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microeconomics exam #1

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Economic situations that are in equilibrium are ______ efficient. (Choose the answer that is both correct and most informative.) A) always B) never C) sometimes D) Almost

C) sometimes

You work as an assistant coach on the university basketball team, earn $12 per hour and enjoy your job. One day, you decide to skip the hour-long practice and go to the local carnival instead, which has an admission fee of $7. What is the opportunity cost of skipping practice and going to the carnival? That is, what would you have experienced if you had not gone to the carnival? A) $19 (the lost salary and having $7 more in your pocket) and being at the practice. B) $12, the lost salary C) $19 (the lost salary and having $7 more in your pocket)

A) $19 (the lost salary and having $7 more in your pocket) and being at the practice.

You are weighing the opportunity cost of going to college. This opportunity cost includes the increased stress and anxiety of college. A) Incorrect. B) Correct.

A) Incorrect.

If action A makes you better off and me worse off, before action A is undertaken the allocation is A) There is not enough information to tell whether the allocation is efficient before A is undertaken. B) Efficient C) Inefficient

A) There is not enough information to tell whether the allocation is efficient before A is undertaken. The answer would have been "efficient" if the question had said something like, "From the current situation, there is no action that would make you better off and not make me worse off.

For a market for a good to function efficiently, property rights for that good need to be well defined. A) True B) False

A) True

Kimberly likes to gamble and party. And, lucky her, she has won an all-expense-paid trip to Vegas over Spring break. She loves Vegas but decides instead to spend $5000 of her own money to go to Africa to dig latrines in a small remote village. The free trip to Vegas would have been her second choice. What do we know about the opportunity cost of Kimberly going to Africa? What do we know about the consumer's surplus she will get from the Africa trip? (Choose the alternative that is correct and most informative.) A) opportunity cost is the trip to Vegas, plus the $5000; her consumer's surplus from the Africa trip is positive and greater than the consumer's surplus she would have gotten from going to Vegas. B) opportunity cost is the trip to Vegas; consumer's surplus from the Africa trip is at least $5000. C) opportunity cost is the trip to Vegas, plus the $5000; her consumer's surplus from the Africa trip is at least $5000 D) opportunity cost is the trip to Vegas, plus the $5000; her consumer's surplus from the Africa trip is positive.

A) opportunity cost is the trip to Vegas, plus the $5000; her consumer's surplus from the Africa trip is positive and greater than the consumer's surplus she would have gotten from going to Vegas.

A minimum price set above the equilibrium price is a: A) price floor. B) demand price. C) price ceiling. D) supply price.

A) price floor.

When the government removes a binding price floor: A) quantity demanded will increase and quantity supplied will decrease. B) excess demand will develop. C) excess supply will develop. D) quantity demanded will decrease and quantity supplied will increase.

A) quantity demanded will increase and quantity supplied will decrease.

When individuals act in their own self-interest: A) society may be worse off in some cases. B) all opportunities have been taken to make some people better off without making other people worse off. C) equity is always achieved. D) efficiency is always achieved.

A) society may be worse off in some cases.

You live at home. You choose to go to the University of Colorado, and do not have a car. C.U. tuition is $40K, but mom pays it. If you had not gone to C.U. you would have worked as an electrician for 50K a year (you have already graduated from electrician school), lived at home and purchased a car for $20K. Your opportunity cost of going to C.U. for a year is A) $30K in spending money B) $30K in spending money, the experience of being an electrician, and having a car C) $70K in spending money (The 50K salary, minus 20 K for the car, plus the 40K tuition), the experience of being an electrician, and having a car.

B) $30K in spending money, the experience of being an electrician, and having a car

I have a debit card with $20 left in the account, and, for some reason, the $20 will disappear from the account by tomorrow morning if it is not spent today. My first choice is to hit the bars tonight and spend the $20 on drinks. My second choice is to stay home, relax and buy nothing. Is the $20 I spend tonight on drinks part of the opportunity cost of my going out? A) Yes B) No

B) No

How people choose among the alternatives available to them is: A) not important in the study of microeconomics. B) the study of microeconomics. C) not part of the study of economics. D) impossible to describe.

B) the study of microeconomics.

If a market is currently not in equilibrium: A) no individual will be better off doing something different. B) there will be opportunities available to people to make themselves better off. C) it must be because the government has intervened in the market, resulting in the market's failure to reach equilibrium. D) the disequilibrium will always continue unless there is government intervention.

B) there will be opportunities available to people to make themselves better off.

If the government imposes a binding price ceiling in the market for grapefruit, total surplus: A) will increase. B) will decrease. C) will not change. D) may change, but we cannot determine the change without more information.

B) will decrease.

My demand curve for cigars, per day, is C=9-3P, where P is the price of a cigar and C is the number of cigars I buy and smoke. Assume the current price is $3/cigar. My consumer surplus from having cigars for sale at $3/cigar is A) $13.50 B) $2 C) $0 D) not enough information to answer the question

C) $0

Justin and Aiden sell lemonade on the corner. It costs them 10 cents to make each cup. On a certain day, they sell 40 cups, all at the same price. Their producer surplus that day is $20. They sold each cup for _______. A) 40 cents B) 50 cents C) 60 cents D) 30 cents

C) 60 cents

Recent research suggests that certain plastic containers may have cancer-causing elements in them. As a result of this research, one would expect that: A) the demand for such containers would decrease, and this decrease is a movement along the demand curve B) the price of such containers would decrease due to a movement along the demand curve. C) the quantity demanded of such containers would decrease because the demand curve for them ($ on the vertical axis) shifts left.

C) the quantity demanded of such containers would decrease because the demand curve for them ($ on the vertical axis) shifts left.

Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is: A) zero—the tickets were free. B) the price listed on the ticket. C) whatever Khalil would have done had he not gone to the opera. D) the price listed on the ticket or whatever Khalil would have done had he not gone to the opera.

C) whatever Khalil would have done had he not gone to the opera.

Peanut butter and jelly are complements. If there is a decrease in the price of jelly, producer surplus in the peanut butter market: A) will decrease or stay the same. B) may change, but it is impossible to tell if it will increase or decrease. C) will increase or stay the same. D) will not change.

C) will increase or stay the same. If the price of jelly goes down the demand curve for peanut butter will shift to the right, increasing the price of PB so likely increase producer surplus in the production of PB.

If a supply curve (price on the vertical axis, quantity on the horizontal axis) is represented by the equation Q = 10 + 2P, what is its slope of the graph? A) 1 B) 5 C) ½ D) 2

C) ½ The graph has price on the vertical axis, quantity on the horizontal axis. But the question is specified as Q as a function of P, so to get the slope of P as a function of Z you have to solve Q=10+2P for P to get P=-5+(1/2)Q

If a supply curve (price on the vertical axis, quantity on the horizontal axis) is represented by the equation Q = 10 + 2P, what is its slope of the graph? A) 1 B) 5 C) ½ D) 2

Suppose the U.S. government imposes a binding quota on the number of Japanese-made cars allowed into the United States. Assuming that Japanese-made cars and U.S.-made cars are substitutes in consumption, we would expect the price of Japanese cars to _____ and the price of U.S.-made cars to _____. A) decrease; increase B) decrease; decrease C) increase; decrease D) increase; increase

D) increase; increase The binding quota on the number of Japanese cars imported, reduces the supply of Japanese cars in the U.S. market (the supply curve shift left—there are fewer to sell), this will increase the price of Japanese cars in the U.S. The binding quota on the number of Japanese cars imported, causes their U.S. price to increase. This shifts the demand function for domestic cars to the right (greater demand at every price). This will increase the price of domestic cars.

All points inside the production possibility frontier represent: A) economic growth. B) infeasible production points. C) efficient production points. D) inefficient production points

D) inefficient production points

Market failure refers to a situation in which: A) markets fail to reach a fair outcome. B) markets establish a high price for necessities. C) market-determined wages are not high enough to raise all workers above the poverty line. D) markets fail to reach an efficient outcome.

D) markets fail to reach an efficient outcome.

Assume there are only two goods that can be produced: green beans and corn. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity cost of 1 bushel of green beans is a. 5/3 bushels of corn. b. 2/5 bushel of corn. c. 5/2 bushels of corn d. 8/5 bushels of corn.

a. 5/3 bushels of corn

Would Paul and Robin agree, or disagree with the following statement: "The creation of a second-hand market for our textbook is efficiency increasing even though it makes Paul and Robin worse off." a. Yes b. No c. Maybe

a. Yes

I produced a ski trip to Vail and consumed the trip - I went skiing at Vail. Doing it made me better off. Choose the best way to complete the sentence, "I got a. A consumer's surplus because I consumed the trip. b. A producer's surplus because I produced the trip. c. A surplus from the trip

c. A surplus from the trip Answer: A surplus, but it is not informative to label it as either a consumer's surplus or a producer's surplus: I was both the producer and consumer.

The Atlanta Symphony wants to make sure that its concerts are affordable for all residents of Atlanta and therefore prices all of its tickets at $25. However, outside Symphony Hall, people can sell the same tickets for $75 or more. The true cost to the concertgoer of a ticket to the symphony is at least: A) $75. B) $100. C) $50. D) $25.

A) $75.

Alison has a linear production possibility frontier in the production of bracelets and necklaces. In one hour, she can produce 5 bracelets or 10 necklaces. What is the opportunity cost for her to make one necklace? A) 1/2 a bracelet B) 2 necklaces C) 10 necklaces D) 5 bracelets

A) 1/2 a bracelet

In the market place the aggregate demand curve for gubers is Gd=10-2P and the aggregate supply curve is GS=5+P where P is the price of a guber. The equilibrium quantity of gubers is A) 20/3 (that is 6 and 2/3) B) neither of the other two answers C) 5/3

A) 20/3 (that is 6 and 2/3) Need to figure out equilibrium quantity. Given how the supply and demand curves are specified (in terms of G), first determine equilibrium price by setting 10- 2P=5+P. Solving for P one gets equilibrium P=5/3. Plug this into either the supply or demand function to get equilibrium Q of 5 plus 5/3 which is the same as 20/3 People had trouble with 31-33, with more than half getting each incorrect.

Frances has a linear production possibility frontier when she produces tomatoes and green beans. If she uses all of her resources, she can produce 400 bushels of tomatoes or 800 bushels of green beans. Which of the following combinations is not efficient for Frances? A) 200 bushels of tomatoes and 200 bushels of green beans B) 800 bushels of green beans and zero bushels of tomatoes C) 200 bushels of tomatoes and 400 bushels of green beans D) 400 bushels of tomatoes and zero bushels of green beans

A) 200 bushels of tomatoes and 200 bushels of green beans

Suppose the market demand for TV remotes is given by the equation Qd = 100 - 2P, where P is the price and Qd represents the number of TV remotes demanded. (The corresponding inverse demand function is P=50-.5Qd ) If the market price of TV remotes is $40, then the quantity demanded would equal ________ and total consumer's surplus will be ________. A) 20; $100 B) 20; $600 C) 10; $400 D) 40; $1200

A) 20; $100

Jeanette is willing to pay $100 for the first pair of shoes, $80 for the second pair, $55 for the third, and $30 for the fourth. If each pair costs $50, Jeanette will buy ______ pairs of shoes and her total consumer surplus from the shoes is ______. A) 3; $85 B) 4; $85 C) 3; $235 D) 3; $150

A) 3; $85

Assume that the number of cigarettes an individual purchases and smokes a day depends on the price of cigarettes, the individual's gender, the individual's income, and whether the individual's mother smoked. Imagine you are looking at a graph of an individual's demand function for cigarettes (income on the vertical axis and quantity demanded on the horizontal axis). A price decrease for cigarettes will result in A) A shift in the graph of the demand function. B) A movement along the graphed demand function

A) A shift in the graph of the demand function. The question specifies that demand is graphed as a function of income, not price. So, if the price decreases, this graph will shift. See my notes on how to graph a demand function.

