Econ Exam Prep
$.50 for buyers and $.10 for sellers
On figure Q7.3 the supply curve S1 and the demand curve D indicate initial conditions in the market for gasoline. A $60 per gallon tax on gasoline is levied, which shifts the supply curve from S1 to S2. What is the actual burden of the tax?
a bill that would provide substantial subsides for tobacco growers
Senator represents a state that grows significant amounts of tobacco. Many of his constituents woke for business in this industry but the tobacco firms also make generous contributions to his reelection campaign. according to public choice theory, what bill would senator likely support?
$110
Shannon buys a new CD player for $135, she receives consumer surplus of $25 on her purchase if her willingness to pay is?
members of special interest groups favoring these programs feel strongly about them while most other voters are rationally uninformed about them
Special-interest programs are highly attractive to vote-seeking policies because
An increase in the price of frozen yogurt, a substitute for ice cream
Suppose D1 and S1 indicate the initial conditions in the market for ice cream. What changes would tend to cause the shift from D1 to D2 in the market for ice cream in Figure Q5.2?
There is no change from the situation that exists at the equilibrium prices
Suppose a price floor is established at $20, what is the result? Figure Q6.1
the economy would be considered at full employment
Suppose an economy is operating at its maximum sustainable output rate, neither recession or economic boom are present. what would be true?
there will be a shortage of corn
Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?
$20
Suppose three people each purchase a cell phone for $80, A was willing to pay $100, B was willing to pay $95 and C was willing to pay $80. What was the consumer surplus for the three individuals
demand for the product is highly elastic and the supply is relatively in elastic
The burden of a tax will fall primarily on sellers when the
trade-offs
The fact that goods and services are scarce entails what?
the value of a good is subjective
The fact that some people love tomatoes while others dislike them illustrates that
voters to have little incentive to become informed about candidates and political issues
The fact that voters perceive their votes as unlikely to actually change the outcome of an election causes
develops a logically consistent theory based on how individual actors (such as voters, politicians, and bureaucrats) respond to incentives
The methodology of public choice analysis
the value of the best opportunity that must be sacrificed in order to take the action
The opportunity cost of an action is
the expectation of individual voters that their vote will not be decisive
The rational-ignorance effect is the result of
decreasing real output an increasing unemployment
The recessionary phase of the business cycle is characterized by
students will not take as good of care of these commonly owned bicycles as they do their own bicycles
The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that
marginal benefits vs. marginal costs
We make decisions based on expected . . .
as personal benefits (cost) from choosing an option increase, other things constant, a person will be less likely to choose that option
What are incentives?
The change in the opportunity cost, the additional cost incurred in the production of one more additional unit of a good or source
What are marginal costs?
in addition to their initial impact, economic events often generate secondary effects that may be felt only with the passage of time
What are secondary effects?
Lottery (random drawing), Queuing (first-come, first-serve/ lines), Barter (trading), Market-system (monetary/money)
What are some alternate methods to ration scare resources?
1) Opportunity costs 2) Economizing Behavior 3) Incentives 4) Marginal Analysis 5) Uncertainty 6) Secondary Effects 7) Subjective Preferences 8) Predicting
What are the 8 guide posts to economic thinking?
when rates are present difficult for people to accuarelt forecast the years rate of inflation
what is true of high variable rates of inflation?
not part of labor force
without job for 12 months, no longer searching
contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand
"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements
incorrect; if confuses the elimination of poverty with the elimination of constraint imposed by scarcity
"If income were redistributed in favor of the poor, we would eliminate scarcity" the preceding statement is
$10 per hour (600 + 10 X 6 = 660; 150 + 10 X 51 = 660)
Assume an individual is traveling from Denver to Washington. The price of an airline ticket from Denver to Washington costs $600. A bus ticket costs $150. Traveling by plane takes 6 hours compared with 51 hours by bus. Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at or more than what?
a larger quantity of cookies will be demanded
Assume the demand curve for cookies is downward sloping, if the price of cookies falls from $1.50 to $1.25 per dozen, what will happen?
