ECON final

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte?

$4

A tax on sellers causes which of the following?(i) a leftward shift of the supply curve(ii) a decrease in quantity sold(iii) an increase in the price buyers pay

(i) (ii) (iii)

What was the primary effect of "redlining"? in the US?

It prevented African Americans from buying homes.

The marginal revenue product of labor is equal to:

MPL × P.

How do people's beliefs about the distribution of wealth in the United States compare to the actual distribution of wealth in the country?

People believe the distribution of wealth is more equal than it actually is.

Which of the following is NOT an example of the hurdle method of price discrimination?

Segmenting the market into identifiable groups with different prices.

Which of the following is NOT a factor that can shift supply?

The market price of a product.

A large amount of harvested grain used to make flour grows mold due to flooding. How will this affect the supply of flour in the market?

The supply of flour will decrease in the market.

What will the impact be on the supply of long-haul truck transportation services if diesel fuel becomes cheaper?

The supply of truck transportation services will increase.

Why would a company set up internal markets?

To solve the knowledge problem.

The price of coffee at a local coffee shop is $3. Cheryl is willing to pay $6 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase?

Two

Suppose that you have a pumpkin stall at a farmer's market, and the Halloween season arrives. You know that your customers want to buy many pumpkins to carve into jack-o-lanterns. Which of the following is a likely result of this scenario?

You can charge a higher price per pumpkin and will sell more.

A binding price floor is

always above equilibrium price

A binding price ceiling is:

always below the equilibrium price.

Quantity demanded is on the horizontal axis when you plot a demand curve and shows the:

amount of a good someone is willing to buy at each price

For normal goods

an increase in consumer income will lead to a rise in their demand.

If the price of airline tickets goes up, there will be

an increase in the demand for both bus and train tickets.

Managers can harness market forces by setting up internal markets, which:

are organized within a company to buy and sell scarce resources.

You have a comparative advantage if you can complete a task:

at a lower opportunity cost than anyone else.

People gain consumer surplus when they purchase an item:

at a price below the value of the benefit they receive from the item.

dominant factor determining market price in the long run (assuming the industry is unrestricted entry?

average costs

A company's profit margin is calculated as:

average revenue minus average cost.

what conditions must be met for private bargaining to be effective in resolving an externality?

bargaining costs must be low and property rights must be clear.

When the economic surplus in a market is less than it would be if the market were efficient, the market is experiencing:

deadweight loss

decreasing marginal product leads to

decreased profitability for a seller

market power determines the shape of a firms

demand curve

A subsidy for buyers of a product shifts the:

demand curve to the right

The cross-price elasticity of demand measures how responsive the:

demand for one good is to a change in the price of another good.

Buyers bear a smaller incidence of the tax when:

demand is more elastic than supply.

A tax on sellers would not cause a decrease in quantity sold if:

demand is perfectly inelastic.

If an aircraft is found to have software problems that could lead to a malfunction, the effect on the aircraft market will be that the

demand will decrease, and the price of the aircraft will fall.

companies in perfect competition ______ face the discount effect. companies in imperfect competition _______ it.

do not face; face

labor demand curve in labor market slopes

downward

strategic interactions

each actor's strategy or plan of action depends on the anticipated strategy of others

The marginal benefit minus the marginal cost equals:

economic surplus

When the absolute value of the price elasticity of demand is greater than 1, demand is:

elastic.

governments regulate markets by

encouraging competition and minimize harm from market power

When there is free entry and exit in a market, in the long run, price will:

equal average cost.

The profit-maximizing rule MR = MC is:

followed by all types of firms.

The statutory burden of a tax is the:

government-designated burden of a tax payment.

When setting prices for different groups of customers, a manager should charge lower prices to groups that

have a more elastic demand.

Redistribution programs are means-tested. To qualify for such a program, a person must demonstrate that:

his or her income (or means) is below a certain specified level.

when a seller has no market power, its demand curve is

horizontal

in a perfectly competitive labor market, the managers hiring decision is about

how many workers to hire

According to the Coase theorem, the private market can achieve an efficient outcome:

if bargaining costs are low and property rights are well-defined.

What is the difference between accounting profit and economic profit?

implicit opportunity costs

Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost.

included; nonfinancial

An increase in the price of capital will _____ demand for labor if capital and labor are substitutes, and it will _____ the demand for labor if the scale effect dominates.

increase; decrease

Damon's wage rises. The substitution effect would cause him to _____ his work hours, and the income effect would cause him to _____ his work hours.

increase; decrease

When the absolute value of the price elasticity of demand is less than 1, demand is:

inelastic.

