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MICRO Summer Final PAR P

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Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Raj has an accounting profit of _____ and an economic profit of ____. A. $50, $10 B. $90, $50 C. $10, $50 D. $50, $90

A. $50, $10

For each of the following activities, identify the flow of goods and services and the flow of dollars as either household to firm or firm to household. A. Selena pays a storekeeper $1 for a quart of milk. B. Stuart earns $4.50 per hour working at a fast-food restaurant. C. Shanna spends $30 to get a haircut. D. Salma earns $10,000 from her 10% ownership of Acme Industrial.

A. Flow of Goods and Services : Firm to household Flow of Dollars : Household to firm B. Flow of Goods and Services : Household to firm Flow of Dollars: Firm to household C. Flow of Goods and Services : Firm to household Flow of Dollars: Household to firm D. Flow of Goods and Services : Household to firm Flow of Dollars : Firm to household

The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus? A. It falls by less than $100. B. It falls by more than $100. C. It rises by less than $100. D. It rises by more than $100.

A. It falls by less than $100.

Which of the following is a positive, rather than a normative, statement? A. Law X will reduce national income. B. Law X is a good piece of legislation. C. Congress ought to pass law X. D. The President should veto law X.

A. Law X will reduce national income.

Classify the following topics as relating to microeconomics or macroeconomics. A. A family's decision about how much income to save B. The effect of government regulations on auto emissions C. The impact of higher national saving on economic growth D. A firm's decision about how many workers to hire E. The relationship between the inflation rate and changes in the quantity of money

A. Microeconomics B. Microeconomics C. Macroeconomics D. Microeconomics E Macroeconomics

Classify each of the following statements as positive or normative. A. Society faces a short-run trade-off between inflation and unemployment. B. A reduction in the rate of money growth will reduce the rate of inflation. C. The Federal Reserve should reduce the rate of money growth. D. Society ought to require welfare recipients to look for jobs. E. Lower tax rates encourage more work and more saving.

A. Positive B. Positive C. Normative D. Normative E. Positive

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? A. Prices and quantities both rise. B. Prices and quantities both fall. C. Prices rise, quantities fall. D. Prices fall, quantities rise.

A. Prices and quantities both rise.

Which categories of goods are excludable? A. Private goods and club goods B. Private goods and common resources C. Public goods and club goods D. Public goods and common resources

A. Private goods and club goods

After economics class one day, your friend suggests that taxing food would be a good way to raise revenue because the demand for food is quite inelastic. Which of the following statements are true? Check all that apply. A. Taxing food is less inefficient than taxing other things because there won't be too much deadweight loss. B. Taxing food will generate a large amount of deadweight loss because people aren't very price sensitive in this market. C. Taxing food is a bad way to raise revenue from an equity standpoint because poorer people spend a higher proportion of their income on food. D. Taxing food won't generate any tax revenue because consumers will just start growing their own food on farms.

A. Taxing food is less inefficient than taxing other things because there won't be too much deadweight loss. C. Taxing food is a bad way to raise revenue from an equity standpoint because poorer people spend a higher proportion of their income on food.

Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay? A. The imposition of a binding price floor B. The removal of a binding price floor C. The passage of a tax levied on producers D. The repeal of a tax levied on producers

A. The imposition of a binding price floor

Jane's Juice Bar has the following cost schedules: In the following table, complete the marginal cost, average variable cost, and average total cost columns. On the following graph, use the orange points (square symbol) to plot the marginal-cost curve for Jane's Juice Bar. (Note: Be sure to plot from left to right and to plot between integers. For example, if the marginal cost of increasing production from 1 vat of juice to 2 vats of juice is $5, then you would plot a point at (1.5, 5).) Then use the purple points (diamond symbol) to plot the average-variable cost curve starting at 1 vat of juice, and use the green points (triangle symbol) to plot the average-total-cost curve also starting at 1 vat of juice. Which of the following statements are true according to the previous graph? Check all that apply. A. The marginal-cost curve lies above the average-variable-cost curve. B. The marginal-cost curve is below the average-total-cost curve when output is less than four and average total cost is declining. C. The marginal-cost curve is below the average-total-cost curve when output is greater than four and average total cost is rising.

A. The marginal-cost curve lies above the average-variable-cost curve. B. The marginal-cost curve is below the average-total-cost curve when output is less than four and average total cost is declining. LOOK AT PICTURE

There is often litter along highways but rarely in people's yards. Which of the following statements supports this observation? Check all that apply. A. When a person litters along a highway, others bear the negative externality of having to clean it up. B. The private cost of littering on the highway is high. C. Littering in your own yard imposes costs to you, so you are less likely to do it. D. No one cares if there is litter on the highway.

A. When a person litters along a highway, others bear the negative externality of having to clean it up. C. Littering in your own yard imposes costs to you, so you are less likely to do it.

A $1 per unit tax levied on consumers of a good is equivalent to A. a $1 per unit tax levied on producers of the good. B. a $1 per unit subsidy paid to producers of the good. C. a price floor that raises the good's price by $1 per unit. D. a price ceiling that raises the good's price by $1 per unit.

A. a $1 per unit tax levied on producers of the good.

Compared to the social optimum, a monopoly firm chooses A. a quantity that is too low and a price that is too high. B. a quantity that is too high and a price that is too low. C. a quantity and a price that are both too high. D. a quantity and a price that are both too low.

A. a quantity that is too low and a price that is too high.

Jen values her time at $60 an hour. She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much as $300 for the massage, but they negotiate a price of $200. In this transaction, A. consumer surplus is $20 larger than producer surplus. B. consumer surplus is $40 larger than producer surplus. C. producer surplus is $20 larger than consumer surplus. D. producer surplus is $40 larger than consumer surplus.

A. consumer surplus is $20 larger than producer surplus.

If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost. A. economies, falling B. economies, rising C. diseconomies, falling D. diseconomies, rising

A. economies, falling

The circular-flow diagram illustrates that, in markets for the factors of production, A. households are sellers, and firms are buyers. B. households are buyers, and firms are sellers. C. households and firms are both buyers. D. households and firms are both sellers.

A. households are sellers, and firms are buyers.

Economics is best defined as the study of A. how society manages its scarce resources. B. how to run a business most profitably. C. how to predict inflation, unemployment, and stock prices. D. how the government can stop the harm from unchecked self-interest.

A. how society manages its scarce resources.

Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve. If a 10 cent per pound tax is increased to 15 cents, the government's tax revenue A. increases by less than 50 percent and may even decline. B. increases by exactly 50 percent. C. increases by more than 50 percent. D. The answer depends on whether supply or demand is more elastic.

A. increases by less than 50 percent and may even decline.

When the government levies a tax on a good equal to the external cost associated with the good's production, it ________ the price paid by consumers and makes the market outcome ________ efficient. A. increases, more B. increases, less C. decreases, more D. decreases, less

A. increases, more

If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will A. keep producing in the short run but exit the market in the long run. B. shut down in the short run but return to production in the long run. C. shut down in the short run and exit the market in the long run. D. keep producing both in the short run and in the long run.

A. keep producing in the short run but exit the market in the long run.

If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with ________ elasticities of demand and ________ elasticities of supply. A. small, small B. small, large C. large, small D. large, large

A. small, small

If a nation has high and persistent inflation, the most likely explanation is A. the central bank creating excessive amounts of money. B. unions bargaining for excessively high wages. C. the government imposing excessive levels of taxation. D. firms using their monopoly power to enforce excessive price hikes.

A. the central bank creating excessive amounts of money.

A tax on a good has a deadweight loss if A. the reduction in consumer and producer surplus is greater than the tax revenue. B. the tax revenue is greater than the reduction in consumer and producer surplus. C. the reduction in consumer surplus is greater than the reduction in producer surplus. D. the reduction in producer surplus is greater than the reduction in consumer surplus.

A. the reduction in consumer and producer surplus is greater than the tax revenue.

You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are psychological. How can you compare the benefits to the costs? A1. Determine the benefits of what you give up by going on the vacation, and compare them to the benefits of going on vacation. B1. Compare the airfare and hotel costs of the vacation against the foregone wages. C1. Get a degree in psychology.

A1. Determine the benefits of what you give up by going on the vacation, and compare them to the benefits of going on vacation.

Many observers believe that the levels of pollution in our society are too high. If society wishes to reduce overall pollution by a certain amount, which of the following reasons supports why it's efficient to have different amounts of reduction at different firms? Check all that apply. A1. The costs of reducing pollution differ across firms. B. The costs of reducing pollution are the same across firms. C1. Firms with the highest profit should bear the largest burden of reducing pollution. D1. All firms should be allowed to produce some pollution. Why are command-and-control approaches generally unable to target the firms that should undertake bigger reductions? Check all that apply. A2. The costs of reducing pollution are the same across firms. B2. Command-and-control approaches often rely on uniform reductions among firms. C2. There is no incentive to reduce pollution beyond the mandated amount. Economists argue that appropriate corrective taxes or tradable pollution rights will result in efficient pollution reduction. Which of the following statements supports this claim? Check all that apply. A3. Corrective taxes or tradable pollution rights give firms greater incentives to reduce pollution. B3. The government does not have to figure out which firms can reduce pollution the most. C3. With corrective taxes or tradable pollution rights, firms spend less in research on pollution control.

A1. The costs of reducing pollution differ across firms. B2. Command-and-control approaches often rely on uniform reductions among firms. C2. There is no incentive to reduce pollution beyond the mandated amount. A3. Corrective taxes or tradable pollution rights give firms greater incentives to reduce pollution. B3. The government does not have to figure out which firms can reduce pollution the most.

A local drama company proposes a new neighborhood theater in San Francisco. Before approving the building permit, the city planner completes a study of the theater's potential impact on the surrounding community. One finding of the study is that theaters attract traffic, which adversely affects the community. The city planner estimates that the cost to the community from the extra traffic is $5 per theater ticket. This is a_______ externality because the_____ is greater than the_____ . The following graph shows the demand and supply for theater tickets in this neighborhood. Use the green line (triangle symbol) to graph the social-value curve in this case, and use the purple line (diamond symbol) to graph the social-cost curve. Use the black point (plus symbol) to indicate the market equilibrium level of output. Then use the grey point (star symbol) to indicate the efficient level of output in this case. Upon further review, the city planner uncovers a second externality. Rehearsals for the plays tend to run until late at night, with actors, stagehands, and other theater members coming and going at various hours. The planner has found that the increased foot traffic improves the safety of the surrounding streets, an estimated benefit to the community of $2 per ticket. This is a_____ externality because the_____ is greater than the_______ . The following graph shows the demand and supply for theater tickets in this neighborhood, as well as the social-cost curve as a result of the traffic externality of $5 per ticket.

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A monopolist, unlike a competitive firm, has some market power. It can raise its price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry—that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. The Aluminum Company of America (Alcoa) formerly controlled all U.S. sources of bauxite, a key component in the production of aluminum. Given that Alcoa did not sell bauxite to any other companies, Alcoa was a monopolist in the U.S. aluminum industry from the late 19th century until the 1940s. In the public water industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes makes it risky and, most likely, unprofitable for competitors to enter the market. In order to own and operate a taxi, drivers are required to obtain a taxi medallion.

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A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed cost of $200. Complete the following table by indicating the firm's profit, marginal cost, and average variable cost. The efficient scale of the firm must be______ 100 units.

