Exam 2 - Econ

Which of the following is NOT a result of imposing a rent ceiling?

Some consumer surplus is converted to producer surplus

Health Clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior?

Some people are overly optimistic about their further behavior

Which of the following describes how a positive externality affects a competitive market?

The externality causes a difference between the private benefit from consumption and the social benefit.

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. If he increases the price to $15, how much additional revenue would he earn?

1,125 13,125 (New TR) - 12,000 (Old TR)

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -2. By how much would Vito's total revenue change if he cuts the price from $12 to $9.

1,500 % decrease = 12-9/12 = 25% % increase = -2 x 0.25 = 50% New Q demanded = 1000 x (1+.50) = 1,500 New Total Revenue = 1,500 pizzas x $9 (new price) Revenue change = 13,500 - 12,000

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $1,200 per month, and there are 5,000 units rented. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How much of a shortage will there be if the government imposes a price ceiling of $900?

1,750 Q demanded - Q supplied 5,250 - 3,500

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $2,000 per month, and there are 10,000 units rented. Assume that the price elasticity of demand is -0.40 and the price elasticity of supply is +.50. How much of a shortage will there be if the government imposes a price ceiling of $1,600?

1,800 % C in price = 1600- 2000/2000 = -20% % C in Q demanded = -.20 x -0.40 = 0.08 % C in Q supplied = -.20 x .50 = -0.10 New Q demanded = 10,000 x (1+0.08) = 10800 New Q supplied = 10,000 x (1-.10) = 9000 Shortage = 10,800-9000

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. How much revenue does Vito earn?

12,000 $12 x 1,000 pizzas

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. If he increases the price to $15, how much revenue would Vito earn?

13,125 $15 x 875 pizzas

The table above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. If Keira maximizes her utility, how many units of each good should she buy?

3 cups of soup and 4 sandwiches

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $1,200 per month, and there are 5,000 units rented. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How many apartments are supplied if the government imposes a price ceiling of $900?

3,500 % C in price = 900-1200/1200 = -25% % C in Q demanded = -0.2 x -.25 = 5% % C in Q supplied = 1.2 x -.25 = -30% New Q supplied = 5,000 x (1-.30)

The table above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Suppose Keira's has $23 to spend on these goods. If Keira maximizes her utility, how many units of each good should she buy?

4 cups of soup and 5 sandwiches

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

5 utils

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $1,200 per month, and there are 5,000 units rented. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How many apartments are demanded if the government imposes a price ceiling of $900?

5,250 New Q demanded = 5,000 x (1+0.05)

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

57 utils

Milk producers have convinced the government to impose a price floor. Currently, milk sells for $4 per gallon. At that price 20,000 gallons of milk are bought and sold. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How much of a surplus will there be if the government imposes a price floor of $5?

7,000 % C in price = 5-4/4 = 0.25 % C in Q demanded = -0.20 x 0.25 = -0.05 % C in Q supplied = 1.2 x 0.25 = 0.3 New Q demanded = 20,000 x (1-0.05) = 19000 New Q supplied = 20,000 x (1+0.3) = 26000 Surplus = 26,000 - 19,000

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be

80 units of utility.

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. How many pizzas will he sell if he increases the price to $15?

875 1000 x (1-% decrease) % increase = 15-12/12 = 25% % decrease = -0.5 x .25 = .125

The price of a ticket to a JMU football game is $40. At that price JMU sells 12,000 tickets. Assume the price elasticity of demand is -0.2. How much additional revenue would JMU earn if they increased the ticket price to $50.

90,000

Studies show that the income elasticity of demand for Ramen noodles is -0.44. What does this mean?

A 1 percent increase in income leads to a 0.44 percent decrease in Ramen noodle consumption.

In the past economic sense, almost everything is scarce. ______ of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price.

A shortage

For steak and cheese sandwiches and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Billy. Billy has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches. Assume Billy maximizes his utility. Which of the statements is correct?

Billy will buy 2 steak and cheese and 3 grilled chicken. He will enjoy a total utility of 142 utiils.

Which of the following goods would have the most inelastic demand?

Bread

Suppose that in Canada the government placed a $1,500 tax on the buyers of new snowmobiles. After the purchase of a new snowmobile, a buyer must pay the government $1,500. How would the imposition of the tax on buyers be illustrated in a graph?

The tax will shift the demand curve down by $1,500.

Which of the following must be present to reach a private solution to an externality problem?

The transactions costs to negotiate a solution must be relatively low.

Private solutions to the problem of externalities are most likely when

Transactions cost are low and the number of bargaining parties is small

The order of the letters along the rows of computer keyboards could be changed to allow users to type faster, but this would inconvenience the vast majority of people who learned to type with the current keyboard layout. The costs of switching to a new layout make this change unlikely. This is an example of

path dependency

The income effect of an increase in the price of salmon

refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant.

When there are few close substitutes available for a good, demand tends to be

relatively inelastic

White politicians and the general public often favor a "command-and-control" approach to the reduction of the greenhouse gases, many economists favor market-based policies because they

rely on economic incentives rather than on administrative rules

Which of the following is an example of a common resource?

sea otters in the coastal waters of the Pacific Ocean

The tragedy of the commons was avoided in the Middle Ages by

social pressure to uphold traditionally accepted limits on family use of the commons

The substitution effect of an increase in the price of Raisin Bran refers to

the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran.

