Econ Midterm

After the invention of nuclear power plants, will the demand curve for coal power plants be more elastic or more inelastic?

More elastic

If the price of cars falls, are carmakers likely to make ___________. * a. more cars b. fewer cars c. the same amount of cars

B Fewer Cars

Jules wants to purchase a Royale with cheese from Vincent. Vincent is willing to offer this tasty burger for $3. The most Jules is willing to pay for the tasty burger is $8 (after all, his girlfriend is a vegetarian, so he doesn't get many opportunities for tasty burgers). ───────────────────── a. How large are the potential gains from trade if Jules and Vincent agree to make this trade? In other words, what is the sum of producer and consumer surplus if the trade happens?

5

The economist Bryan Caplan recently found a pair of $10 arch supports that saved him from the pain of major foot surgery. As he stated on his blog (econlog.econlib.org), he would have been willing to pay $100,000 to fix his foot problem, but instead he only paid a few dollars. ------ a. How much consumer surplus did Bryan enjoy from this purchase?

99,900

Shortage

A situation in which quantity demanded is greater than quantity supplied

When the price of a good increases the quantity demanded ____. * a. decrease b. increases c. stays the same

A. Decreases

Along a supply curve, if the price of oil falls, what will happen to the quantity of oil supplied? * a. it will decrease b. it will increase c. it will not change

A. It will decrease

When the price is above the equilibrium price, greed (in other words, self-interest) tends to _________. * a. push the price down b. push the price up c. have no effect on price

A. Push the price down

If the price in a market is above the equilibrium price, this creates ___________. * a. a shortage b. a surplus c. neither a shortage nor a surplus

B. A Surplus

When will people search harder for substitutes for oil? * a. when the price of oil is low b. when the price of oil is high c. people are not incentivized to search for substitutes for oil

B. When the price of oil is high

The cost of the next most valuable opportunity is known as a a. Sunk cost b. Opportunity cost c. Comparative advantage d. Absolute advantage

D. Opportunity Cost

Many people will tell you that, whenever possible, you should always buy U.S.-made goods. If this argument were taken to its natural conclusion, where should you buy all of your goods from? a. Your state b. Your county c. Your neighborhood d. Yourself

D. Yourself

How in international trade similar to domestic trade? a. International trade makes people better off when preferences differ. b. International trade increases productivity through specialization and the division of knowledge. c. Trade increases productivity through comparative advantage. d. A and B e. All of the above

E. All of the above

If house developers started to build lots of new residential buildings in your college town, would they prefer demand for apartments is elastic or inelastic? (Hint: Revenue = Price * Quantity)

Elastic

How does trade let us benefit from the advantages of specialization?

If people can't trade for other goods, they won't specialize in producing one good. Thus, trade is necessary if people are to benefit from them.

If thousands of apartments are condemned in your college town, do landlords hope that demand for apartments is elastic or inelastic? (Once again, remember that Revenue = Price * Quantity)

Inelastic

After a public information campaign highlighting that bacteria and other organisms cause and spread disease, will the demand curve for soap be more elastic or more inelastic?

More inelastic

After more employers allow employees to telecommute, will the demand curve for cars be more elastic or more inelastic?

More inelastic

Changes in Demand

Refers to a shift in the demand curve Caused by a change in one of the shifter of the demand curve

What does specialization do to productivity? Why?

Specialization increases productivity because it increases knowledge

The industrial areas in northeast Washington, DC, were relatively dangerous in the 1980s. Over the last two decades, the area has become a safer place to work (although there are still seven times more violent crimes per person in these areas compared with another DC neighborhood, Georgetown). When an area becomes a safer place to work, what probably happens to the "supply of labor" in that area?

The supply of labor increases

Surplus

a situation in which the quantity supplied is greater than the quantity demanded

If the trade takes place at $4, how much producer surplus goes to Vincent? How much consumer surplus goes to Jules? a. $1 goes to Vincent, $4 goes to Jules b. $4 goes to Vincent, $1 goes to Jules c. $2 goes to Vincent, $3 goes to Jules

a. $1 goes to Vincent, $4 goes to Jules

Immigration is a fact of life in the United States. This will lead to a big boost in the labor supply. What field would you rather be in? * a. A field where the demand for your kind of labor is elastic. b. A field where the demand for your kind of labor is inelastic.

a. A field where the demand for your kind of labor is elastic.