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A publisher faces the following demand schedule for the next novel from one of its popular authors: The author is paid $2 million to write the book, and the marginal cost of publishing the book is a constant $10 per book. Complete the second, fourth, and fifth columns of the following table by computing total revenue, total cost, and profit at each quantity. Which of the following quantity-price combinations would a profit-maximizing publisher choose? (Note: If the publisher is indifferent between more than one choice, select all of the indifferent combinations.) Check all that apply. 300,000 novels at a price of $70 400,000 novels at a price of $60 500,000 novels at a price of $50 600,000 novels at a price of $40 Complete the third column of the previous table by computing marginal revenue. (Hint: Recall that .) True or False: At each quantity, marginal revenue is less than the price. True False Use the black points (plus symbol) to graph the marginal revenue from the 100,000th, 200,000th, 300,000th, 400,000th, 500,000th, and 600,000th novel. Remember to plot from left to right and to plot between integers. For example, if the marginal revenue of increasing production from 100,000 novels to 200,000 novels is 10, then you would plot a point at (150, 10). Next use the orange line (square symbol) to graph the marginal-cost curve faced by the publisher. Finally, use the blue points (circle symbol) to graph demand at the following quantities (in thousands): 0, 100, 200, 300, 400, 500, 600, 700, 800, 900, and 1,000. The marginal-revenue and marginal-cost curves intersect at a quantity of novels. On the previous graph, use the black triangle (plus symbols) to shade the area representing deadweight loss. If the author were paid $3 million instead of $2 million to write the book, the publisher would the price it charges for a novel. Suppose the publisher was not profit-maximizing but was concerned with maximizing economic efficiency, and the author of a novel is paid $2 million to write the book. In this case, the publisher would charge $ for a novel and earn a profit of $ . (Note: If the publisher experiences a loss, be sure to enter a negative number for profit.)

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A recent study found that the demand and supply schedules for flying disks are as follows: Complete the first row of the following table by indicating the equilibrium price and the equilibrium quantity of flying disks in the absence of any price controls. Flying disk manufacturers persuade the government that flying disk production improves scientists' understanding of aerodynamics and thus is important for national security. A concerned Congress votes to impose a price floor $2 above the equilibrium price. Complete the second row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price floor $2 above the equilibrium price. Then indicate whether the price floor is binding or not binding. Irate college students march on Washington and demand a reduction in the price of flying disks. An even more concerned Congress votes to repeal the price floor and impose a price ceiling $1 below the former price floor. Complete the final row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price ceiling $1 below the former price floor. Then indicate whether the price ceiling is binding or not binding. LOOK AT PICTURES

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A small town is served by many competing supermarkets, which all have the same constant marginal cost. Use the black point (plus symbol) to show the competitive price and quantity in this market. Then use the green area (triangle symbol) to shade the area representing consumer surplus in the market for groceries, and use the purple area (diamond symbol) to shade the area representing producer surplus. Now suppose that the independent supermarkets combine into one chain. Use the black point (plus symbol) to show the profit-maximizing monopoly outcome. Then use the green area (triangle symbol) to shade the area representing consumer surplus in the market for groceries, and use the purple area (diamond symbol) to shade the area representing producer surplus. Finally, use the black area (plus symbol) to shade the area representing deadweight loss.

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A subsidy is the opposite of a tax. With a $0.50 tax on ice-cream cones, the government collects $0.50 from buyers for each cone purchased; with a $0.50 subsidy for ice-cream cones, the government pays buyers $0.50 for each cone purchased. Show the effect of a $0.50 per cone subsidy on the demand curve for ice-cream cones. Complete the following table by entering the effective price paid by consumers, the effective price received by sellers, and the quantity of cones sold after the $0.50 subsidy is implemented. Indicate whether each group of people gains or loses from this policy. LOOK AT PICTURES

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An early freeze in California sours the lemon crop. Illustrate the effect this has on the market for lemons. Consumer surplus in the market for lemons________ Illustrate the effect the price change of lemons has on the market for lemonade. Consumer surplus in the market for lemonade_______ LOOK AT PICTURES

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An industry currently has 100 firms, each of which has fixed costs of $16 and average variable costs ( ) as follows: Complete the following table by deriving the total cost, marginal cost, and average total cost for each quantity from 1 to 6. The equilibrium price is currently $10. Each firm produces units, so the total quantity supplied in the market is units. In the long run, firms can enter and exit the market, and all entrants have the same costs as in the previous table. As this market makes the transition to its long-run equilibrium, the price will , quantity demanded will , and the quantity supplied by each firm will . Use the orange line (square point) to graph the long-run supply curve for this market.

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BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. Suppose that BYOB charges $2.00 per can. Your friend Andrew says that since BYOB is a monopoly with market power, it should charge a higher price of $2.25 per can because this will increase BYOB's profit. Complete the following table to determine whether Andrew is correct. Given the earlier information, Andrew correct in his assertion that BYOB should charge $2.25 per can. Suppose that a technological innovation decreases BYOB's costs so that it now faces the marginal cost (MC) and average total cost (ATC) given on the following graph. Specifically, the technological innovation causes a decrease in average fixed costs, thereby lowering the ATC curve and moving the MC curve. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss.

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Ball Bearings, Inc., faces costs of production as follows: Complete the following table by calculating the company's total cost, marginal cost, average fixed cost, average variable cost, and average total cost at each level of production. The price of a case of ball bearings is $50. Seeing that he can't make a profit, the company's chief executive officer (CEO) decides to shut down operations. The firm's profit in this case is $ . (Note: If the firm suffers a loss, enter a negative number in the previous cell.) True or False: This was a wise decision. True False Vaguely remembering his introductory economics course, the company's chief financial officer tells the CEO it is better to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity. At this level of production, the firm's profit is $ . (Note: If the firm suffers a loss, enter a negative number in the previous cell.). True or False: This is the best decision the firm can make. True False

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Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: where indicates the number of copies sold and is the price in Ectenian dollars. Complete the following table by finding the price and quantity that maximize the company's profit and the price and quantity that maximize social welfare. The deadweight loss from the monopoly is $ . Suppose, in addition to the costs above, the director of the film has to be paid. The company is considering four options: Complete the following table by finding the price and quantity that maximize the company's profit under each of the following options.

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Because bagels and cream cheese are often eaten together, they are complements. Use the following graphs to help you answer the questions that follow about the markets for bagels and cream cheese. Note: You will not be graded on any changes you make to the graphs. Complete the following table by indicating the chain of events caused by a change in the price of flour, an input to making bagels. Complete the following table by indicating the chain of events caused by a change in the price of milk, an input to making cream cheese. Note: Ignore that milk could be considered a complement for bagels. LOOK AT PICTURES

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Complete the following table by indicating whether or not each scenario is an example of price discrimination. Hint: To determine whether a scenario is an example of price discrimination, think about whether the market can be segmented into two groups that pay different prices for the same good. Hotels charge a higher price for rooms with a nicer view, such as a skyline view or a coastal view. Assume that all consumers receive a higher utility when staying in a room with a nicer view. Every year, Lesspay ShoeSource promotes its giant BOGO sale—buy one pair of shoes and get one half off—through commercials and other means of advertising. Note that the price of one pair of shoes is the regular retail price, so a customer must buy two pairs of shoes to receive the discount.

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Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply (S = MC) curves in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand and that the new monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist. Consider the welfare effects when the industry operates under a competitive market versus a monopoly. On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by a monopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody. Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the competitive outcome, which is efficient. In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Given the summary table of the two different market structures, you can infer that, in general, the price is higher under a , and the quantity is lower under a

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Consider the following cost information for a pizzeria: The pizzeria's fixed cost is________ Complete the third column of the following table by calculating the marginal cost per dozen pizzas using the information on total cost. Then complete the final column by calculating the marginal cost per dozen pizzas using the information on variable cost. True or False: It doesn't matter whether you compute marginal cost using total cost or variable cost.

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Consider the following table of long-run total costs for three different firms: Indicate whether each firm experiences economies of scale or diseconomies of scale. (Note: If a firm experiences economies of scale in one region and diseconomies of scale in another, make sure to select both columns.) ECONOMIES OF SCALE, DISECONOMIES OF SCALE

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Consider the local telephone company, a natural monopoly. The following graph shows the monthly demand curve for phone services and the company's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints. Complete the first row of the following table. Suppose that the government forces the monopolist to set the price equal to marginal cost. Complete the second row of the previous table. Suppose that the government forces the monopolist to set the price equal to average total cost. Complete the third row of the previous table. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase, and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, what will the local telephone company most likely do? Allow its costs to increase Work to decrease its costs

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Consider the market for DVDs, TV screens, and tickets at movie theaters. DVDs and TV screens DVDs and movie tickets TV screens and movie tickets Suppose a technological advance reduces the cost of manufacturing TV screens. Show the effect of this technological advancement on the market for TV screens. Next, show the effect the previous change in the market for TV screens has on the market for DVDs. Finally, show the effect the previous change in the market for TV screens has on the market for movie tickets. LOOK AT PICTURES

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Consider the market for wheat. The following graph shows the weekly demand for wheat and the weekly supply of wheat. Suppose a blight occurs that destroys a significant portion of wheat crops. Show the effect this shock has on the market for wheat by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. One of the growers is excited by the price increase caused by the blight because she believes it will increase revenue in this market. As an economics student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market. etc. LOOK AT PICTURES

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Consider the relationship between monopoly pricing and price elasticity of demand. If demand is inelastic and a monopolist raises its price, total revenue would and total cost would , causing profit to . Therefore, a monopolist will produce a quantity at which the demand curve is inelastic. Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).

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Consider total cost and total revenue, given in the following table: In the final column, enter profit for each quantity. (Note: If the firm suffers a loss, enter a negative number in the appropriate cell.) In order to maximize profit, how many units should the firm produce? Check all that apply. 4 5 6 7 In the previous table, enter marginal revenue and marginal cost for each quantity. On the following graph, use the green points (triangle symbol) to graph the marginal-revenue curve, then use the orange points (square symbol) to plot the marginal-cost curve. (Note: Be sure to plot from left to right and to plot between integers. For example, if the marginal cost of increasing production from 1 unit to 2 units is $5, then you would plot a point at (1.5, 5).) The marginal-revenue curve and the marginal-cost curve cross at a quantity . This firm in a competitive industry, because marginal revenue is as quantity increases. Also, the industry in a long-run equilibrium.

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Data collected from the economy of Cardtown reveals that a 16% increase in income leads to the following changes: • An 18% increase in the quantity of chips demanded • A 14% decrease in the quantity of spades demanded • A 30% increase in the quantity of aces demanded Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign confers important information.) LOOK AT PICTURES

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Eric's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Eric produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Eric faces. As you can see, to sell the additional engine, Eric must lower his price from $80,000 to $40,000 per fire engine. Note that while Eric gains revenue from the additional engine he sells, he also loses revenue from the initial eight engines because he sells them all at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial eight engines by selling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $40,000. Eric increase production from 8 to 9 fire engines because the dominates in this scenario. True or False: If Eric's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines.

