FSU Micro Final
The imposition of price ceilings on a market often results in
an increase in expenditures in the black-market.
Suppose that a tax is placed on a particular good. If the buyers end up bearing most of the tax burden, this indicates that the
demand is more inelastic than the supply.
Suppose the own-price elasticity of demand for oranges is 1.5, and the price elasticity of supply for oranges is 0.8. A $0.20 per orange tax on oranges is legally assigned to consumers. Who will suffer the largest loss due to tax revenue and deadweight loss?
producers
Fill in the table of costs below. Note that quantity is increasing in increments of 10. Remember, Canvas is stupid. You have to enter your answers as whole numbers, no decimals, no dollar signs, no commas.
q: 0, 10, 20, 30, VC: 0, 80, 140, 240 FC: 40, 40, 40, 40 TC: 40, 120, 180, 280 MC: NA, 8, 6, 10
Fill in the blanks in the following table. Remember, Canvas is stupid. Don't use decimals, commas, or dollar signs--just whole numbers.
quantity: 0, 1, 2, 3, 4, TC: 20, 40, 50, 70, 100 TR: 0, 30, 60, 90, 120 MC: NA, 20, 10, 20, 30 MR: NA, 30, 30, 30, 30
For most people, "feature phones" (also called "dumbphones") are an inferior good. Suppose that, as a result of the government shutdown, millions of people experience a reduction of their income. Demand for feature phones...
shifts to the right.
Suppose that there is an industry in which resource prices rise and the average total cost of producing a product increases, as the firms in an industry expand output in response to an increase in demand. The long-run market supply curve for this product will
slope upward to the right.
A marginal change usually is a
small, incremental adjustment
The Law of Diminishing Returns...
states that as a firm uses more of a variable input, while the amount of a fixed input stays the same, marginal product will eventually start to fall.
Your bakery produces 100 additional loaves of bread. Your fixed costs are $10,000. Total costs rise from $15,000 to $15,500. What is the marginal cost of producing an additional loaf of bread?
$5
A monopoly cable television company sells access to cable television channels. It lowers the price of a subscription from $100 to $80, and finds that the number of subscriptions sold rises from 1 million per month to 2 million per month. The monopoly's marginal revenue is...
$60
Figure 9-15 At which price and quantity is profit maximized for the competitive price-taker firm represented in Figure 9-15? $40 and 80 $8 and 70 $4 and 40 $40 and 70 $8 and zero output
$8 and 70
Each of the graphs below shows the demand curve faced by an individual firm. Which one is most likely to represent the demand curve faced by a monopoly?
$ \ \ \ \ \ \ \ D q
Suppose Average Variable Cost is $100, Average Fixed cost is $50, and output is 10 units. What is Total Cost? (Note that I said Total Cost, not Average Total Cost.)
$1,500
A doctor's office sees 100 patients each week. It has Average Variable Cost of $100, and Average Fixed Cost of $50. Total Cost (note that I didn't say average Total Cost) is...
$15,000.
You could spend the next eight hours studying for your economics exam and increase your grade by around 20 points, or you could work an 8 hour shift at your job and earn $80. Assuming a constant linear relationship, the opportunity cost of earning a point on your exam would be...
$4
Each semester you buy new mechanical pencils and graphite (though you would consider using a pen or a wood pencil if mechanical pencils became too expensive). The price of a mechanical pencil goes from $2 to $3, and the quantity of graphite that you buy goes from 4 units per semester to 1 unit per semester. What is the Arc Cross-Price Elasticity of Demand?
-3
A hurricane blows through Tallahassee, knocking out power lines and water treatment plants. The increased demand for generators, bottled water, and gasoline drives up their prices, but the city government imposes anti-price-gouging laws, preventing prices for these goods from rising. You ride with your friend to buy some gasoline, and he says he's glad that the price gouging was stopped, because without the laws keeping prices down he wouldn't be able to buy gasoline. Knowing what you now know about price ceilings, what problems would you warn him to expect to encounter at the gas station? Explain at least two.
1) A shortage is likely to occur, so there may be no gasoline available. 2) There may be a long line at the gas station resulting in hours of wasted time. 3) The quality of the gasoline maybe lower, perhaps with reduced additives. 4) Fights might break out over the limited gasoline available, and/or police may be present to prevent this.
