ECON - Midterm I

The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-10. The price that buyers pay after the tax is imposed is

$24.

Refer to Figure 4-7. Equilibrium price and quantity are, respectively,

$25 and 400 units.

Refer to Figure 7-7. If the government imposes a price ceiling of $55 in this market, then total surplus will be

$250.00.

Consider Luis's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Luis's cost of going to college is

$42,600.

The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-10. The per-unit burden of the tax on buyers is

$8.

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. Refer to Table 3-11. Jamaica's opportunity cost of one cooler is

0.5 radios, and Norway's opportunity cost of one cooler is 0.125 radios.

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. ​ Refer to Table 3-11. At which of the following prices would both Jamaica and Norway gain from trade with each other?

1 radio for 4 coolers

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

1.33.

If a 25 percent change in price results in a 40 percent change in quantity supplied, then the price elasticity of supply is about

1.60, and supply is elastic.

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. ​ Refer to Table 3-11. Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by

24

Refer to Table 2-3. What is the opportunity cost of increasing the production of corn from 400 bushels to 800 bushels?

400 bushels of wheat

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. ​ Refer to Table 3-4. Assume that Zimbabwe and Portugal each has 180 machine minutes available. If each country divides its time equally between the production of toothbrushes and hairbrushes, then total production is

48 toothbrushes and 24 hairbrushes.

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. ​ Refer to Table 3-11. Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of radios increased by

6

If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what would happen to the equilibrium price and quantity of lattés?

Both the equilibrium price and quantity would increase.

Refer to Figure 6-8. In 1973, OPEC restricted supply and U.S. government regulations limited the price oil companies could charge for gasoline. Which of the following statements best relates the figure to the events that occurred in the United States in the 1970s?

Buyers of gasoline paid a price of P1 before 1973; they paid a price of P2 after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.

Refer to Figure 4-8. All else equal, an increase in the income of buyers who consider turkey to be an inferior good would cause a move from

Da to Db.

A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

Refer to Figure 7-8. Total surplus can be measured as the area

JNL.

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation?

New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.

Refer to Figure 4-10. Which of the following movements would illustrate the effect in the market for golf balls of an increase in green fees?

Point C to Point B

Refer to Figure 2-5. Which of the following events would explain the shift of the production possibilities frontier from A to B?

The economy experienced a technological advance in the production of books.

Which of the following events could cause an increase in the supply of ceiling fans?

The number of sellers of ceiling fans increases.

Suppose the United States had a short-term shortage of farmers. Which market mechanisms would adjust to remove the shortage?

The prices of food and the wages of farmers would adjust.

Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct?

This tax causes the demand curve for fountain drinks to shift downward by $0.50 at each quantity.

Which is the most accurate statement about trade?

Trade can make every nation better off.

Which of the following is an example of a positive, as opposed to normative, statement?

Universal healthcare would be good for U.S. citizens.

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Refer to Table 3-4. Which of the following represents Zimbabwe's and Portugal's production possibilities frontiers when each country has 60 minutes of machine time available?

Zimbabwe; Hairbrush: 6, Toothbrush: 20. Portugal; Hairbrush: 10, Toothbrush: 12

The minimum wage was instituted to ensure workers

a minimally adequate standard of living.

The gains from trade are

a result of more efficient resource allocation than would be observed in the absence of trade.

The term market failure refers to

a situation in which the market on its own fails to allocate resources efficiently.

Refer to Figure 4-6. The shift from S to S' is called

an increase in supply.

On a graph, consumer surplus is represented by the area

below the demand curve and above price.

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume.

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 equilibrium price will

decrease in both the aged cheddar cheese and bread markets.

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 equilibrium quantity will

decrease in both the aged cheddar cheese and bread markets.

A tax on the sellers of coffee will increase the price of coffee paid by buyers,

decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

Refer to Figure 7-1. When the price rises from P1 to P2, consumer surplus

decreases by an amount equal to B+C.

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

decreases, and producer surplus decreases.

A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes

decreases, and the consumer surplus in the market for red wine decreases.

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's

demand for cigarettes is perfectly inelastic.

Refer to Figure 6-1. A binding price ceiling is shown in

graph (b) only.

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

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

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 quantity will be

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

A popular celebrity that is paid highly for her time should probably not mow her own lawn because

her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her.

In the simple circular-flow diagram, the participants in the economy are

households and firms.

The "invisible hand" refers to

how the decisions of households and firms lead to desirable market outcomes.

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

in order to consume beyond its PPF, the United States should produce more pork than what it requires and export some of it to Mexico.

According to the circular-flow diagram, if Jalyssa is a worker who delivers flowers for Happy Day Flower Company, she participates

in the markets for factors of production exchanging labor for income.

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers.

If the government removes a binding price ceiling from a market, then the price paid by buyers will

increase, and the quantity sold in the market will increase.

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg

increases.

Another term for factors of production is

inputs.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers.

Goods with many close substitutes tend to have

more elastic demands.

In the housing market, supply and demand are

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.

Refer to Figure 2-4, Graph (a). Production is

possible at points J, K, L, and M, but efficient only at points J, L, and M.

Refer to Figure 2-4, Graph (a). Production at point K is

possible but inefficient.

The phenomenon of scarcity stems from the fact that

resources are limited.

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

sell the ticket because the marginal benefit exceeds the marginal cost.

Efficiency means that

society is getting the most it can from its scarce resources.

Refer to Figure 4-7. At a price of $35, there would be a

surplus of 400 units.

Producer surplus is

the amount a seller is paid minus the cost of production.

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

the same price and higher total revenue from marijuana sales.

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

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

Elena's aunt gave her $100 for her birthday with the condition that Elena buys herself something. In deciding how to spend the money, Elena narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally, she decides on Option B. The opportunity cost of this decision is

the value to Elena of the option she would have chosen had Option B not been available.

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold.

Refer to Figure 2-4, Graph (a). The movement from point M to point K could be caused by

unemployment.

Economics is the study of how society manages its

unlimited wants and limited resources.

A seller's opportunity cost measures the

value of everything she must give up to produce a good.