Exam 1

Suppose that a recent study shows that non‑fatal traffic accidents have risen due to an increase in aggressive driving. This information comes after the implementation of mandatory seat belt laws requiring all drivers and passengers to wear seat belts. This relationship could be an example of moral hazard. tragedy of the commons. adverse selection. the free‑rider problem. a public good.

Moral hazard

Because Tokyo Disneyland charges a fixed admission fee for unlimited rides, shortages of rides occur. In general, what happens to prices when shortages of a good or service persist?

Prices are bid up toward equilibrium.

Singapore implemented congestion charges for some of its major roads and highways. Drivers pay higher tolls during peak‑use periods but little or no tolls during slower traffic periods. Which driver is most likely to drive on the toll roads during peak periods, regardless of the toll price? a college student heading to the library to do some research a homemaker driving to the store to buy groceries a retiree driving to visit some friends a business executive on her way to an important work meeting

a business executive on her way to an important work meeting

A shift in the supply curve can be caused by

a change in one of the determinants of supply.

Merryweather's courthouse square is well‑known for its elaborate decorations, including a real Santa for the children. Unlike at the mall, parents are not required to buy a photo before their children can talk to Santa, but the line is long and Santa leaves at 8:00 p.m. Santa is a public good. common resource. club good. private good.

common resource.

An increasing number of charities have turned to online auctions as a way to raise money by selling unique experiences donated by celebrities, such as a meet-and-greet with a celebrity before a concert or a walk-on role on a television show. Why would the use of auctions lead to a better outcome for the charity as opposed to just setting a fixed price? The outcome is better because in an auction consumers reveal the highest price they are willing to pay, which may be higher than the fixed price. more people would actually benefit from a fixed price than a price that is set through an auction. in an auction consumers reveal the highest price they are willing to pay, which may be lower than the fixed price. the demand for the good or service will be lower if the price is fixed

in an auction consumers reveal the highest price they are willing to pay, which may be higher than the fixed price.

At Tokyo Disneyland, the quantity of rides supplied at the famous theme parks is well below the quantity demanded by the public. In general, determinants of supply include all the factors below, except

income

The maximum amount of a product that sellers are willing and able to provide for sale over a relevant range of prices, holding all other factors constant, is called

Maximal Output

Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. The accompanying graph depicts a market for electric vehicles. Demonstrate the effect of a reduction in the price of lithium-ion batteries by adjusting the accompanying diagram.

Equilibrium price decrease Equilibrium quantity increase Supply curve moves to the left.

You are the manager of Frito-Lay's Cheese Puffs account, and you notice that when the price of Cheetos increases, there is an increase in demand for Cheese Puffs. What is the economic relationship between these goods that explains this behavior?

The increase in the price of Cheetos causes an increase in the demand for Cheese Puffs; therefore, these goods are substitutes.

One day, a local theme park charges $40 per person for admission, and 10,000 people visit the park. On another day, the park charges $60 per person, and 20,000 people pay to enter the park.

The low-attendance day falls on an autumn Wednesday, while the high-attendance day falls on a summer Saturday.

If the price of baseballs goes up from $7.99 to $14.99, what can be expected from suppliers of baseballs as a result?

There will be an increase in quantity supplied.

Teri takes her new puppy to the veterinarian. After he examines the puppy, the vet tells Teri that her puppy needs a series of shots. Teri agrees to the shots since the veterinarian knows way more about animal health than she does.

This is an example of asymmetric information.

Aurora Township is asking all of its citizens to chip in and donate money to build a new library. Tommy thinks he already pays enough money in taxes, so he chooses not to donate. He knows that even if he does not contribute he will be able to use the library once it is built.

This is an example of the free rider problem.

Producer surplus is shown graphically as the area

above the supply curve and below the market price.

In a market economy, there is blank relationship between the price of a good and the amount of a good that buyers are willing and able to purchase.

an inverse or negative

The basic proposition of the law of demand is that

as the price of a good increases, buyers want to purchase less.

In the town of Merryweather, citizens are very serious about their Christmas light displays. Consider each scenario and the type of good described. Bob's Hardware Store stocks a large selection of the most commonly used lights for sale. Bob's lights are public goods. club goods. private goods. common resources.

private goods.

In 2014, small motorized skateboards (known as hoverboards) saw a huge spike in sales as their popularity rose and more companies started producing them. In 2015, a safety risk was exposed when it was reported that over 100 incidences of hoverboards catching fire or exploding occurred, causing injuries. This led to a massive recall of hoverboards as manufacturers had to retool their products and fix existing products. Also, it led to a ban on hoverboards on airlines and in many schools. This massive recall and ban on hoverboards affected the equilibrium price and quantity of hoverboards.

quantity fell and the effect on price was indeterminate.

Suppose the market for tomatoes is in equilibrium, and events occur that simultaneously shift both the demand and supply curves to the right. If this is the only information you have, what can you say about how the equilibrium price or quantity would be affected?

quantity would increase, whereas the direction of the change in equilibrium price would be indeterminate.

If the price of a kayak increases,

sellers offer more kayaks for sale

Over the past decade, many American candy companies have opened factories in Mexico and Canada to produce candy. The companies, including Hershey Company, Brach's Confections, and Ferrara Pan, then ship candy back to the United States for sale. Although lower wages in Mexico might explain part of this move, wages in Canada are comparable to U.S. wages. Price floors (price supports) for the sugar industry encouraged American candy companies to move production out of the United States. Describe how the enactment of a sugar price floor impacted the market for candy in the United States, resulting in the movement of manufacturing.

shifted the supply curve for candy to the left due to the rise in price of sugar in the United States.

Producer surplus is the difference between

the market price and the minimum price a seller is willing to accept.

Consumer surplus is equal to the difference between

the maximum price a buyer is willing to pay and the market price.

Consumer surplus is shown graphically as the area

under the demand curve and above the market price