The population of black rhinos has increased
Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the very of extinction. These private owners charge a fee for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result,
scarcity
Economic choice and competitive behavior are the result of
how individuals make choices because of scarcity
Economics is primarily the study of
scarcity
Every economy must ration goods in some way because of
the deadweight loss accompanying the tax
Figure Q7.2 shows the market for a good before and after a tax is imposed. What does the triangular area C represent?
Georgia has a comparative advantage in producing peaches
Florida producers specialize oranges and Georgia producers specialize in peaches. Given freedom of movement for both goods and services, it would be reasonable to conclude that ?
counterproductive because it takes resources away from the creation of wealth in the private user
From the stand point of society as a whole, rent seeking is
reduce the number of mutually beneficial exchanges that occur
High transaction costs will tend to
Levitt and Dubner found evidence of improved teacher material comprehension because the program required them to also learn
How did incentives provided by No Child Left Behind policies, including financial bonuses to teachers impact teacher behavior in Chicago as measured by Dubner and Levitt?
the supply of textbooks would decrease causing the price of textbook to rise
How would the increase in the price of paper influence the market for college textbooks?
the supply curve for peaches would shift to the left, and price of peach falls
If Georgia experiences a late frost that damages the peach crop, we should expect that
Harry received $5,000 of producer surplus from the transaction
If Harry paid $25,000 to sell his crop of tomatoes even though he would have been willing to have sold them for as little as $20,000 this indicates that
Matt must have valued the baseball card more than the two candy bars, and Andy must have valued the two candy bars more than the baseball card
If Matt trades two candy bars to Andy in exchange for one baseball card, then what must be true?
their prices would decrease, there would be a reduction in tainted or poor quality drugs, and there would be less violence occurring in the drug transactions
If drugs such as marijuana and cocaine were legalized, it would be likely that
not very sensitive to the price of the good
If the supply of a good is relatively inelastic, this means the quantity supplied of the good is
transaction cost
In economics, the term that refers to the time, effort, and other resources needed to search out, negotiate and consummate an exchange is ?
$6.00
In figure Q7.1 the price paid by buyers after tax is imposed is
an upward shift of the demand curve of jeans for $25
A $25 government subsidy paid directly to buyers of jeans will result in
frictional
A PHD in economics turned down many job offers, bc she hopes eventually to teach at one of the top 10 universities in her field. the type of unemployment is called
Capitalism
A form of economic organization that relies primarily on private ownership of productive assets, freedom, exchange and market prices to allocate goods is often called
Socialism
A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called
$75
A ticket to a concert costs $45. You have the ticket and can resell it for $75. Your opportunity cost of actually attending the concert is what?
legalization of abortion
According to Levitt and Dubner what was the largest contributing factor to the reduction in US crime rates in the 1990s?
opportunity cost
According to the law of comparative advantage, a particular task is performed most efficiently by the individual with the lowest ?
consumers buy less
According to the law of demand, as the price of a good rises what will happen?
1) Opportunity costs; the use of scarce resources to produce a good or service is always costly 2) Economizing Behavior; individuals choose purposefully, therefore they will economize 3) Incentives Matter; people respond to incentives 4) Marginal Analysis; economic reasoning focuses on the impact of marginal changes 5) Uncertainty; since information is scarce, uncertainty is a fact of life 6) Secondary Effects; in addition to their initial impact, economic events often generate secondary effects that may be felt only with the passage of time 7) Subjective; the value of a good is subjective and varies with individual preference 8) Predicting; the test of an economic theory is its ability to predict and explain events in the real world
What are the 8 guideposts to economic thinking?
marginal values
What are the values that matter?
the sacrifice of other goods and services we value
What are trade-offs?
additional or extra
What does marginal mean?
the maximum price people would be willing to pay for that unit
What does the height of an individual's demand curve indicate?
If the product price increases, quantity of demand will decrease
What does the law of demand specifically imply?
substitutes
What exists for all scarce goods?