If DC, Maryland, and Virginia all agreed to raise their gas tax simultaneously, how much revenue could the gas tax raise? Note: These states have heavily populated borders with each other, but they don't have any heavily populated borders with other states. * a. A little revenue b. A lot of revenue

a. A little revenue

In a competitive market, sellers sell their product * a. At the world price. b. Just below the world price. c. Just above the world price. d. At a price dependent on the quantity chosen.

a. At the world price.

We saw that a gun buyback program was unlikely to work in Washington, D.C. If the entire United States ran a gun buyback program, would that be better at eliminating guns or worse? Hint: Is the supply of guns at a national level more elastic or more inelastic? * a. Better b. Worse

a. Better

Junk food has been criticized for being unhealthy and too cheap, enticing the poor to adopt unhealthy lifestyles. Suppose that the state of Oklakansas imposes a tax on junk food. For the tax to actually deter people from eating junk food, should junk food demand be elastic or inelastic? * a. Elastic b. Inelastic

a. Elastic

Let's take a look at the supply side of junk food. If junk food supply is highly elastic—perhaps because it's not that hard to start selling salads with lowfat dressing instead of mayonnaise- and cheese-laden burgers—will a junk food tax have a bigger effect if supply were inelastic or elastic? * a. Elastic b. Inelastic

a. Elastic

Decades ago, Washington, DC, a fairly small city, wanted to raise more revenue by increasing the gas tax. Washington, DC, shares borders with Maryland and Virginia, and it's very easy to cross the borders between these states. How elastic is the demand for gasoline sold at stations within Washington, DC? In other words, if the price of gas in DC rises, but the price in Maryland and Virginia stays the same, will gasoline sales at DC stations fall a little, or will they fall a lot?" * a. Elastic - gasoline sales would fall a lot b. Inelastic - gasoline sales would fall a little

a. Elastic - gasoline sales would fall a lot

Fill in the blanks: As long as supply and demand curves have their normal shape (the demand curves have a negative slope while supply curves have a positive slope), if there is a tax, the equilibrium quantity must _______ and the price that buyers pay must _______. * a. Fall; rise b. Fall; fall c. Rise; fall d. Rise; rise

a. Fall; rise

Circa 1200 BCE, a decreasing supply of tin due to wars and the breakdown of trade led to a drastic increase in the price of bronze in the Middle East and Greece (tin being necessary for its production). It is around this time that blacksmiths developed iron- and steel-making techniques (as substitutes for bronze). What does the increasing price of bronze signal? * a. It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve it more or seek substitutes. b. It tells people that there is a price bubble forming around bronze and that people are overvaluing the price of bronze. c. It tells people that the wars in the Middle East and Greece are coming close to being resolved because of bronze scarcity. d. It tells people to buy more bronze because it is going to be more valuable in the future.

a. It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve it more or seek substitutes.

Business leaders often say that there is a "shortage" of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article entitled "New York farmers fear a shortage of skilled workers," pointing out that a special U.S. visa program, the H-2A program, "allows employers to hire foreign workers temporarily if they show that they were not able to find U.S. workers for the jobs." (Source: Thompson, Carolyn. May 13, 2008. N.Y. farmers fear a shortage of skilled workers Associated Press.) How do unregulated markets cure a "labor shortage" when there are no immigrants to boost the labor supply? * a. Let the price of labor increase. b. Let the price of labor decrease. c. Contract production. d. Expand production.

a. Let the price of labor increase.

If a new process for manufacturing diamonds is created, will the supply curve for diamonds become more elastic or more inelastic? * a. More elastic b. More inelastic

a. More elastic

Which of the two goods is more likely to be elastically supplied? * a. Supply of construction workers in Binghamton, NY b. Supply of construction workers in New York State

a. Supply of construction workers in Binghamton, NY

After the development of iron, did the supply or demand for bronze shift? Which way did it shift? Why? * a. The demand for bronze shifted to the left (down) because there was now a good substitute for bronze. b. The demand for bronze shifted to the right (up) because there was now a good substitute for bronze. c. The supply for bronze shifted to the right (down) because there was now a good substitute for bronze. d. The supply for bronze shifted to the left (up) because the quantity demanded of bronze decreased.

a. The demand for bronze shifted to the left (down) because there was now a good substitute for bronze.