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Ernie owns a water pump. Because pumping large amounts of water is harder than pumping small amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost he incurs to produce each bottle of water: From this information, complete the following table by deriving Ernie's supply schedule. Based on Ernie's willingness to sell, plot his supply curve on the following graph using the orange points (square symbol). Be sure to plot your first point at (0, 0). Suppose the price of a bottle of water is $4. Use the black line (plus symbol) to draw a price line at $4. Next use the grey point (star symbol) to indicate how many bottles of water Ernie will produce and sell at that price. Finally, use the purple point (diamond symbol) to shade the area that represents Ernie's producer surplus. LOOK AT PICTURES

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Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: Within the dorm room, the showing of a movie__________ a public good. If it costs $8 to rent a movie, the roommates should rent_________ movies in order to maximize the total surplus. Suppose the roommates choose to rent the optimal number of movies you just indicated and then split the cost of renting equally. This means that each roommate will pay________. etc. LOOK AT PICTURES

LOOK AT PICTURES

Greater consumption of alcohol leads to more motor vehicle accidents and, thus, imposes costs on people who do not drink and drive. The following graph shows the market for alcohol. Determine whether the private and social values are equal in this case. If they are not, shift the demand curve in the appropriate direction to reflect this difference. Then determine whether the private and social costs are equal in this case. Again, if they are not, shift the supply curve to reflect this difference. Use the black point (plus symbol) to indicate the market equilibrium level of output. Then use the grey point (star symbol) to indicate the efficient level of output in this case. Finally, use the black triangle (plus symbols) to shade the area representing deadweight loss. (Hint: The deadweight loss occurs because some units of alcohol are consumed for which the social cost exceeds the social value.)

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It is a hot day, and Bert is thirsty. Here is the value he places on a bottle of water: From this information, complete the following table by deriving Bert's demand schedule. Based on Bert's willingness to pay, plot Bert's demand curve on the following graph using blue points (circle symbol) beginning at a quantity of 0 bottles of water. Suppose the price of a bottle of water is $4. Use the black line (plus symbol) to draw a price line at $4. Next use the grey point (star symbol) to indicate how many bottles of water Bert will buy at that price. Finally, use the green point (triangle symbol) to shade the area that represents Bert's consumer surplus from his purchases. LOOK AT PICTURES

LOOK AT PICTURES

Johnny Rockabilly has just finished recording his latest CD. The company can produce the CD with no fixed cost and a variable cost of $5 per CD. His record company's marketing department determines that the demand for the CD is as follows: Complete the following table by computing total revenue for each quantity listed and marginal revenue for each 10,000 increase in the quantity sold. Profit is maximized at a quantity of CDs and a price of . This results in a profit of $ . If you were Johnny's agent, you would advise Johnny to demand a recording fee of from the record company.

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Larry, Curly, and Moe run the only saloon in town. • Larry wants to sell as many drinks as possible without losing money. • Curly wants the saloon to bring in as much revenue as possible. • Moe wants to make the largest possible profit. Use the black point (plus symbol) to show the price and quantity combination favored by Larry. Then use the grey point (star symbol) to show the price and quantity combination favored by Curly. Finally use the purple point (diamond symbol) to show the price and quantity combination favored by Moe.

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Which of the following describe some of the trade-offs faced by a family deciding whether to buy a new car? Check all that apply. A1. The vehicle is available in several colors. B1. An increase in the family's car payment means the family will be unable to afford a vacation. C1. Fuel-efficient cars are more expensive, but regular cars require spending more on gas. D1. A larger vehicle means saving time by not having to make multiple trips somewhere, but a smaller vehicle is cheaper. Which of the following describe some of the trade-offs faced by a member of Congress deciding how much to spend on national parks? Check all that apply. A2.Congress can spend either a small amount on a lot of parks or a large amount on a single national park. B2. Dog ownership will surge as a result of better national parks. C2. Money spent on national parks benefits park visitors, but alternatively the money could be spent on highways to benefit drivers. D2. The President likes white flowers and wants to see more in parks. Which of the following describe some of the trade-offs faced by a company president deciding whether to open a new factory? Check all that apply. A3. The firm can either open a new factory or upgrade existing equipment. B3. The firm can either pay out more of its profit to shareholders or earn additional profit next year by increasing production. C3. The factory currently employs 100 workers. D3. The president has been with the company for 20 years. Which of the following describe some of the trade-offs faced by a professor deciding how much time to spend preparing for class? Check all that apply. A4. The better the lecture, the better his chances of tenure, but time spent preparing the lecture decreases the time he has available to work on research. B4. He has taught the same subject for 4 years. C4. The more he prepares, the better his lectures, but the less he prepares, the more free time he can enjoy doing something else. D4. He likes his students a lot. Which of the following describe some of the trade-offs faced by a recent college graduate deciding whether to go to graduate school? Check all that apply. A5. Taking out more student loans means she may not able to purchase the new car she needs. B5. Graduate school means fewer years of on-the-job experience. C5. She is currently studying biology. D5. If she goes to graduate school, she won't be able to spend as much time with her family.

A1. The vehicle is available in several colors. B2. Dog ownership will surge as a result of better national parks. D2. The President likes white flowers and wants to see more in parks. C3. The factory currently employs 100 workers. D3. The president has been with the company for 20 years. B4. He has taught the same subject for 4 years. D4. He likes his students a lot. C5. She is currently studying biology.

Daniel Patrick Moynihan, the late senator from New York, once introduced a bill that would levy a 10,000 percent tax on certain hollow-tipped bullets. How would you expect this to affect the amount of tax revenue raised? A1. This tax likely won't raise much revenue because the high tax rate will probably cause the equilibrium quantity to be near zero. B1. This tax will increase tax revenue by 10,000 percent. C1. This tax will generate a lot of tax revenue because of its high rate. Even if the tax would raise no revenue, why might Senator Moynihan have proposed it? A2. To discourage the use of hollow-tipped bullets B2. To increase the popularity of hollow-tipped bullets C2. To boost the manufacturing industry of hollow-tipped bullets

A1. This tax likely won't raise much revenue because the high tax rate will probably cause the equilibrium quantity to be near zero. A2. To discourage the use of hollow-tipped bullets

Many schemes for price discriminating involve some cost. For example, discount coupons take up the time and resources of both the buyer and the seller. This question considers the implications of costly price discrimination. To keep things simple, let's assume that our monopolist's production costs are simply proportional to output, so that average total cost and marginal cost are constant and equal to each other. On the following graph, use the black point (plus symbol) to indicate the price and quantity that would emerge under a monopoly without price discrimination. Then use the purple point (diamond symbol) to shade the area corresponding to the monopolist's profit, and use the green point (triangle symbol) to shade the area corresponding to consumer surplus. Finally, use the black point (plus symbol) to shade the area corresponding to deadweight loss. Let the region representing monopolist's profit be called , consumer surplus , and deadweight loss . Suppose the monopolist can perfectly price discriminate. The monopolist's profit is in this case. The change in the monopolist's profit from price discrimination is , and the change in total surplus from price discrimination is . Now suppose that there is some cost of price discrimination. To model this cost, let's assume that the monopolist has to pay a fixed cost to price discriminate. Under which of the following conditions would the monopolist pay the fixed cost to be allowed to price discriminate? A. Y+Z>C B. Y>C C. Z>C D. Y+Z<C Under which of the following conditions would a benevolent social planner, who cares about total surplus, agree to allow the monopolist to price discriminate as long as it pays the fixed cost? A. Z>C B. Y+Z>C C. Y+Z<C D. Y>C True or False: It is possible that the monopolist will price discriminate even though doing so is not socially desired, because the monopolist has a greater incentive to price discriminate than the social planner would allow. True False

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Many small boats are made of fiberglass, which is derived from crude oil. Suppose that the price of oil rises. The following graph shows two possible marginal-cost (MC) and average-total-cost (ATC) curves for an individual boat-making firm. In the following tables, indicate which curves represent the marginal-cost curve and average-total-cost curve before the price hike and after the price hike. On the following graph, show the effect of the hike in the price of oil on the market supply of boats by shifting the curve in the appropriate direction. In the short run, profits of boat makers . In the long run, the number of boat makers

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Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship between the number of workers and Nimbus's output in a given day: In the following table, complete the marginal product column. A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the column for total cost in the previous table. Which of the following statements are true about the patterns found in this table? Check all that apply. A. When marginal product is rising, marginal cost is also rising. B. Marginal product rises at first, then declines. C. When marginal cost is less than average total cost, average total cost is falling. D. Average total cost is not U-shaped.

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One of the largest changes in the economy over the past several decades is that technological advances have reduced the cost of making computers. Show the effect of the reduction in production costs on the market for computers. Forty years ago, students used typewriters to prepare papers for their classes; today they use computers. According to this statement, computers and typewriters are____________ Show the effect of the price change in the market for computers on the market for typewriters. Consider the relationship between computers and software. Show the effect of the price change in the market for computers on the market for software. One of the largest changes in the economy over the past several decades is that technological advances have reduced the cost of making computers. The following graph shows the effect of falling production costs on the market for computers. LOOK AT PICTURES

LOOK AT PICTURES

Only one firm produces and sells soccer balls in the country of Wiknam, and as our story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist's demand, marginal revenue, total cost, and marginal cost: where is quantity and is the price measured in Wiknamian dollars. The monopolist produces soccer balls and sells them at a price of $ each. The monopolist's profit is $ in this case. One day, the King of Wiknam decrees that henceforth there will be free trade—either imports or exports—of soccer balls at the world price of $6. The firm is now a price taker in a competitive market. The domestic production of soccer balls will to soccer balls, and domestic consumption will to soccer balls. Therefore, Wiknam will soccer balls in this case. In our analysis of international trade in Chapter 9, a country becomes an exporter when the price without trade is below the world price and an importer when the price without trade is above the world price. In this case, the price without trade is than the world price, and the country is an . This is because the claim made in Chapter 9 assumed the domestic market was . Suppose that the world price was not $6 but, instead, happened to be exactly the same as the domestic, monopolistic price without trade. Allowing trade in this case would result in the country soccer balls.

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Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $30 per pair of Ooh boots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that its marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of the consumer's willingness and ability to pay. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) Now, suppose that Barefeet can practice perfect price discrimination—that is, it knows each consumer's willingness to pay for each pair of Ooh boots and is able to charge each consumer that amount. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells its boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) Consider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate. Complete the following table by indicating under which market conditions each of the statements is true. (Note: If the statement isn't true for either single-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply. There is deadweight loss associated with the profit-maximizing output. Total surplus is maximized. Barefeet produces a quantity more than the efficient quantity of Ooh boots.

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Suppose Ernie is the only seller in the market for bottled water and Bert is the only buyer. The following lists show the value Bert places on a bottle of water and the cost Ernie incurs to produce each bottle of water: The following table shows their respective supply and demand schedules: Use Ernie's supply schedule and Bert's demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Enter these values in the following table. A price of________ brings supply and demand into equilibrium. At the equilibrium price, consumer surplus is______, producer surplus is________, and total surplus is_________ If Ernie produced and Bert consumed one less bottle of water, total surplus would_____ If instead, Ernie produced and Bert consumed one additional bottle of water, total surplus would_______ LOOK AT PICTURES

LOOK AT PICTURES

Jane pays Chuck $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Chuck, he raises his price to $60. Jane continues to hire him at the higher price. What is the change in producer surplus, change in consumer surplus, and deadweight loss? A. $0, $0, $10 B. $0, -$10, $0 C. +$10, -$10, $10 D. +$10, -$10, $0

B. $0, -$10, $0 In this case, the entire tax is passed to Jane, the consumer. Therefore, there is no change in producer surplus because the price received by Chuck remains the same, but there is a decrease of $10 in consumer surplus because Jane now pays $10 more than before. Since the overall surplus remains the same and no mutually beneficial transactions were lost, deadweight loss is zero in the presence of this tax. See Section: How a Tax Affects Market Participants.