If demand is _____, a higher price yields _____ total revenue.

inelastic;higher

Suppose the percentage change in newspapers demanded for any price change is infinite. The absolute value of the elasticity of demand for newspapers is _____, and demand is _____.

infinity; perfectly elastic

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.

interdependence

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

less than 150

A corrective tax designed to resolve a negative externality problem is typically set at an amount equal to the _____ cost.

marginal external

The __________ suggests, decisions about quantities are best made incrementally.

marginal principle

a sellers demand curve summarizes its _____ and its marginal revenue curve measures its _____.

market power, incentive to increase production

A quantity regulation is a:

minimum or maximum quantity that can be sold.

Compared to other high income countries, the U.S. has ______ inequality.

more

A higher Gini coefficient means that a country has _________

more inequality

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:

multiply the individual supply of one of the suppliers by ten.

Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, if the firms collude to maximize joint profits:

neither will advertise.

Statements about what option should be chosen are _____ statements.

normative

When you calculate marginal costs, they should include:

only variable costs.

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?

opportunity cost

Decisions should reflect the _____ costs, rather than just the _____ costs.

opportunity; financial

A prediction market is a market where:

payoffs are linked to whether an uncertain event occurs.

When the absolute value of the price elasticity of demand is infinite, demand is:

perfectly elastic.

The price elasticity of demand for a good with a vertical demand curve is:

perfectly inelastic.

Analysis that describes what would happen if various actions were taken is _____ analysis.

positive

The relationship between price expectations and demand is

positive; when future prices are expected to rise, current demand will rise.

The opportunity costs of attending college include the:

potential income from working

The producer surplus on a unit sold equals:

price minus marginal cost

producer surplus on a unit sold equals

price minus marginal cost

in a perfectly competitive market sellers are....

price takers

Marginal social cost equals marginal _____ cost plus marginal _____ cost.

private; external

Market power results in companies that _____ and that have _____ compared to perfect competition.

produce less; higher price

A natural monopoly exists when

producing a large output has significantly lower marginal cost than producing a small output.

marginal revenue product is equal to the marginal:

product of labor multiplied by the price of that product

Household A earns $50,000 a year and pays $10,000 in taxes. Household B earns $200,000 a year and pays $50,000 in taxes. The tax system described here is...

progressive

During the pandemic, people don't want to go out to eat as much. At the same time, costs for restaurants are rising to ensure the safety of their employees. What do you predict will happen to the equilibrium price and quantity for restaurant meals?

quantity falls, the effect on price is uncertain

An individual demand curve is a graph:

quantity of an item someone plans to buy, at each price.

The main role of markets is:

reallocating resources to better uses.

If an item is a necessity rather than a luxury, its demand curve will be:

relatively steep

If an item is a necessity rather than a luxury, and has few substitutes, its demand curve will likely be:

relatively steep.

Assume an economy moves from autarky to free international trade. For goods that are imported, consumer surplus rises , producer surplus________ and the economy as a whole___________

rises, falls, gains

the dregree of sellers market power has an impact on the

sellers demand curve

Internal markets, which are markets that managers set up within their organization, are:

set up to allocate resources of a company more efficiently, often not using real money.

When education level is used to convey information to an employer, it serves as a:

signal

The opportunity costs of a decision may include each of the following types of costs EXCEPT

sunk costs

A tax on sellers shifts the:

supply curve to the left

Sellers bear a smaller incidence of a tax when:

supply is more elastic relative to demand.

sellers bear a smaller incidence of tax when

supply is more elastic than demand

The marginal cost of an additional worker is

the additional cost of hiring one more worker.

What is quantity supplied?

the amount of a good or service that producers are willing and able to sell

Which principle helps buyers and sellers make decisions about whether to trade?

the cost-benefit principle

A market's deadweight loss is calculated as:

the economic surplus at the efficient quantity minus the economic surplus at the actual quantity.

imperfect competition stems from ____ and whether or not the product is _____

the number of sellers; differentiated

Cedar point amusement park reduces its entry fees. As a result of this price fall,

the quantity demanded will be higher.

Statistical discrimination is:

the use of observations about the average characteristics of a group to make inferences about an individual member of the group.

A downward-sloping demand curve implies:

there is an inverse relationship between price and quantity demanded

If a store runs a sale on a product to clear out its stock, we can conclude that:

there was a surplus of the product in the store.

Suppose that government officials have set an emissions tax to reduce pollution. Assume that the optimal tax would be $1,500, but government officials have set the tax at $500. At the equilibrium with the $500 tax:

there will be too much pollution.