Donny Downhill, a student in class, loves to ski but hates to ski Vail, no matter the cost. That said, his significant other, Marc Mogul, loves Vail, so Donny skis Vail once a year as long as the cost is $100 or less. Donny's demand function for Vail ski days (dollars on the vertical axis) is (Choose the answer that is both correct and most informative) A) Always vertical B) Always horizontal C) Sometimes vertical, sometimes horizontal D) None of the other answers are correct.

A) Always vertical

In a two-commodity two-person world, specialization in production can always lead to an increase in the production of at least one of the commodities, with no decrease in the production of the other commodity. A) An incorrect statement B) A correct statement

A) An incorrect statement

Assume the following: (1) Members of the Tea Party are not Democrats. (2) The existence of the Tea Party makes Democrats happy. (3) Happy people never smile. (4) Obama belongs to the tea party. (5) Sarah P. is not a Republican. (6) The Tea Party exists. And (7) Democrats are people. Which of the following predictions follows from these assumptions? (Asked on an Aplia quiz) A) Democrats are not smiling, and Obama is not a Democrat B) Obama is not smiling C) All the members of the Tea Party are smiling D) Obama is smiling E) All Republicans are smiling

A) Democrats are not smiling, and Obama is not a Democrat

An increase in the price of wheat (an important ingredient in the production of bread) combined with an increase in the number of people consuming bread, will result in which of the following changes in the bread market? A) Equilibrium price will increase, but equilibrium quantity may decrease, increase, or stay the same. B) Both the equilibrium price and quantity will decrease. C) Both the equilibrium price and quantity will increase. D) Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same.

A) Equilibrium price will increase, but equilibrium quantity may decrease, increase, or stay the same.

A consumer's willingness to pay for a surfboard is the minimum price at which he or she would buy the surfboard. A) False B) True

A) False

An economy is efficient if one person can be made better off by reallocating resources without making anyone else worse off. A) False B) True

A) False

Market equilibrium will always be efficient even if it is not equitable. A) False B) True

A) False

It costs residents of Boulder a lot more to ski Aspen for a day than it costs residents of Aspen. Which statement is both correct and most informative? A) Given the information provided little can be concluded about how much consumer's surplus an Aspen resident gets from her Aspen ski days compared to how much a Boulder resident gets from her Aspen ski days. B) Since they pay more per day to ski Aspen, Boulder residents who ski Aspen must value skiing Aspen more highly than do residents of Aspen. C) Residents of Boulder necessarily get less consumer's surplus from their Aspen ski days than Aspen residents get from their Aspen ski days.

A) Given the information provided little can be concluded about how much consumer's surplus an Aspen resident gets from her Aspen ski days compared to how much a Boulder resident gets from her Aspen ski days. The answer is A. Many of you answered this question implicitly assuming people in Boulder have the same income and preference for skiing as do people in Aspen. (wrt C) Just because I pay more for something than you do does not mean I get less consumer's surplus from consuming it. Draw a Mwtp curve for George and Fred for Aspen ski days such that even though George pays way more than Fred to ski Aspen, he still get more consumer's from skiing Aspen than does Fred. (wrt D) Boulder residents pay more to ski Aspen but that does not mean they value it more. It only means that they both value it more than it cost them. George, who live in Boulder might pay $100 a day and value the day at $101, whereas Fred, who lives in Aspen, pays $25, but value his last Aspen ski day at $10000 (he is really rich and really likes to ski Aspen).

Which one is NOT characteristic of market equilibrium? A) It is always efficient as well as equitable. B) Given the price, neither consumers nor producers want to change their behavior. C) The quantity demanded is equal to the quantity supplied. D) There is no motivation for price to change.

A) It is always efficient as well as equitable.

You [have not bike and] come home to find that your dog, Killer, is missing. Where he once sat is a ransom note: "$500.00 or Killer dies." You have $500.00 in savings earmarked for a bike. You have two options: pay or not, and you do not pay. What is the opportunity cost of your decision? (Which alternative is both correct and most informative?) A) a live Killer and being bike-less. B) a live Killer C) the bike D) a dead Killer and the sadness that entails.

A) a live Killer and being bike-less.

Consider the lecture about mining injuries in the Coeur d'Alene Basin where Edward assumed two fishing sites: the North Fork and the South Fork. Assume, as did Edward, that the two sites are substitutes. Initially assume both sites are uninjured (not polluted) and assume George's travel costs are such that he currently fishes both sites. Now assume the South Fork site is injured/polluted. How will this injury at the South Fork affect the consumer's surplus George get from his trips to the North Fork? Choose the best answer. A) It will increase B) It will remain the same. C) There is not enough information to tell. D) It will decrease

A) It will increase Injury to the South Fork will shift the demand curves for trips to the North Fork to the right (injury to S.F. has increased the relative quality of the N.F.). If the demand curve for the N.F. shifts to the right the area under this demand function above the cost will increase, assuming cost is not so high that demand is zero at the N.F. both before and after the quality decrease at the S.F. Again, this is a question about shifts in curves.

Soon after they graduate from high school many college-bound graduates break up with their high-school sweethearts. Which of the following is the best text-book economic explanation? A) Many high school graduates perceive that their dating choice set will be much greater in college than it was in high school. B) "My high school sweetheart wanted to get married and I wasn't ready." C) As one ages and matures one's preferences are continuously changing.

A) Many high school graduates perceive that their dating choice set will be much greater in college than it was in high school.

An economic agent will continue to consume more units of a commodity as long as total benefits are greater than total costs. A) No B) Yes

A) No

Nathan wants 1 hot dog and 1 hamburger. Jimmy wants 1 hot dog and 2 hamburgers. Nathan and Jimmy receive no additional benefit from having any more than what they want. Nathan and Jimmy's dad made 2 hot dogs and 3 hamburgers. He gives Nathan 1 hot dog and 2 hamburgers, and he gives Jimmy 1 hot dog and 1 hamburger. Is this an efficient allocation of food? A) No B) Yes

A) No

I have a debit card with $20 left in the account, and, for some reason, the $20 will disappear from the account by tomorrow morning if it is not spent today. My first choice is to hit the bars tonight and spend the $20 on drinks. My second choice is to stay home, veg and buy nothing. Is the opportunity cost of my going out tonight necessarily $20 or more? A) No B) Yes

A) No The $20 is not part of the cost—it is gone either way—so the opportunity cost is not necessarily $20 or more. It could be, but not necessarily.

Which one is NOT a characteristic of the market equilibrium for a good? A) The amount produced and consumed is always the efficient amount. B) There is no motivation for price to change. C) Given the price, neither consumers nor producers want to buy or sell more or less. D) The quantity demanded is equal to the quantity supplied.

A) The amount produced and consumed is always the efficient amount.

Which of these two statements is incorrect? A) The opportunity cost of activity A is always expressed in units of activity A B) The opportunity cost of activity A in terms of activity B is the inverse (reciprocal) of the opportunity cost of activity B in terms of activity A. A) Only A is incorrect B) Only B is incorrect C) Both A and B are incorrect D) Neither A nor B are incorrect

A) The opportunity cost of activity A is always expressed in units of activity A

Your theory makes three assumptions: (1) Kids who have divorced parents are unhappy. (2) Unhappy kids earn failing grades. (3) Zack earns failing grades. Which of the following statements is both correct: and most informative? A) The three assumption do not imply that Zack has divorced parents. B) The three assumptions imply that Zack has divorced parents.

A) The three assumption do not imply that Zack has divorced parents.

Which is the best definition of a market failure? A) The unregulated market equilibrium is inefficient B) Production and consumption of some goods have direct negative effects on other producers and consumers C) Prices are too high D) Government intervention in the market place is causing inefficiency

A) The unregulated market equilibrium is inefficient B) could be the cause of one type of market failure (an externality) but it is not a definition of market failure.

Imagine that you are a producer of bicycles. Lately, the price of the aluminum that you use to produce the bikes has decreased due to a recent glut in aluminum production. On top of that, the price of motorized scooters has been on the rise, and bicycles are, to many people, a substitute. What would you expect to happen to the price of bicycles, given the above? A) There is not enough information B) The price of bicycles will increase C) The price of bicycles will decrease D) The price of bicycles will not change

A) There is not enough information Draw the graphs. The increase in the price of scooters (a substitute) cause the demand curve to shift right (price on the vertical axis). This effect by itself would cause the price of bicycles to rise. The drop in the price aluminum will cause the cost of producing bicycles to fall causing the supply curve to shift left. This effect by itself would cause the price of bicycles to decrease. Since price is being pushed in both directions, unless we have more information we don't whether the equilibrium price will rise or fall.

High-fructose corn syrup, which is derived from corn, is an important ingredient in the production of many soft drinks. If the price of corn decreases, one would expect: A) the supply curve for soft drinks shifts right, causing the quantity demanded of soft drinks to increase B) the supply curve ($ on the vertical axis) for soft drinks shifts left and the demand for soft drinks to decrease C) the quantity supplied of soft drinks to increase because the demand curve for soft drinks shifts right

A) the supply curve for soft drinks shifts right, causing the quantity demanded of soft drinks to increase

Jorge, the famous Argentinian economist, builds a model/theory to only predict the probability that an individual has a significant other who is a male. He makes assumptions that imply this probability is a function of only hair color and body mass index. Given what we have been told about his model, body mass index could be either an endogenous variable or an exogenous variable. A) This last statement is incorrect. B) This last statement is correct

A) This last statement is incorrect.

Binding quotas on the amount of a good that can be produced necessarily cause inefficiency. A) This statement is incorrect B) There is not enough information provided to determine whether the statement is correct or incorrect. C) This statement is correct

A) This statement is incorrect Binding quota on the amount of a good that is produced will often produce inefficiency, but do not necessarily cause inefficiency. We had an example in class, wood-burning stoves in Aspen were the binding constraint on the number of stoves increased efficiency (helped to correct a market failure.) See question 14 on this exam. You should be very attentive to the word "necessarily".

The exogenous variables in your model are the variables that you assume determine the levels of the endogenous variables in your model, and an exogenous variable in a model cannot be endogenous in another model. A) This statement is incorrect. B) This statement is correct

A) This statement is incorrect.

Within a firm markets determine how hired and purchased inputs are allocated. A) This statement is incorrect. B) This statement is correct.

A) This statement is incorrect.