Suppose the price of gasoline is $2.00 per gallon and people buy 150 billion gallons of gasoline per year. A price ceiling of $1.80 is imposed on gasoline, reducing the price by 10%. Suppose the arc own-price elasticity of demand is 0.2 and the arc price elasticity of supply is 0.3. Using this information you can estimate how big the gap between quantity demanded and quantity supplied will be after the price ceiling is imposed. How big will the shortage be?
7.5 billion gallons per year
The price of a fancy meal out with your significant other drops from $87 to $75, and as a result you increase number of fancy meals from 20 per year to 25 per year. What is the Arc Own-Price Elasticity of Demand for fancy meals out with your significant other?
1.5
Because you have a nice, spacious, comfortable vehicle, your friends often ask you for a ride (to the store, to a club, to the doctor, etc.). Eventually you get tired of giving out free rides, and ask your friends to chip in $5 (for gas and the value of your time) for each trip. They agree, and you give them 2 rides per week. After a few weeks of this, one of your friends loses his own car in an accident. To persuade you to provide even more transportation, your friends offer you $9 per ride. Now you provide 6 rides per week. What is the Arc Price Elasticity of Supply?
1.75
Suppose I buy a nice dinner for $15. I was willing to pay $25 for it, and the restaurant would have been willing to sell it for as little as $11. What is the total gain to both sides?
14
If the opportunity cost of watching one episode of your favorite show on Netflix is the $5 you would have earned from working for half an hour, then the opportunity cost of working for an hour is...watching ______ episodes of your favorite show on Netflix.
2
If you are willing to pay $40 for Top Hat access, but a guy in an alley sells you a black market access code for $3, your consumer surplus is...
20
A country with a comparative advantage in producing a good...a) has the lowest opportunity cost of production.b) has the highest opportunity cost of production.c) can produce more of the good than any other country.d) will be poorer as a result of trading with its neighbors for other goods.
A
Consider the supply curve for sour cream. If the price of sour cream falls, then...a) the quantity supplied will fall.b) the quantity supplied will rise.c) the supply will rise.d) none of the above.
A
If a person's income goes up, and that person buys more chicken sandwiches, then we can conclude that for this person...a) chicken sandwiches are a normal good. b) chicken sandwiches are an inferior good.c) chicken sandwiches are substitutes.d) chicken sandwiches are complements.
A
Suppose the administration of FSU decides to fire all advisors and administrators, leaving only faculty, cleaning staff, and support staff, and by doing so it manages to cut costs significantly. The price of one year's tuition at FSU falls from $6,500 to $4,000. Which of the following will occur, ceteris paribus?a) The quantity of students who choose to attend FSU will rise. b) The quantity of students who choose to attend FSU will fall.c) Other universities will lower their tuition.d) Cars will become more fuel efficient.
A
The graph below shows the effects of a price ceiling. Select the answer that correctly labels each lettered item on the graph. (Note that there are no labels for S and D because you all know what those are...right?)
A ... Equilibrium quantity B... Quantity supplied C... Quantity demanded E... Consumer surplus F... Producer surplus G... Deadweight loss
Which of the following would shift the supply of milk to the left?
A disease kills many dairy cows.
Which of the following is incorrect? A monopolist and a monopolistically competitive firm produce at the minimum of Average Total Costs. A perfectly competitive firm produces at the minimum of Average Total Costs. Average Fixed Costs declines as output rises. When Marginal Cost is greater than Average Variable Cost, Average Variable Cost rises.
A monopolist and a monopolistically competitive firm produce at the minimum of Average Total Costs.
The table below shows output, MR, and MC for a firm. Q. MR. MC. 0 NA NA 10 90 30 20 70 70 30 50 150 40 30 250 What kind of firm is this?
A price searcher
The graph below depicts the market for socks. If a price ceiling is imposed at $6 per pair, which of the following will occur? A shortage of 4 units. A shortage of 6 units. Nothing will happen because this price ceiling is non-binding. A surplus of 6 units. Quantity supplied will be 6 units. A surplus of 4 units.
A shortage of 4 units.
Which of the following do not create deadweight loss? A tax on producers or consumers of internet service. A binding price ceiling on internet service. A monopoly on internet service. All of these create deadweight loss.
All of these create deadweight loss.
Which of the following is an example of third degree price discrimination?
Amazon.com looks at your past purchase history and decides that you are the sort of person who really likes books about Chinese history. When you shop for books on Chinese history, Amazon.com shows you higher prices than it shows other consumers.
In equilibrium... - an increase or decrease in output would be inefficient. - All of the above. - quantity supplied equals quantity demanded. - total surplus is maximized.
