Microeconomics Unit 1 Exam
Australian unions lobbying for $21 wage rise for lowest paid Australia's Fair Trade Commission (FTC) sets the minimum wage for the year. In 2008, the minimum wage was set at $544 a week. In the current negotiations, unions are lobbying for a $21 a week rise and businesses for a $8 a week rise. Suppose that in 2009 the equilibrium wage turns out to be $560 a week. If the union lobbyists persuade the FTC to raise the minimum wage by $21 a week, what is the wage paid to low-skilled workers? Is the outcome efficient? Low-skilled workers are paid _______ a week. The outcome is _______.
$565; inefficient (if the workers are paid higher than the equilibrium wage of $560 a week, it is inefficient)
When the price of a good rises from $5 to $7 a unit, the quantity supplied increases from 110 to 130 units a day. The price elasticity of supply is _______. The supply of the good is _______.
0.5; inelastic
The cross elasticity of demand for chicken dinners with respect to the price of a beef dinner is positive. In the graph, draw a demand curve for chicken dinners. Label it D1. Draw a second demand curve for chicken dinners that shows the effect of a rise in the price of a beef dinner. Label it D2. (b) What is the relationship between chicken dinners and beef dinners?
(a) Demand curve for chicken dinners shifts downwards from D1 to D2 (the lines have a negative slope. see link for figure). https://imgur.com/zMlhNw9 (b) substitutes
The chairman of Yanzhou Coal Mining, Wang Xin, reported that the demand for coal has fallen and the quantity produced decreased by 11.9 percent from a year earlier, despite the price falling by 10.6 percent. Calculate the price elasticity of supply of coal. Is the supply of coal elastic or inelastic? (a) The price elasticity of supply of coal at Yanzhou Coal Mining is ____. (b) The supply of coal is ________.
(a) Use the PES formula 11.9% / 10.6% = 1.12 (b) elastic
When Elle's Espresso Bar raised its prices by 10 percent, the quantity of coffee that Elle's sold fell by 40 percent. When Elle's and its competitors cut their prices by 10 percent, the quantity of coffee sold by Elle's increased by only 4 percent. Calculate the price elasticity of demand for Elle's coffee and the price elasticity of demand for coffee. (a) The price elasticity of demand for Elle's Espresso Bar coffee is ____. (b) The price elasticity of demand for coffee is ___.
(a) Use the price elasticity of demand formula: PED = %Δ Quantity Demanded / %Δ Price 40% / 10% = Price elasticity of 4 (b) 4% / 10% = Price elasticity of 0.4
A 8 percent increase in the price of a good increased the quantity supplied of the good by 4 percent after one month and 24 percent after one year. What is the price elasticity of supply after one year? Has the supply of this good become more elastic or less elastic? Why? (a) The price elasticity of supply of this good after one year is ___. (b) After one year, supply has become _______ elastic, which could be due to _______ factors being allocated to the production of the good.
(a) Use the price elasticity of supply formula: PES = %Δ Quantity Supplied / %Δ Price 24% / 8% = Price elasticity of supply of 3 (b) more; more
When the price of Internet service rises from $24 to $26 a month, the quantity demanded decreases from 204 million to 196 million subscribers. What is the change in the total revenue of Internet service providers? If the demand curve for Internet services is a straight line, what do we know about the price at which the demand for Internet services is unit elastic? (a) The change in the total revenue of Internet service providers is _____. (b) The concept of price elasticity of demand is useful to Internet service providers because if they know the price elasticity of demand for Internet services, they can predict how total revenue will change when they change the price of Internet service. T/F (c) If the demand curve for Internet services is a straight line, the price at which the demand for Internet services is unit elastic is _______ $25 a month.