Consider a situation where purchases do not occur because the potential seller's WTA (willingness-to-accept) the loss of the good is greater than the potential buyer's WTP (willingness-to-pay) for the good. This situation can occur at the market equilibrium price. (Asked on Aplia quiz about consumer's surplus) A) True B) False

A) True

Eating chocolate bars causes people to be less violent. That said, people eat chocolate because it tastes good and could care less whether eating chocolate makes them more or less violent. Given this, is the following statement true or false? "This side effect of chocolate means that, all else constant, the equilibrium quantity of chocolate consumed in a world with flexible chocolate prices will be too low from an efficiency point of view, and a more efficient amount of chocolate could be produced if the government subsidized the consumption of chocolate." A) True B) False

A) True

I have $20 in my pocket and it will still be there in the morning if I do not spend it tonight. My first choice is to go out tonight and spend the $20 on drinks. I know if I go out drinking I will not get in a fist fight with my roommate. I know I will fight him if I stay home. My second choice is to stay home, spend the $20 on pizza and some music downloads, and fight my roommate. Note that I enjoy getting into fights with my roommate. Given all this, the opportunity cost of my going out, measured in dollars, is greater than $20 A) True B) False

A) True

If demand decreases and supply increases, the direction of change in the equilibrium quantity is unpredictable without first knowing the relative magnitudes of the demand and supply changes. A) True B) False

A) True

If the demand curve shifts left ($ on the vertical axis) and the supply curve shifts right, price will decrease, but, without additional information on the relative magnitudes of the shifts, one cannot predict whether quantity will increase or decrease. A) True B) False

A) True

Our text, Krugman and Wells, costs $100. Martha's willingness-to-pay for one copy of the text is $110, and zero for additional copies. So, her consumer surplus for having the text available for $100 is $10. A) True B) False

A) True

Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is: A) Whatever Khalil would choose to do if he does not go to the opera including any money he could get from scalping the ticket. B) whatever Khalil would choose to do if he does not go to the opera. C) the price listed on the ticket and whatever Khalil would choose to do if he does not go to the opera. D) zero—the tickets were free.

A) Whatever Khalil would choose to do if he does not go to the opera including any money he could get from scalping the ticket.

You are born a twin. Both you and your twin are child prodigies. Your parents are poor and only have a small house so will have to send one of you to the orphanage. The issue is which one of you hits the road. Your father does not care. Your mother likes to read new math theorems, but could care less about opera. In a month, you can produce 5 new math theorems if you spend all of your time on math, or write 20 operas if you spend all of your time singing opera. Your twin, on the other hand would be able to produce 4 theorems or write 10 operas. Neither parent cares for opera. Your mom likes to read math theorems. Who should hit the road to the orphanage? A) Your twin -- because you have an absolute advantage in the production of theorems. B) Your twin -- because your twin has a comparative advantage in the production of theorems C) You -- because your twin has a comparative advantage in the production of operas D) You -- because your twin has a comparative advantage in the production of theorems

A) Your twin -- because you have an absolute advantage in the production of theorems.

I am a firm that needs to dump my toxic waste in a stream, only one stream. I know that after I do it, I will be sued by the Federal Government and forced to pay damages in the sum of total lost consumer's surplus to everyone who fished at the site before I dumped. Ignoring the varying cost of transporting the toxic waste to different streams, which of the following stream options would be my best choice if my intent is to minimize the damages I pay. A) a polluted stream with few fish located near a good number of pristine trout streams. B) a pristine stream with a lot of good substitutes because many anglers will get almost as much utility by fishing at one of those close substitutes. C) a polluted stream with few fish, located near a good number equally polluted streams. D) a pristine stream with few good substitutes because many anglers will then no longer care about fishing.

A) a polluted stream with few fish located near a good number of pristine trout streams. A difficult question (more got it wrong than got it right): Ceteris paribus, the more good substitutes for an injured fishing site the less anglers will be damaged by the injury (the toxic dumping) . So the answer is not C. In addition if a site is already trashed ("polluted stream with few fish") the less anglers will be injured—even before the dump, few went there. What do they say, "You can't kill a dead horse."

When an individual is doing the best she can given her constraints A) at least two of the other answers are correct B) if one of her constraints change, what she previously chose might no longer be an equilibrium C) she is in equilibrium D) she will still want to change her behavior

A) at least two of the other answers are correct

A consumer's willingness to pay for each additional unit of a good identifies her ____ for that good. A) demand curve B) producer surplus C) cost of production D) supply curve

A) demand curve

A negative relationship between the quantity demanded and price (price on the vertical axis) is called the law of: A) demand. B) increasing returns. C) market clearing. D) supply.

A) demand.

Gasoline, a derivative of oil, is a large part of transportation costs for many producers. If the price of oil increases at the same time that incomes fall for many consumers, one would expect the equilibrium price of many normal goods to ________, while their equilibrium quantities would ________. A) fall, rise, or stay the same; decrease B) fall; fall C) fall; rise D) decrease; fall, rise, or stay the same

A) fall, rise, or stay the same; decrease Gasoline is an input in the production many goods, consider transport costs. So, if the price of gasoline goes up, goods that are transport intensive will cost more to produce. That is, their supply curves ($ of the vertical axis) will shift left. A fall in income, e.g. because of a recession, will cause the demand curves for such products to also shift left (consumers' have less money to buy goods) These opposing effects on price (the supply shift pushing it up and the demand shift pushing it down) means that without more information we don't know what will happen to the equilibrium price. But, both shifts push the equilibrium quantity down (less demand and less supply at every price).

The market for corn is currently in equilibrium. Which of the following is most likely to increase the equilibrium price of corn? A) increasing production of corn-based ethanol B) decreasing household incomes and corn is a normal good C) a subsidy given by the government to growers of corn D) a bountiful harvest

A) increasing production of corn-based ethanol

If the quantity of housing supplied in a community is greater than the quantity of houses demanded, the existing price: A) is above the market equilibrium price. B) will rise to clear the market. C) will either rise or remain unchanged. D) is below the market equilibrium price.

A) is above the market equilibrium price. when the price is above the point where suppy equals demand (the equilibrium price) firms supply more than consumers want to buy at that price

The existence of government intervention often suggests: A) markets do not always achieve efficient results. B) individual actions have no side effects. C) equilibrium will be achieved through this intervention. D) markets can efficiently manage the allocation of goods.

A) markets do not always achieve efficient results.

In the market place the aggregate demand curve for gubers is Gd=10-2P and the aggregate supply curve is GS=5+.5P where P is the price of a guber. The equilibrium price of a guber is (the equil price is 2) A) neither of the other two answers B) 5/3 C) 20/3 (that is 6 and 2/3)

A) neither of the other two answers

Market failure refers to a situation in which: A) something in the nature of the markets causes the market equilibrium to be inefficient. B) market-determined wages are not high enough to raise all workers above the poverty line. C) markets fail to reach a fair outcome. D) markets establish a high price for necessities.

A) something in the nature of the markets causes the market equilibrium to be inefficient.

Suppose that the price of a subway ride rises from $2.00 to $2.50. Because driving a car and taking the subway are _______, an increase in the price of a subway ride shifts the demand for cars to the _______. A) substitutes; right B) substitutes; left C) complimentary; left D) normal goods; right

A) substitutes; right

Whenever a choice is made: A) the cost of that choice could be referred to as opportunity cost. B) the cost is easy to measure in dollar terms. C) efficiency is improved. D) scarcity is not the problem.

A) the cost of that choice could be referred to as opportunity cost.

While buying refreshments for an upcoming party, you notice that a six-pack of Americana Beer costs $2 and a six-pack of Bavarian Beer costs $4. You buy the six-pack of Bavarian Beer, although you wonder if maybe two six-packs of Americana Beer would have been a better choice. The opportunity cost of the Bavarian Beer is: A) two six-packs of Americana Beer. B) the $4. C) the $4 and the six-pack of Americana Beer. D) a six-pack of Americana Beer

A) two six-packs of Americana Beer.

The opportunity cost of something is: A) what is given up to acquire it. B) greater during periods of rising prices. C) equal to the money cost. D) less during periods of falling prices.

A) what is given up to acquire it

Consider the demand function Edward assumed for the number of trips an angler would take to the North Fork river. He assumed in that specification that demand for trips to the North Fork would depend on the catch rate for fish at the South Fork, it being a close-by alternative fishing site. Given all this, which of the following conjectures two conjectures is least reasonable A) An increase in the catch rate at the South Fork will shift the demand curve for the North Fork (trip cost on the vertical axis) to the left B) An increase in the catch rate at the South Fork will shift the demand curve for the North Fork (trip cost on the vertical axis) to the right.

B) An increase in the catch rate at the South Fork will shift the demand curve for the North Fork (trip cost on the vertical axis) to the right.

Because of the opportunity cost, if the United States spends $87 billion of its resources in the rebuilding of Iraq, it has to forgo the opportunity to using those resources for other programs. A) False B) True

B) True

In one day, Kessy can bake 10 cookies or mix 15 glasses of lemonade. His friend, Ava, can make 10 cookies or 10 glasses of lemonade. His other friend, Ian, can make 10 cookies or 20 glasses of lemonade. Who has the lowest opportunity cost in cookie production? A) Kessy B) Ava C) Ian D) Kessy and Ava have the same opportunity cost in cookie production.

B) Ava

Which of the following would cause the demand for chocolate bars to increase while not shifting the demand curve for chocolate bars (price on the vertical axis, quantity on the horizontal axis? A) The US government imposing a binding price ceiling on Reese's Pieces. B) Both of the other two answers are correct. C) A increase in the supply of chocolate bars at every price.

B) Both of the other two answers are correct. An increase in the supply of chocolate bars at every price (suppy curve shifting right, price on the vertical axis) will c.p. decrease the price of chocolate bars (a movement along the static demand curve). If the government imposes a d binding price ceiling the price will fall from the current price to the binding price ceiling, causing demand to increase because price has fallen, the demand function remaining static.

Dr. Colgate is a dentist who employs an assistant, Ms. Crest. If Dr. Colgate worked all day at the front desk, he could answer 40 phone calls. If he worked all day with patients, he could clean the teeth of 30 patients. If Ms. Crest worked all day at the front desk, she could answer 60 phone calls. If she worked all day with patients, she could clean the teeth of 80 patients. Which of the following is true? A) Ms. Crest has a comparative advantage in answering phones. B) Dr. Colgate has a comparative advantage in answering phones. C) Dr. Colgate has an absolute advantage in answering phones. D) Dr. Colgate has an absolute advantage in cleaning patients' teeth.

B) Dr. Colgate has a comparative advantage in answering phones.

Which of the following statements is NOT true (Equilibrium is not always efficient or fair, the terms equilibrium, efficiency and equity don't imply each other) A) An equilibrium can be inefficient B) Equilibrium guarantees efficiency and equity C) Edward and Wanda both having divorce lawyers during their divorce is an equilibrium D) Efficiency does not guarantee equity

B) Equilibrium guarantees efficiency and equity

"In 2008, air travel decreased substantially despite significant reductions in ticket prices." If this information is correct, it indicates that the demand curve for airline tickets in 2008 ($ on the vertical axis) sloped upward. A) True B) False

B) False

A market equilibrium will always be efficient even if it is not equitable. A) True B) False

B) False

A typical, bowed-out production possibility frontier between two goods—guns and butter—shows that the opportunity cost of butter in terms of guns increases as more butter is produced. This implies that the opportunity cost of guns in terms of butter decreases as more guns are produced. A) True B) False

B) False

Ceteris Paribus (everything else constant), landlords of apartments that are effectively rent controlled (price ceiling < market price) have more incentive to make repairs and improvements than do landlords of non-rent controlled apartments. A) True B) False

B) False

If the cost of soybeans (the major ingredient in tofu) decreases, consumer surplus in the market for tofu will decrease. A) True B) False

B) False

In 2003, Congress passed a tax cut. Since taxes were reduced, the country did not incur any opportunity cost from this decision. A) True B) False

B) False

Suppose we invent and produce 10 million robots, and then forget how to produce robots. Each of those robots has an absolute advantage over us (humans) in the production of everything. Like us, the robots do not know how to produce robots. The robots operate maintenance and energy free. The 10 million robots can produce, without any help from us, current output levels. The robots give humans all their output. In this world, all, or most, of us humans will surely end up unemployed? A) True B) False

B) False

The city of Boulder mandates premium chocolate prices be fixed at $2 per bar. At this price, consumers in Boulder demand 4,000 premium chocolate bars while suppliers are willing to supply 6,000 bars. This example illustrates a government intervention causing a shortage. A) True B) False

B) False

"In 2008, air travel decreased substantially despite significant reductions in ticket prices." If this information is correct, then it indicates that the law of demand did not apply to air travel in 2008. A) True B) False

B) False Answer: is False because lot of other things were going on a well (e.g. declining income) causing the downward-sloping demand curve to shift to the left.