All of the above.
Which of the following is correct? Marginal Cost falls as output rises until diminishing returns occur; after that, marginal cost rises. Marginal Cost passes through the minimum point of Average Variable Cost. Marginal Cost passes through the minimum point of Average Total Cost. All of the above
All of the above.
If the government imposes a binding price floor on onions, which of the following should we expect to happen?
All of these answers are correct.
The problem with Average Total Cost Pricing regulation is... Firms are not producing at the efficient level of output. Firms have no incentive to implement new, lower-cost technologies. Firms have an incentive to spend on enjoyable costs (such as nice offices, company cars or computers, etc.) because they will be allowed to raise the price when costs go up and profits fall. All of these answers are correct.
All of these answers are correct.
Which of the following statements about the Law of Supply is correct? As price rises, quantity supplied rises. In order to be persuaded to produce more output, a firm must be paid more. A firm's supply curve is its marginal cost curve above the minimum of Average Variable Cost. All of these answers are correct.
All of these answers are correct.
A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?
An increase in supply, lower equilibrium price, and higher equilibrium quantity.
) If the surgeon general announces that wearing shoes is bad for your posture, which of the following will occur?a) Demand for shoes will shift to the right.b) Demand for shoes will shift to the left.c) Quantity of shoes demanded will rise.d) The supply of shoes will fall.
B
The opportunity cost for you to prepare a decent meal is one hour of work, which would earn you $10. The opportunity cost for Chef Enzo to prepare a decent meal is five minutes of work, which would earn him $2. Which of the following terms of trade would benefit you and Chef Enzo? a) Chef Enzo prepares a meal for you for $1.b) Chef Enzo prepares a meal for you for $8.c) Chef Enzo prepares a meal for you for $20.d) You prepare a meal for Chef Enzo, who pays you $5.
B
You like to consume two goods: Gingobongos and Blartypimbles. Your Arc Cross-Price Elasticity of Demand for Gingobongos and Blartypimbles is -0.95. What kind of goods are Gingobongos and Blartypimbles?
Complements
In an oligopolistic market, firms have incentives to... collude to raise the price and reduce output. cheat on colluding oligopolists by selling more at a lower price. Both a) and b). None of the above.
Both a) and b).
When two countries specialize according to comparative advantage and open up to trade with each other...
Both countries are able to consume more than they could without trade.
Which of the following is the best description of the effects of an increase in the supply of bread?
Bread prices will fall, and bread sales will rise.
The graph below shows a monopoly. A, B, C, E, and F are areas on the graph. Which of the following is correct? A is Consumer Surplus, C is Producer Surplus. C is profit, B is deadweight loss. F is Variable Cost, E is Total Cost. E is Fixed Cost, C is Total Cost.
C is profit, B is deadweight loss.
Qualcomm and Crucial are two companies making computing components: memory and processors. According to their production possibilities frontiers above, which of the following is correct? a) Qualcomm has a comparative advantage in memory.b) Crucial has a comparative advantage in processors.c) Both businesses have a comparative advantage in processors.d) Qualcomm has a comparative advantage in Processors, and Crucial has a comparative advantage in memory.
D
Suppose the price of tomato sauce is $4 per jar, but then rises to $7 per jar. The Law of Demand states that...a) demand will rise.b) demand will fall.c) quantity demanded will rise.d) quantity demanded will fall.
D
The value of the best thing you give up to get something is... a) marginal cost.b) sunk cost.c) fixed cost.d) opportunity cost.
D
Ink for books is produced in a Perfectly Competitive Decreasing Cost market. Due to the invention of e-books, demand for books has fallen. Which of the following correctly describes what will happen in the short run and long run?
Demand falls, profits become negative, firms exit, supply shifts to the left and costs rise, profits return to zero.
If the marginal product of labor is negative, which of the following is certainly true?
Diminishing returns have set in.
Your accountant says that your firm is getting a large profit of $2 million, and is delighted with the outcome, saying "keep it up, boss!". Your economist friend, however, says that if you want to know whether you are doing well, you are looking at the wrong number. What does your economist friend mean, and how would the correct number differ? Explain your answer.
Economic profit is the correct way to determine if you are producing the right product in the right way, because it considers the alternatives you could do instead. Accounting profits do not take opportunity costs into account.
The FSU Tutors company is a new startup business, headed by two enterprising FSU undergraduates. As their tutoring business grows, and they move into larger offices, they've found that the average total cost of a tutoring lesson has been falling. Their business is experiencing...