The government auctions off 500 units of pollution rights. They sell for $50 per unit, raising total revenue of $25,000. This policy is equivalent to a corrective tax of _____ per unit of pollution. A. $10 B. $50 C. $450 D. $500

B. $50

The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result? A. Average total cost and marginal cost. B. Average total cost and average fixed cost. C. Average variable cost and marginal cost. D. Average variable cost and average fixed cost.

B. Average total cost and average fixed cost.

Many transportation systems, such as the Washington, D.C. Metro (subway), charge higher fares during rush hours than during the rest of the day. Which of the following statements supports this observation? Check all that apply. A. When the system is congested, you impose a positive externality on other riders by using the subway. B. Increasing the fare during rush hour discourages people from using the subway at this time. C. When the system is congested, each additional rider imposes costs on other riders. D. Increasing the fare during rush hour doesn't affect ridership.

B. Increasing the fare during rush hour discourages people from using the subway at this time. C. When the system is congested, each additional rider imposes costs on other riders.

Which of the following is an example of a public good? A. Residential housing B. National defense C. Restaurant meals D. Fish in the ocean

B. National defense

For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price , marginal revenue , and marginal cost ? A. P=MR and MR=MC . B. P>MR and MR=MC . C. P=MR and MR>MC D. P>MR and MR>MC

B. P>MR and MR=MC .

Which categories of goods are rival in consumption? A. Private goods and club goods B. Private goods and common resources C. Public goods and club goods D. Public goods and common resources

B. Private goods and common resources

A change in which of the following will not shift the demand curve for hamburgers? A. The price of hot dogs B. The price of hamburgers C. The price of hamburger buns D. The income of hamburger consumers

B. The price of hamburgers

If the production of a good yields a negative externality, then the social-cost curve lies ________ the supply curve, and the socially optimal quantity is ________ than the equilibrium quantity. A. above, greater B. above, less C. below, greater D. below, less

B. above, less

John has been working as a tutor for $300 a semester. When the university raises the price it pays tutors to $400, Emily enters the market and begins tutoring as well. How much does producer surplus rise as a result of this price increase? A. by less than $100 B. between $100 and $200 C. between $200 and $300 D. by more than $300

B. between $100 and $200

A point inside the production possibilities frontier is A. efficient, but not feasible. B. feasible, but not efficient. C. both efficient and feasible. D. neither efficient nor feasible.

B. feasible, but not efficient.

A point inside the production possibilities frontier is A. efficient, but not feasible. B. feasible, but not efficient. C. both efficient and feasible. D. neither efficient nor feasible.

B. feasible, but not efficient.

The Laffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase the A. deadweight loss. B. government's tax revenue. C. equilibrium quantity. D. price paid by consumers.

B. government's tax revenue.

When a market is in equilibrium, the buyers are those with the ________ willingness to pay, and the sellers are those with the ________ costs. A. highest, highest B. highest, lowest C. lowest, highest D. lowest, lowest

B. highest, lowest

A marginal change is one that A. is not important for public policy. B. incrementally alters an existing plan. C. makes an outcome inefficient. D. does not influence incentives.

B. incrementally alters an existing plan.

A competitive firm maximizes profit by choosing the quantity at which A. average total cost is at its minimum. B. marginal cost equals the price. C. average total cost equals the price. D. marginal cost equals average total cost.

B. marginal cost equals the price.

The deadweight loss from monopoly arises because A. the monopoly firm makes higher profits than a competitive firm would. B. some potential consumers who forgo buying the good value it more than its marginal cost. C. consumers who buy the good have to pay more than marginal cost, reducing their consumer surplus. D. the monopoly firm chooses a quantity that fails to equate price and average revenue.

B. some potential consumers who forgo buying the good value it more than its marginal cost.

The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price. A. supply, higher B. supply, lower C. demand, higher D. demand, lower

B. supply, lower

An increase in ________ will cause a movement along a given demand curve, which is called a change in ________. A. supply, demand B. supply, quantity demanded C. demand, supply D. demand, quantity supplied

B. supply, quantity demanded

Adam Smith's phrase "invisible hand" refers to A. the subtle and often hidden methods that businesses use to profit at consumers' expense. B. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants. C. the ability of government regulation to benefit consumers, even if the consumers are unaware of the regulations. D. the way in which producers or consumers in unregulated markets impose costs on innocent bystanders.

B. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants.

Public goods are A. efficiently provided by market forces. B. underprovided in the absence of government. C. overused in the absence of government. D. a type of natural monopoly.

B. underprovided in the absence of government.

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? A. An increase in the price of peanut butter, a complement to jelly B. An increase in the price of Marshmallow Fluff, a substitute for jelly C. An increase in the price of grapes, an input to jelly D. An increase in consumers' incomes, as long as jelly is a normal good

C. An increase in the price of grapes, an input to jelly

A firm is producing 20 units with an average total cost of $25 and marginal cost of $15. If the firm were to increase production to 21 units, which of the following must occur? A. Marginal cost would decrease. B. Marginal cost would increase. C. Average total cost would decrease. D. Average total cost would increase.

C. Average total cost would decrease.

Which of the following is an example of a positive externality? A. Bob mows Hillary's lawn and is paid $100 for performing the service. B. While mowing the lawn, Bob's lawnmower spews out smoke that Hillary's neighbor Kristen has to breathe. C. Hillary's newly cut lawn makes her neighborhood more attractive. D. Hillary's neighbors pay her if she promises to get her lawn cut on a regular basis.

C. Hillary's newly cut lawn makes her neighborhood more attractive.

Congress and the President decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax on each gallon of gasoline sold. Who should they impose this tax on? A. Consumers B. Producers C. It doesn't matter If the demand for gasoline were more elastic, this tax would be_________ effective in reducing the quantity of gasoline consumed. True or False: Consumers of gasoline are hurt by this tax. True/False Workers in the oil industry are_________ by this tax.

C. It doesn't matter more true hurt

Fire extinguishers exhibit positive externalities because, even though people buy them for their own use, they may prevent fire from damaging the property of others. The following graph shows the market for fire extinguishers. Determine whether the private and social values are equal in this case. If they are not, shift the demand curve in the appropriate direction to reflect this difference. Then determine whether the private and social costs are equal in this case. Again, if they are not, shift the supply curve to reflect this difference. Use the black point (plus symbol) to indicate the market equilibrium level of output. Then use the grey point to indicate the efficient level of output in this case. If the external benefit is $10 per extinguisher, which of the following government policies would yield the efficient outcome? Check all that apply. A. Mandate that every household have three fire extinguishers. B. Give out fire extinguishers for free. C. Subsidize people $10 for every fire extinguisher they buy. D. Tax people $10 for every fire extinguisher they buy.

C. Subsidize people $10 for every fire extinguisher they buy. LOOK AT PICTURE

Which of the following statements about corrective taxes is generally not true? A. Economists prefer them to command-and-control regulation. B. They raise government revenue. C. They cause deadweight losses. D. They reduce the quantity sold in a market.

C. They cause deadweight losses.

An economic model is A. a mechanical machine that replicates the functioning of the economy. B. a fully detailed, realistic description of the economy. C. a simplified representation of some aspect of the economy. D. a computer program that predicts the future of the economy.

C. a simplified representation of some aspect of the economy.

An efficient allocation of resources maximizes A. consumer surplus. B. producer surplus. C. consumer surplus plus producer surplus. D. consumer surplus minus producer surplus

C. consumer surplus plus producer surplus.

When a monopolist switches from charging a single price to perfect price discrimination, it reduces A. the quantity produced. B. the firm's profit. C. consumer surplus. D. total surplus.

C. consumer surplus.

In a market with a binding price ceiling, an increase in the ceiling will ________ the quantity supplied, ________ the quantity demanded, and reduce the ________. A. increase, decrease, surplus B. decrease, increase, surplus C. increase, decrease, shortage D. decrease, increase, shortage

C. increase, decrease, shortage

Eggs have a supply curve that is linear and upward-sloping and a demand curve that is linear and downward-sloping. If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the tax A. increases by less than 50 percent and may even decline. B. increases by exactly 50 percent. C. increases by more than 50 percent. D. The answer depends on whether supply or demand is more elastic.

C. increases by more than 50 percent.

An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers' preferences, it would A. expand the production possibilities frontier. B. contract the production possibilities frontier. C. move the economy along the production possibilities frontier. D. move the economy inside the production possibilities frontier.

C. move the economy along the production possibilities frontier.

Pretzel stands in New York City are a perfectly competitive industry in long-run equilibrium. One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect the number of pretzels consumed in the short run and the long run? A. down in the short run, no change in the long run B. up in the short run, no change in the long run C. no change in the short run, down in the long run D. no change in the short run, up in the long run

C. no change in the short run, down in the long run

Common resources are A. efficiently provided by market forces. B. underprovided in the absence of government. C. overused in the absence of government. D. a type of natural monopoly.

C. overused in the absence of government.

Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is A. negative. B. zero. C. positive but less than the marginal seller's cost. D. positive and greater than the marginal seller's cost.

C. positive but less than the marginal seller's cost.

A perfectly competitive firm A. chooses its price to maximize profits. B. sets its price to undercut other firms selling similar products. C. takes its price as given by market conditions. D. picks the price that yields the largest market share.

C. takes its price as given by market conditions.

Your opportunity cost of going to a movie is A. the price of the ticket. B. the price of the ticket plus the cost of any soda and popcorn you buy at the theater. C. the total cash expenditure needed to go to the movie plus the value of your time. D. zero, as long as you enjoy the movie and consider it a worthwhile use of time and money.

C. the total cash expenditure needed to go to the movie plus the value of your time.

The Coase theorem does not apply if A. there is a significant externality between two parties. B. the court system vigorously enforces all contracts. C. transaction costs make negotiating difficult. D. both parties understand the externality fully.

C. transaction costs make negotiating difficult.

You win $100 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 5% interest. Which of the following is included in the opportunity cost of spending $100 now? A1. Nothing, because you won the money B1. The cost of entering the basketball pool C1. The $105 you would have a year from now if you put it in the bank

C1. The $105 you would have a year from now if you put it in the bank

Governments may intervene in a market economy in order to A. protect property rights. B. correct a market failure due to externalities. C. achieve a more equal distribution of income. D. All of the above.

D. All of the above.

Which of the following is an example of a common resource? A. Residential housing B. National defense C. Restaurant meals D. Fish in the ocean

D. Fish in the ocean

A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm? A. Marginal cost is $5, and average variable cost is $8. B. Marginal cost is $8, and average variable cost is $5. C. Marginal cost is $5, and average total cost is $8. D. Marginal cost is $8, and average total cost is $5.

D. Marginal cost is $8, and average total cost is $5.

In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price , marginal cost , and average total cost ? A. P>MC and P>ATC . B. P>MC and P=ATC . C. P=MC and P>ATC D. P=MC and P=ATC .

D. P=MC and P=ATC .

Movie tickets and DVDs are substitutes. If the price of DVDs increases, what happens in the market for movie tickets? A. The supply curve shifts to the left. B. The supply curve shifts to the right. C. The demand curve shifts to the left. D. The demand curve shifts to the right.