Binding quotas on the amount of a good that can be produced necessarily cause inefficiency. A) True B) False

B) False As our wood-burning stove example demonstrates. In chapter 5 the binding quota example caused inefficiency. But a binding quota can also be used to correct a market failure.

The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of scarcity of resources. A) False B) True

B) True

Imagine a demand curve for husbands with the "price"/cost of acquiring a husband on the vertical axis. Also imagine a supply curve of males willing to get married, such that the more males are paid to get married (the higher the price), the more that will offer themselves up at the altar. The article you read, "Supply, Demand and Marriage," suggests that the increase in premarital sex in the 1960's (the "Sexual Revolution") was driven by shifts in the demand and supply curve for husbands. Specifically that the husband supply curve (how many guys will get married at each "price") shifted to the right. A) True B) False

B) False Read the readings: The article hypothesized that the supply curve shifted to the left, not to the right. That is, the supply of marriage-age males dropped, for reasons explained in the article; causing marriage-age women to pay a higher price for finding a mate (the higher price for the female was having premarital sex.) You might argue that having premarital sex makes both males and females happier, and there is no cost, now, to females for having premarital sex. You are correct, at least for females over a certain age, but this was not the case before the sexual revolution

In a two commodity world, specialization in production can always lead to an increase in the production of at least one of the commodities, with no decrease in the production of the other commodity. A) True B) False

B) False There is nothing to be gained from specialization if no one as a comparative advantage.

Which of the following allocations are primarily determined by market forces rather than command and control? I. how resources and goods are allocated within a household II. how resources are allocated between killing terrorists and educating children III. who get the BMWs IV. how resources are allocated within Google V. how much of society's resources are allocated to producing CoCo Puff cereal vs. Captain Crunch A) II, III and IV B) III and V C) I, II, and IV D) I, II and III

B) III and V

There are only three types of individuals in the world: Joe (a human) and a bunch of cats and mice. Joe likes to hunt cats and only cats, cats like to hunt mice and only mice, and mice like to hunt Joe and only Joe. No one likes being hunted but no one cares if another individual is being hunted. Currently there is no hunting. Which of the following statements is correct? A) Allowing hunting by Joe will necessarily increase efficiency B) If Joe is not a member of society allowing hunting by the mice will increase efficiency. C) Allowing hunting by the cats will necessarily increase efficiency.

B) If Joe is not a member of society allowing hunting by the mice will increase efficiency.

I am thinking about hiring someone to go through my thousands of photos and delete at least half of them. I need to clear up space on my hard drive. Besides, there are just too many of them. Given that the goal is to delete half of the photos (Choose the alternative that is both correct and most informative.) Note this question was motivated by a reading from the New York Times. A) It only makes sense if the person I hire to do it has an absolute advantage over me in deleting the photos. B) It makes no sense if I have the comparative advantage in choosing the photos to delete. C) A real economist would never hire someone who does not know him and his family to do this.

B) It makes no sense if I have the comparative advantage in choosing the photos to delete.

Consider the lecture about mining injuries in the Coeur d'Alene Basin where Edward assumed two fishing sites: the North Fork and the South Fork. Assume, as did Edward, that the two sites are substitutes. Initially assume both sites are uninjured (not polluted) and assume George's travel costs are such that he currently fishes both sites. Now assume the South Fork site is injured/polluted. How will this injury at the South Fork affect the consumer's surplus George get from his trips to the North Fork? Choose the best answer. A) There is not enough information to tell. B) It will increase C) It will decrease D) It will remain the same.

B) It will increase

Use the following assumptions to answer the question: -All girls in Boulder do yoga -Girls that do yoga eat celery -Celery makes your teeth white -Jessica, a girl, lives in Boulder What does not logically follow from these assumptions? A) None of the other answers are false. B) Jessica is necessarily flexible C) Jessica has white teeth D) Jessica eats celery

B) Jessica is necessarily flexible

Consider the following assumptions: (1) People who have happy families own houses with gardens. (2) People who own houses with gardens have lawn mowers. (3) John has a lawn mower. Which of the following statements is both correct and most information. A) John does not have a happy family. B) John might have a happy family. C) John has a happy family.

B) John might have a happy family.

If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. We know that: A) Carrie Anne's opportunity costs of writing programs and of making sunglasses are less than Laurence's. B) Laurence's opportunity cost of writing programs is less than Carrie Anne's. C) Carrie Anne's opportunity cost of writing programs is less than Laurence's. D) Laurence's opportunity costs of writing programs and of making sunglasses are less than Carrie Anne's.

B) Laurence's opportunity cost of writing programs is less than Carrie Anne's.

An individual or country that has a comparative advantage in the production of one good: A) Must not have an absolute advantage in the good's production B) May or may not have an absolute advantage in the good's production C) Must not have an absolute advantage in the production of the other good D) Must have an absolute advantage in the good's production

B) May or may not have an absolute advantage in the good's production

Winnie and Eeyore are best friends. They have 3 hours each to collect as much honey as they can, and to find as many missing tails as they can. They decided that they should work together. Winnie can collect 3 jars of honey per hour and can find 8 tails per hour. Eeyore can collect 1.5 jars of honey per hour and find 4 tails per hour. Winnie know that he is the best so he decided he should devote all of his time to collecting honey and Eeyore should spend all of his time collecting tails. Eeyore is smarter than Winnie and thinks that since Winnie can find the most tails, Winnie should devote all his time to finding tails while he, himself, collects honey. Who is right and actually has a comparative advantage in collecting honey? A) Eeyore B) Neither of them C) Winnie

B) Neither of them

Which of these two statements is correct? A) The opportunity cost of activity A is always expressed by units of activity A B) The opportunity cost of activity A in terms of activity B is the inverse of the opportunity cost of activity B in terms of activity A. A) Only A B) Only B C) Both A and B D) Neither A nor B

B) Only B

Society consists of all the bears and Joe (a human); no others are part of society, including the cows. Joe loves to hunt; bears are his favorite prey, followed by cows. Hunting either bears or cows would make Joe better off. No one wants to be hunted, but no one cares if other individuals are hunted. Bears and cows have no interest in hunting. Currently, both bear hunting and cow hunting are prohibited. A) The current situation is efficient. B) The current situation is inefficient. C) There is not enough information to determine whether the current situation is efficient or inefficient.

B) The current situation is inefficient.

Mr. White gave up his career as a high school chemistry teacher to become a meth producer and seller. (Meth is a illegal stimulant, a street drug.) Mr. White gave up a lot to sell and produce meth. He had to invest in equipment, has to participate in illegal transactions, and has to spend hours "cooking" (producing the meth), etc., etc. Which of the following is not part of the opportunity cost of him becoming a meth producer and seller? A) A respectable job and what it would have paid. B) The meth he gives to his assistant Jesse to keep him productive (awake on the job). C) What the producer could have bought with the money he spent on the equipment he needed to get into the meth business.

B) The meth he gives to his assistant Jesse to keep him productive (awake on the job).

This year Congress allocated $500 million to providing food stamps rather than itd second choice, allocating $500 million to Planned Parenthood, a nonprofit that provides medical services to women, including pregnancy counseling and abortions. Which of the following answers is both correct and most informative? (what was given up includes the reactions that will not be forthcoming) A) The opportunity cost of Congress's choice includes the services that PP would have provided with the $500 million, but does not include the reactions (good and bad) American would have had to the provision of those services. B) The opportunity cost of Congress's choice includes the service that PP would have provided with the $500 million, plus the reactions (good and bad) Americans would have had to the provision of those services

B) The opportunity cost of Congress's choice includes the service that PP would have provided with the $500 million, plus the reactions (good and bad) Americans would have had to the provision of those services

Which of the following statement(s) about opportunity costs seems most reasonable? A) Introducing wireless access in our classroom decreased everyoneís opportunity cost of coming to class. B) The opportunity cost of coming to class increased when your constant companion dropped the class. C) Being able to drop the lowest of the two midterm scores does not a§ect the opportunity cost of missing a midterm.

B) The opportunity cost of coming to class increased when your constant companion dropped the class.

Assume for a moment that there only two goods available for purchase, peaches and toothpaste. Peaches cost $2 each, and toothpaste costs $3 each. You have $50 to spend on some combination of those two items. Now assume that you get a promotion, and now have $75 to spend on these two items. At the same time, however, the price of toothpaste increases to $4. Which of the following is necessarily true? A) The budget line shifted inward B) The opportunity cost of toothpaste increased C) Your demand for peaches decreased D) The slope of the budget line increased.

B) The opportunity cost of toothpaste increased

If the price of beer decreases A) The quantity demanded of beer will decrease B) The quantity demanded of beer will increase C) The demand curve will shift inward (price on the vertical axis) D) The demand curve will shift outward (price on the vertical axis)

B) The quantity demanded of beer will increase

Assume that the average adult consumer in Colorado likes to eat cookies when he or she smokes marijuana. A higher than expected yield of ma40rijuana causes the price of marijuana in Colorado to decrease. What does this mean for the demand for marijuana and cookies? For this question, let price be on the vertical axis & quantity be on the horizontal axis. A) There is a movement along the demand curve for marijuana and demand curve for cookies shifts left. B) There is a movement along the demand curve for marijuana and demand curve for cookies shifts right. C) There is no movement along the demand curve for marijuana and demand curve for cookies shifts right. D) There is a movement along the demand curve for marijuana and demand curve for cookies does not shift.

B) There is a movement along the demand curve for marijuana and demand curve for cookies shifts right.

MacKenzie has an income of $20. There are only 2 goods (Red solo cups and ping-pong balls). Cups are $4 (1 bag) and packs of ping-pong balls are $6. Which of the following bundles, if any, will MacKenzie purchase and consume? A) 1 pack of balls and 2 bags of cups B) There is not enough information to determine whether MacKenzie will consume one of these other bundles C) 2 packs of balls and no cups D) 2 packs of balls and 2 bags of cups

B) There is not enough information to determine whether MacKenzie will consume one of these other bundles Notice that the question specifies that both of the commodities are "goods" meaning more is always preferred to less. This means MacKenzie will always spend all of her income (if see spent less you make herself better off by spending more). The only answer that has her spending $20 is D. However, this only tells us that she won't choose bundles A or C, and she might choose bundle D. So the correct answer should be B.

You and I are both members of society. If action A makes you better off and me worse off, before action A is undertaken the allocation is A) Inefficient B) There is not enough information to tell whether the allocation is efficient before (A) is undertaken. C) Efficient

B) There is not enough information to tell whether the allocation is efficient before (A) is undertaken.