The availability of substitutes
What explains the negative relationship in the law of demand?
individuals choose purposefully, therefore they will economize
What is Economizing Behavior?
an additional satisfaction or utility that a person receives from consuming an additional unit of a good or service. The maximum a person is willing to pay to consume that additional unit of good or service
What is Marginal Benefit?
a natural outgrowth of the need to ration scarce goods
What is competition?
The difference between total willingness to pay and the total amount actually paid
What is consumer surplus?
gaining a specific benefit at the least possible cost
What is economizing?
economic reasoning, focuses on the impact of marginal changes
What is marginal analysis?
If you get the same satisfaction from a chicken sandwich and a salad, you should purchase the one that costs the least
What is most consistent with economizing behavior?
the highest value alternative that must be sacrificed
What is opportunity cost?
it would imply that all our desires for a good have been fully satisfied
What is the absence of scarcity?
goods that perform similar functions
What is the availability of substitutes?
The inverse relationship between the price of a good and the quantity consumers are willing to purchase
What is the law of demand?
As the rate of consumption increases, the marginal utility derived from consuming additional units of a good will decline
What is the law of diminishing marginal unity?
The price of orange juice will fall, and quantity purchased will fall
What is the most likely effect of lower apple juice prices on the price and quantity of orange juice, a substitute product?
If the price of steak were $2 per lb, producers would want to supply less steak than consumers would want to buy. If the price of steak were $4 per lb, producers would want to supply more steak than consumers would want to buy, If the price of steak were $3 per lb, producers would want to supply the same amount of steak that consumers would want to buy
What is true regarding the market for steak shown in Figure Q5.1 ?
higher prices (sacrifices)
What leads people to seek substitutes?
Resource owners will conserve vital resources for the future, particularly if they expect the resource to increase in value
What will most likely occur under a system of clearly defined and enforced private property rights?
lower prices of grains used to feed cattle
What would most likely increase the supply of beef?
quantity supplied will exceed quantity demanded, so there will be a surplus
When a price floor is above the equilibrium price,
the supply curve has shifted left
When economists say the supply of a product has decreased, they mean
non-price factors become more important in the rationing of the good
When government imposes price controls in a market,
a reduced availability of these badly needed products
When several hurricanes in Florida hit in 2004, a number of local governments imposed price controls that prevented sellers from raising their prices for badly needed products like plywood and generators. In the areas where the controls were imposed, they resulted in
non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good
When shortages of a good is present due to a price ceiling
20 cents
While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Jordan the marginal cost of purchasing the third taco would be what?
structural unemployment
unemployed due to decrease in demand for workers with certain knowledge
the market would be in equilibrium
With a price ceiling above the equilibrium price,
both the buyer and the seller will expect to be made better off
With voluntary exchange
making a rational personal choice if knowing these things gives him little personal benefit
despite being a college graduate Jack can not name any representatives of congress and he has no idea what issues are being debated and voted on currently. According to public choice analysis Jack is,
price increases, quantity decreases
if there were an increase in the tax imposed on beer suppliers, what would be the effect on equilibrium price and quantity of beer?
rent seeking
in 2006, AARP spent over 70million on lobbying-related expenses in an attempt to get policies enacted that would benefit retirees. In economics the term used to describe this activity would be
economy is characterized by dynamic change and imperfect information
natural rate of unemployment is not zero because
quantity demanded exceeds quantity supplied but price can not rise to remove the shortage
rent controls with imposed prices below market clearing tend to cause persistent imbalances in the market for housing because
primarily the consumers
suppose that the federal government levies a 50 cent tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax would fall on
the demand for the product is highly inelastic and supply is relatively elastic
the benefit of a subsidy will go primarily to the buyers when
demand for the product is highly inelastic and the supply is relatively elastic
the burden of a tax will fall directly on the buyers when
incentives matter- when an option becomes less costly, people will be more likely to choose it
the economic way of thinking stresses that
the use of resources to meet one desire means that those resources can no longer be used to meet another desire
the expression "there's no such thing as free lunch" means
is the highest-valued alternative that must be given up as the result of choosing the option
the opportunity costs of an option
