Econ test 2

market failures

can also make things worse

If the price elasticity of supply is:

between zero and one, then supply is inelastic.

Milk producers know that the price elasticity of demand for whole milk is 0.1. If they want to increase sales by 5%, they will have to lower price by:

50%

The minimum wage is a binding price floor on wages. What would happen if the federal government did away with the minimum wage?

Quantity of labor demanded will increase, and quantity supplied will decrease

On a demand and supply graph, if a tax is implemented on a seller, the vertical distance between the old and new supply curves at the new equilibrium quantity will be equivalent to the:

amount of the tax

How are people affected when economic efficiency increases?

Overall gains exceed any change in costs, but some people may be worse off.

Normative Analysis:

Prescribes what should happen, which involves value judgments.

The market for iPhone chargers is in competitive equilibrium. If the price of iPhones temporarily falls below the equilibrium price:

producer surplus will fall.

If a certain item has many substitutes, its demand curve will be:

relatively flat

Markets allocate:

resources, goods, and services.

The manager at Discount Tire knows that the price elasticity of demand for new tires is −1.3. When the manager runs a storewide sale of 15% off a set of tires, how much does she expect the quantity demanded of tires to change? The quantity demanded will:

rise by 19.5%.

Price elasticity of supply measures how responsive:

sellers are to changes in the prices of competing goods

The price elasticity of demand for fresh cilantro has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh cilantro crop, how will that affect total revenue from fresh cilantro, all other things equal?

total revenue will rise

Eileen works both as a translator from French to English, for which she earns $30 per hour, and as a watercolorist. All the materials she needs to create her watercolors are freely provided by a government arts grant. To create a saleable watercolor, she must take three hours away from her translation work. If one of her watercolors sells for $120, her producer surplus is:

$30

The price of a dozen eggs rises from $3 to $4.70. In response to this price change, quantity supplied increases from 100,000 dozen eggs to 127,000 dozen eggs. What is the approximate price elasticity of supply for eggs?

.48

You are the manager at Pure Sweat Studio, a membership-based sauna club, assigning closing duties to your team members. In 12 minutes, Sadiquah can fold all of the clean towels needed for a sauna room for the next day's use. She can clean a sauna room in 9 minutes. Landon can fold the towels in 10 minutes or clean a room in 15 minutes. Sadiquah's opportunity cost of folding towels is _____ sauna rooms

1.33

If the price of a good increases by 10%, and the quantity demanded changes by 15%, then the price elasticity of demand is equal to

1.5

Prior to specialization, in an hour, you place five phone calls and process two applications. Your colleague places six phone calls and processes two applications. After specialization, the gains from trade are _____ phone call(s) and _____ application(s).

1;1

Marius and Jennifer are going to sell cupcakes and muffins at their annual fundraiser bake sale. In one day, Marius can make 40 cupcakes or 20 muffins, and Jennifer can make 15 cupcakes or 15 muffins. With specialization, _____ cupcakes and _____ muffins will be made in one day.

40; 15

Which of these illustrates a quota?

A government limits the amount of a gasoline that can be sold in a market.

Voluntary exchange:

Buyers and sellers exchange money for goods only if they both want to.

Price ceiling

is the maximum price that sellers charge.

Positive Analysis

Describes what is happening, explaining why, or predicting what will happen

Which sort of market failure is MOST likely to occur when you're in the market for a used car?

Low trust because of little information you have on the car leads you to avoid buying a car that you would have liked

Prediction markets

Markets whose payoffs are linked to whether an uncertain event occurs

Internal markets

Markets within a company to buy and sell scarce resources

You pay a plumber to install a new dishwasher in your home. Which statement is FALSE?

Only the plumber experiences gains from trade because they received money.

Suppose the cross-price elasticity of demand between Taco Bell tacos and Carnitas Lonja (in San Antonio, Texas) tacos is 0.8. If Carnitas Lonja increases the price of its tacos by 10%:

Taco Bell will sell 8% fewer tacos.

Comparative advantage

The ability to do a task at a lower opportunity cost.