An example from the class notes: In places like Aspen, If wood-burning fireplaces and stoves are unregulated there will be too much smoke from an efficiency point of view: Aspen is a box canyon and the smoke has nowhere to go. The city government is consider requiring permits for wood-burning devices. Which of the following narratives is, in Edward's view, both correct and most generally informative? A) Without government intervention the market is failing. B) This is an example where a binding quota, achieved by requiring but limiting the number of permits, can increase efficiency (achieves the efficient number of woodburning devices) rather than causing inefficiency. C) The city government can correct the inefficiency by requiring a permit/medallion for each wood-burning device. D) When equilibrium is achieved in the market for permits those with the highest WTP for permits will not necessarily hold all of the permits.

B) This is an example where a binding quota, achieved by requiring but limiting the number of permits, can increase efficiency (achieves the efficient number of woodburning devices) rather than causing inefficiency.

I have $20 in my pocket and it will still be there in the morning if I do not spend it tonight. My first choice is to go out tonight and spend the $20 on drinks. I know if I go out drinking I will not get in a fist fight with my roommate. I know I will fight him if I stay home. My second choice is to stay home, spend the $20 on pizza and some music downloads, and fight my roommate. Note that I do not like getting in fights with my roommate. Given all this, the opportunity cost of my going out, measured in dollars, is less than $20 A) False B) True

B) True It is $20 plus the fight, which is a negative.

(Here, price is on the y-axis and quantity is on the x-axis). An announcement that smoking reduces sex drive will most likely result in: A) an increase in the quantity of cigarettes demanded. B) a leftward shift in the demand curve for cigarettes. C) no change in smoking habits. D) an increase in the price of cigarettes.

B) a leftward shift in the demand curve for cigarettes.

An ambiguous change in price and a decrease in quantity are most likely caused by: A) no shift in supply and a shift to the left in demand. B) a shift to the left in supply and a shift to the left in demand. C) a shift to the right in supply and a shift to the left in demand. D) a shift to the left in supply and a shift to the right in demand.

B) a shift to the left in supply and a shift to the left in demand.

Consider two competing motorcycle manufacturers, HarleyDavidson and Honda. If Harley-Davidson raises the price of its motorcycles, we can expect: (assume $ on the vertical axis, quantity on the horizontal axis) A) a shift to the left in the supply curve of Hondas and higher prices for Hondas. B) a shift to the right in the demand curve for Hondas and higher prices for Hondas. C) a shift to the left in the demand curve for Hondas and lower prices for Hondas. D) a shift to the right in the supply curve of Hondas and lower prices for Hondas.

B) a shift to the right in the demand curve for Hondas and higher prices for Hondas.

Because Casey can type reports faster and more accurately than Ahmet, Casey has a(n) ________ in typing reports. A) comparative advantage B) absolute advantage C) opportunity cost D) specialization

B) absolute advantage

The market demand for sleigh rides is P=50-5Q. The market supply for sleigh rides is P=5Q+5. (I expressed it P as a function Q so price would be on the vertical axis.) Assume the market for sleigh rides acts in a perfectly competitive manner. The consumer's surplus is _____. A) approximately $100 B) approximately $50 C) Not enough information to determine. D) approximately $25

B) approximately $50 Only about 20% got this right. To figure out CS you first need to figure out the equilibrium price and quantity. Solve for Q by setting 5Q+5=50-5Q to get equilibrium Q=4.5. If equilibrium Q is 4.5 then plugging this into either the demand or supply function in terms of P, equilibrium P is 27.5 So what is the area under P =50-5Q above 27.5. It is 22.5 multiplied by 4.5, all divided by 2, which is approximately 50

Economists may disagree about policies because they: A) only consider issues in positive economics. B) assume different things in their models. C) enjoy disagreeing with each other.

B) assume different things in their models.

In many parts of the United States when Wal-Mart opens a new store, some smaller retailers go out of business. One of the reasons for this development could be that: A) consumers in those areas receive no consumer surplus from Wal-Mart. B) consumers in those areas receive a larger consumer surplus from shopping at Wal-Mart than from the smaller stores. C) smaller stores increase prices to compete. D) Wal-Mart practices unfair pricing methods that reduce consumer surplus over time.

B) consumers in those areas receive a larger consumer surplus from shopping at Wal-Mart than from the smaller stores.

Which of the following is a quota? A) property taxes on beachfront property in Florida B) limits on the number of bushels of clams that can be caught in New Jersey C) the maximum reimbursement that insurance will pay for a medical procedure D) rent controls in New York City

B) limits on the number of bushels of clams that can be caught in New Jersey

Both Fred and George can buy as many Cuban cigars as they want at $5 a cigar. George buys 8/day, Fred, 3/day. George's consumer's surplus from cigar consumption A) is smaller than Fred's consumer's surplus from cigar consumption. B) might be smaller than Fred's consumer's surplus from cigar consumption. C) equals Fred's because they both pay $5/cigar. D) is larger than Fred's consumer's surplus from cigar consumption

B) might be smaller than Fred's consumer's surplus from cigar consumption. For example, Fred's wtp for the first three cigars might be $12, $11¸and $5 (for a total of CS of $13) and George's might be $7, $7, $6, $5.50, $5.25, $5.20, $5.15 and $5 (for a total of $6.10)

The opportunity cost of leaving the skating championship before it ends is ___, while the opportunity cost of staying for the entire competition is ___. A) missing the rest of the competition - zero (the ticket is already paid for) B) missing the rest of the competition - getting stuck in the post-championship traffic jam C) zero (you don't have to pay to leave) - zero (the ticket is already paid for) D) none of the above

B) missing the rest of the competition - getting stuck in the post-championship traffic jam

Equilibrium exists when: A) scarcity is eliminated. B) no economic agent has an incentive to change their behavior. C) output is distributed equitably. D) some economic agents would be better off taking different actions.

B) no economic agent has an incentive to change their behavior.

Consider Michael's demand curve (entry fee on the vertical axis) for sun-bathing trips to the beach at the Boulder Reservoir. The City of Boulder (they own the Boulder Reservoir) raises the entry fee from $5 to $7. This will A) cause Michael's demand curve for sun-bathing trips to the "Res" to shift to the left B) not shift Michael's demand curve for sun-bathing trips to the "Res." C) cause Michael's demand curve for sun-bathing trips to the "Res" to shift to the right

B) not shift Michael's demand curve for sun-bathing trips to the "Res." Michael's demand function is unaffected by the City of Boulder price increase. His quantity consumed will go down simply because price has increases (a movement along his demand curve.). It concerns me that a lot of people got this one wrong. You need to be able to distinguish between shifts in a curve and movements along a curve.

Rent controls set a price ceiling below the equilibrium price, therefore: A) quantity supplied exceeds the quantity demanded. B) quantity demanded exceeds the quantity supplied. C) a surplus of rental units will result. D) poor people will obviously be helped.

B) quantity demanded exceeds the quantity supplied.

If the supply and demand curves intersect at a price of $47, then any price above that would result in a(n): A) shortage. B) surplus. C) equilibrium. D) increase in demand.

B) surplus

If the supply and demand curves intersect at a price of $47, then any price above that would result in a(n): A) shortage. B) surplus. C) equilibrium. D) increase in demand

B) surplus.

Frances has a linear production possibility frontier when she produces tomatoes and green beans. If she uses all of her resources, she can produce 400 bushels of tomatoes or 800 bushels of green beans. Which of the following combinations is not efficient for Frances? A) 400 bushels of tomatoes and zero bushels of green beans B) 200 bushels of tomatoes and 400 bushels of green beans C) 200 bushels of tomatoes and 800 bushels of green beans D) 800 bushels of green beans and zero bushels of tomatoes

C) 200 bushels of tomatoes and 800 bushels of green beans

Which of the following statements is correct? A) None of other statements is correct. B) Economists always prefer more efficient to less efficient. C) A change that makes some members better off and no members worse off is efficiency increasing. D) If a change is efficiency increasing, before the change occurs, things are efficient.

C) A change that makes some members better off and no members worse off is efficiency increasing.

Assume that Brazil gives up 3 automobiles for each ton of coffee it produces, while Peru gives up 7 automobiles for each ton of coffee it produces. A) Brazil has a comparative advantage in automobile production and should specialize in coffee. B) Brazil has a comparative advantage in coffee production and should specialize in the production of automobiles. C) Brazil has a comparative advantage in coffee production and should specialize in coffee production. D) Brazil has a comparative advantage in automobile production and should specialize in automobile production.

C) Brazil has a comparative advantage in coffee production and should specialize in coffee production.

Consider the demand and supply curves for low-skilled workers with the wage rate on the vertical axis. Now assume, as in most developed countries (including the U.S.) that the government has imposed a binding "minimum wage." Choose the statement about the effect of the minimum wage that is both correct and most informative. A) All of the low-skilled will be better off. B) All of the low-skilled will be better off, but an inefficient amount of the low-skilled will work. C) From an efficiency perspective, too few of the low skilled will work. D) From an efficiency perspective, too few of the low-skilled will work, and there will be firms who want to hire the low skilled at the minimum wage but cannot.

C) From an efficiency perspective, too few of the low skilled will work.

C) From an efficiency perspective, too few of the low skilled will work. For the minimum wage to bind it must be higher than the equilibrium wage, so at a level where supply (number who want to work) is greater than the number the employers want to hire at that wage. That is, there will be an excess supply of low-skilled. Not all of the low-skilled will be better off: some of them will lose their jobs. The number of low-skilled working will be less than it was in the absence of a minimum wage. From an efficiency perspective, too few low-skilled are working. D) is incorrect because there are no firms who want to hire low-skilled at the minimum wage but cannot (the firms are hiring as many as they want to hire at the minimum wage.

Consider the demand and supply curves for low-skilled workers with the wage rate on the vertical axis. Now assume, as in most developed countries (including the U.S.) that the government has imposed a binding "minimum wage." Choose the statement about the effect of the minimum wage that is both correct and most informative. A) From an efficiency perspective, too few of the low skilled will work. B) All of the low skilled will be better off. C) From an efficiency perspective, too few of the low-skilled will work, and the firms will be hiring all of the low-skilled workers they want at the minimum wage. D) All of the low skilled will be better off, but an inefficient amount of the low-skilled will work

C) From an efficiency perspective, too few of the low-skilled will work, and the firms will be hiring all of the low-skilled workers they want at the minimum wage. Firms are demanding low-skilled workers and people with low skills are the suppliers. If the minimum wage binds (demand is less than supply at the minimum wage) the firms will be hiring all of the low-skilled labor they want to hire at the minimum wage. But the amount of low-skilled workers working will be inefficient (too low) from society's perspective.

It costs residents of Boulder a lot more to ski Aspen for a day than it costs residents of Aspen. Which statement is both correct and most informative? A) Since they pay more per day to ski Aspen, Boulder residents who ski Aspen must value skiing Aspen more highly than do residents of Aspen. B) Residents of Boulder necessarily get less consumer's surplus from their Aspen ski days than Aspen residents get from their Aspen ski days. C) If a resident of Boulder and a resident of Aspen both have the same downward sloping demand function for Aspen ski days ($ on the vertical axis), the Aspen resident will get more consumer's surplus from his Aspen ski days than does the Boulder resident. D) Given the information provided little can be concluded about how much consumer's surplus an Aspen resident gets from her Aspen ski days compared to how much a Boulder resident gets from her Aspen ski days.

