EFM - 4. Markets

industry; manager; industry; intact

"When an ixxxxxxx with a reputation for tough economics meets a mxxxxxx with a reputation for excellence, it's usually the ixxxxxxx that keeps its reputation ixxxxx."

d)

4.2.5 Practice Question 5 The graph below depicts a price floor on the sale of electrician services. Which region or regions represent producer revenues? a) Producer revenues are given by D + E + F. b) Producer revenues are given by A. c) Producer revenues are given by B + C + D + E. d) Producer revenues are given by B + D + E + F.

b)

4.3.2 Question 1 Consumers bear more of the incidence of a tax when demand is: a) more elastic b) less elastic

- Setting taxes fairly requires more information than creating pollution markets does. - Using pollution markets imposes strict caps on pollution. - Taxes transfer money from the private market to the government.

4.4.1. Question 1 What are the main differences between using a pollution market and taxing polluters? Select all that apply. - Setting taxes fairly requires more information than creating pollution markets does. - Taxes do not provide any incentives to reduce pollution or to invest in clean technologies. - Using pollution markets imposes strict caps on pollution. - Taxes transfer money from the private market to the government. - Polluters may be able to avoid taxes by secretly disposing toxic materials.

c)

4.4.1. Question 2 Assume that there are 150 firms, each of which gains a different benefit from polluting. Each firm is allocated one pollution permit by the government, and it can either use it or trade it for money in the market. Suppose the demand and supply curves look like the following: a) The demand curve cannot possibly exceed 150, so there must be something wrong in the drawing. b) The supply does not change even when prices increase above $15M, so the drawing is inaccurate. c) In equilibrium, most firms sell their allocated pollution permits. d) In equilibrium, half of the firms purchase permits and half sell them.

demand; supply

Always consider both dxxxxx and sxxxxx effects, not just one or the other.

160000

Given this information, what will be the "market price" (in this case, the annual salary) for a newly graduated lawyer?

30000

How many law graduates would be "on the market" at a salary of $80,000?

90000

How many law graduates would firms be willing to hire at a salary of $80,000?

intersection; quantity demanded; equal; quantity produced

One thing that is notable about the ixxxxxxxxxxx of the demand and supply curves is that, at that outcome, the qxxxxxxx dxxxxxxx by buyers will exactly exxxx the qxxxxxxx pxxxxxxx by sellers.

140000

There are 60,000 lawyers graduated. Now how low must salaries fall in order to ensure that all graduates are hired?

side markets

This outcome reflects a frequent—and unintended—consequence of price ceilings: sxxx mxxxxxx spring up to resolve the market shortage that was created by the price ceiling. If there are consumers who are willing to pay more, someone will probably find out a way to enable them to do that.

total social surplus; value created; consumer surplus and producer surplus combined

Together, the two areas represent the txxxx sxxxxx sxxxxxx—or the total vxxxx cxxxxxx by buyers and sellers interacting through the market. It's simply the cxxxxxxxx sxxxxxx axx pxxxxxxx sxxxxxx cxxxxxxx.

c)

4.1.3. Question 1 If a market is not at its equilibrium, and there is excess supply, what is likely to happen to the market over time? a) Price will remain at its current level, and producers will decrease the quantity supplied until there is no more excess. b) Quantity supplied will remain at its current level in the long run, but prices will fall to the level at which the total quantity supplied is sold. c) Price will decrease to the point at which quantity supplied is equal to quantity demanded.

a)

4.1.3. Question 2 At the current price of $1.50 per dozen, producers are willing to produce 1 million pencils, and consumers want to purchase 1.2 million. What will happen to the market for pencils over time? a) Producers will raise their prices until the point at which quantity supplied is equal to quantity demanded. b) Producers will lower their prices until the point at which quantity supplied is equal to quantity demanded. c) Producers will not adjust prices.

c)

4.1.6 Practice Question 1 Here we have the graph of the market for recent law school graduates from 4.1.2 Imagine there are currently 80,000 lawyers in the market. Approximately what is the short-run equilibrium salary paid to lawyers? a) $280,000 b) $160,000 c) $100,000 d) $30,000

a)

4.1.6 Practice Question 2 Imagine there are currently 80,000 lawyers in the market, what will happen to the market for recent law school graduates in the long-run? Here is the graph again for reference: a) Less students will enter law school and thus the quantity of lawyers will decrease in the long-run. b) Firms will eventually raise salaries to the point where 80,000 students are willing to enter law school. c) Since the market is in short-run equilibrium, neither salaries nor the quantity of lawyers will change.

