Microeconomics exam 2 review

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Firms estimate the demand for labor by​ ____________.

A and B only

How does a​ consumer's budget set differ from his budget​ constraint?

A budget set refers to all of the possible bundles of goods and services a consumer can​ purchase, while a budget constraint is limited to the bundles he can purchase using all of his income.

Why are there two different views on the effect of taxation on labor supply in the United​ States?

All of the above

Countries that do not have an absolute advantage in the production of a good ___ benefit from trade

Can

The mercantilist economic doctrine was widely followed from the sixteenth to the eighteenth centuries in Europe. Mercantilists advocated the use of tariffs to restrict​ trade, as they believed that countries that export more than they import will increase wealth. What could be the problem with such an economic​ policy?

Consumers pay a price that is higher than the world​ price, reducing consumer surplus.

Suppose wages in the market for plumbers increase. Some plumbers start taking on extra plumbing jobs while others cut back on the number of hours they work. What could explain​ this?

For those plumbers who choose to work​ more, the substitution effect​ (on leisure) of the wage increase is stronger than the income effect. For those who decided to work​ less, the reverse is true.

Which of the following is not likely to be subject to the tragedy of the​ commons?

National defense

Suppose an identical tax is levied on​ capital, labor, and land. Would the tax have the same effect in each of these​ markets? Explain your answer

No, an identical tax would yield similar effects but not the same​ effects, since it is rather unlikely that the relative demand and supply elasticities would be the same in each market

Examples of direct regulation include​ ____________.

Price ceilings zoning restrictions laws resticting alcohol purchases

Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its​ profit

Produce unitl thr additional revenue from one extra unit equals the additional cost of each unit

What types of goods are likely to be traded in a black​ market? ​(Check

Prostituion Drug dealing

____ occurs when expectations cause people to discriminate against a certain group

Statistical discrimination

____ occurs when people's perfences cause them to discriminate against a certain group

Taste-baste discrimination

What is the intent of a Pigouvian​ tax?

To induce producers of a negative externality to reduce production to the socially optimal level

Which of the following is a factor underlying government taxation and spending​ decisions?

To raise revenues to pay for operations

Are there​ real-world markets that resemble double oral​ auctions?

Yes, trading on the New York Stock Exchange is very similar to a double oral auction

A black market is​ ____________.

a nonlegal market for regulated goods and services.

Given the​ consumer's response to a decrease in the price of wine wine​, we can say that the solution of the​ buyer's problem​ ___________.

all of the above

In a perfectly competitive market, a seller ___ choose to raise the price of its good since all sellers in the market produce ___, so rising the price would result in ____

cannot, identical goods, losing all its customers

Externalities are called market failures because they​ ___________.

cause markets to produce suboptimal social outcomes

A linear PPC would show ___, and a PPC that is curved away from the origin would show ____

consstant opportunity costs, increasing opportunity costs

A change in consumer tastes away from corn dogs towards hot dogs This is ___ corn prices by shifting the demand curve for corn ___

decrease, leftward

A decrease in the number of demanders in the corn market: This will ___ corn prices by shifting the deamdn curve for the corn ____

decrease, leftward

A fall in the price of wheat (a substitute for corn) This will ___ corn prices by shifting the demand curve for corn ___

decrease, leftward

A weather pattern that produces a bumoer corn crop: THis will ___ corn prices by shifting the supply curve for corn ___

decrease, rightward

if the market price of the product falls, producer surplus will ___ since this change results in a lower price, which mesnd there is ___ area between the supply curve and the market price for the good

decreases, less

Direct regulation is​ ____________.

direct actions by the government to control the amount of an activity

in the domestic economy when outsourcing exists, prices --- social surplus ____, and labor market welfare ____

fall increases decreases

partial credit, Concept Question 7.3.2 Assume there are two industries in our​ economy: the production of pizza and the production of calzones. Each of these products is produced in a similar way with similar ingredients and requires similar skills. If the market price of pizza in this competitive market is below the ATC curve and the price of calzones is above the ATC​ curve, ____________.

firms currently making pizza will switch to making calzones

Which of the following is a problem that black markets pose in an​ economy?

gpverments yse resources to enforce the law

The economy as a whole benefits from outsourcing if the gain in social surplus is ____ the losses in labor welfare

greater than

When firms switch from making pizza to making calzones, the price of pizza will ___ and the price of calzones will ____

increase decrease

This will result in a shift in the ____ until profits are ____

industry supply curve Zero

All else being equal, the steeper the supply curve, the ___ the social surplus in a market

larger

All else equal, the steeper the demand curve, the larger the social surplus in a market

larger

For a consumer with a given level of income, the combinations of goods for the budget constraint will be ___ than for the budget set

lower

Public good are ___ goods, while common pool resource goods are ___ goods

non-rival rival

An individual or a firm can internalize an externality by​ ___________.

paying the cost of the externality

All firms in a perfectly competitive market are said to be​ __________.

price takers

Canada recently discovered large reserves of shale gas As a result, Canada's production possibilities curve would ___

shift outward

A production possibilities curve​ (PPC) ___________.

shows the relationship between the maximum production of one good for a given level of production of another good.

The owner of a company that manufactures automobile parts states that it will not hire employees This is an example of ____

statistical discrimination

A​ consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because​ ___________.

the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off.

Consumer surplus is​ __________.

the value or total benefits one receives from a good in excess of the price paid for it.

For an individual, consumer surplus is calculated as the difference between the ___ to pay and the price actually paid for a good

willingness

From the "equal bang for the buck" rule, we can predict that he responds by increasing his consumption of ____

wine

Suppose you had to organize a double oral auction for a good that has perfectly elastic demand. Do you expect prices to approach the competitive​ equilibrium?

​Yes, there is no reason why price in a double oral auction for a good with perfectly elastic demand would not be expected to approach the equilibrium price. Your answer is correct.

The two most important goals for government policy involve a​ trade-off between​ __________ and​ __________.

​equity; efficiency

Given the​ long-run adjustment process that takes place after a supply or demand​ shock, we know that the industry supply curve must be​ __________.

​horizontal, since the supply curve shifts until price is back to its original level and profits are back to zero.


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