D. The demand curve shifts to the right.

Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay? A. The imposition of a binding price floor B. The removal of a binding price floor C. The passage of a tax levied on producers D. The repeal of a tax levied on producers

D. The repeal of a tax levied on producers

Suppose that a government that is skeptical of efforts to regulate prices charged by private companies is nevertheless concerned that an electric utility company is taking advantage of consumers with unfair pricing policies. Which of the following policy options might most effectively enable the government to achieve its objectives in this situation? A. Regulate the firm's pricing behavior. B. Do nothing at all. C. Use antitrust laws to increase competition. D. Turn the company into a public enterprise.

D. Turn the company into a public enterprise.

Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. What is the opportunity cost of something? A. The cost to produce it B. The time it takes to do something C. What you pay for it D. What must be given up to acquire it Your aunt's opportunity cost of running a hardware store for a year is________ Suppose your aunt thought she could sell $510,000 worth of merchandise in a year. True or False: Your aunt should open the store.

D. What must be given up to acquire it $550,000 false The opportunity cost of running the hardware store is $550,000, consisting of $500,000 to rent the store and buy the stock and a $50,000 implicit cost, because your aunt would quit her job as an accountant to run the store. See Section: Costs as Opportunity Costs.

When the government imposes a binding price floor, it causes A. the supply curve to shift to the left. B. the demand curve to shift to the right. C. a shortage of the good to develop. D. a surplus of the good to develop.

D. a surplus of the good to develop.

A firm is a natural monopoly if it exhibits the following as its output increases: A. decreasing marginal revenue. B. increasing marginal cost. C. decreasing average revenue. D. decreasing average total cost.

D. decreasing average total cost.

A competitive firm's short-run supply curve is its ________ cost curve above its ________ cost curve. A. average total, marginal B. average variable, marginal C. marginal, average total D. marginal, average variable

D. marginal, average variable

If a monopoly's fixed costs increase, its price will _____, and its profit will _____. A. increase, decrease B. decrease, increase C. increase, stay the same D. stay the same, decrease

D. stay the same, decrease

When a good is taxed, the burden of the tax falls mainly on consumers if A. the tax is levied on consumers. B. the tax is levied on producers. C. supply is inelastic, and demand is elastic. D. supply is elastic, and demand is inelastic.

D. supply is elastic, and demand is inelastic.

All of the following topics fall within the study of microeconomics EXCEPT A. the impact of cigarette taxes on the smoking behavior of teenagers. B. the role of Microsoft's market power in the pricing of software. C. the effectiveness of antipoverty programs in reducing homelessness. D. the influence of the government budget deficit on economic growth

D. the influence of the government budget deficit on economic growth

D. the influence of the government budget deficit on economic growth.

Diminishing marginal product explains why, as a firm's output increases, A. the production function and total cost curve both get steeper. B. the production function and total cost curve both get flatter. C. the production function gets steeper, while the total cost curve gets flatter. D. the production function gets flatter, while the total cost curve gets steeper.

D. the production function gets flatter, while the total cost curve gets steeper.

You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. Which of the following are included in the true cost of going skiing? Check all that apply. A1. The wages you forgo by going skiing B1. The cost of a lift ticket C1. The rental of any ski equipment you need D1. The cost of your ski jacket you purchased last year Now suppose you had been planning to spend the day studying at the library. What is the cost of going skiing in this case? Check all that apply. A2. The rental of any ski equipment you need B2. The cost of a lift ticket C2. The wages you forgo by going skiing D2. The cost of your ski jacket you purchased last year E2. The value of your time spent studying

D1. The cost of your ski jacket you purchased last year C2. The wages you forgo by going skiing D2. The cost of your ski jacket you purchased last year

True or False: An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied. True False

False

Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter," respectively. The following graph shows the production possibilities frontier for guns and butter. The production possibilities frontier has a bowed-out shape because the quantity of guns the economy must give up in order to produce more butter _______ the more butter is produced. In other words, the opportunity cost of butter ______ with increased production. Indicate which of the points are impossible for the economy to achieve and which are feasible but inefficient. Check all that apply.

INCREASES /RISES Impossible for the economy to achieve : D Feasible but inefficient : A

Suppose that during the past year, the price of a laptop computer fell from $2,100 to $1,820. During the same time period, consumer sales increased from 429,000 to 530,000 laptops. Calculate the elasticity of demand between these two price-quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.) Step 1: Fill in the appropriate values for original quantity, new quantity, original price, and new price. Step 2: Calculate the average quantity by adding the original quantity and the new quantity, and then dividing by two. Do the same for the average price. Step 3: Calculate the change in quantity by subtracting the original quantity from the new quantity. Do the same for the change in price. Step 4: Calculate the percentage change in quantity demanded by dividing the change in quantity by the average quantity. Do the same to calculate the percentage change in price. Step 5: Calculate the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price, ignoring the negative sign. Using the midpoint method, the elasticity of demand for laptops is about____________ LOOK AT PICTURES

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Suppose that the U.S. textile industry is competitive, and there is no international trade in textiles. In long-run equilibrium, the price per unit of cloth is $30. On the following graph, use the black line (open plus symbol) to draw the price line of $30 faced by an individual producer. Then use the black point (solid plus symbol) to indicate the profit maximizing output level chosen by an individual producer. Now suppose that textile producers in other countries are willing to sell large quantities of cloth in the United States for only $25 per unit. On the following graph, use the black point (plus symbol) to indicate the profit maximizing output level chosen by an individual producer in the short run, assuming that U.S. textile producers have large fixed costs. True or False: In the short run, profits are positive for domestic producers as a result of the imports. True False In the long run, the number of U.S. firms in the industry wilL

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Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. Suppose Hi-Tech's patent prevents other firms from using the new technology. Complete the following table with the effect this new technology has on each of the following elements. Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. The following graph shows Hi-Tech's initial marginal-cost curve ( MC1 ) and average-total-cost curve ( ATC1 ) before the new technology, and its marginal-cost curve ( MC2 ) and average-total-cost curve ( ATC2 ) after the new technology. Now suppose the patent expires and other firms are free to use the technology. Which of the following statements are true about what happens in the long run? Check all that apply. The market price stays at . All firms' average-total-cost curves decline to . The market price falls to . All firms make positive profits.

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Suppose the demand for French bread rises. Illustrate the effect this has on the market for French bread. Producer surplus in the market for French bread_________ Illustrate the effect the quantity change in French bread has on the market for flour. Producer surplus in the market for flour_______ LOOK AT PICTURES

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Suppose the demand for classical music concert tickets is downward sloping and the supply of classical music concert tickets is upward sloping. Lovers of classical music persuade Congress to impose a price ceiling of $40 per concert ticket. For each of the equilibrium prices listed in the following table, indicate whether a price ceiling of $40 will cause more, fewer, or the same number of people to attend classical music concerts than if there is no price control. LOOK AT PICTURES

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A friend of yours is considering two cell phone service providers. Provider A charges $120 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service fee but instead charges $1 per minute for calls. Your friend's monthly demand for minutes of calling is given by the equation , where is the price of a minute. With Provider A, the cost of an extra minute is $ . With Provider B, the cost of an extra minute is $ . Given your friend's demand for minutes and the cost of an extra minute with each provider, your friend would talk for minutes with Provider A and minutes with Provider B. This means your friend would pay $ for service with Provider A and $ for service with Provider B. Use the following graph to draw your friend's demand curve for minutes. Then use the green triangle to help you answer the questions that follow. LOOK AT PICTURE

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Consider how health insurance affects the quantity of health care services performed. Suppose that the typical medical procedure has a cost of $100, yet a person with health insurance pays only $20 out of pocket. Her insurance company pays the remaining $80. (The insurance company recoups the $80 through premiums, but the premium a person pays does not depend on how many procedures that person chooses to undergo.) Consider the following demand curve in the market for medical care. Use the black point (plus symbol) to indicate the quantity of procedures demanded if each procedure has a price of $100. Use the grey point (star symbol) to indicate the quantity of procedures demanded if each procedure has a price of $20. If the cost of each procedure to society is truly $100, and if individuals have health insurance as just described, the number of procedures performed maximize total surplus. Economists often blame the health insurance system for excessive use of medical care. Given your analysis, the use of care might be viewed as excessive because consumers get procedures whose value is than the cost of producing them. LOOK AT PICTURE

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Consider some determinants of the price elasticity of demand: • The availability of close substitutes • Whether the good is a necessity or a luxury • How broadly you define the market • The time horizon being considered A good without any close substitutes is likely to have relatively__________ demand, since consumers cannot easily switch to a substitute good if the price of the good rises. A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand? A. A heart valve for heart attack victims B. Sports car The price elasticity of demand for a good also depends on how you define the good. Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. etc.. LOOK AT PICTURE

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Consider the market for minivans. For each of the following events, identify which of the determinants of demand are affected. If demand is unaffected by this event because it creates a supply change, select the "None" option. People decide to have more children. A strike by steelworkers raises steel prices. Engineers develop new automated machinery for the production of minivans. The price of sports utility vehicles rises. A stock-market crash lowers people's wealth. For each of the following events, identify which of the determinants of supply are affected. If supply is unaffected by this event because it creates a demand change, select the "None" option. People decide to have more children. A strike by steelworkers raises steel prices. Engineers develop new automated machinery for the production of minivans. The price of sports utility vehicles rises. A stock-market crash lowers people's wealth.

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Hotel rooms in Smalltown go for $100, and 1,000 rooms are rented on a typical day. To raise revenue, the mayor decides to charge hotels a tax of $10 per rented room. After the tax is imposed, the going rate for hotel rooms rises to $108, and the number of rooms rented falls to 900. Use the following graph to help you answer the questions that follow. You will not be graded on any changes you make to this graph. This tax raises_____ in government revenue, and causes a deadweight loss of______ in this market. The mayor now doubles the tax to $20. The price rises to $116, and the number of rooms rented falls to 800. This higher tax raises______ in government revenue, and causes a deadweight loss of ____________ in this market. When the tax is doubled, the tax revenue rises by_________ double, and the deadweight loss rises by_________ double.

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Suppose that a market is described by the following supply and demand equations: The equilibrium price in this market iS_______ , and the equilibrium quantity is_____ units. Suppose that a tax of is placed on buyers, so the new demand equation is as follows: Suppose that a market is described by the following supply and demand equations: Suppose that a tax of is placed on buyers, so the new demand equation is as follows:

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Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules are as follows: Use the blue points (circle symbol) to graph the demand for basketball tickets. Then use the orange points (square symbol) to graph the supply of tickets. Finally, use the black point (plus symbol) to indicate the equilibrium price and quantity in this market. Your college plans to increase total enrollment next year by 5,000 students. The additional students will have the following demand schedule: Add the old demand schedule and the demand schedule for the new students to calculate the new demand schedule for the entire college. Use the purple points (diamond symbol) to draw this new demand curve on the previous graph. Then use the grey point (star symbol) to indicate the new equilibrium price and quantity. LOOK AT PICTURE

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The city government is considering two tax proposals: • A lump-sum tax of $300 on each producer of hamburgers. • A tax of $1 per burger, paid by producers of hamburgers. Proposals Effect On... Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost Lump-sum $300 tax $1-per-burger tax

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The government places a tax on the purchase of socks. The following graph shows the market for socks before the tax. Use the green points (triangle symbol) to indicate the area that represents total spending by consumers before the government implements the tax. Then use the purple points (diamond symbol) to shade the area representing total revenue for producers in this case. (Hint: More than one point may be required to shade in the desired region.) The following graph shows the same market for socks, and the corresponding tax wedge. Use the green points (triangle symbol) to indicate the area that represents total spending by consumers after the government implements the tax. Then use the purple points (diamond symbol) to shade the area representing total revenue for producers in this case. Finally, use the tan points (dash symbol) to indicate the government tax revenue earned. As a result of the tax, the price received by producers _________ , and______________ As a result of the tax, the price paid by consumers____________ , and total consumer spending falls as long as demand is________ True or False: Consumer surplus rises if total consumer spending falls.