35000

4.1.6 Practice Question 3 Here we again have the graph of the market for lawyers from 4.1.2 From the last question we know that the number of students entering law school will decrease from 80,000. Given that there are 80,000 new law student graduates in the market, approximately how many new students will enter law school this year (round to the nearest 5,000)?

c)

4.1.6 Practice Question 4 Consider the market for print encyclopedias. In the last 10 years, the cost of producing encyclopedias has decreased substantially due to lower printing and information acquisition costs. At the same time, more and more people have started using the internet as their primary source of information. What can we infer about the change in the price and quantity in the encyclopedia market over the last 10 years? a) Price and quantity have decreased. b) Price has increased and quantity has decreased. c) Price has decreased and the effect on quantity cannot be determined d) Price has increased and the effect on quantity cannot be determined.

d)

4.1.6 Practice Question 5 Consider the market for chocolate bars. A major chocolate company is trying to project their revenue for the upcoming year. Due to excellent predicted weather conditions, the cost of cocoa, a key ingredient in chocolate, will decrease for next year. At the same time, a popular magazine has started promoting the health benefits of chocolate. Just from this information, what can the company know about next year's revenue? a) Revenues will increase from the current year. b) Revenues will decrease from the current year. c) Revenues will be unchanged from the current year. d) The impact on revenues cannot be determined.

c)

4.1.6 Practice Question 6 Computer prices in the last year have gone down due to technological advancements. At the same time, there has been a large decrease in the supply of new software developers, raising the costs of producing computer software. What will be the impact on the equilibrium price and quantity of computer software? a) The price and quantity will increase. b) The price will increase and quantity will decrease. c) The price will increase and the impact on quantity cannot be determined. d) The impact on price cannot be determined and quantity will decrease.

d)

4.1.6 Practice Question 7 The cost of rare earth metals used in electronics is steadily rising due to the increasing difficulty of mining them as they become scarcer. At the same time, laptops, tablets, and smartphones are becoming increasingly popular as substitutes to desktop computers. What impact will these two events have on the equilibrium price and quantity of desktop computers? a) The price and quantity will decrease. b) The price will decrease and quantity will increase. c) The price will increase and quantity will decrease. d) The impact on price cannot be determined and the quantity will decrease.

d)

4.1.6. Question 1 A recent increase in the frequency of apartment fires has led many landlords to ban the use of candles. What effect will this have on the market for candles? a) Equilibrium price and quantity will both increase. b) Equilibrium price will increase and equilibrium quantity will decrease. c) Equilibrium price will decrease and equilibrium quantity will increase. d) Equilibrium price and quantity will both decrease.

a)

4.1.6. Question 1 (second set) A Mexican restaurant in Boston uses tomatillos in many of its dishes, but must pay to ship them from another state where they are grown. The restaurant has recently begun serving a popular green enchiladas dish that uses tomatillos. Meanwhile, fuel prices have decreased. What impact will these changes have on the market for tomatillos in Boston? a) Quantity will increase and the effect on price cannot be determined. b) Quantity will decrease and the effect on price cannot be determined. c) Price will increase and the effect on quantity cannot be determined. d) Price will decrease and the effect on quantity cannot be determined.

c)

4.1.6. Question 2 A mining company has discovered huge silver deposits in a previously unmined region. What impact will this have on the market for silver? a) Price and quantity will both increase. b) Price will increase and quantity will decrease. c) Price will decrease and quantity will increase. d) Price and quantity will both decrease.

d)

4.1.6. Question 2 (second set) A ski resort 2 hours away from a major city has opened several additional chair lifts and ski runs, and record snowfall this season has led to a great skiing year. What impact does this have on the market for snow tires? a) Price and quantity sold will both decrease. b) Price will decrease and quantity sold will increase. c) Price will increase and quantity sold will decrease. d) Price and quantity sold will both increase.

b)

