micro exam 2 (pt 2)

Assume that Honduras has a comparative advantage in producing bananas and exports bananas to Brazil. We can conclude that

Honduras has a lower opportunity cost of producing bananas relative to Brazil

midpoint formula

Q2-Q1 P2-P1 -------- / -------- Q1+Q2/2 P1+P2/2

the income effect due to a price decrease will result in an increase in the quantity demanded for

a normal good

________ is the ability to produce more of a good or service than competitors when using the same amount of resources.

absolute advantage

to derive a demand curve for a public good, we

add the price that each consumer is willing to pay for each quantity of the public good

Which of the following describes how a negative externality affects a competitive market? A)The externality causes a difference between the private cost of production and theequilibrium price. B)The externality causes a difference between the private cost of production and the social cost. C)The externality causes a difference between the private cost of production and the private benefit from consumption. D)The externality causes consumer surplus to exceed producer surplus.

b

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

bread

public goods are distinguished by two primary characteristics. what are they

nonrivalry and nonexcludability

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

complements

"Buy American" provisions create winners and losers. Winners include ________ and losers include ________.

firms sheltered from foreign competition; US consumers and tax payers

A demand curve that is horizontal indicates that the commodity

has a large number of substitutes

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

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

relatively inelastic

Suppose the demand curve for a product is horizontal and the supply curve is upward sloping. If a unit tax is imposed in the market for this product,

sellers bear the entire burden of the tax

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because

some individuals in both countries may be made worse off because of trade

the income effect of a price change refers to

the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant

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

The quota on imported sugar costs U.S. consumers more than $2 billion annually and protects very few jobs. Why does Congress maintain a sugar quota that protects only a few thousand workers while forcing millions of people to pay higher prices for sugar products?

the per person cost of the sugar quota is too small for many people to lobby congress to make their views known

If there are no externalities a competitive market achieves economic efficiency. If there is a negative externality, economic efficiency will not be achieved because

too much of the good will be produced

If a firm lowered the price of the product it sells and found that total revenue did not change,then the demand for its product is

unit elastic

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

1.62

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Studies show that the income elasticity of demand for wine is approximately five. What does this mean?

A one percent increase in income leads to a five percent increase in wine consumption.