Suppose that drug addicts pay for their addiction by stealing: So the higher the total revenue of the illegal drug industry, the higher the amount of theft. If a government crackdown on drug suppliers leads to a higher price of drugs, what will happen to the amount of stealing if the demand for drugs is elastic? * a. The overall amount of stealing will decrease b. The overall amount of stealing will increase c. The overall amount of stealing will remain the same

a. The overall amount of stealing will decrease

Fill in the blanks: When the government subsidizes an activity, resources such as labor, machines, and bank lending will tend to gravitate __________ the activity that is subsidized and will tend to gravitate ___________ activity that is not subsidized. * a. toward; away from b. toward; toward c. away from; toward d. away from; away from

a. toward; away from

If the trade takes place at $7, how much producer surplus goes to Vincent? How much consumer surplus goes to Jules? a. $1 goes to Vincent, $4 goes to Jules b. $4 goes to Vincent, $1 goes to Jules c. $2 goes to Vincent, $3 goes to Jules

b. $4 goes to Vincent, $1 goes to Jules

Imagine that you can hire four low-skilled workers to move dirt with shovels at $5 an hour, or you can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. Who will you hire if the minimum wage increases from $5 per hour to $6.50 per hour? * a. 4 low-skilled workers b. 1 high-skilled worker

b. 1 high-skilled worker

Why do you think iron and steel became more common around the same time as the increase in price of bronze? * a. An increase in the demand for bronze signals that people are wealthy enough to afford iron and steel. b. An increase in the price of bronze encourages innovation to produce substitutes. c. An increase in the price of a resources signals that it is too competitive to make a profit, so entrepreneurs seek other alternatives. d. The introduction of iron and steel differentiates bronze for specific uses and therefore causes its price to increase.

b. An increase in the price of bronze encourages innovation to produce substitutes.

How does a free market eliminate a shortage? * a. By letting the price fall. b. By letting the price rise. c. By creating quotas. d. By creating a price ceiling.

b. By letting the price rise.

If a government is hoping that a small tax can actually discourage a lot of junk food purchases, it should hope for: * a. Elastic supply and inelastic demand b. Elastic supply and elastic demand c. Inelastic supply and elastic demand d. Inelastic supply and inelastic demand

b. Elastic supply and elastic demand

Fill in the blanks: As long as supply and demand curves have their normal shape (the demand curve has a negative slope while supply curves have appositive slope), if there is a tax, the equilibrium quantity must _______ and the price that sellers receive must _______. * a. Fall; rise b. Fall; fall c. Rise; fall d. Rise; rise

b. Fall; fall

If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance? * a. More people will be covered because it's cheaper and more people can now afford it. b. Fewer people will be covered because health insurance companies will supply less. c. The number of insured will not change. d. Indeterminate with the given information.

b. Fewer people will be covered because health insurance companies will supply less.

One question that economics students often ask is "In a market with a lot of buyers and sellers, who sets the price of the good?" There are two possible correct answers to this question: "Everyone" and "No one." a. What is meant by "Everyone?" * a. In a market operating in a western democracy, everyone gets to vote on price controls and restrictions to ensure the market operates fairly. b. In a market with many participants, each person's actions push the supply or the demand just a little bit, so everyone has some small influence. c. In a market with many suppliers and demanders, each person's actions have a negligible effect on supply or the demand, so everyone has to work together to influence the market. d. Everyone has to consume something.

b. In a market with many participants, each person's actions push the supply or the demand just a little bit, so everyone has some small influence.

If the Oklakansas government wants to strongly discourage people from eating junk food, when will it need to set a higher tax rate: When junk food demand is elastic or when it is inelastic? * a. Elastic b. Inelastic

b. Inelastic

What does it mean that elasticity equals escape? (This is worth remembering: Elasticity is one of the toughest ideas for most economics students.) * a. People with elastic demands don't like to pay taxes b. It is easy for market participants to escape to another market if they have elastic demand or supply c. Resources used to produce goods with elastic supply cannot be used for much else

b. It is easy for market participants to escape to another market if they have elastic demand or supply

Some people with diabetes absolutely need to take insulin on a regular basis to survive. Pharmaceutical companies that make insulin could find a lot of other ways to make some money. If the U.S. government imposes a tax on insulin producers of $10 per cubic centimeter of insulin, payable every month to the U.S. Treasury, who will bear most of the burden of the tax? * a. Insulin producers b. People with diabetes c. Not enough information is given

b. People with diabetes

Suppose instead that because of government corruption, the insulin manufacturers convince the U.S. government to pay the insulin makers $10 per cubic centimeter of insulin, payable every month from the U.S. Treasury. Who will get most of the benefit of this subsidy? * a. Insulin producers b. People with diabetes c. Not enough information is given

b. People with diabetes

A competitive firm maximizes profit by choosing * a. Price. b. Quantity. c. Both price and quantity. d. Either price or quantity, but not both. e. None of the above.

b. Quantity.