4.1.6. Question 3 Manufacturers of a type of cable used to charge electronic devices have improved the production process, reducing their costs. Meanwhile, a popular new e-reader that is compatible with the charger has been released. What is the effect on the market for the chargers? a) Price decreases, and the effect on quantity cannot be determined. b) Quantity increases, and the effect on price cannot be determined. c) Price and quantity both increase. d) Price and quantity both decrease.

b)

4.2.1 Question 3 Which regions represent consumer surplus with the price ceiling? a) A b) A+B c) A+B+C d) A+B+D

c)

4.2.1. Question 1 A price ceiling setting the maximum price of bread below the equilibrium price will result in a: a) new equilibrium price. b) surplus of bread. c) shortage of bread.

c)

4.2.1. Question 2 The graph below depicts a price ceiling limiting the monthly rate that can be charged in rent for apartments in a city. Which regions on the graph represent the producer surplus and the revenues earned by landlords? a) B+D is producer surplus, and B+D+E+F is revenue. b) B+C is producer surplus, and B+D+E+F is revenue. c) D is producer surplus, and D+E+F is revenue. d) D is producer surplus, and E+F is revenue.

b)

4.2.2. Question 1 During a severe drought, a country passes a law to keep flour prices low. Which of the following would be the LEAST likely to result from this law? a) Secondary markets will resell flour at higher prices b) New suppliers will bring in additional flour from outside the country c) Long lines will form where flour is being sold. d) Flour will be available to consumers with willingness to pay lower than the "market outcome" or "equilibrium" price.

c)

4.2.2. Question 2 A restaurant typically has a wait time of over one hour before diners can be seated. Which of the following must be true? a) The restaurant serves the customers with the highest willingness to pay for its food. b) The restaurant serves the customers with the lowest willingness to pay for its food. c) The restaurant's price is below the market equilibrium.

a)

4.2.3 Question 1 A minimum wage is more likely to increase unemployment if the labor supply is: a) elastic. b) inelastic.

b)

4.2.3 Question 2 Under which of the following circumstances would a minimum wage be least likely to lead to unemployment? a) Demand for labor is very elastic b) There is only one employer in the market c) The minimum wage is set above the market equilibrium wage.

a)

4.2.3 Question 3 Which of the following would be least likely to increase unemployment? a) A law setting a minimum wage below the market equilibrium wage. b) A law requiring companies to give all employees 20 vacation days per year. c) A law requiring companies to match employees' contributions to their 401k plans.

c)

4.2.5 Practice Question 1 A local government implements a price ceiling of $4/gallon on milk. If the equilibrium price is $3 what will be the effect on the market for milk? a) There will be a shortage of milk. b) There will be a surplus of milk. c) There will be no effect on the market for milk.

d)

4.2.5 Practice Question 2 The graph below depicts a price ceiling limiting the hourly rate that can be charged by electricians. Which region or regions on the graph represent deadweight loss and the revenue earned by electricians? a) B is the revenue earned by electricians and C is the deadweight loss. b) D + E is the revenue earned by electricians and C is the deadweight loss. c) D + E is the revenue earned by electricians and F is the deadweight loss. d) D + E + F is the revenue earned by electricians and C is the deadweight loss.

b)

4.2.5 Practice Question 3 How is consumer surplus calculated and which region or regions on the graph below represent consumer surplus? a) Consumer surplus is the difference between the WTP of the consumer and the price paid by the consumer for every item sold. It is represented by A + B + C. b) Consumer surplus is the difference between the WTP of the consumer and the price paid by the consumer for every item sold. It is represented by A + B. c) Consumer surplus is the difference between the WTP of the consumer and the WTS of the producer for every item sold. It is represented by A + B + D. d) Consumer surplus is the difference between the WTP of the consumer and the WTS of the producer for every item sold. It is represented by A + B + C + D.

c)

4.2.5 Practice Question 4 Which of the following is likely to increase unemployment the most? a) A law implements a minimum wage under the market equilibrium wage and the labor supply is elastic. b) A law implements a minimum wage under the market equilibrium wage and the labor supply is inelastic. c) A law implements a minimum wage above the market equilibrium wage and the labor supply is elastic. d) A law implements a minimum wage above the market equilibrium wage and the labor supply is inelastic.