Economies of Scale.
Suppose demand decreases and (at the same time) supply decreases. Which of the following will happen?
Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease.
Suppose demand decreases and supply increases at the same time. Which of the following will happen?
Equilibrium quantity will be indeterminate, while equilibrium price will decrease.
Suppose demand increases and (at the same time) supply decreases. Which of the following will happen?
Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase.
Suppose the market for Brussells sprouts is in equilibrium. Several cool, hip, groovy movie stars begin talking about their great love of Brussells sprouts. Many consumers decide that they, too, want to be cool, hip, and groovy, so they emulate these celebrities. Which of the diagrams below depicts what happens in the market for Brussells sprouts?
Graph B
Which graph below will have consumers suffering the greatest loss of consumer surplus if a tax is imposed? Graph B Graph D Graph A Graph C
Graph B
The graph below depicts a firm earning negative economic profit. Which of the following statements is correct? The firm will shut down immediately in the short run, and exit in the long run. The firm will produce in the short run, but exit in the long run. The firm will produce in the short run and continue to produce in the long run. The firm will shut down immediately in the short run, but produce in the long run.
The firm will shut down immediately in the short run, and exit in the long run.
When economists say that equilibrium in the Supply and Demand model is efficient, they mean that... I. Total Surplus is maximized. II. No consumer or producer is unhappy about anything. III. Economic Profit is positive. IV. All the units of output that have a marginal benefit greater than marginal cost are produced.
I and IV.
Your friend takes you to an expensive all-you-can eat buffet. You eat a bit, and then realize you don't like the food very much. Your friend, however, argues that you've already paid, so you should continue eating until you're full in order to get maximum value for your money. If you are thinking like an economist, you reply by saying...
I won't get my money back if I keep eating, because that cost is sunk. The only question now is whether eating more will make me happier; the money I spent is irrelevant.
If Leon County has a comparative advantage in producing education, and Key West has a comparative advantage in producing relaxing vacations, which of the following is correct?
If Leon County specializes in education, and Key West specializes in relaxing vacations, they can trade and each have more of both goods.
Which of the following is an example of a positive economic statement?
If a monopoly is currently charging a price in the inelastic region of demand, raising the price will increase revenue.
Pes Laul Inc. is a company that makes electric guitars. Due to concerns about excessive cutting of old growth trees to make guitars, a heavy tax is placed on the sorts of lumber that Pes Laul Inc. uses to make its guitars. Which of the following describes the effect of this tax?
The tax raises the firm's costs, causing it to charge a higher price and produce less output.
Which of the following is an example of variable inputs?
Joe's Pizza Parlor orders more cheese due to an increase in orders.
Which of the following is not an example of a barrier to entry?
Low transportation costs which make it easy to move goods to new markets.
A price-searching firm lowers its price for internet service from $90 per month to $80 per month, and sales rise from 10,000 units to 12,000 units. If the firm's marginal cost is 30, and the firm wants to maximize profits, should the firm further reduce its price? Why or why not? Remember that you should be able to answer this question in two or three sentences. A longer answer is dangerous, as you are more likely to say something wrong and lose points. You should probably do some calculations for this question.
Lowering the price from $90 to $80 causes Total Revenue to rise from $90*10,000 = $900,000 to $80*12,000 = $960,000. This means that marginal revenue is: ($960,000 - $900,000) / (12,000 - 10,000) = $60,000 / $2,000 = $30. If marginal revenue is $30, and marginal cost is $30, the firm is maximizing profit (because MC=MR), and should not change the price any further.
Diocletian and Maximian are Roman Co-emperors. They each have two things they can do: Stop rampaging barbarian armies, and stop internal rebellions. If Diocletian puts all his effort into stopping barbarians, he can stop 1 barbarian army. If he puts all his effort into stopping rebellions, he can stop 4 rebellions. If Maximian puts all his effort into stopping barbarians, he can stop 4 barbarian armies. If he puts all his effort into stopping rebellions, he can stop 1 rebellion. Which of the statements below are correct?
Maximian has a comparative advantage in stopping barbarians.
Which of the following is a characteristic of Monopolistic Competition?
Monopolistically Competitive firms earn zero profit in the long run.
Monopolistic Competition is different from Perfect Competition in that...
Monopolistically Competitive firms produce differentiated products, whereas Perfectly Competitive firms produce identical goods.
Which of the following industry structures contains firms that are price takers?
