Cost

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. At the equilibrium price of $15 consumers are willing to buy 80 pounds of tiger shrimp. Is this an economically efficient quantity?

Yes, because $15 is the price where the marginal benefit is equal to the marginal cost.

Suppose you have surveyed a few industries and obtained information about the income elasticity of demand for their products. If you expect that the economy is headed for a long recession, you would advise people to look for jobs in an industry with

a "high" negative income elasticity coefficient such as -4.

An externality is

a benefit or cost experienced by someone who is not a producer or consumer of a good or service

The market demand for a public good can be determined by

adding up how much each consumer is willing to pay for each unit of the public good.

If the price of orchids falls, the substitution effect due to the price change will cause

an increase in the quantity of orchids demanded.

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

an inferior good.

Economists assume that individuals

are rational and respond to incentives

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

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

cholesterol medication in general

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using

command-and-control policies.

Markets promote

competition and voluntary exchange

According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton.Source: Jesse Drucker, "In Times of Belt-Tightening, We Seek Reasonable Rates," Wall Street Journal, April 6, 2001.Based on the information above, the demand for hotel rooms is

inelastic

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be

inelastic

Economic incentives are designed to make individual self-interest coincide with social interest. According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?

instituting a system of tradable emission allowances

If a soda tax is implemented and demand for soda is price elastic, the decline in equilibrium quantity would be ________ and the increase in equilibrium price would be ________ than if demand were inelastic.

larger, smaller

An external cost is created when you

litter on the side of the road.

A market supply curve reflects the

marginal private costs of producing a good or service.

A carbon tax which is designed to reduce pollution is an example of a

market-based policy.

In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E. coli bacteria. Following this recommendation, the food industry looked at alternatives and many turned to arugula. One Chicago distributor claimed, "The sale of the stuff has gone through the roof." Based on this information

the cross-price elasticity between arugula and spinach is positive.

During an economic expansion as consumer incomes rise, holding everything else constant,

the demand for luxuries will rise while the demand for inferior goods will fall.