Which of the two goods is more likely to be elastically supplied? * a. Supply of apples over the next growing season b. Supply of apples over the next decade

b. Supply of apples over the next decade

Which of the two goods is more likely to be elastically supplied? * a. Supply of gold b. Supply of computers

b. Supply of computers

The competitive market equilibrium maximizes gains from trade. Taxes and subsidies, by altering the market outcome, reduce the gains from trade. Does this happen primarily because of the impact of taxes and subsidies on prices, or the impact of taxes and subsidies on quantities? * a. The impact on prices b. The impact on quantities

b. The impact on quantities

Suppose that drug addicts pay for their addiction by stealing: So the higher the total revenue of the illegal drug industry, the higher the amount of theft. If a government crackdown on drug suppliers leads to a higher price of drugs, what will happen to the amount of stealing if the demand for drugs is inelastic? * a. The overall amount of stealing will decrease b. The overall amount of stealing will increase c. The overall amount of stealing will remain the same

b. The overall amount of stealing will increase

In our discussion of taxation, we've acted as if it were effortless to pass and enforce tax laws. But, of course, law enforcement officials including the Internal Revenue Service put a lot of effort into enforcing tax laws. Let's think for a moment about what kind of taxes are easiest to collect, just based on the basic ideas we've covered. Who will make the most effort to escape a tax? a. The party who is elastic b. The party who in inelastic

b. The party who in inelastic

Let's see if the forces of the market can be as efficient as a benevolent dictator. Since laptop computers are increasingly easy to build and since they allow people to use their computers wherever they like, an all-wise benevolent dictator would probably decree that most people buy laptops rather than desktop computers. This is especially true now that laptops are about as powerful as most desktops. Since it's become much easier to build better laptop computers in recent years, laptop supply has increased. What does this do to the price of laptops? * a. The price of laptops increases. b. The price of laptops decreases. c. An increase in laptop supply will not change its price.

b. The price of laptops decreases.

Suppose the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price. To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can't you tell with the information given? * a. consumer surplus increases. b. consumer surplus decreases. c. Indeterminate with the given information.

b. consumer surplus decreases.

A review of the jargon: Is the minimum wage a "price ceiling" or a "price floor?" * a. price ceiling b. price floor

b. price floor

The video explores how prices tie all goods together. To illustrate this idea, suppose new farming techniques drastically increased the productivity of growing wheat. Given this change, how would the price of wheat change? * a. Increase, because demand would shift to the right. b. Increase, because supply would shift to the left. c. Fall, because supply would shift to the right. d. Fall, because demand would shift to the left.

c. Fall, because supply would shift to the right.

Fill in the blanks: When the government taxes an activity, resources such as labor, machines, and bank lending will tend to gravitate _________the activity that is taxed and will tend to gravitate ________ activity that is not taxed. * a. toward; away from b. toward; toward c. away from; toward d. away from; away from

c. away from; toward

Suppose you learned that growing political instability in Chile (the largest producer of copper) will greatly reduce the productivity of its mines in two years. Ignoring all other factors, which curve (demand or supply) will shift which way in the market for copper two years from now? * a. Demand curve will increase, that is, a shift to the right (up). b. Demand curve will decrease, that is, a shift to the left (down). c. Supply curve will increase, that is, a shift to the right (down). d. Supply curve will decrease, that is, a shift to the left (up).

d. Supply curve will decrease, that is, a shift to the left (up).

A competitive market has which of the following characteristics? * a. Lots of small-scale sellers b. Lots of small-scale buyers c. A product that is similar across sellers d. A & C only e. All of the above.

e. All of the above.

Quantity Supplied

is the quantity that producers are willing and able to sell at a particular price

Change in QD

refers a movement along the same demand curve Caused by a change in price

Comparative Advantage

the ability to produce a good at a lower opportunity cost than another producer

Absolute Advantage

the ability to produce the same good using fewer inputs than another producer

Consumer Surplus

the consumer's gain from exchange, or the difference between the max price a consumer is willing to pay for a certain quantity and the market price

Equilibrium price

the price at which the quantity demanded is equal to the quantity supplied

Equilibrium Quantity

the quantity at which the quantity demanded is equal to the quantity supplied

Quantity Demanded

the quantity that buyers are willing and able to buy at a particular price