- Producer surplus decreases - Total surplus decreases - Deadweight loss increases

4.2.5 Practice Question 6 A price ceiling is set at 10% below the market equilibrium price. Which of the following must result from the price ceiling? Select all that apply. - Consumer surplus decreases - Producer surplus decreases - Total surplus decreases - Deadweight loss increases - There is no effect because the price ceiling is below the market equilibrium price.

b)

4.2.5 Question 1 Which of the following laws would lead to a surplus (quantity supplied more than quantity demanded) of soybeans, if the market price is $14 per bushel? a) A price floor at $10 b) A price floor at $20 c) A price ceiling at $10 d) A price ceiling at $20

d)

4.2.5 Question 2 Which of the following situations is most likely to result in an active resale or secondary market for iPads, if the equilibrium price is $500? a) A price floor at $600 b) A price ceiling at $600 c) A price floor at $400 d) A price ceiling at $400

a)

4.2.5. Question 3 Which of the following laws would result in the greatest consumer surplus + producer surplus? a) A price floor set 10% below the equilibrium price of the product b) A law limiting the quantity produced to a level 5% below equilibrium quantity. c) A price ceiling set 5% below the equilibrium price of the product.

b)

4.3.2 Question 2 Firms bear more of the incidence of a tax when supply is: a) more elastic b) less elastic

b)

4.3.2 Question 3 From your knowledge of cigarettes, would you guess that cigarette demand is fairly elastic or inelastic, relative to the demand for most other goods? a) Elastic b) Inelastic c) Average

a)

4.3.4 Practice Question 1 Consumers bear more of the incidence of a tax when supply is: a) more elastic. b) less elastic.

a)

4.3.4 Practice Question 2 Firms bear more of the incidence of a tax when demand is: a) more elastic. b) less elastic.

c)

4.3.4 Practice Question 3 A university is hoping to limit the amount of junk food that is consumed by students at the university food halls. The university is considering putting a tax on junk food. Which of the following taxes will be the most efficient at limiting the amount of junk food consumed? a) A tax imposed on the students b) A tax imposed on the vendors selling the food c) The impact of the tax will be the same regardless of whom the tax is imposed on. d) The tax will not decrease consumption of junk food

- BDT/CNY = 0.08 - CNY/BDT = 12.5 - 1 CNY = 12.5 BDT

4.3.4 Practice Question 4 If one Chinese Yuan (CNY) can buy 12.5 Bangladeshi Taka (BDT), which of the following are proper ways of stating the exchange rate? Select all that apply. - BDT/CNY = 12.5 - BDT/CNY = 0.08 - CNY/BDT = 12.5 - CNY/BDT = 0.08 - 1 CNY = 12.5 BDT - 1 BDT = 12.5 CNY

a)

4.3.4 Practice Question 5 If Bangladesh increases its machinery imports from China, what will most likely happen to the exchange rate? a) Increase CNY/BDT b) Decrease CNY/BDT c) It will have no effect on CNY/BDT

b)

4.3.4 Question 1 (second set) A big technology company has decided to move one of its main offices to a new state, and is building a large office building there. What will be the impact on the market for office furniture and the market for apartment rentals? a) Apartment rents will decrease and furniture prices will increase. b) Apartment rents and furniture prices will both increase. c) Apartment rents will increase and furniture prices will decrease.

c)

4.3.4 Question 2 Let's look at this question from the other side. As CNY become cheaper, what happens to demand for goods produced in China? a) Demand decreases b) Demand is unchanged c) Demand increases

d)

4.3.4 Question 2 (second set) A popular new smartphone app is made available only on iPhones. What impact could this have on the market for Android phones? a) Price and quantity sold will both increase. b) Price will increase and quantity sold will decrease. c) Price will decrease and quantity sold will increase. d) Price and quantity sold will both decrease.

b)