C) If a resident of Boulder and a resident of Aspen both have the same downward sloping demand function for Aspen ski days ($ on the vertical axis), the Aspen resident will get more consumer's surplus from his Aspen ski days than does the Boulder resident. Without knowing their specific demand functions for Vail ski days, we do not do not know whether Aspen or Boulder residents value ski days more highly. In fact it will vary with the specific Aspen resident and the specific Boulder resident. So, D is a correct statement. That said, C is also correct, but more informative.

Joe was given a free ski-pass to Vail Mountain. If Joe lived in Vail he would have skied Vail 25 times during the season. However, since Joe lives in Boulder (approximately 100 miles away) he only skied Vail 10 times. This illustrates a situation where _____. A) There is not sufficient information to choose between the other three answers. B) Joe's demand curve for Vail ski days as a function of their cost (cost on the vertical axis) is either flat or upward sloping C) Joe's demand curve for Vail ski days as a function of their cost (cost on the vertical axis) is downward sloping D) The supply of skiing is downward sloping

C) Joe's demand curve for Vail ski days as a function of their cost (cost on the vertical axis) is downward sloping

Joe was given a free ski-pass to Vail Mountain. If Joe lived in Vail he would have gone skiing 25 times during the season. However, since Joe lives in Boulder(approximately 100 miles away) he only went skiing 10 times. This illustrates a situation where _____. A) The supply of skiing is downward sloping B) Joe's demand for ski days as a function of distance is upward sloping C) Joe's demand for ski days as a function of distance is downward sloping D) None of the above

C) Joe's demand for ski days as a function of distance is downward sloping

Katherine has an Economics 2010 exam tomorrow and her plan (choice) was to study as much as possible. However, Elvis P. is playing a free concert this evening and she has been invited (he has come back from the dead). Katherine decides to go to the concert. Which of the following statements must be correct? A) Katherine's opportunity cost is the time she spends at the concert. B) Katherine's incurs no opportunity cost because the concert is free. C) Katherine's opportunity cost is her lost study time. D) Katherine's opportunity cost is the time she spends at the concert and the time she spends traveling to and from the concert.

C) Katherine's opportunity cost is her lost study time.

Rapidly increasing health costs have been a major political concern since at least 1992. Suppose the government sets the maximum price for a normal doctor visit at $20 to control rising health costs but the current market price is $40. What will happen? A) The same number of people will try to visit the doctor, and the same number of doctors are willing to see patients at that price. B) Fewer people will try to see the doctor, and fewer doctors are willing to see patients at that price. C) More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price. D) More people will be able to see the doctor, since the price is lower.

C) More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.

The market for dark chocolate bars has an equilibrium at point E. Dark chocolate is a normal good with an upward-sloping supply curve and a downward-sloping demand curve ($ on the vertical axis). Suppose that researchers determine and publish the result that the consumption of dark chocolate bars decreases one's change of getting prostate cancer, if one is a male. These finding appear in the New York Times. The following changes will occur in the market for dark chocolate bars A) The supply curve will shift out and the new equilibrium will have more chocolate bars at a lower price. B) The supply curve will shift in and the new equilibrium will have fewer chocolate bars at a higher price. C) The demand curve will shift out and the new equilibrium will have more chocolate bars at a higher price. D) The demand curve will shift in and the new equilibrium will have fewer chocolate bars at a lower price.

C) The demand curve will shift out and the new equilibrium will have more chocolate bars at a higher price.

For low-skilled workers in the country of South Africa, supply for low-skilled workers is greater than demand. This could be caused by. A) More workers wanting to work at the equilibrium wage than the number of workers the firms want to hire at the minimum wage. B) The law that says only those with a high-school education can work. C) The minimum wage set above the equilibrium wage. D) Low-skilled workers being poor, so wanting to work more at the equilibrium wage.

C) The minimum wage set above the equilibrium wage. We discussed a NYTimes article about this in class. Note that D) says the workers want to work more at the equilibrium wage, but, by definition of equilibrium, this cannot be true at the equilibrium wage because at the equilibrium wage everyone is working as much as they want at that wage.

Which of the following events would cause a movement upward and to the left along the demand curve for mangos? A) The price of peaches decreases, and peaches are a substitute for mangos. B) The number of buyers of mangos decreases. C) The price of mangos rises. D) Consumer income decreases, and mangos are a normal good.

C) The price of mangos rises.

Which of the following is the best definition of an economic system? A) The family is an example of an economic system. B) Supply and demand C) The process (or processes) a society uses to determine what will be produced and how it will be distributed D) A set of markets that determine what will be produced and how it will be distributed

C) The process (or processes) a society uses to determine what will be produced and how it will be distributed

When the San Francisco city manager faces a complaint that the city council chamber podium is not accessible to individuals with disabilities, he responds that the $1 million improvement will not happen because "that money could be spent building 70 curb ramps for wheel chairs." This statement best represents this economic concept: A) "How much" is a decision at the margin. B) When markets don't achieve efficiency, government intervention can improve society's welfare. C) The real cost of something is what you must give up to get it. D) Resources are scarce.

C) The real cost of something is what you must give up to get it.

A new government study conclusively proves that smoking cigarettes significantly increases sex drive. Which of the following is the most likely result. A) The demand curve for cigarettes shifts left B) The demand curve for cigarettes is unchanged C) The supply curve for cigarettes is unchanged D) None of the above

C) The supply curve for cigarettes is unchanged There is no reason to think that the study results will affect the cost of producing cigarettes, so there is no reason to think it will affect supply. It is likely to shift the demand curve, but more likely to the right than to the left.

Society consists of all the bears and Joe (a human); no others are part of society, including the cows. Joe loves to hunt; bears are his favorite prey, followed by cows. Hunting either bears or cows would make Joe better off. No one wants to be hunted, but no one cares if other individuals are hunted. Bears and cows have no interest in hunting. Hunting is currently prohibited. Allowing Joe to hunt cows, but not bears, will be efficiency increasing even though the cows hate the idea. A) No B) Maybe C) Yes

C) Yes

A shift to the left of a supply curve (price on the vertical axis) could be caused by: A) an increase in the number of sellers. B) a technological improvement. C) an increase in the cost of an input. D) an increase in the number of buyers.

C) an increase in the cost of an input A shift to the left of the supply curve means that at every price less will be supplied to the market. A) and B) would cause an increase in supply, not a decrease D) will affect the demand curve but not the supply curve.

An economy is said to have a comparative advantage in the production of a good if it can produce that good: A) outside its production possibilities curve. B) with more resources than another economy. C) at a lower opportunity cost than another economy. D) with a higher opportunity cost than another economy

C) at a lower opportunity cost than another economy.

An economy is said to have a comparative advantage in the production of a good if it can produce that good: A) with a higher opportunity cost than another economy. B) outside its production possibilities curve. C) at a lower opportunity cost than another economy. D) with more resources than another economy.

C) at a lower opportunity cost than another economy.

If the price of gasoline falls and stays low for an extended period, we expect people to: A) use more public transportation. B) ride bicycles. C) buy larger and less fuel-efficient cars. D) reduce their reliance on gasoline-powered cars.

C) buy larger and less fuel-efficient cars.

Suppose the government sets a price floor of $2.85 per bushel on corn when the current price is $2.55. This price floor will: A) cause a shortage of corn. B) have no effect on the price or quantity of corn. C) cause a surplus of corn.

C) cause a surplus of corn.

A severe drought in California destroys many red grapes. As a result of the drought, consumer's surplus from the consumption of grape products likely _________. A) decreases because the profits of grape producers decline B) is unaffected but producer surplus declines C) decreases because the price of grapes goes up D) increases because more expensive wine tastes better

C) decreases because the price of grapes goes up

Assume one model uses inflation to explain unemployment, and another model uses unemployment to explain inflation. In the first model, inflation is an ___ variable and in the second model it is an ____ variable. A) endogenous, endogenous B) exogenous, exogenous C) exogenous, endogenous D) endogenous, exogenous

C) exogenous, endogenous In the first model inflation is an exogenous variable, but in the second model inflation is an endogenous variable (the variable we want to explain)

The market price for donuts is $7. The government sets a price floor of $10. This will cause the producer surplus to ______, consumer surplus to______, and total surplus to _____. A) fall, fall, fall B) rise, fall, rise C) indeterminate, fall, fall D) rise, fall, fall

C) indeterminate, fall, fall Most people answered B or D It is easy to see that consumer's surplus will fall (fewer donuts are bought at $10 and the surplus on each is $3 less than it was when the price was $7). But what happens to producer surplus? The producers make more donuts than they did at $7, but sell fewer of them. For the ones they sell the surplus per donut is $3 greater. What about the cost of producing the ones they don't sell?

Market failure may occur because: A) of regulated self-interest. B) all goods are suited for efficient management by markets. C) individual actions have side effects that are not properly taken into account by the market. D) one party to a trade benefits more than another.

C) individual actions have side effects that are not properly taken into account by the market.

A price ceiling will have NO effect if: A) it creates a shortage. B) it is set below the equilibrium price. C) it is set above the equilibrium price. D) the equilibrium price is above the price ceiling.

C) it is set above the equilibrium price.

A binding price ceiling is designed to: A) increase the quality of the good. B) keep the price high. C) keep the price low. D) prevent shortages.

C) keep the price low.

You are planning to study eight hours this week for your economics final and are considering studying a ninth hour. You should: A) compare the benefits of one more hour of study with the cost of one less hour of studying calculus. B) compare the benefits of one more hour of study with the cost of one less hour of work at your part-time job. C) make your decision based on the cost of the next best alternative use of your time compared to the benefit of one more hour of study. D) compare the benefits of one more hour of study with the cost of one less hour of sleep.

C) make your decision based on the cost of the next best alternative use of your time compared to the benefit of one more hour of study.

The existence of government intervention often suggests: A) individual actions have no side effects. B) markets can efficiently manage the allocation of goods. C) markets may not be able to provide for efficient results all the time. D) equilibrium will be achieved through this intervention.

C) markets may not be able to provide for efficient results all the time.

Consider Wilbur's demand curve (entry fee on the vertical axis) for sun-bathing trips to the beach at the Boulder Reservoir, the "Res. The City of Boulder (they own the Res) raises the entry fee from $5 to $7. This will A) cause Wilbur's demand curve for sun-bathing trips to the "Res" to shift to the right B) cause Wilbur's demand curve for sun-bathing trips to the "Res" to shift to the left C) not shift Wilbur's demand curve for sun-bathing trips to the "Res."

C) not shift Wilbur's demand curve for sun-bathing trips to the "Res."

Kimberly likes to gamble and party. And, lucky her, she has won an all-expense-paid trip to Vegas over Spring break. She loves Vegas but decides instead to spend $5000 of her own money to go to Africa to dig latrines in a small remote village. The free trip to Vegas would have been her second choice. What do we know about the opportunity cost of Kimberly going to Africa? What do we know about the consumer's surplus she will get from the Africa trip? (Choose the alternative that is correct and most informative.) A) opportunity cost is $5000; consumer's surplus from the Africa trip is at least $5000 B) opportunity cost is the trip to Vegas; consumer's surplus from the Africa trip is at least $5000. C) opportunity cost is the trip to Vegas, plus the $5000; consumer's surplus from the Africa trip is zero or positive. D) None of the other three options is correct.