When demand is elastic, a fall in price causes total revenue to rise because

the increase in quantity sold is large enough to offset the lower price.

A positive externality causes

the marginal social benefit to exceed the marginal private cost of the last unit produced.

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are evidence of

the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it.

A network externality occurs when

the usefulness of a good is affected by how many others use the good

If the market for a product is broadly defined, then

there are few substitutes for the product and the demand for the product is relatively inelastic.

Consider a demand curve that has a constant elasticity value of 0. What happens to the quantity demanded and total revenue when price increases?

The quantity demanded does not change but total revenue increases.

To affect the market outcome, a price ceiling

must be set below the equilibrium price

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.

not necessary; efficient

Price gouging, or large increases in the prices of essential goods during an emergency, is illegal in 34 states. In the very short run when it is not possible to produce more of the good, the price increase is a result of _______ and results in a _______ of the good.

An increase in demand; shortage

Economists usually assume that people act in a rational, self-interested way. In explaining how consumers make choices this means that economists believe

Consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the price of goods and services available to them

Which of the following does NOT explain why consumers buy products that many other consumers are already buying?

Differences in tastes and preferences

The observation that people tend to value something more highly when they own it than when they don't is called the

Endowment effect

If the marginal utility Ida Mae revived from eating chicken wings is negative then

Her total utility from eating chicken wings has fallen

Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other, similar products. These economists believe that

In practice, the gains from using a superior technology exceed the losses consumers incur from switching costs

According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton.Source: Jesse Drucker, "In Times of Belt-Tightening, We Seek Reasonable Rates," Wall Street Journal, April 6, 2001.Based on the information above, the demand for hotel rooms is

Inelastic

Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is

Inelastic

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

It is elastic at high prices and inelastic at low prices.

Economists have shown that the burden of a tax is the same whether the tax is collected from the buyer or seller. Why, then, are gasoline and cigarette taxes imposed on sellers?

It is more difficult for buyers to keep track of their purchases, and for the government to verify that the right of amount of tax revenue is collected.

Seth is a competitive body builder. He says he has to have his 12-oz package of protein powder to "feed his muscles" every day. On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?

It is perfectly inelastic

Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save. Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50. The marginal utility per dollar of the boxes of cereal in Marv's cart equals 20. Marv has only $50 to spend, but has not yet paid for his groceries. How can Marv increase his total utility without spending more than $50?

Marv should buy fewer boxes of cereal and more bottles of soft drink

If you expect the economy is going to experience a boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is

One that sells a luxury good

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised her price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is

Perfectly inelastic

Which of the following is not a consequence of minimum wage laws?

Producers have an incentive to offer workers non-wage benefits such as health care benefits and convenient working hours rather than a higher wage.

Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia?

Quantity demanded will decrease, quantity supplied will increase, and a surplus will result.

When Congress passed a law that imposed a tax designed to fund its Social Security and Medicare programs it wanted employers and workers to share the burden of the tax equally. Most economists who have studied the incidence of the tax have concluded..

The burden of the tax fall almost entirely on workers

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

Wants to consume more ankle socks and fewer bandannas

Which of the following is likely to occur as a result of the law diminishing marginal utility?

Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Which of the following statements is true?

When a firm lowers it price it's total revenue may either increase or decrease

Which of the following products comes closest to having a perfectly inelastic demand?

cholesterol medication in general

An advantage of Microsoft Windows is its compatibility with the widest range of hardware and software. The dominance of Windows is self-reinforcing: hardware and software manufacturers ensure that their products are compatible with Windows in order to have access to the large number of Windows users. Which situation best describes this scenario?

network externalities

If you burn your trash in the backyard in spite of regulations against it, then you are

avoiding the private costs associated with disposing your trash some other way and creating a social cost.

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys

both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the..

demand curve for imported champagne is vertical.

In recent years, a number of cities have enacted taxes on soda and other sweetened beverages. If the policy goal of these city governments is to reduce health care costs and and insurance rates for taxpayers by reducing the total amount of soda and sweetened beverages consumed, this would be most successful if the price elasticity of demand for these sweetened beverages is

elastic

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost,

further reductions will make society better off

Applying Coase's theorem, if the cost to you from having the airplane seat in front of you reclined is ________ the benefit to the reclining passenger, you should ________.

greater than; make a payment to the reclining passenger

Consider the following hypothetical scenarios: A: You are about to purchase a pair of jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away. B: You are about to purchase a pair of jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away. Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store?

in either scenario if I think a $15 savings is worth the 20-minute trip

Which of the following is a source of market failure?

incomplete property rights or inability to enforce property rights

It is difficult for a private market to provide the economically efficient quantity of a public good because

individual preferences are not revealed in the market for the good.

The price elasticity of demand for bread is estimated at -0.40. What happens to sales revenue if the price of bread rises?

it rises

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source?

lack of clearly defined and enforced property rights

Economists are reluctant to state that price controls are desirable or undesirable because..

whether the gains from the winners exceed the losses from the losers is not strictly an economic question

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

will decrease by 45 percent.

One difference between the demand for a private good and that for a public good is that

with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity.

A product is considered to be non excludable if

you cannot keep those who did not pay for the item from enjoying its benefits.