4.3.4 Question 3 (second set) Historically, a few major car manufacturers, located in country A, have supplied all the cars to country A and its neighbor, country B. Now, a new car manufacturer which can produce cars more efficiently has begun operating in country B. What will be the effect on the markets for cars in the two countries? a) In country B, the price of cars will decrease and the quantity sold will increase. Country A will not be affected. b) In country B, the price of cars will increase and the quantity sold will decrease. In country A, the price of cars will decrease and the quantity sold will increase. c) In both countries, the price of cars will decrease and the quantity sold will increase. d) In country A, the price of cars will increase and the quantity sold will decrease. In country B, the price of cars will decrease and the quantity sold will increase.

c)

4.3.4 Question 4 (second set) After a designer's clothing line was featured on a popular TV show, the clothes have become much more popular. However, the designer's fabric suppliers have successfully negotiated to raise the prices of the fabric. What effect do these changes have on the market for the clothing? a) The price and quantity sold of the clothing both increase. b) The price of the clothing increases and the effect on quantity cannot be determined. c) The quantity of clothing sold increases and the effect on price cannot be determined. d) The price of the clothing increases and the quantity sold decreases.

d)

4.3.4 Question 5 (second set) A new light bulb has been invented that uses much less electricity to produce the same level of illumination. What impact will this have on the market for electricity? a) The price of electricity will increase and the quantity will decrease. b) The price of electricity will decrease and the impact on quantity cannot be determined. c) The quantity of electricity consumed will decrease and the effect on price cannot be determined. d) The price and quantity of electricity will both decrease.

a)

4.3.4 Question 6 (second set) AdBlock is an extension available for internet browsers that allows the user to prevent online advertisements from being displayed. What effect would AdBlock have on the market for online advertising, if advertisers pay for advertising space, rather than for "clicks"? a) The price for online advertising should decrease b) The price for online advertising should increase c) The supply of online advertising should increase d) The demand for online advertising should increase

a)

4.3.4 Question 7 (second set) The discovery of new iron ore deposits in Western Australia will lead to which of the following results? a) Wages for miners will increase and the number of miners employed will increase. b) Wages for miners will decrease and number of miners employed will increase. c) Wages for miners will increase and the number of miners employed will decrease. d) Wages for miners will be unchanged and the number of miners employed will increase.

b)

4.3.4 Question 8 (second set) Several resorts in Cabo San Lucas, Mexico have been competing fiercely for customers, and hotel prices are at all-time lows. What impact will this have on the market for hotels in Hawaii? a) Hotel prices will decrease, and the number of rooms booked will increase. b) Hotel prices and the number of rooms booked will both decrease. c) Hotel prices and the number of rooms booked will both increase. d) Hotel prices will increase and the number of rooms booked will decrease.

a)

4.3.4 Question 9 (second set) The increasing prevalence of online video streaming has caused increased demand for fast internet connections. What impact will this have on the market for electrical engineers? a) More engineers will be hired at higher wages. b) More engineers will be hired, and the impact on engineers' wages cannot be determined. c) Wages paid to engineers will increase, and the impact on the quantity of engineers hired cannot be determined. d) More engineers will be hired, and wages will not change.

b)

4.3.4. Question 1 Think back to the lesson on exchange rates. When Texas Instruments decides to buy more of its inputs from a Chinese supplier, what happens to the price of renminbi (CNY) in US dollars? a) CNY becomes cheapern b) CNY becomes more expensive

c)

4.4.1. Question 3 A country has noticed that over-grazing of livestock is causing significant damage to its public land. In an effort to reduce grazing, the country divides the land up and grants permanent "grazing rights" for each region to a single rancher. Will this protect the land from the effects of over-grazing? a) Yes, because a single rancher could not own enough cattle to ruin a region by over-grazing. b) No, because ranchers will pay to be allowed to graze on other rancher's regions, and the amount of grazing will not decrease. c) Yes, because the ranchers who own the grazing rights will voluntarily limit the grazing in their regions to preserve the value of their grazing rights in future years. d) No, because the ranchers with grazing rights will continue to over-graze the land.

b)

4.4.1. Question 4 A school district assigns students to schools based on the neighborhood the students live in - all students attend the school closest to them. The school board has suggested allowing students to trade school assignments - if a student assigned to school A wants to attend school B, that student would be permitted to trade places with a student assigned to school B but wanting to attend school A. Students will not be permitted to offer other students money or other incentives to trade. Which of the following results is most likely to occur if this trading is permitted? a) All students will attend their originally assigned schools. b) No student who wishes to attend his or her originally assigned school will make a trade. c) Each student will attend a school he or she prefers to his or her originally assigned school. d) Each student will attend his or her first choice of school

d)

