ECON 202 FINAL EXAM

For a small country called Boxland, the equation of the domestic demand curve for cardboard is Q D = 200 − 2P , where Q D represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is Q S = -60 + 3P , where Q S represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard. Refer to Scenario 9-1. Suppose the world price of cardboard is $45. Then Boxland's gains from international trade in cardboard amount to

a. $122.50.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

a. 2.33.

Currently you purchase ten frozen pizza per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are

a. an inferior good.

Pay-per-view broadcasts are

a. club goods

For a self-sufficient producer, the production possibilities frontier

a. is the same as the consumption possibilities frontier.

A production possibilities frontier is bowed outward when

a. the rate of trade-off between the two goods being produced depends on how much of each good is being produced.

The town of Isle is on a small island connected to Big City by a single bridge. Most of the residents of Isle work in Big City. As a result, the bridge becomes very congested for two hours each day at the typical morning and evening commute times. Which of the following policies considered by the mayor of Isle would likely be most efficient in alleviating the congestion?

b. A variable toll for the bridge payable only by vehicles crossing the bridge during the congested commute times.

What happens to consumer surplus in the cell phone market if cell phones are normal goods and buyers of cell phones experience an increase in income?

b. Consumer surplus may increase, decrease, or remain unchanged.

For which of the following goods is the income elasticity of demand likely highest?

b. Diamonds

Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the following is not possible?

b. Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks.

The phenomenon of free riding is most closely associated with which type of good?

b. Public goods

Consider the U.S. market for chocolate, a market in which the government has imposed a nonbinding price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling?

b. South American cocoa bean producers refuse to ship to chocolate producers in the United States.

Which of the following is an example of a positive externality?

b. The mayor of a small town plants flowers in the city park

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent. Refer to Scenario 5-2. The change in equilibrium price will be

b. greater in the aged cheddar cheese market than in the bread market.

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

b. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Demand is said to be inelastic if

b. the quantity demanded changes only slightly when the price of the good changes.

If something happens to alter the quantity supplied at any given price, then

b. the supply curve shifts.

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: a private cost of $3.10 a social cost of $3.55 a value to consumers of $3.70 Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent the price of a gallon of gasoline. Which of the following statements is correct?

c. One point on the supply curve is (Q = 1,000, P = $3.10).

What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce them?

c. The equilibrium price would decrease, and the equilibrium quantity would increase

Ryan produces hair clips and earrings. Celia also produces hair clips and earrings, but Ryan is better at producing both goods. In this case, trade could

c. benefit both Celia and Ryan

Demand is said to be price elastic if

c. buyers respond substantially to changes in the price of the good.

If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is

d. 1.33.

Suppose there is a flood in St. Louis, Missouri, that destroys several beer bottling facilities. Which of the following would not be a direct result of this event?

d. Buyers would not be willing to buy as much as before at each relevant price.

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling is established,

d. a smaller quantity of the good is bought and sold

The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could

d. auction off a limited number of sheep-grazing permits.

When a good is taxed,

d. both buyers and sellers of the good are made worse off.

Two types of private solutions to the problem of externalities are

d. charities and the Golden Rule.

The failure of markets to adequately protect the environment can be viewed either as a problem of

d. externalities or as a problem of common resources.

In the housing market, supply and demand are

d. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

A likely example of substitute goods for most people would be

d. pencils and pens.

The Tragedy of the Commons results when a good is

d. rival in consumption and not excludable.

The quantity supplied of a good is the amount that

d. sellers are willing and able to sell.

The price elasticity of supply measures how much

d. the quantity supplied responds to changes in input prices.

A simultaneous increase in both the demand for tablets and the supply of tablets would imply that

d. the value of tablets to consumers has increased, and the cost of producing tablets has decreased.