Absolute advantage:

The ability to do a task using fewer inputs

Gains from trade:

The benefits that come from reallocating resources, goods, and services to better uses

Economic Surplus

The consumer surplus and producer surplus added together.

Consumer Surplus

The economic surplus you get from buying something when your marginal benefit is above the price.

Producer Surplus

The economic surplus you get from selling something when the price is above the marginal cost.

Knowledge problem

When knowledge needed to make a good decision is not available to the decision maker.

Sellers of mini scooters face upward-sloping marginal cost curves. If the price of mini scooters falls, we would expect producer surplus to:

decrease

Efficient allocation of output requires that:

each unit of output goes to the person who will get the highest marginal benefit from it.

1. A lead purchaser for a national grocery store chain is analyzing how conditions in Canada and Mexico, the primary exporters of tomatoes to the United States, may impact stores. If Mexico suffers a severe drought, the supply of tomatoes would decrease. The price elasticity of demand for fresh tomatoes is 4.6, which means that the demand for fresh tomatoes is _____. If tomato prices rise significantly, the grocery store's total revenue from tomato sales would likely _____.

elastic;fall

Good M has an income elasticity of demand of 0.5. Which item is good M most likely to be?

electricity

goverment

have the potential to correct for market failures

You and your friend are discussing your philosophies on life and policies. Your friend says that it's always better to do all home improvement projects yourself, rather than hiring someone, because doing it yourself is always cheaper. You add the distinction that:

if your opportunity cost is high, hiring someone could make you better off.

Suppose that the American government imposes a binding quota on the number of German-made cars allowed into the United States. Assuming that German-made cars and American-made cars are substitutes in consumption, we would expect the price of German cars to _____ and the price of American-made cars to _____.

increase; increase

You manage a restaurant, and lately revenues have been rather poor. One of your servers suggests that raising food prices will increase revenues, but your chef suggests that decreasing food prices will increase revenues. You aren't sure who is right, but you know that your server believes that the demand for your food is _____, and your chef believes that the demand for your food is _____.

inelastic;elastic

A statutory burden

is the burden of being assigned by the government to send a tax payment.

If an increase in the price of coconut oil brings about an increase in total revenue, then the percent rise in price is _____ in magnitude than the percent decline in quantity demanded.

larger

To obtain a license to work as a barber, hairstylist, or cosmetologist, one must graduate from a state-approved barber or cosmetology program and pass a state exam, limiting the number of people who can practice these professions. In this scenario, market failure would arise from:

market power

. Buyers bear all the economic burden of a tax if the demand curve is _____, given an upward sloping supply curve.

perfectly inelastic

The income elasticity of demand of a normal good is always

positive

Much like toilet paper, toothpaste is a necessity. The income elasticity of demand for toothpaste is likely to be _____ and _____.

positive; close to 0

Most people consider toothpaste to be a necessity. The income elasticity of demand for toothpaste is likely to be _____ and _____.

positive; close to zero

Tariq is a market researcher for Mattel, the toy company. From his research, he concludes (a) that at a price of $20.99, Mattel will sell 400,000 20-car Hot Wheel packs this year, (b) that sales at this level will be inadequate to meet Mattel's revenue goals for this product, and (c) that a different pricing strategy would increase sales and lead to revenues that meet Mattel's revenue target. (a) reflects _____ analysis; (b) reflects _____ analysis; and (c) reflects _____ analysis.

positive; positive; positive

An efficient producer will increase production until

price equals marginal cost.

The economic burden of a tax on a good falls entirely on producers if only the:

price paid by consumers does not change.

comparative advantage

the ability to do a task at a lower opportunity cost

Which factor does NOT determine the price elasticity of demand?

the slope of the supply curve

. Harrison is willing to buy the last ticket to the Billy Elliot play for $15, while Stefania is willing to pay $25. Harrison is first in line and buys a ticket for $15. He then resells his ticket to Stefania for $20. By reselling the ticket instead of going to the play himself, Harrison caused:

the sum of the consumer and producer surplus to increase.