Perfect Competition
Which of the following statements is correct?
Positive economic profits lure firms into an industry, unless there are barriers to entry that keep new firms away.
The market for computers is in equilibrium, but then two things happen at the same time. First, smartphones become so popular that many people use them instead of a computer. Second, computer producers find new and cheaper ways to produce computers. What will happen in the market for computers?
Price falls, quantity is indeterminate.
The market for theme parks tickets is in equilibrium, and then two things happen. First, summer arrives, freeing many families to go on vacation. Second, twenty new theme parks open in the U.S. Which of the following occurs in the market for theme park tickets?
Price is indeterminate, quantity rises.
Suppose the market for coffee is in equilibrium. The price of tea rises. What happens in the market for coffee?
Price rises, quantity rises
After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?
Price will increase, and quantity will increase.
The market for fresh blueberries is in equilibrium, and then two things happen at the same time. An early frost destroys many of the blueberries, and there is an increase in the price of strawberries (a substitute for blueberries). Which of the following is likely to happen?
Quantity of blueberries is indeterminate, price of blueberries rises.
Suppose the markets for pizza and beer (usually consumed together) are in equilibrium. A sickness that affects cows leads to a decrease in the supply of milk, which is used to make mozzarella cheese (which is used on pizza). Which of the following is likely to happen?
Quantity of pizza falls, price of pizza rises, price of beer falls, quantity of beer falls.
Membership stores like Costco and Sam's Club charge an up-front membership fee, and then sell goods at relatively low prices, but in large quantities. This tends to be attractive to customers who are able to pay this up-front fee and need large quantities of goods. This is an example of...
Second degree price discrimination.
Firms in a monopolistically competitive industry are suffering negative economic profits. What happens next?
Some firms exit, sending consumers to the remaining firms, resulting in an increase in demand for those firms, and profits are restored to zero.
The rule for profit maximization is known as...
The Equimarginal Principle.
15.3% of your income is paid to the federal government in payroll taxes (which pay for Social Security and Medicare). Legally speaking, half the tax is paid by you, and half is paid by your employer. Which of the following is correct?
The burden of the tax will be determined by the relatively elasticities of supply and demand, regardless of the legal assignment.
The market for incandescent flashlights is in equilibrium, and incandescent flashlights are an inferior good. LED flashlights are a normal good. Everyone's income falls. What happens?
The demand for incandescent flashlights rises, and the demand for Led flashlights falls.
Bart operates a lemonade stand in front of his house. His father works at the Springfield Nuclear Power Plant. Which of the following is likely to be true?
The long run is longer for the power plant than it is for the lemonade stand.
Jack and Taylor each operate guitar-oriented businesses. Jack is a "busker", which means he plays guitar and sings on street corners and subways for tips. Taylor plays guitar and sings in her high-tech recording studio, with lots of electronics, several guitars, and walls coated with expensive acoustic insulation. Which of the following is likely to be true?
The long run is shorter for Jack than it is for Taylor.
Match the term with its definition.
The number of units sold times the tax per unit. ... tax revenue. A maximum legal price... price ceiling. A minimum legal price... price floor. As the price of a good rises, the quantity supplied rises... the law of supply.
Jimbo can catch 3 possums per night, or tip over 6 cows per night. Bubba can catch 8 possums per night, or tip over 32 cows per night. Those are their maximums for each, but points in between are possible. For example, Jimbo could also catch, say, 1 possum per night, and tip over 4 cows. Which of the following is correct? (If this talk of catching possums and tipping over cows is confusing, just replace them with X and Y.)
The opportunity cost for Jimbo to catch 1 possum is 2 tipped-over cows. The opportunity cost for Bubba to catch 1 possum is 4 tipped-over cows.
There is a market for crude oil, which is pumped out of the ground. Crude oil is sold by oil companies to oil refining companies. Oil refining companies buy the oil and process it into products such as gasoline (which you might call "petrol", depending on where you come from) and diesel. Gasoline stations (or filling stations) buy gasoline from oil refining companies, and sell it to consumers at retail. Suppose battery-powered electric cars become inexpensive and capable of traveling long distances, which causes consumer demand for gasoline to fall. Which of the following will occur?
The price of gasoline at gasoline stations falls, the price of gasoline sold by oil refining companies falls, and the price of oil sold by oil companies falls.
Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry?
The price searchers will have to search for the price, while price takers will have to take the price determined in the market.