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The many identical residents of Whoville love drinking Zlurp. Each resident has the following willingness to pay for the tasty refreshment: The cost of producing a bottle of Zlurp is $1.50, and the competitive suppliers sell it at this price. (The supply curve is horizontal.) Each Whovillian will consume______ bottles and receive a consumer surplus of______ . Producing Zlurp creates pollution. Each bottle has an external cost of $1. Taking this additional cost into account, total surplus per person in the allocation you previously determined decreases to__________ Cindy Lou Who, one of the residents of Whoville, decides on her own to reduce her consumption of Zlurp by 1 bottle. Cindy's consumer surplus (ignoring the cost of pollution she experiences) is now Consumption per person is now bottles. This yields a per-person consumer surplus of$not including the cost of pollution, a per-person external cost of$, and government revenue of$ per person. Total surplus per person is now$as a result of this policy. (Hint: Total surplus is equal to consumer surplus minus the external cost of pollution plus government revenue.) etc. LOOK AT PICTURE

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The nation of Wiknam has 5 million residents whose only activities are producing and consuming fish. They produce fish in two ways. Each person who works on a fish farm raises 2 fish per day. Each person who goes fishing in one of the nation's many lakes catches X fish per day. X depends on N , the number of residents (in millions) fishing in the lakes. In particular, if million people fish in the lakes, each catches: Each resident is attracted to the job that pays more fish, so in equilibrium the two jobs must offer equal pay. The productivity of each person who fishes declines as rises because the fish in the lakes are . Because the fish in the lakes are also , they would be considered a , while the fish on the farms are a . One town's Freedom Party thinks every individual in Wiknam should have the right to choose between fishing in the lakes and farming, without government interference. Under its policy, million residents would fish in the lakes and million would work on fish farms. This means a total number of million fish would be produced. The same town's Efficiency Party thinks Wiknam should produce as many fish as it can. To achieve this goal, how many of the residents should fish in the lakes and how many should work on the farms? LOOK AT PICTURE

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This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. For each unit of the good sold, the government pays $2 to the buyer. Use the black point (plus symbol) to indicate the initial equilibrium in this market before the subsidy. Then use the green point (triangle symbol) to shade the area representing consumer surplus, and use the purple point (diamond symbol) to shade the area representing producer surplus. On the following graph, use the tan segment (dash symbols) to indicate the wedge formed between the price received by producers and the price consumers pay out of their own pocket. (Hint: Find the quantity to the right of the initial equilibrium where the difference between the supply and demand curves is $2.) Next use the black point (plus symbol) to indicate the price producers receive at that quantity, and use the grey point (star symbol) to indicate the price consumers pay not including the subsidy. Then use the green triangle (triangle symbols) to indicate consumer surplus in the presence of this subsidy, and the purple triangle (diamond symbols) to indicate producer surplus. This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. For each unit of the good sold, the government pays $2 to the buyer. The grey area on the following graph represents the additional consumer and producer surplus that is achieved with the subsidy versus without it. However, this additional surplus comes at the price of the government spending money on the subsidy. Use the green rectangle (triangle symbols) to indicate the area that represents the government expenditure on this subsidy. The difference between the surplus gained and the government expenditures on the subsidy represents the deadweight loss from this policy. Use the black triangle (plus symbols) to shade the area representing the deadweight loss from the $2 subsidy. TOTAL SCORE: 0/3 Grade Final Step (to complete this step and unlock the next step)

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Use the following classification to determine which category each of the following goods falls into. Private security patrol with idle officers Snow plowing of public streets immediately after a heavy snowfall Education in a congested classroom Rural roads Congested city streets LOOK AT PICTURE

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A case study in this chapter discusses the federal minimum-wage law. Suppose the minimum wage is above the equilibrium wage in the market for unskilled labor as shown on the following graph. Now suppose the secretary of labor proposes an increase in the minimum wage. Complete the following table by indicating whether the elasticity of demand, the elasticity of supply, both, or neither affect the magnitude of the change in employment and unemployment. If the demand for unskilled labor were inelastic, the proposed increase in the minimum wage would_________ the total wage payments to unskilled workers. This is_________ if the demand for unskilled labor is elastic.

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A commercial fisherman notices the following relationship between hours spent fishing and the quantity of fish caught: Complete the following table with the marginal product of each hour spent fishing. On the following graph, use the blue points (circle symbol) to graph the fisherman's production function. The fisherman has a fixed cost of $10 (his pole). The opportunity cost of his time is $5 per hour. On the following graph, use the green points (triangle symbol) to graph the fisherman's total-cost curve at the following quantities of fish: 0, 10, 18, 24, 28, and 30. True or False: The total-cost curve is increasing and convex because there are diminishing returns to fishing time.

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A company is considering building a bridge across a river. The bridge would cost $2 million to build and nothing to maintain. The following table shows the company's anticipated demand over the lifetime of the bridge: If the company were to build the bridge, its profit-maximizing price would be $ , and it produce the efficient level of output. If the company is interested in maximizing profit, it build the bridge because profit would be $ . (Note: If the company incurs a loss, be sure to enter a negative number for profit.) If the government were to build the bridge, it should charge a price of $ . True or False: The government should build the bridge. True False

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The blue curve on the following graph represents the demand curve facing a firm that can set its own prices. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 8, 16, 20, 24, 32, and 40 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results. Calculate the total revenue if the firm produces 8 versus 7 units. Then, calculate the marginal revenue of the eighth unit produced. The marginal revenue of the eighth unit produced is $ . Calculate the total revenue if the firm produces 16 versus 15 units. Then, calculate the marginal revenue of the 16th unit produced. The marginal revenue of the 16th unit produced is $ . Based on your answers from the previous question, and assuming that the marginal revenue curve is a straight line, use the black line (plus symbol) to plot the firm's marginal revenue curve on the following graph. (Round all values to the nearest increment of 40.) Comparing your total revenue graph to your marginal revenue graph, you can see that total revenue is at the output at which marginal revenue is equal to zero.

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The cost of producing flat-screen TVs has fallen over the past decade. Consider some implications of this fact. Show the effect of falling production costs on the market for flat-screen TVs. The cost of producing flat-screen TVs has fallen over the past decade. Consider some implications of this fact. The following graph shows the effect of falling production costs on the market for flat-screen TVs. LOOK AT PICTURES

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The following graph input tool shows the daily demand for hotel rooms at the Peacock Hotel and Casino in Las Vegas, Nevada. To help the hotel management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demand factors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $200 per room per night. If average household income increases by 10%, from $50,000 to $55,000 per year, the quantity of rooms demanded at the Peacock from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Peacock are . If the price of a room at the Grandiose were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock from rooms per night to rooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Peacock and hotel rooms at the Grandiose are . Peacock is debating decreasing the price of its rooms to $175 per night. Under the initial demand conditions, you can see that this would cause its total revenue to________ . Decreasing the price will always have this effect on revenue when Peacock is operating on the_________ portion of its demand curve. LOOK AT PICTURES

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The following graph shows that for any given demand curve for the right to pollute, the government can achieve the same outcome either by setting a price with a corrective tax or by setting a quantity with pollution permits. Suppose there is a sharp improvement in the technology for controlling pollution. Illustrate the effect of this development on the demand for pollution rights. Suppose the corrective tax policy and the number of pollution permits available do not change in spite of this demand shift. Complete the following table by indicating the change in the price and quantity of pollution under each policy as a result of the technology change. LOOK AT PICTURES

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The following graph shows the daily demand curve for bikes in New York City. Use the green rectangle (triangle symbols) to compute total revenue at various prices along the demand curve. Note: You will not be graded on any changes made to this graph. On the following graph, use the green point (triangle symbol) to plot the annual total revenue when the market price is $50, $75, $100, $125, $150, $175, and $200 per bike. According to the midpoint method, the price elasticity of demand between points A and B is approximately___________ . Suppose the price of bikes is currently $25 per bike, shown as point B on the initial graph. Because the demand between points A and B is__________ , a $25-per-bike increase in price will lead to___________ in total revenue per day. In general, in order for a price decrease to cause a decrease in total revenue, demand must be_____________

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The following graph shows the demand (D) for cable services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local cable company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. Which of the following statements are true about this natural monopoly? Check all that apply. The cable company is experiencing diseconomies of scale. In order for a monopoly to exist in this case, the government must have intervened and created it. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. The cable company is experiencing economies of scale. True or False: Without government regulation, natural monopolies can earn positive profit in the short run. True False

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The following graph shows the long-run supply curve for persimmons. Place the orange line (square symbol) on the following graph to show the most likely short-run supply curve for persimmons. (Note: Place the points of the line either on Z and A or on Z and B.) LOOK AT PICTURES

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The government has decided that the free-market price of cheese is too low. The following graph shows the market for cheese and two possible price controls at P1 and P2 . If the government wants to impose a binding price floor in the cheese market, it should set a price control at___________ . Use the grey point (star symbol) to indicate the price of cheese and the quantity demanded after the price floor is implemented. Then use the green point (triangle symbol) to indicate the price of cheese and the quantity supplied at the same price floor. With the price floor, there is a________ of cheese. Producers of cheese complain that the price floor has reduced their total revenue. True or False: This is possible if demand is elastic. In response to cheese producers' complaints, the government agrees to purchase all the surplus cheese at the price floor. Compared to the basic price floor,__________ benefit from this new policy and_________ lose. LOOK AT PICTURES

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The market for apple pies in the city of Ectenia is competitive and has the following demand schedule: Each producer in the market has a fixed cost of $9 and the following marginal cost: Complete the following table by computing the total cost and average total cost for each quantity produced. The price of a pie is now $11. At a price of $11, pies are sold in the market. Each producer makes pies, so there are producers in this market, each making a profit of $ . True or False: The market is in long-run equilibrium. Suppose that in the long run there is free entry and exit. In the long run, each producer earns a profit of $ . The market price is $ . At this price, pies are sold in this market, and each producer makes pies, so there are producers operating.

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The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently making economic losses. The price of fertilizer must be average total cost, average variable cost, and marginal cost. The following graphs show the cost curves faced by a typical firm, the demand for fertilizer, and possible price and supply curves. If firms in the market are producing output but are currently making economic losses, illustrates the present situation for the typical firm in the market, and indicates the corresponding supply curve. Assuming there is no change in either demand or the firms' cost curves, complete the following table by indicating what will happen to each of the following elements as the market transitions to the long run.