Which type of strategy for repeated games involves doing whatever the other player did the last time the game was played?

tit-for-tat

How is the economic surplus generated by a decision calculated?

total benefits minus total costs

average cost=

total cost/ output

Variable costs are the costs that

vary with the quantity of output produced.

Suppose the percent change in the quantity demanded for water for any price change is zero. The demand curve for water is _____, and the price elasticity of demand is perfectly _____.

vertical; perfectly inelastic

Which of the following statements is based on normative analysis?

we should protect the environment

A nonrival good is a good:

where one person's use of the good does not reduce another person's ability to use the same unit of the good.

Dependencies between your own choices reflect the fact that:

you have limited resources

Which of the following are correct about fixed costs?(i) They do not change with the level of production in the short run.(ii) They include variable costs.(iii) They are present even when the firm is producing zero units.(iv) They are irrelevant to marginal cost.

(i), (iii), and (iv)

The price of a dozen eggs falls from $2.50 to $1.50. In response to this price change, the quantity demanded for eggs increases by 10%. Using the midpoint formula, what is the absolute value of the price elasticity of demand for eggs?

0.2

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

0.5.

(Figure: Market for Printed Houses) Consider the market for environmentally friendly three-dimensional printed houses that is shown in the figure. The government wants to encourage buyers to buy such houses and places a price ceiling on the market at $200,000 per house. After the implementation of the price ceiling, the market quantity sold falls by _____ houses.

100,000

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

2; substitutes

There are 3 pizza places in a small town. One has 50% market share, one has 40% market share, and one has 10% market share. What is the HHI for the pizza places?

4,200

Betty is willing to pay up to $160 for a particular pair of boots. She is able to buy the boots for $120. The marginal cost of producing the boots is $70. How large is the total economic surplus associated with her purchase of the boots? (do not put "$" in your answer - just the number)

90 (with margin: 0)

Which of the following is an example of a quantity quota?

A city enforces zoning laws that restrict the number of housing units.

Which of the following benefits could a company gain from using internal markets?

Better allocation of its resources and more accurate predictions.

Which of the following statements is TRUE regarding economic efficiency?

Efficient outcomes rarely make everyone happy.

What attracts new sellers into a market?

Existing sellers in the market earning economic profits.

in-kind transfers

Government payments in the form of goods and services, rather than cash, including such government programs as food stamps, Medicaid, and housing.

Grapes become more expensive in the market. Which of the following can explain the increase in price?

Grape production is the same, but wine production has gone up, which requires more grapes.

Which of the following is a positive economic statement?

If the government raises taxes, people will have less income available for purchases and saving.

Workers on the night shift at a factory earn more per hour than workers on the day shift, although their human capital and productivity are the same. This is an example of:

a compensating differential.

(Figure: Graph) Refer to the graph to answer the question. In the graph, the movement from point W to point P represents:

a decrease in demand.

If wages fall for surgeons but not for family practice doctors, there will be _____ in the market for surgeons and _____ in the market for family practice doctors.

a decrease in quantity supplied; a rightward shift of labor supply

A normal good is:

a good where higher income causes increase in demand

A subsidy is a:

a government payment designed to encourage particular purchases or productive activities.

The basic logic behind the Rational Rule for Sellers is that a company owner should increase output as long as the extra output

adds more to revenue than it adds to costs.

A tax on buyers causes which of the following?(i) a leftward shift of the demand curve(ii) a decrease in quantity sold(iii) an increase in the price buyers pay

all answers

Diane Jacobs is a student studying economics and currently working on her class schedule for next semester. She considers the fact that more and more data is available every day and that data interpretation skills are learned by taking additional economics courses in her course selection. This acknowledgment highlights the dependencies that exist:

between markets

The key to using the cost-benefit principle is to think about _____ aspects of a decision.

both financial and non financial

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction.

both the buyer and the seller

The economic burden of a tax is the:

burden created by the change in after-tax prices faced by buyers and sellers.

To get maximum output, you should allocate each task to the person who:

can do the task with the lowest opportunity cost.

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

can earn an economic profit in the long run.

You have an absolute advantage in producing a product if you:

can produce the product using the fewest inputs.

price discrimination occurs when

charges different prices to different customers who are all buying the same product

A price-taker is a seller that:

charges the current market price for its product.

good that is nonrival and nonexcludable

club goods

Specialization will increase output when it is based on:

comparative advantage.

The last 3 times I wore my orange socks to the basketball game, the Hokies won. I didn't wear my socks to the last game and they lost. "My socks determine whether the Hokies win." is an example of

confusing association (or correlation) with causation.

the opportunity costs states that ________ are incentives that shape decisions

costs and benefits