C) opportunity cost is the trip to Vegas, plus the $5000; consumer's surplus from the Africa trip is zero or positive. If she had not taken the trip to Africa, she would have $5K more to spend on other stuff, so what she would have bought, instead, with the $5K is part of the opportunity. So is experiencing the Vegas trip: she does not get the experience. We don't know much about the consumer's surplus from the Africa trip. We know that she would not have gone to Africa if it made her worse off, so we know her CS from the African trip is not negative. We do not know it is $5K - don't confuse cost with CS.

Which of the following influences does not shift the supply curve (price on the vertical axis, quantity on the horizontal axis)? A) the development of a new production technology B) a rise in the wages paid to workers C) people deciding that they want to buy more of the product D) a decrease in the price firms expect to receive in the future

C) people deciding that they want to buy more of the product

When the government removes a binding price floor: A) excess demand will develop. B) excess supply will develop. C) quantity demanded will increase and quantity supplied will decrease. D) quantity demanded will decrease and quantity supplied will increase.

C) quantity demanded will increase and quantity supplied will decrease.

My demand curve for cigars, per day, is C=9-3P, where P is the price of a cigar and C is the number of cigars I buy and smoke. Assume the current price is $3/cigar. My consumer surplus from having cigars for sale at $3/cigar is A) not enough information to answer the question B) $13.50 C) $2 D) $0

D) $0 I don't buy and consume any cigars, so get no CS from cigars. If C =9-3P, then MWTP= 3-(1/3)C, so my wtp for the first cigar is less than the price. There is no areas under the inverse demand function. Draw the curve and check it out.

If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no cabbages and 100 pounds of potatoes and if he faces a linear production possibility frontier, the opportunity cost of producing an additional pound of cabbage is _____ pound(s) of potatoes. A) 100 B) 200 C) 2 D) 0.5

D) 0.5

Cindy and John both work at McDonalds. In a period of 1 hour, Cindy can make 30 hamburgers or 40 fries. In the same amount of time John can make 25 hamburgers or 30 fries. Given this information, if the person with the comparative advantage in fries were to specialize and make only fries, how many fries will that person make in 2 hour and 15 minutes? A) 100 B) 80 C) 110 D) 90

D) 90

On game days, homeowners near Middletown University's stadium used to rent parking spaces in their driveways to fans at a going rate of $11. Assume a new town ordinance now sets a maximum parking fee of $7. Some fans who used to carpool to the game now drive alone. This effect of the price ceiling does not correspond to which of the following? A) A lower price for parking spaces B) A movement along the demand curve C) An increase in quantity of parking spaces demanded D) A shift in the demand curve

D) A shift in the demand curve

Assume that Brazil gives up 3 automobiles for each ton of coffee it produces, while Peru gives up 7 automobiles for each ton of coffee it produces. A) Brazil has a comparative advantage in automobile production and specialize in the production of automobiles. B) Brazil has a comparative advantage in automobile production and should specialize in coffee production C) Brazil has a comparative advantage in coffee production and should specialize in the production of automobiles D) Brazil has a comparative advantage in coffee production and should specialize in the production of coffee

D) Brazil has a comparative advantage in coffee production and should specialize in the production of coffee

In Spumoni Colorado, Darcy and Bianca work at the one ice-cream parlor-ACL injuries ended their football careers. They both can make ice cream sundaes or ice-cream cones. Working one hour, Bianca can make 20 sundaes, and working one hour Darcy can make 30 sundaes. Alternatively, in one hour Bianca can make 25 cones whereas Darcy can make 30 cones. A) Bianca has a comparative advantage in making cones and an absolute advantage in making sundaes. B) Darcy has both a comparative and absolute advantage in making cones. C) Bianca has a comparative advantage in making sundaes. D) Darcy has an absolute advantage in making cones and a comparative advantage in making sundaes.

D) Darcy has an absolute advantage in making cones and a comparative advantage in making sundaes.

Suppose Alice consumes only wine and cheese. Alice's income increases, the price of wine decreases, and the price of cheese increases. Consider Alice's budget line with wine on the vertical axis and cheese on the horizontal axis. What will happen to the slope of Alice's budget line? A) It becomes flatter. B) It necessarily remains the same. C) There is not enough information to tell. D) It becomes steeper.

D) It becomes steeper.

Society is made up of only Jane and wolves. Jane likes to run with the wolves and deer, but they don't like to run with her. Note that the deer are not members of society. Currently, Jane is not allowed to run with the deer or the wolves. What of the following changes would necessarily increase efficiency? (Choose the answer that is both correct and most informative.) A) Jane is allowed to run with the wolves. B) Jane is allowed to run with both the deer and the wolves. C) The situation is already efficient. D) Jane is allowed to run with the deer.

D) Jane is allowed to run with the deer.

Katherine has an Econ. 2010 exam tomorrow. However, Elvis P. is playing a free concert this evening and she has been invited (he has come back from the dead). Katherine decides to go to the concert instead of studying for her exam. Which is a correct statement? A) Katherine's opportunity cost is her lost study time, which is the time she spends traveling to and from the concert. B) Katherine's opportunity cost is her lost study time, which is the time she spends at the concert. C) Katherine's incurs no opportunity cost because the concert is free. D) Katherine's opportunity cost is her lost study time, which is the time she spends at the concert and traveling to and from the concert.

D) Katherine's opportunity cost is her lost study time, which is the time she spends at the concert and traveling to and from the concert.

Ralph takes 8 hours to build a shelter and 3 hours to hunt a pig. Jack takes 5 hours to build a shelter and 2 hours to hunt a pig. A) Jack has a comparative advantage in hunting pigs. B) Ralph has an absolute advantage in building shelters C) Ralph has an absolute advantage in hunting pigs. D) Ralph has a comparative advantage in hunting pigs

D) Ralph has a comparative advantage in hunting pigs

Consider the shops in Boulder that sell (supply) marijuana. Picture a graph of the supply of marijuana to the city of Boulder with wage rate on the vertical axis and quantity on the horizontal axis. The Boulder City Council passes a law that increases the wage rate. (Which of the following answers is both correct and most informative?) A) The graph of this supply curve will shift to the left. B) None of the other answers are correct. C) The graph of this supply curve will shift to the right. D) The amount supplied is represented on this graph by a movement along it.

D) The amount supplied is represented on this graph by a movement along it.

Assume that how often an individual goes fishing in a year depends on their income, the cost of a fishing trip, and their gender. Consider a demand graph (a bar graph) with number of trips on the vertical axis and gender on the horizontal axis (gender takes only one of two values: 0 for male and 1 for female). This graph shows demand for fishing trips as a function of gender. Which of the following statement is both correct and most informative? A) The bar graph shows how many trips the average female (and male) will take independent of their incomes and the trip costs they face. B) The height of the two bars will change if a different income level is assumed. C) The height of the two bars will change if a different trip cost is assumed. D) The bar graph is drawn for a specific income and a specific trip cost.

D) The bar graph is drawn for a specific income and a specific trip cost. Go back to my notes on graphing demand functions. If demand is a function of gender, income, and cost, and one graphs it as a function of gender, the graph is assuming specific values for of income and cost. So A is incorrect. B, C and D are all correct statements but D is the most inclusive. Consider the following example: T=10-3F-.2P+.01Y where F is 1 if you are a female (zero otherwise), P is the cost of a trip and Y is income. How many trips you take does not just demand on gender, so if you want to graph trips taken by gender you have to assume specific values for Y and P, If we graphed trips as a function of cost, we would have assume a specific income and a specific gender.

The domestic car industry supports a government increase in the "import" tax on imported (foreign) cars. What is the likely effect of such a tax increase? A) The supply curve for domestic cars shifts to the left. B) The demand curve for domestic cars shifts to the left. C) The supply curve for domestic cars shifts to the right. D) The demand curve for domestic cars shifts to the right. Because the price of a substitute, a foreign car, has increased.

D) The demand curve for domestic cars shifts to the right. Because the price of a substitute, a foreign car, has increased.

D) The demand curve for domestic cars shifts to the right. Because the price of a substitute, a foreign car, has increased

Consider the famous line from an advertisement for Camel cigarettes, "I would walk a mile for a Camel." Change the line to "I would not walk a mile for a Camel." Choose the alternative that is both correct and most informative. A) The altered line tells us nothing about the guy's willingness-to-pay for a cigarette. B) The guy's willingness-to-accept a cigarette is more than the time and effort of walking a mile. C) The guy's willingness-to-pay for a cigarette is at least the time and effort of walking a mile. D) The guy's willingness-to-pay for a cigarette is less than the time and effort of walking a mile.

D) The guy's willingness-to-pay for a cigarette is less than the time and effort of walking a mile.

According to the article "Fuel Taxes and Consumption", which will not happen if the Federal tax on gasoline is increased: A) The demand curve for fuel-efficient cars will shift to the right B) In total, people will drive less. C) Gas prices will go up. D) The supply curve for gas will shift to the right. E) Quantity demanded of gas will decrease.

D) The supply curve for gas will shift to the right. This is a tricky question because I did not think about the fact that an increase in the Federal Tax on gasoline will shift the supply curve for gas. Why this happens is beyond the scope of this course, but, to put is simply, the tax drives a wedge between the price paid by the consumer and the price received by the supplier, so when the tax increases, the supply curve, denoted in terms of the price the consumer pays, shifts. D) is the correct answer for two reasons: a shifting supply curve was not mentioned in the article, and, if dollars are on the vertical axis, the supply curve will shift left not right (at every pump price, the supply will supply less because they get less of the pump price).

I am a firm that needs to dump my toxic waste in a stream, only one stream. The toxic waste will kill the fish in that stream. I know that after I do it, I will be sued by the Federal Government and forced to pay damages in the sum of total lost consumer's surplus to everyone who fished at the site before I dumped. Ignoring the varying cost of transporting the toxic waste to different streams, which of the following stream options would be my best choice if my intent is to maximize the damages I pay? A) a polluted stream with few fish located near a good number of pristine trout streams with lots of fish B) a pristine stream with lots of fish and a lot of good substitutes because many anglers will get almost as much utility by fishing at one of those close substitutes. C) a polluted stream with few fish, located near a good number equally polluted stream with few fish D) a pristine stream with lots of fish but few good substitutes.

D) a pristine stream with lots of fish but few good substitutes.

Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If Harley-Davidson raises the price that it charges for its motorcycles, we can expect: A) a shift to the left in the supply curve of Hondas and higher prices for Hondas. B) a shift to the left in the demand curve for Hondas and lower prices for Hondas. C) a shift to the right in the supply curve of Hondas and lower prices for Hondas. D) a shift to the right in the demand curve for Hondas and higher prices for Hondas.

D) a shift to the right in the demand curve for Hondas and higher prices for Hondas. Since HD are a substitute for Honda, if the price of HD increase the demand curve for Hondas will shift to the right and the equilibrium price of Hondas will increase.

If New York City eliminates its medallion system for taxicabs, assuming that the supply curve of taxicab rides is upward-sloping and the demand curve for taxicab rides is downward-sloping, the price of a taxicab ride would: A) increase, but only slightly. B) increase because of the higher safety hazards. C) not change from its current level. D) decrease.

D) decrease.

Price ceilings which lead to shortages will impose costs on society because they: A) will lead to long waiting lines. B) may result in black-market prices, which are higher than the market determined price would be. C) lead to a smaller quantity offered on the market. D) do all of the above.