(a) Use the total revenue formula: Price * Quantity sold for before the price change and after- to compare the two. (P0 * Q0) - (P1 * Q1) = ($24 * 204mil) - ($26 * 196) = 4896 - 5096 = -200 The Δ Total Revenue is 200 million (b) True (c) above https://imgur.com/KkGwzoV
One winter recently, the price of home heating oil increased by 20 percent and the quantity demanded decreased by 2 percent. Use the total revenue test to determine whether the demand for home heating oil is elastic or inelastic. (a) Total revenue ______ because the percentage increase in the price is ______ than the percentage decrease in the quantity demanded. (b) Because total revenue and the price change in _________, the demand for home heating oil is ______.
(a) increases; greater (b) the same direction; inelastic
One winter recently, the price of antique furniture increased by 10 percent and the quantity demanded decreased by 30 percent, and with no change in the price of refinishing products, the quantity of refinishing products demanded decreased by 8 percent. What is the cross elasticity of demand for refinishing products with respect to the price of antique furniture? Are antique furniture and refinishing products substitutes or complements? Why? The cross elasticity of demand for refinishing products with respect to the price of antique furniture is ____.
-0.8 Antique furniture and refinishing products are______ because______. complements; the cross elasticity of refinishing products with respect to the price of antique furniture is negative.
When the price of ice cream rises from $3 to $5 a scoop, the quantity of ice cream bought decreases by 10 percent. The price elasticity of demand for ice cream is _______.
0.2
The table gives some data on the supply of maple syrup in a small town. When the price rises from $8 a can to $12 a can, what is the price elasticity of supply? When the price rises from $8 a can to $12 a can, the price elasticity of supply is _______.
0.25
A 2 percent increase in income increases the quantity demanded of a good by 1 percent. The income elasticity of demand for this good is ______. The good is a ______ good.
1/2; normal
Economics in the News 1. At the time of the news article, what is Berkeley's minimum wage? At the time of the news article, Berkeley's minimum wage is _______ an hour. 2. Is a minimum wage a price ceiling or a price floor? A minimum wage is _______. 3. What effect does an effective minimum wage have on the demand for labor and the supply of labor? An effective minimum wage _______ the demand for labor and _______ the supply of labor. 4. Who would be the winners from a $19 minimum wage? Who would be the losers from a $19 minimum wage? With a $19 minimum wage, _______ are the winners and _______ are the losers. 5. Graphical Analysis. The graph shows the market for low-skilled labor in Berkeley. The minimum wage is $10 an hour. Draw a line to show the minimum wage. Label it MW0. Draw a point to show the quantity of labor employed when the minimum wage is $10 an hour. Label it 1. Draw a point to show the quantity of labor supplied. Label it 2. Then the minimum wage rises to $19 an hour. Draw a line to show the new minimum wage. Label it MW1. Draw a point to show the quantity of labor employed when the minimum wage is $19 an hour. Label it 3. Draw a point to show the quantity of labor supplied. Label it 4.
1. $10 2. a price floor 3. does not change; does not change 4. workers who receive a higher wage; workers who become unemployed and firms who must pay a higher wage https://imgur.com/uQH7ET3
Aston Martin
1. 25 2. perfectly inelastic 3. elastic; it is a luxury with many substitutes 4. positive and greater than 1 Graph: D is a downwards slope from (10, 4.5) to (40, 2.5). S is a vertical slope from (25, 2.0) to (25, 4.5). The equilibrium point is (25, 3.5)
Economics in the News April 11, 2018 Read the news article, UK 'sin taxes' are working. Here's the proof, then answer the following questions. 1. The Institute of Economic Affairs, a free market think tank, ranked the United Kingdom as the second worst country in the European Union for "nanny-state oppression". What country is ranked first? The country that is ranked first in the European Union for "nanny-state oppression" is _______. 2. Suppose the government imposes a sales tax on buyers of sugary soft drinks. Under what conditions would buyers of sugary soft drinks pay the entire tax? Buyers of sugary soft drinks pay the entire tax when _______. 3. How does a sales tax applied to sugary soft drinks influence the quantity bought and sold and the deadweight loss? Everything else remaining the same, the more _______. 4. he graph shows the U.K. market for sugary drinks when a tax of 15 pence is applied to each drink. Draw a point to show the price paid by buyers before the tax is applied. Label it 1. Draw a point to show the price paid by buyers after the tax is applied. Label it 2. Draw a point to show the price received by sellers after the tax is applied. Label it 3. Draw a shape to show the deadweight loss produced by the tax.