4.4.1. Question 5 A library which historically did not penalize readers for returning books late has begun charging late fees. Since implementing the late fee policy, more readers have been returning books late. Which of the following conclusions could be true? a) Before the implementation of the late fee, readers felt guilty about returning books late, and paying the late fee reduces this guilt. b) Readers interpret the late fee as a price that can fairly be paid for extra time with the book, rather than as a penalty. c)The late fee is below readers' WTP for extra time with the books. d) Any of the above could be true.

- That most firms are not willing to pay $11,500 for one pollution permit. - That some firms are willing to pay more than $11,500 for one pollution permit. - That no firm is willing to pay over $15,000 for one pollution permit.

4.4.2. Practice Question 1 Assume that there are 150 firms, each of which gains a different benefit from polluting. Each firm is allocated one pollution permit by the government, and it can either use it or trade it for money in the market. Suppose the demand and supply curves for permits look like the following: The market equilibrium is at a price of $11,500 and 115 permits sold. What does this market equilibrium say about firms' willingness to pay to be able to pollute? Select all that apply. - That most firms are not willing to pay $11,500 for one pollution permit. - That no firm has more than half of the permits. - That some firms are willing to pay more than $11,500 for one pollution permit. - That no firm is willing to pay over $15,000 for one pollution permit.

c)

4.4.2. Practice Question 2 A polling agency decides to set up a prediction market for the presidential election. There are only two candidates in the election, Candidate A and Candidate B. The polling agency sets up a security that pays $100 to the owner if Candidate A wins the election and $0 otherwise. The current price for the security is $50. Which of the following is the best conclusion that the polling agency can make given the security price? a) That the number of people who believe Candidate A will win is equal to the number that believe Candidate B will win. b) That, on average, people believe that Candidate A is less likely to win the election than Candidate B. c) That, on average, people believe that Candidate A and Candidate B are equally likely to win the election. d) That, on average, people believe that Candidate A is more likely to win the election than Candidate B.

b)

4.4.2. Question 1 Which of the following predictions is likely to occur given that the answers were gathered in a prediction market that involved thousands of participants? a) It is going to rain in August 2025. b) Robert Downey Jr. is going to be an Oscar nominee this year. c) What numbers are going to win the lottery next week?

e)

4.4.2. Question 2 A college has set up a prediction market where its students can place "bets" on various future events. One security traded in this market will pay the owner $100 if Brazil wins the World Cup. In June, the price of this security was $40. This means: a) that none of the students trading in the market believe Brazil will win. b) that, on average, the students do not believe Brazil is the most likely country to win. c) that each of the students trading in the market believes Brazil has a 40% chance of winning. e) that based on this prediction market, Brazil has a 40% chance of winning.

a)

4.4.2. Question 3 A college has set up a prediction market where its students can place "bets" on various future events. One security traded in this market will pay the owner $100 if Brazil wins the World Cup. In June, the price of this security was $40. After Brazil's star player was injured, the price of the security most likely: a) decreased. b) was unchanged. c) increased.

b)

4.4.2. Question 4 A college has set up a prediction market where its students can place "bets" on various future events. One security traded in this market will pay the owner $100 if Brazil wins the World Cup. In June, the price of this security was $40. This market is unlikely to lead to accurate predictions since not all college students are soccer experts or even soccer fans. a) True b) False

rightward shift in the supply curve

A key effect of the Internet was to dramatically increase the amount of advertising space. The result was a nearly infinite supply of advertising space and therefore a rxxxxxxxxx sxxxx ix txx sxxxxx cxxxx.

non-price allocation mechanism

A line is an example of nxx-pxxxx axxxxxxxxx mxxxxxxxx. There are other possible nxx-pxxxx axxxxxxxxx mxxxxxxxxs too: remember the lottery used to allocate tickets to certain sports events? Or, yet another approach could have been for gas station owners to give gas to their friends and relatives. Or an equal quantity could have been reserved for every resident of Manhattan. And so on.

c)

