Microeconomics Exam 1 (chapters 1-7)

If the market equilibrium price falls from $120 to $80, how much is the increase in consumer surplus to the consumers who were initially in the market at the $120 price?

$400

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?

$8

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is

1/6 table for Ken and 1/3 table for Traci.

If these are the only two sellers in the market, then the market quantity supplied at a price of $4 is

14 units

Using the midpoint method, the price elasticity of demand between point X and point Y is

2.5

For each of the three potential buyers of the oranges the table displays the willingness to pay for the first three oranges of the day. Assume Alison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. If the market price of an orange is $0.90, then the market quantity of oranges demanded per day is

4

Consider the production possibilities table for an economy that produces only mobile phones and pizzas. What is the opportunity cost of increasing production of pizzas from 4,000 to 6,000?

400 mobile phones

Efficient production is represented by which points)?

A and B

The shift from S' to S in the market for chocolate cake could be caused by

A decrease in the number of commercial bakers

The values in the table represent the amounts of lemonade and pizzas that Alice and Betty can produce in one week without and with specialization and trade. What are Alice and Betty's gains from specialization and trade?

Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of lemonade and 10 pizzas.

Suppose that demand in the market for good X is given by the equation Qd=30-p and that supply in the market for good X is given by the equation Qs=2p What are the equilibrium price and quantity in the market for good X?

Equilibrium price is 10 and quantity is 20

"Minimum wage laws result in unemployment" is a normative statement while "the minimum wage should be higher" is a positive statement

False

An increase in the price of pizza will shift the demand curve for pizza to the left.

False

An increase in the price of pizza will shift the demand curve fot pizza to the left.

False

Consumer surplus can be measured as the area between the demand curve and the supply curve

False

Efficiency refers to whether a market outcome is fair, while equality refers to whether the maximum amount of output was produced from a given number of inputs.

False

If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is 2.

False

If something happens to alter the quantity supplied at any given price, then we move along the fixed supply curve to a new quantity supplied

False

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price inelastic demand?

Good X, less substitutes usually means more in elasticity.

The production possibilitics frontiers below show how much Greg and Catherine can each produce in 8 hours of time. Will Greg and Catherine gain from trade? If so, who will produce ice cream? Cake?

Greg has comparative advantage in cake, Catherine has comparative advantage in ice cream. They will both gain if the prove for their specialized good lies between opportunity costs

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn.

Microeconomics is the study of how households and firms make decisions and how they interact in specific markets.

True

Consider the market for 2-packs of light bulbs below. At a price of $3, is there a shortage or surplus, and how large is the shortage/surplus?

Shortage

If the government seta price celling at $2, would there be a shortage or surplus, and how large would be the shortage/surplus?

Shortage by a quantity of 7

If income rises in the market for an inferior good, will the demand curve for the inferior good shift to the right or to the left?

The demand curve will shift to the left

Assume that John and Jane each work 24 hours. What happens to total production if instead of each person spending 12 hours producing each good, Jane spends 21 hours producing wine and 3 hours producing bread and John spends 3 hours producing wine and 21 hours producing bread?

The total production of bread and wine each rise.

A binding minimum wage creates a surplus of labor.

True

Demand is elastic if the price elasticity of demand is greater than 1.

True

If a good or service is sold in a competitive market free of government regulation, then the price of the good or service adjusts to balance supply and demand.

True

In the short-run, society faces-a tradeoff between inflation and unemployment.

True

Trade

allows specialization, which reduces costs.

The shift from Da to Db in the market for potato chips could be caused by

an increase in the price of pretzels

Total revenue when the price is P1 is represented by

areas B + D.

A surplus results when a

binding price floor is imposed on a market

When a tax is placed on the buyers of lemonade, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

When the price rises from P 1 to P 2 , consumer surplus

decreases by an amount equal to B+C

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. However, redistributing income from rich to poor reduces the reward for working hard. Therefore, society faces a tradeoff between

efficiency and equality

Between point A and point B on the graph, demand is

elastic, but not perfectly elastic.

The rate of trade-off between producing chairs and producing couches is constant in

graph b only

A circular-flow diagram is a model that

helps to explain how the economy is organized.

The shift from S to S' could be caused by an

improvement in production technology.

If boxes A and B represent households and firms, then boxes C and D of this circular-flow diagram represent

markets for goods and services and markets for factors of production

Is the following a positive or normative statement? The Federal Reserve should set an inflation target and employ policies to meet the target.

normative

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

positive, and the good is a normal good.

Ashley bakes bread that she sells at the local farmer's market. If she purchases a new convection oven that reduces the costs of baking bread, the

supply of Ashley's bread will increase.

A rational decisionmaker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action

A likely example of substitute goods for most people would be

televisions and subscriptions to cable television services.

Area A represents

the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

The opportunity cost of an item is

what you give up to get that item