1. Finland 2. the demand for dugary soft drinks is perfectly inelastic or the supply of soft drinks is perfectly elastic 3. elastic the demand for sugary soft drinks, the greater the decrease in the quantity bought and sold and the greater the deadweight loss 4. draw a point at (60, 50) for 1. draw a point at (50, 55) for 2. draw a point at (50, 40) for 3. connect all three dots for the deadweight loss triangle.
Table 1 shows a nation's production possibilities of bananas and coffee. Table 2 shows the nation's marginal benefit and marginal cost schedules. What is the marginal cost of a pound of coffee when 80 pounds of coffee are grown? The marginal cost of producing coffee when 80 pounds of coffee are grown is ____ pounds of bananas.
1.33 80; 1.33 Table 1 shows that when the nation produces 80 pounds of coffee, it also produces 40 pounds of bananas. Table 2 shows that the marginal cost of producing bananas when the nation grows 40 pounds of bananas is 0.75 pounds of coffee. The marginal cost of growing coffee is the inverse of the marginal cost of growing bananas. So the marginal cost of growing coffee when the quantity of coffee produced is 80 pounds is the inverse of the marginal cost of producing bananas when 40 pounds are grown. The marginal cost of growing coffee is 1÷0.75, which is 1.33 pounds of bananas.
The graph shows the market for cranberries. If the government sets a production quota of 20 billion pounds, what is the quantity of cranberries produced, the quantity demanded, and the price of pound of cranberries? With a production quota of 20 billion pounds, the quantity of cranberries produced is ____ billion pounds and the quantity of cranberries demanded is ____ billion pounds. With a production quota of 20 billion pounds, the price of a pound of cranberries is ____ cents.
20; 20; 30 https://imgur.com/RElkz3B
The table shows the demand and supply schedules for on-campus housing. If the college puts a rent ceiling on rooms of $350 a month, what is the rent, how many rooms are rented, and is the on-campus housing market efficient? If the college puts a rent ceiling on rooms of $350 a month, the rent is $____ and the number of rooms rented is ____. The on-campus housing market is ____.
325; 1,750; efficient
What is the result when an effective production quota is applied to the sugar market? An effective production quota in the sugar market _______.
creates a deadweight loss (this is because the marginal benefit of sugar exceeds the marginal cost of production)
What is the relationship between marginal cost and price?
The cost of producing one more unit of a good or service is its marginal cost, which is the minimum price that producers must receive to induce them to offer to sell another unit of the good or service.
When the price of a taxi ride increases by 5 percent and the price of a subway ride remains unchanged, the quantity of subway rides demanded increases by 5 percent. Calculate the cross elasticity of demand for subway rides with respect to the price of taxi rides. The cross elasticity of demand for subway rides with respect to the price of taxi rides is ____.
The cross elasticity of demand equals 5 / 5 = 1.
When the price of Internet service rises from $24 to $26 a month, the quantity demanded decreases from 204 million to 196 million subscribers. What is the percentage change in the price of Internet service? What is the percentage change in the quantity of Internet services demanded? Use this information to calculate the price elasticity of demand.
The percentage change in the price of Internet service is 8 percent. The percentage change in the quantity of Internet services demanded is 4 percent. The price elasticity of demand for Internet services is 0.5.
When the price of a good increased by 2 percent, the quantity demanded of it decreased 10 percent. What is the price elasticity of demand for this good? How has the total revenue from the sale of the good changed?