A new art degree offered this year by a local university has brought many more art aficionados into a city. However, the local art museum's most famous collection has been loaned to another city for a year. What impact will this have on the market for tickets to the art museum? a) Price will decrease and quantity sold will increase. b) Price will decrease and the effect on quantity sold cannot be determined. c) Neither the effect on price nor the effect on quantity demanded can be determined. d) Quantity sold will increase and the effect on price cannot be determined.

price ceiling

A pxxxx cxxxxxx refers to a situation in which a constraint is imposed on the maximum price.

reversion to the mean in performance over time

And here were the results of the study (see image). The results were dramatic—and sobering. They indicate a fairly strong "rxxxxxxxx tx txx mxxx" ix pxxxxxxxxxx oxxx txxx. If anything, today's high performers are likely to do far worse tomorrow; the opposite is the case for poor performers.

total social surplus; greatest; market outcome

As you should have seen from the graph, neither the consumer surplus nor the producer surplus is maximized at the market outcome. There are various other outcomes where either side is better off than at the market equilibrium. Yet, where is the txxxx sxxxxx sxxxxxx the gxxxxxxx? It's when we hit the mxxxxx oxxxxxX, where the demand and supply curves intersect.

excess demand

At a salary of $80,000 the quantity demanded (the number of lawyers that firms want to hire) is more than quantity supplied (the number of law graduates willing to work for that salary). We typically refer to this as a situation of exxxxx dxxxxx in a market—or, in this case, as a shortage of lawyers.

supply curve; long run; flat; perfect competition

Companies end up looking more or less similar, compete fiercely for customers,and have the same costs. In other words, the sxxxxx cxxxx in txx lxxx run looks essentially fxxx. And in that case, no firm makes any profits. This is what we typically call pxxxxxx cxxxxxxxxxx.

POPULATION GROWTH IN AN AGRARIAN ECONOMY = Returns to labor decrease URBAN MIGRATION = Returns to capital increase TECHNOLOGICA-L PROGRESS = Returns to labor and capital increase

How would the relative returns to capital and labor change as each of the following factors changed? Use = to match ITEMS POPULATION GROWTH IN AN AGRARIAN ECONOMY URBAN MIGRATION TECHNOLOGICA-L PROGRESS CATEGORY Returns to labor increase Returns to labor decrease Returns to capital increase Returns to capital decrease Returns to labor and capital increase

excess demand; willing to pay more

If there's exxxxx dxxxxX, salaries will rise as law firms that are wxxxxxX tx pxx mxxx for the lawyers go ahead and offer more.

excess supply; salaries; fall

In a excess supply scenarios, sxxxxxxx should fxxx as law graduates now compete more aggressively for limited jobs. Graduates have an incentive to undercut each other and work for a lower wage in order to be sure to get a job.

d)

In the cobweb adjustment story, who or what is coordinating the activities of buyers and sellers? a) Sellers are coordinating the different sides. b) Buyers are coordinating the different sides. c) The government (or "central planner") is coordinating the different sides. d) Prices are coordinating the different sides.

secondary markets

Indeed, the "force" of prices incentives is so strong, as we saw, that even when we try to allocate products through non-price means, sxxxxxxxx mxxxxxx often arise that undo the designed intervention.

equilibrium; outside equilibrium

Maybe the most important thing to think about in exxxxxxxxxx is that we're always in a state oxxxxxx exxxxxxxxxx.

Marginal buyer

Salaries can fall all the way to $140,000: that's what the "last" law firm (also referred to as the mxxxxxxx bxxxx) is willing to pay for a lawyer.

excess supply

Since the quantity supplied of lawyers is now greater than the quantity demanded, we have a situation of exxxxx sxxxxx.

upward-sloping supply curve

So an important cost of supplying advertising is the opportunity cost of lost viewers due to too much advertising. Increase the price of advertising, however, and a media publisher would be willing to supply more advertising space—resulting in an uxxxxx-sxxxxxx sxxxxx cxxxx.

willingness to sell

So is this a stable market outcome? Specifically, will the number of new students entering law school remain at 60,000 every year? Of course not. The reason is that several students considering law school will "lose" money if they enter: 60,000 graduates compete for jobs, but they are hired at a salary of $140,000—implying that, for many graduates, the salary is lower than their wxxxxxxxxxx tx sxxx (or, in this case, their opportunity cost since that's what the supply curve represents). So the number of graduates falls. (Several "producers" are either shutting down or reducing their capacity.)

c)

The "cobweb adjustment process" converges to a stable market outcome because: a) Prices are magical. b) Demand curves are very inelastic and supply curves are very elastic. c) Demand curves are downward-sloping and supply curves are upward-sloping d) Spiders usually finish their task.