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The market for pizza is characterized by the following demand and supply curves. Use the grey point (star symbol) to indicate the competitive market equilibrium. Then use the green point (triangle symbol) to shade the area that represents consumer surplus in this market. Next use the purple point (diamond symbol) to shade the area that represents producer surplus. Finally, use the black point (plus symbol) to indicate the deadweight loss in this market. (Hint: If the value for any of these graphical objects is zero, leave that element on the palette.) Indicate whether each of the areas listed in the following table increased, decreased, or remained the same as a result of the tax. True or False: All parties (including the government) could be made better off with this transfer than they were with a tax. etc. LOOK AT PICTURES

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The residents of the town Ectenia all love economics, and the mayor proposes building an economics museum. The museum has a fixed cost of $2,400,000 and no variable costs. There are 100,000 town residents, and each has the same demand for museum visits: , where is the price of admission. On the following graph, use green points (triangle symbol) to graph the museum's average-total-cost curve at the following quantities: 1,000 visits, 3,000 visits, 4,000 visits, 6,000 visits, 8,000 visits, and 12,000 visits. Then use the orange line (square symbol) to graph the museum's marginal-cost curve. What kind of market would describe the museum? Perfectly competitive market Single-price monopoly Natural monopoly The mayor proposes financing the museum with a lump-sum tax of $24 and then opening the museum to the public for free. Under this system, each person would visit times. The benefit each person would get from the museum would be $ . (Hint: You can measure the benefit as consumer surplus minus the new tax.) The mayor's anti-tax opponent says the museum should finance itself by charging an admission fee. The lowest price the museum can charge without incurring losses is $ . (Hint: Find the number of visits and museum profits for prices of $2, $3, $4, and $5.) At this price, each resident's consumer surplus is $ . Which of the following statements are true? Check all that apply. Revenue per person is the same regardless of whether an admission fee or the mayor's plan is used. Consumers are worse off with the admission fee than under the mayor's plan. Total societal welfare is better with the admission fee than under the mayor's plan.

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There are four consumers willing to pay the following amounts for haircuts, and there are four haircutting businesses with the following costs: Each firm has the capacity to produce only one haircut. For efficiency, __________ should be given. Which businesses should cut hair? Check all that apply. Which consumers should have their hair cut? Check all that apply. The maximum possible total surplus is_________ LOOK AT PICTURES

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Over the past 30 years, technological advances have reduced the cost of computer chips. This has led to__________ in the supply of computers, causing the price of computers to______________ . Because computers and computer software are__________ , this change in price causes the demand for computer software to__________ . However, computers and typewriters are__________ , so the change in the price of computers____________ the demand for typewriters.

an increase fall complements increase substitutes decreases

Ringo loves playing rock 'n' roll music at high volume. Luciano loves opera and hates rock 'n' roll. Unfortunately, they are next-door neighbors in an apartment building with paper-thin walls. In this case,_________ imposes a ______ externality on his neighbor in the form of noise pollution. What command-and-control policy might the landlord impose? A1. A rental subsidy for those tenants who do not own any musical devices B1. A rule that music could not be played above a certain decibel level C1. A tax on rent for those tenants who own speakers Suppose the landlord lets the tenants do whatever they want. According to the Coase theorem, which of the following are true about Ringo and Luciano reaching an efficient outcome on their own? Check all that apply. A2. They might not be able to reach an agreement if the transaction costs are high. B2. Ringo and Luciano can never reach an agreement without a third party assisting in the negotiations. C2. Ringo and Luciano may negotiate an agreement if bargaining is successful and neither holds out for a better deal.

Ringo / negative B1. A rule that music could not be played above a certain decibel level A2. They might not be able to reach an agreement if the transaction costs are high. C2. Ringo and Luciano may negotiate an agreement if bargaining is successful and neither holds out for a better deal.

There are three industrial firms in Happy Valley. The government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits. Because firm_____ has the highest cost of reducing pollution by 1 unit, it would like to_____ another firm. Because firm____ has the lowest cost of reducing pollution by 1 unit, it is willing to the firm with the highest cost. Complete the second column of the following table by indicating who buys and sells permits in this case. Complete the fourth column of the table with the number of permits each firm ends up with after trading with the others. Next, subtract the number of permits from the initial pollution level to determine how many units of pollution reduction each firm has to complete, and enter these values into the fifth column of the table. Next, determine the total cost of reducing the pollution levels you determined in the previous column, and enter that into the final column of the table. Finally, add up the total pollution reduction costs for each firm and enter the total amount in the final cell of the total row in the following table. If permits could not be traded, firm A would have to remove units of pollution at a total cost of $ , firm B would have to remove units of pollution at a total cost of $ , and firm C would have to remove units of pollution at a total cost of_____ . The overall cost of reducing pollution in this case is_______ , which is______ than with tradable permits.

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Use the following graph of the market for cases of beer to answer the questions that follow. (Note: You will not be graded on any changes you make to the graph.) Complete the first row of the following table by entering the price paid by consumers, the price received by producers, and the quantity of beer sold in the absence of a tax on this market. Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (In fact, both the federal and state governments impose beer taxes of some sort.) Complete the second row of the following table by entering the price paid by consumers, the price received by producers, and the quantity of beer sold when beer drinkers pay a $2 tax on each case of beer. Given the previous results, which of the following statements are true? Check all that apply. A. The difference between the price paid by consumers and the price received by producers remains unchanged. B. The quantity of beer sold decreases as a result of the tax. C. The price producers receive decreases as a result of the tax. D. The price consumers pay decreases as a result of the tax. LOOK AT PICTURES

LOOK AT PICTURES

You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2,000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customers: To maximize profit, you would charge $ for an adult's ticket and $ for a child's ticket. Total profit in this case would be $ . The city council passes a law prohibiting you from charging different prices to different customers. Now you set a price of $ for all tickets, resulting in $ in profit. Indicate whether each of the following groups of people is better off, worse off, or the same because of the law prohibiting price discrimination. Suppose the fixed cost of the play were $2,500 rather than $2,000. Complete the following sentences indicating how this would change your answers to the previous parts. In the presence of price discrimination, the adult price of a ticket would , and the child price would . Total profit would to $ . If price discrimination were banned and the monopolist continued to produce the play no matter what the profit, the price of a ticket would , and total profit would to $ .

LOOK AT PICTURES

You work for a marketing firm that has just landed a contract with Run-of-the-Mills to help them promote three of their products: penguin patties, frizzles, and kipples. All of these products have been on the market for some time, but, to entice better sales, Run-of-the-Mills wants to try a new advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are typically consumed together while substitutes can take the place of other goods. Run-of-the-Mills provides your marketing firm with the following data: When the price of penguin patties decreases by 5%, the quantity of frizzles sold decreases by 4% and the quantity of kipples sold increases by 6%. Your job is to use the cross-price elasticity between penguin patties and the other goods to determine which goods your marketing firm should advertise together. Complete the first column of the following table by computing the cross-price elasticity between penguin patties and frizzles, and then between penguin patties and kipples. In the second column, determine if penguin patties are a complement to or a substitute for each of the goods listed. Finally, complete the final column by indicating which good you should recommend marketing with penguin patties.

LOOK AT PICTURES

Your cousin Vinnie owns a painting company with fixed costs of $200 and the following schedule for variable costs: The efficient scale is__________ houses.

LOOK AT PICTURES

Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter," respectively. The following graph shows the production possibilities frontier for guns and butter. The production possibilities frontier has a bowed-out shape because the quantity of guns the economy must give up in order to produce more butter________the more butter is produced. In other words, the opportunity cost of butter______with increased production.

Look at picture increases rises Feasible but inefficient : A Impossible for the economy to achieve : D

At Fenway Park, home of the Boston Red Sox, seating is limited to 39,000. Hence, the number of tickets issued is fixed at that figure. The following graph shows the demand and supply for Red Sox tickets. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Seeing a golden opportunity to raise revenue, the city of Boston levies a per ticket tax of $5 to be paid by the ticket buyer. Boston sports fans, a famously civic-minded lot, send in the $5 per ticket. In this case, the tax burden falls on________ because_____________

the team's owners supply is perfectly inelastic

A senator wants to raise tax revenue and make workers better off. A staff member proposes raising the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers. This_________ accomplish the senator's goals because the burden of a tax depends on__________

would not the elasticity of supply and demand Increasing the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers would not make workers better off, because the division of the burden of a tax depends on the elasticity of supply and demand and not on who must pay the tax. Because the tax wedge would be larger, it is likely that both firms and workers, who share the burden of any tax, would be worse off. See Section: Elasticity and Tax Incidence.

Consider the market for rubber bands. The following graphs give two different examples of possible demand and supply curves in this market. Use the graph input tools to help you answer the following questions. You will not be graded on any changes you make to this graph. If the market for rubber bands has very elastic supply and very inelastic demand, the burden of a tax on rubber bands will fall more heavily on____________ (Hint: Determine which graph input tool is more applicable, and examine the effect of a tax of $2.00 per rubber band.) If the market for rubber bands has very inelastic supply and very elastic demand, the burden of a tax on rubber bands will fall more heavily on___________

buyers exp: With very elastic supply and very inelastic demand, the burden of the tax on rubber bands will be borne largely by buyers. As you can see on the first graph, a tax of $2 per rubber band causes consumer surplus to decline considerably, but producer surplus does not fall by that much. See Section: The Determinants of the Deadweight Loss. sellers exp: With very inelastic supply and very elastic demand, the burden of the tax on rubber bands will be borne largely by sellers. As you can see on the second graph, a tax of $2 per rubber band causes consumer surplus to fall slightly, but producer surplus declines considerably. See Section: The Determinants of the Deadweight Loss.

Suppose that the government decides to issue tradable permits for a certain form of pollution. In terms of economic efficiency in the market for pollution, it _________ matter whether the government distributes the permits or auctions them off. If the government chooses to distribute the permits, the allocation of permits among firms matters for efficiency. True False

does not false

Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises, the quantity of hot dogs demanded_________ , which ___________ the demand for ketchup. Because of the change in the equilibrium quantity of ketchup, the demand for tomatoes by ketchup producers_________ , causing the equilibrium price of tomatoes to__________ . This means producers of tomato juice face_________ input prices, and the supply of tomato juice_________ . The resulting____________ in the price of tomato juice causes people to substitute_________ , so the demand for orange juice____________ .

falls lowers falls decrease lower increases fall away from orange juice and toward tomato juice falls

You are the chief financial officer for a firm that sells digital music players. Your firm has the following average-total-cost schedule: Quantity Average Total Cost (Number of players) (Dollars) 600 300 601 301 Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it. True or False: You should accept the offer. True False

false

Consider the following events: Scientists reveal that eating oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees produce more oranges. Show the effect of these two events on the market for oranges. True or False: When the demand curve and the supply curve shift in the direction previously indicated, the effect on the equilibrium price is clear even without knowing the magnitude of the shifts. LOOK AT PICTURES

false LOOK AT PICTURES

Charlie loves watching Downton Abbey on his local public TV station, but he never sends any money to support the station during its fundraising drives. Economists would call Charlie a______________ . Which of the following describes how the government can solve the problem caused by people like Charlie? A1. The government can tax people who watch the show. B1. The government can't solve this problem. C1. The government can sponsor the show and pay for it with tax revenue collected from everyone. Which of the following statements are true about the private market in this case? Check all that apply. A2. The private market could solve the problem by making people watch commercials that are incorporated into the program. B2. The private market could solve this problem by asking people to send in $1 every time they watch Downton Abbey. C2. The existence of cable TV makes the good excludable and thus no longer a public good.

free rider C1. The government can sponsor the show and pay for it with tax revenue collected from everyone. A2. The private market could solve the problem by making people watch commercials that are incorporated into the program. C2. The existence of cable TV makes the good excludable and thus no longer a public good.