D) do all of the above. Discuss price ceilings on milk in China. There is a price ceiling on milk in China. Cost of raw materials have increased substantially, squeezing the producers. The producers need to demonstrate that the milk has a certian protein content. One way to decrease the cost of producing milk is to add water but then add a chemical that tricks the protein test, making it appear that the milk has more protein than it actually has. Economic theory of price ceiling would suggest a price ceiling will cause a quality decrease. Chinese milk is a good example.

The market for gasoline is in equilibrium. You have heard that the price of crude oil is falling because of new oil discoveries. You are also aware that the number of car and truck drivers is steadily rising. Knowing this, you predict that the price of gasoline will ________ and the quantity of gasoline bought and sold will ________. A) rise if the demand decrease is larger than the supply decrease; fall B) rise; rise C) rise; rise if the demand increase is larger than the supply increase D) fall if the supply increase is larger than the demand increase; rise

D) fall if the supply increase is larger than the demand increase; rise

Consider in a typical summer the aggregate demand curve and supply curve for ice-cream cones. (Dollars on the vertical axis and cones on the horizontal axis.) But this is not a typical summer: it is cold, and Obama has increased the minimum wage, causing the wage rate in all ice-cream cone retailers to increase. Compared to previous warm summers, in this summer, the number of cones purchased and consumed will be_____. The price of cones _____ A) fewer; will be lower B) higher; could increase, decrease or stay the same. C) fewer; will be higher D) fewer; could increase, decrease or stay the same.

D) fewer; could increase, decrease or stay the same. Everyone agrees that there will be fewer cones consumed (demand is lower at every price and supply is lower at every price-both curves should to the left) So the question is what happens to the price? The increases cost of production will push the price up The decreased demand at every price will push the price down. So, we don't know what will happen to the price of cones.

Economists believe that resources should be used as efficiently as possible to: A) reduce inequity. B) maximize profits. C) eliminate scarcity. D) help achieve society's goals.

D) help achieve society's goals. Efficiency and equity are different things. Scarcity just is; it is not something that can be eliminated. The goal is not to maximize profits.

Given that the supply curve is upward sloping, a shift of a demand curve to the right ($ on the vertical axis), all other things unchanged, will: A) decrease equilibrium quantity and increase equilibrium price. B) increase equilibrium quantity and decrease equilibrium price. C) decrease equilibrium price and quantity. D) increase equilibrium price and quantity.

D) increase equilibrium price and quantity.

The phrase "gains from trade" refers to the: A) gains that one obtains by taking advantage of a temporary discount or "sale" price. B) gains that one obtains by taking advantage of an uninformed buyer and selling at a higher than average price. C) profits obtained from sales of a good or service. D) increase in total output that is realized when individuals specialize in particular tasks and trade with each other.

D) increase in total output that is realized when individuals specialize in particular tasks and trade with each other.

The existence of government intervention in markets suggests: A) individual actions have no side effects. B) equilibrium will be achieved through this intervention. C) markets can efficiently manage the allocation of goods. D) markets may not always achieve efficiency.

D) markets may not always achieve efficiency. Market failure (the inability of the market system to achieve efficiency) is one of the primary reasons for government intervention. For example, public expenditures on national defense occur because the market system, left to its own devices, would produce an inefficient amount of national defense—to little.

Assume an economy is operating on its production possibility frontier, which shows the production of military and civilian goods. If the output of military goods is increased, the output of civilian goods: A) will not change. B) may increase or decrease. C) will increase, too. D) must decrease.

D) must decrease.

Suppose a car Workers' Union accepts a pay cut. This causes a _______ the supply curve for cars because the pay cut makes cars _______. A) leftward shift of; less expensive to build B) rightward shift of; more expensive to build C) leftward shift of; more expensive to build D) rightward shift of; less expensive to build

D) rightward shift of; less expensive to build

If goods A and B are substitutes, a decrease in the price of good B will: A) shift the demand curve for good B to the right. B) shift the demand curve for good B to the right and shift the demand curve for good A to the left. C) shift the demand curve for good A to the right. D) shift the demand curve for good A to the left

D) shift the demand curve for good A to the left If goods A and B are substitutes, a decrease in the price of good B will cause the demand curve for good A to shift to the left (less demand at every price). The shift occurs because the substitute is no cheaper, making A relatively more expensive at the same nominal price.

D) shift the demand curve for good A to the left. If goods A and B are substitutes, a decrease in the price of good B will cause the demand curve for good A to shift to the left (less demand at every price). The shift occurs because the substitute is no cheaper, making A relatively more expensive at the same nominal price.

Consumer surplus for an individual buyer is equal to: A) the price of the good minus the marginal cost of producing the good. B) the marginal cost of the good minus the consumer's willingness to pay for the good. C) the consumer's willingness to pay for the good minus the marginal cost of producing the good. D) the consumer's willingness to pay for the good minus the price of the good.

D) the consumer's willingness to pay for the good minus the price of the good.

If in the country of Equitania, 20% of the population receives 80% of the income, and the remaining 80% of the population receives 20% of the income, then: A) this situation cannot be economically efficient, since efficiency requires a more equal distribution of income. B) such a situation could never be either efficient or equitable. C) this situation is definitely efficient. D) this situation may be efficient.

D) this situation may be efficient.

Economic models often: A) provide similar answers. B) fail to explain any of the real-life scenarios they are supposed to help solve. C) are correct. D) vary greatly in their assumptions.

D) vary greatly in their assumptions.

You snuck up behind me and kissed me on the cheek; then you gave me a cigar. This exchange is a. Efficiency increasing b. Efficiency decreasing c. Don't know

c. Don't know It definitely makes you better off; otherwise, why would you have done it? I might or might not consider myself better off, or might not care either way. The fact that your action was done without my prior permission does not imply I am worse off because of it, or imply I am worse off because of it.

If the market price of a good decreases, consumer's surplus cannot decrease. a. True b. False c. Maybe

a. True Answer: I first wrote: "increases" rather than "cannot decrease" but decided it did not have to increase. Consider the following example where it would not decrease. Production costs are so high that at a price that would cover the production cost demand is zero. Then if the price declines but not by enough to make de

That many poor people lack medical insurance is a failure of the market (a market failure). a. True b. False

b. False Answer: Poor people do not buy many things; this is because they lack money. This is the market working, not failing. Some might view it as unfair (inequitable) but it is likely efficient. The market says it is inefficient to consume product x if your WTP to consume it is less than the cost of producing it.

The following graph plots supply and demand curves for surfboards in Hawaii. The demand curve is P = 7 - 2 Q. The supply curve is P = 3 + 2Q. What values of P and Q are the equilibrium values? a. P=1, Q=5 b. P=5, Q=1 c. P=2, Q=4 d. P=4, Q=4

b. P=5, Q=1 7-2Q = 3+2Q → 4=4Q, so Q=1. Therefore, P=7-2=5

Assuming you are a skier, if Eldora Ski area improves in quality (puts a new high-speed lift and improved snowmaking equipment), your demand curve for trips to Winter Park Ski area will likely a. Shift to the right b. Shift to the left c. Not shift d. It depends.

b. Shift to the left OR d. It depends. Answer: Winter Park ski area now has a better substitute to compete with, so at every cost you will likely take fewer trips to Winter Park. (Because you are skiing more at Eldora) - this would be a shift to the left. If you truly are wedded to WP, you demand curve for WP will not shift. So we will accept b or d. And, do a better job next time wording the question.

I have a ton of old newspapers in my office - I like them there, Sally, my wife, does not. The current situation is inefficient because? Choose the best possible answer: a. It is not right for me to clutter up our home with yellowing newspapers b. Sally's WTP for their removal is less than my WTA their removal c. Sally's WTP for their removal is more than my WTA their removal. d. Sally's WTP for their removal is more than my WTP to keep them around

c. Sally's WTP for their removal is more than my WTA their removal. Answer: Answer a. is about what is right, and wrong, not about what is efficient. Wrt b.: if Sally's WTP for their removal is less than my WTA their removal then the current situation is efficient. Wrt c.: if she is willingness to pay more than I would need to be paid to voluntarily remove them, then keeping them around is inefficient. Wrt d: it is not clear.

Bob, the bear, and Edward, the great white hunter, are the only ones left: everyone else is dead - swine flu. Edward, the hunter, likes to run around in the woods trying to shoot Bob: it increases Edward's utility. Fortunately for Bob, Edward is a bad shot, so Bob never gets shot. That said, Bob does not like to be shot at: it makes him both mad and sad. Currently Edward spends 8 hours a day running around in the woods shooting at Bob. Which of the following options is correct and might be a good description of what is going on? a. The amount of shooting is inefficient because life sucks for Bob and both Bob and Edward are members of society. b. The amount of shooting is inefficient because Edward would be better off if he spent more time shooting at Bob. c. The amount of shooting is efficient because both Bob and Edward are members of society and they are in a situation where the only way to make either better off requires that the other be made worse d. The amount of shooting is efficient because Edward is not a member of society, so it does not matter what Edward wants.

c. The amount of shooting is efficient because both Bob and Edward are members of society and they are in a situation where the only way to make either better off requires that the other be made worse Answer: c. for the following reasons: If both Bob and Edward are members, and the only way to make one better off requires the other is made worse off (more or less shooting), the current amount of shooting is efficient. Wrt a.: If both Bob and Edward are members, the allocation is efficient not inefficient. Wrt b.: whether it is efficient or inefficient Page 21 depends on who are members. If Edward is and Bob is not, then the currently amount of shooting might or might not be efficient (if Edward would like to shoot more, it is inefficient.). Wrt d: It would be correct, if in d. "Edward" was replaced by "Bob."

There is a downward sloping demand curve for widgets, but the supply of widgets is fixed (the supply does not depend on the price). The market for widgets is in equilibrium. Which of the following statements is correct and most informative? a. The supply curve is horizontal and the producer's surplus is zero, and the consumer's surplus is positive. b. Both the producer's surplus and the consumer's surplus are positive. c. The supply curve is vertical, the producer's surplus is positive, and the consumer's surplus is positive.

c. The supply curve is vertical, the producer's surplus is positive, and the consumer's surplus is positive.

Suppose that your tuition to attend college is $5,000 per year and you spend $1,000 per year on book costs, and $4,000 per year on house rent. If you were working full time instead, you could earn $20,000 per year. What is your opportunity cost of attending college for one year? a. $ 20,000 b. $ 24,000 c. $ 25,000 d. $ 26,000 e. $ 30,000

d. $ 26,000 Explanation: The opportunity cost of attending college is the cost that you must give up to get college education. First, you must count on the potential income that you would have earned if you worked instead of spending your time around college, that is, $20,000 per year. Second, you need to consider the opportunity cost as the money that you pay for college costs such as tuition and book costs, that is $6,000. However, rent is not an opportunity cost because you must pay it for a living regardless of whether you work or not. If you argue that rent would be more or less if you lived in a work town, the answer would be neither d. nor e.

Which of the following would be likely to raise your opportunity cost of attending the big football game this Sunday night? a. A friend calls you up and offers you free tickets to a concert by one of your favorite bands on Sunday night. b. Your employer offers you double your usual wage to work this Sunday night. c. Late Friday afternoon, professor Morey makes a surprise announcement that there will be a major exam on Tuesday morning. d. All of the above.

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