WTP; advertisement ; profit; increase in quantity

The Wxx for the axxxxxxxxxxxx can be calculated simply as: Average pxxxxx * expected ixxxxxxx ix qxxxxxxx demanded

WTP; decreases; additional ad

The first advertisement that P&G airs might be very effective. As viewers see the fourth, fifth, or sixth ad, the effectiveness of the advertising drops. Those are reasons why P&G's Wxx plausibly dxxxxxxxx for each axxxxxxxxx ax.

steepening

The infrastructure disruptions meant that, at any given price, it was harder (and costlier) to bring gasoline into the New York City area. This was equivalent to sxxxxxxxxx the supply curve of gasoline.

demand; supply; intersect; market outcome

The market wage for lawyers is found where the dxxxxx and sxxxxx curves ixxxxxxxx. This intersection also tells you what the quantity demanded or supplied of lawyers will be at that price and it is often referred to as the mxxxxx oxxxxxx.

neither excess demand nor excess supply; market equilibrium

The only stable outcome is the intersection of the demand and supply curves, there is nxxxxxx exxxxx dxxxxx nor exxxxx sxxxxx. As a result, there's no incentive to raise or lower prices further. This resting point is also referred to as the mxxxxx exxxxxxxxxx.

Market

We'll use the term "mxxxxx" to describe the relations that take place between buyers and sellers.

b)

What is the effect of a $1/pack excise tax on the marginal cost curve for cigarettes? a) It has no effect. b) It increases costs by $1/pack. c) It increases costs more for higher quantities. d) It increases costs more for lower quantities.

200000

What is the maximum salary at which law firms would still be willing to hire 30,000 law graduates?

impact; market equilibrium; demand; WTP; supply; costs

When you are analyzing the ixxxxx of any event or intervention like these on the mxxxxx exxxxxxxxxx price and quantity, you want to ask two simple questions: 1. Has dxxxxx changed? If the event affects consumers' WXX, the demand curve will shift. 2. Has sxxxxx changed? If the event affects suppliers' cxxxx, the supply curve will shift.

Uber = New Business Model Walmart = Economies of Scale Apple = Repeated Innovation Merck = Patents Facebook = Network Effects

Which of the following factors best explain the superior performance of the firms below? Match each other using "=" ITEMS UBER WALMART APPLE MERCK FACEBOOK CATEGORY Patents Network effects Repeated innovation New business model Economies of scale

The profits that P&G expects to make selling each unit of its advertised product The total number of people who will see the ad The share of "relevant" viewers who can be reached through the ad, as a percent of total viewers of the ad The effectiveness of the ad

Which of the following factors influence P&G's willingness to pay for a given advertisement? Select all that apply. The profits that P&G expects to make selling each unit of its advertised product The total number of people who will see the ad The price of the ad The share of "relevant" viewers who can be reached through the ad, as a percent of total viewers of the ad The number of other advertisers competing for this ad space The effectiveness of the ad

PROFITS ACCRUING TO A PIZZERIA OWNER RENT EARNED BY A LANDLORD ON APARTMENTS INCOME OF AN INVESTOR (OR LIMITED PARTNER) IN A VENTURE CAPITAL FIRM PROFITS ON APPLE SHARES OWNED BY STEVE JOBS

Which of the following forms of income represent a return to capital? ITEMS CEO SALARIES SALARIES OF HEDGE FUND MANAGERS PROFITS ACCRUING TO A PIZZERIA OWNER WAGES OF A STEEL MILL WORKER RENT EARNED BY A LANDLORD ON APARTMENTS INCOME OF AN INVESTOR (OR LIMITED PARTNER) IN A VENTURE CAPITAL FIRM PROFITS ON APPLE SHARES OWNED BY STEVE JOBS