The market for pizza has the following demand and supply schedules: Use the blue points (circle symbol) to graph the demand for pizzas. Then use the orange points (square symbol) to graph the supply of pizza. Finally, use the black point (plus symbol) to indicate the equilibrium price and quantity in this market. If the actual price in this market were above the equilibrium price, quantity supplied would be_________ than quantity demanded, so there would be__________ pressure on prices. True or False: If the actual price in this market were below the equilibrium price, suppliers could raise the price without losing sales. True False LOOK AT PICTURES

greater/ downward true LOOK AT PICTURES

Suppose that the government imposes a tax on heating oil. The deadweight loss from a tax on heating oil is likely to be__________ in the fifth year after it is imposed than in the first year. The tax revenue collected from a tax on heating oil is likely to be____________ in the fifth year after it is imposed than in the first year.

larger exp: The deadweight loss from a tax on heating oil is likely to be greater in the fifth year after it is imposed than in the first year. In the first year, the elasticity of demand is fairly low, as people who own oil furnaces are not likely to get rid of them right away. But over time they may switch to other energy sources, and people buying new furnaces for their homes will more likely choose gas or electric, so a tax will have a greater impact on quantity. Thus, the deadweight loss of the tax will become larger over time. See Section: Deadweight Loss and the Gains from Trade. smaller exp: The tax revenue is likely to be higher in the first year after it is imposed than in the fifth year. In the first year, demand is more inelastic, so the quantity does not decline as much and tax revenue is relatively high. As time passes and more people substitute away from oil, the quantity sold declines, and so does tax revenue. See Section: How a Tax Affects Market Participants.

The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount he receives in Social Security benefits is typically reduced. The provision of Social Security gives people the incentive to save _______ while working. Moreover, the reduction in benefits associated with higher earnings gives people the incentive to _______ past age 65.

less / not work

If the government places a $500 tax on luxury cars, the price paid by consumers will rise by_____________

less than $500 The burden of any tax is shared by both producers and consumers. The price paid by consumers rises, and the price received by producers falls, with the difference between the two equal to the amount of the tax. Therefore, if the government places a $500 tax on luxury cars, the price paid by consumers will rise by less than $500. The only exceptions would be if the supply curve were perfectly elastic or the demand curve were perfectly inelastic, in which case, consumers would bear the full burden of the tax, and the price paid by consumers would rise by exactly $500. (Note: The fact that luxury cars likely have elastic demand is irrelevant in this case. Even if a good has inelastic demand, the burden is still shared between consumers and producers unless they are in a perfectly elastic or perfectly inelastic situation.) See Section: Elasticity and Tax Incidence.

The first principle of economics discussed in Chapter 1 is that people face trade-offs. The following production possibilities frontier illustrates society's trade-offs between spending money on two "goods": a clean environment and the quantity of industrial output. Show what happens to the production possibilities frontier (PPF) if new technology develops that makes cleaning the air cheaper.

look at picture

A 1996 bill reforming the federal government's antipoverty programs limited many welfare recipients to only two years of benefits. This change gives people the incentive to find a job ______quickly than if welfare benefits lasted forever. The loss of benefits after two years will result in the distribution of income becoming_______equal. In addition, the economy will be________efficient because of the change in working incentives.

more less more

Consider two ways to protect your car from theft. The Club (a steering wheel lock) makes it difficult for a car thief to take your car. Lojack (a tracking system) makes it easier for the police to catch the car thief who has stolen it. If a car thief encounters a car with the Club and a car without it, the car with the Club imposes a__________ externality on the car without the Club. A policy implication from this result includes a___________ those who use the Club. If a car thief encounters two cars without the Club, but the car thief fears a Lojack system might be installed in one of the cars, the car with the Lojack system imposes a____________ externality on the other car. A policy implication from this result includes a__________ those who use the Lojack technology.

negative/ tax on positive/ subsidy for

Wireless, high-speed Internet is provided for free in the airport of the city of Communityville. At first, only a few people use the service. In this case, the service is__________ and_______ ; therefore it is a___________ . Eventually, as more people find out about the service and start using it, the speed of the connection begins to fall. Now the service is a____________ . True or False: Overuse is likely to occur.

not excludable not rival in consumption public good common resource true

Some economists argue that private firms will not undertake the efficient amount of basic scientific research. Because general knowledge is________ and_____ , it is a_______ . This means the benefits of basic scientific research_________ available to many people. The private firm______ this into account when choosing how much research to undertake. Which of the following policies has the United States adopted in response to this problem? Check all that apply. A. Subsidizing research through the National Institutes of Health B. A progressive income tax C. Taxing revenue from the National Science Foundation It is often argued that this policy increases the technological capability of American producers relative to that of foreign firms. This is true only if the knowledge provided by basic research is_________

not excludable not rival in consumption public good are doesn't take A. Subsidizing research through the National Institutes of Health excludable

Bob's lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. In the short run, Bob should_____ . In the long run, Bob should_______ the industry.

not shut down exit

This chapter discusses many types of costs: opportunity cost, total cost, fixed cost, variable cost, average total cost, and marginal cost. Fill in the type of cost that best completes each sentence. What you give up for taking some action is called the___________ ____________ is falling when marginal cost is below it and rising when marginal cost is above it. A cost that does not depend on the quantity produced is a(n)___________ In the ice-cream industry in the short run, __________ includes the cost of cream and sugar but not the cost of the factory. Profits equal total revenue minus __________ . The cost of producing an extra unit of output is the ___________ .

opportunity cost average total cost fixed cost variable cost total cost marginal cost The opportunity cost of an item refers to all those things that must be forgone to acquire that item. Average total cost is total cost divided by the quantity of output. It represents the cost of a typical unit of output if total cost is divided evenly over all the units produced. Whenever marginal cost is less than average total cost, average total cost is falling. Whenever marginal cost is greater than average total cost, average total cost is rising. Fixed costs are costs that do not vary with the quantity of output produced. Variable costs are costs that change as the firm alters the quantity of output produced. Profit is a firm's total revenue minus its total cost. Marginal cost is the amount that total cost rises when the firm increases production by 1 unit of output See Sections: Total Revenue, Total Cost, and Profit; Costs as Opportunity Costs: Fixed and Variable Costs; Average and Marginal Cost; and Cost Curves and Their Shapes.

Both public goods and common resources involve externalities. The externalities associated with public goods are generally_______ . Because of this, the free-market quantity of public goods is generally________ than the efficient quantity. The externalities associated with common resources are generally_______ . Because of this, the free-market quantity of common resources is generally________ than the efficient quantity.

positive/ less negative/ greater

For each of the following activities, identify the flow of goods and services and the flow of dollars as either household to firm or firm to household. 1. Selena pays a storekeeper $1 for a quart of milk. Flow of Goods and Services Flow of Dollars 2. Stuart earns $4.50 per hour working at a fast-food restaurant. Flow of Goods and Services Flow of Dollars 3. Shanna spends $30 to get a haircut. Flow of Goods and Services Flow of Dollars 4. Salma earns $10,000 from her 10% ownership of Acme Industrial. Flow of Goods and Services Flow of Dollars

1. Flow of Goods and Services: firm to household Flow of Dollars: household to firm 2. Flow of Goods and Services: Household to firm Flow of Dollars: Firm to household 3.Flow of Goods and Services: Firm to household Flow of Dollars: Household to firm 4.Flow of Goods and Services: Household to firm Flow of Dollars: Firm to household

Classify the following topics as relating to microeconomics or macroeconomics. 1. A family's decision about how much income to save 2. The effect of government regulations on auto emissions 3. The impact of higher national saving on economic growth 4. A firm's decision about how many workers to hire 5. The relationship between the inflation rate and changes in the quantity of money

1. Microeconomics 2. Microeconomics 3. Macroeconomics 4. Microeconomics 5. Macroeconomics

Classify each of the following statements as positive or normative. 1. Society faces a short-run trade-off between inflation and unemployment. 2. A reduction in the rate of money growth will reduce the rate of inflation. 3. The Federal Reserve should reduce the rate of money growth. 4. Society ought to require welfare recipients to look for jobs. 5. Lower tax rates encourage more work and more saving.

1. Positive 2. Positive 3 Normative 4 Normative 5. Positive

1. Show the change in the market for orange juice that is consistent with the following statement: "When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country." 2. Show the change in the market for hotels in the Caribbean that is consistent with the following statement: "When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets." 3. Show the change in the market for gasoline that is consistent with the following statement: "When a war breaks out in the Middle East, the price of gasoline rises, and the price of a used Cadillac falls." 4. Now show the change in the market for used Cadillacs that is consistent with the following statement: "When a war breaks out in the Middle East, the price of gasoline rises, and the price of a used Cadillac falls."

1. S shifts left 2. D shift left 3. S shifts left 4. S shifts right, D shifts left LOOK AT PICTURES

Suppose a hurricane in South Carolina damages the cotton crop. 1. Show the effect this hurricane has on the market for sweatshirts. 2. Suppose the price of leather jackets falls. Show the effect this price change of leather jackets has on the market for sweatshirts. 3. Suppose all colleges require morning exercise in appropriate attire. Show the effect this new exercise requirement has on the market for sweatshirts. 4. Suppose new knitting machines are invented. Show the effect this new technology has on the market for sweatshirts. LOOK AT PICTURES

1. S shifts left 2. D shifts left 3. D shifts right 4. S shifts right LOOK AT PICTURES

TRUE/FALSE 1. A tax that has no deadweight loss cannot raise any revenue for the government. 2. A tax that raises no revenue for the government cannot have any deadweight loss

1. false 2. false

The following graph displays four demand curves (LL, MM, NN, and OO) that intersect at point A. Using the graph, complete the table that follows by indicating whether each statement is true or false. 1. Curve NN is more elastic between points A and D than curve MM is between points A and C. 2. Between points A and E, curve OO is perfectly inelastic. 3. Between points A and D, curve NN is elastic.

1. false 2. true 3. false LOOK AT PICTURES

The following graph displays four supply curves (HH, II, JJ, and KK) that intersect at point A. Using the graph, complete the table that follows by indicating whether each statement is true or false. 1. Between points A and E, curve HH is unit elastic. 2. Curve KK is less elastic between points A and C than curve JJ is between points A and D. 3. Between points A and D, curve JJ is elastic.

1. false 2. true 3. true LOOK AT PICTURES

The following graph shows the demand for a good. For each of the regions listed in the following table, use the midpoint method to identify if the demand for this good is elastic, (approximately) unit elastic, or inelastic. 1. Between X and Y 2. Between Y and Z 3. Between W and X True or False: The value of the price elasticity of demand is equal to the slope of the demand curve.

1. unit elastic 2. inelastic 3. elastic false LOOK AT PICTURE

Juanita is a retired teacher who lives in Miami and provides math tutoring for extra cash. At a wage of $50 per hour, she is willing to tutor 7 hours per week. At $65 per hour, she is willing to tutor 10 hours per week. Using the midpoint method, the elasticity of Juanita's labor supply between the wages of $50 and $65 per hour is approximately__________ , which means that Juanita's supply of labor over this wage range is_________

1.35 elastic LOOK AT PICTURE

The following graph shows two known points (X and Y) on a demand curve for apples. According to the midpoint method, the price elasticity of demand for apples between point X and point Y is approximately__________ , which suggests that the demand for apples is___________ between points X and Y.

2.14 elastic LOOK AT PICTURES

A firm in a competitive market receives $500 in total revenue and has marginal revenue of $10. The firm's average revenue is_______ , and ________ units were sold.

$10 50

Melissa buys an iPhone for $120 and gets a consumer surplus of $80. Her willingness to pay for an iPhone is______ If she had bought the iPhone on sale for $90, her consumer surplus would have been____________ If the price of the iPhone had been $250, her consumer surplus would have been__________

$200 $110 $0 LOOK AT PICTURES

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