Suppose the government imposed a $200 price ceiling on mobile phones. Which of the following would probably not occur? (To be clear, your iPhone or Android phone probably costs much more than $200. You may not realize that because you are paying $25 per month for your phone, hidden in your phone bill, over a two year period. You can assume that this price control makes it illegal to pay more than $200 for a phone over any time period).
The quality of smartphones available for sale would increase, resulting in faster phones with bigger, better screens.
How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?
The supply of beef would increase, decreasing beef prices.
If Theodora is paid $25,000 to sell her valuable jewelry, even though she would have been willing to sell it for $20,000, this indicates that...
Theodora received $5,000 of producer surplus from the transaction.
Marginal Revenue falls faster than Demand for a monopoly because...
To get consumers to buy more output, the monopolist must cut the price on not only the additional units sold, but also the units that would have been sold under the higher price.
Consider the demand for blue jeans. According to the Law of Demand, if the price of blue jeans rises from $60 to $90, the result will be...
a decrease in quantity demanded.
Your new startup produces banana cases (they're like phone cases that protect your phone, but instead they prevent the banana in your lunchbox from being bruised). Your current revenue is $90,000, and your total accounting cost is $80,000. After doing some research, you determine that you could probably make an accounting profit of $30,000 if you were to make phone cases instead. Which of the following is correct?
Your accounting profit is $10,000, and your economic profit is -$20,000, so you should switch to making phone cases.
When economists say that equilibrium is efficient, they mean that...
each unit produced and consumed has a marginal benefit greater than or equal to marginal cost.
If a competitive price-taking firm is operating in long-run equilibrium and market demand suddenly falls, the short-run result will be
economic losses.
If a product is manufactured under conditions of constant cost, an increase in the demand for the product will increase
equilibrium quantity, but equilibrium price will be unchanged in the long run.
The deadweight loss resulting from levying a tax on an economic activity is the
loss of potential gains from trade from activities forgone because of the tax.
Use the figure to answer the following question(s).Figure 9-4 If the market price of the product in Figure 9-4 rose to $8, indicate the firm's profit-maximizing output and total revenue. output, 5 million; total revenue, $30 million output, 5 million; total revenue, $40 million output, 6 million; total revenue, $10 million (approx.) output, 6 million; total revenue, $48 million
output, 6 million; total revenue, $48 million
The table below shows you the output, price, and total costs of a firm. Fill in the blanks. Remember, Canvas is stupid. Enter your answers as whole numbers, with no decimals, commas, or dollar signs.
output: 0, 10, 20, 30 price: 50, 40, 30, 20 TC: 0, 400, 600, 600 Profit: -100, 200, 250, 50
The market for dry-erase markers is in equilibrium, but then the cost of dry-erase ink (which is used to produce the markers) rises. What happens in the market for dry-erase markers?
price rises, quantity falls.
Table 1 below depicts the marginal revenue and variable cost for a company making pairs of shoes. Output. MR. VC. 0. NA. NA. 2. 60 30 4 60 45 6 60 105 8 60 175 The firm in Table 1 is a....
price taker.
Producer Surplus is...
the difference between the price at which a good is sold and the marginal cost of producing it.
The opportunity cost of an action is
the highest valued alternative forgone as the result of choosing an option.
According to the Law of Comparative Advantage, both individuals and nations will be able to produce a larger joint output if each productive activity is undertaken by...
the low opportunity cost producer.
Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer,
the price of aspartame will increase.
Mexico produces a widget at an opportunity cost of 4 gadgets. The U.S. produces a widget at an opportunity cost of 1 gadget. Suppose the U.S. specializes in producing widgets and Mexico specializes in producing gadgets, and they then trade at a rate of 1 widget for 6 gadgets. Will this benefit both countries? Why or why not? (Note that you could answer this by pointing out some math, but to get full points you need to explain your answer using words. (You should be able to answer this using just a sentence or two. Don't write a long essay; you'll probably say something wrong, and we'll have to take off points!)
these terms of trade are bad for Mexico. Mexico could already get a widget by giving up 4 gadgets; these terms of trade would quire them to give up 6 gadgets to get a widget, which is much more costly!
When economists assume that people are rationally self interested...
they mean that people tend to make choices that they think will make themselves happier, and they tend to choose the correct means to achieve that objective.
A price-searching firm's own-price elasticity of demand is 1.5. If this firm lowers its price, which of the following will happen?
total revenue will rise
Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because
with shortages and waiting lists, they have no incentive to maintain and improve their property.