The price elasticity of demand is ______. A price rise will ______ total revenue. 5.00; decrease An example of a good with such a demand is _______. orange juice
The quantity of almonds harvested in 2008-2009 is expected to increase by 22 percent, while total receipts of growers are expected to increase by 17 percent. Source: Almond Board of California Is the price of almonds expected to rise or fall? Did a change in the supply of or demand for almonds bring about this expected change in the price?
The price of almonds is expected to _____. This expected change in the price comes about by. fall; an increase in supply
What is the effect of a production quota in the corn market? A production quota in the corn market ______.
creates a deadweight loss in the market for corn
The demand curve for bus rides is a downward-sloping straight line. How does the price elasticity of demand for bus rides change as the price changes? The price elasticity of demand for bus rides _______.
decreases as the price of a bus ride falls
In 2002, the price of asparagus crashed from $45 a crate to $15 a crate. A typical asparagus farmer supplies 2,000 crates of asparagus a day at $45 a crate but at $15 a crate would plow the crop into the ground and supply nothing. What is the price elasticity of supply of asparagus? The price elasticity of supply of asparagus is ___.
Use the price of elasticity formula: %Δ Quantity supplied / %Δ Price To find the %Δ in Quantity supplied, we use the midpoint of 2000 and 0 crates. This gives us 1000. Then divide the difference of Q0 and Q1 by the midpoint, and finally multiply by 100. [(2000 - 0 crates) / 1000 crates] * 100 = 200%. We do the same for the price. [($45 - $15) / $30] * 100 = 100% 200% / 100% = 2
The price of a car rises by 10 percent. The price elasticity of demand for cars is 1.2. The price elasticity of demand for trucks is 2.5. The cross elasticity of demand for trucks with respect to the price of a car is 0.5. Given the rise in the price of a car, what percentage change in the price of a truck will leave the quantity demanded of trucks unchanged? The price of a truck will rise by ____ percent.
We take 10 and multiply it by the XED of trucks with respect to the price of a car. 10 * 0.5 = 5 Then we plug that into the PED of the trucks (2.5) 2.5 = 5 / x solve for x. x = 2 So the price of a truck will rise by 2 percent.
Price (dollars per unit) Income $2,000 Income $3,000 10 500 550 20 400 450 30 300 350 40 200 250 50 100 150 Calculate the income elasticity of demand for food when the price of food is $50 a unit.
When the price of food is $50 a unit, the income elasticity of demand for food is 1.
The elasticity of supply of roses is 1.8. What happens in the rose market when the price rises? In the market for roses, ________________.
a 10 percent increase in the price increases the quantity of roses supplied by 18 percent.
What is price elasticity of demand? Price elasticity of demand is _______.
a measure of the responsiveness of the quantity demanded of a good to a change in its price, when all other influences on buyers' plans remain the same
China is estimated to become the world's largest luxury goods market over the next decade, boosted by rising incomes and a transition from saving to spending culture. Are luxury goods normal goods or just not necessities? Explain your answer. A luxury good is _______.
a normal good because a normal good has a positive income elasticity of demand
Economics in the News October 2, 2018 Read the news article, Amazon announces $15 minimum wage, then answer the following questions. a) What is Amazon's median wage rate? Amazons median wage rate is ______. b) What is a minimum wage? Is a minimum wage a price ceiling or a price floor? A minimum wage is _______. A minimum wage is a price _______. c) Under what circumstances does a minimum wage create unemployment? A minimum wage creates unemployment when _______. d) Does society win or lose from a minimum wage? Society _______ from a minimum wage because _______. e) The graph illustrates a labor market in which the minimum wage is set at $15 an hour and it is strictly enforced. Draw a point to indicate the number of hours employed and the wage rate paid to workers. Draw shapes that represent: 1) the firms' surplus. Label it FS. 2) the deadweight loss. Label it DWL. 3) the potential loss from job search. Label it Loss. 4) the workers' surplus. Label it WS.
a) $13.68 an hour b) the wage rate below which it is illegal to pay workers; floor c) it is set above the equilibrium wage d) loses; fewer than the efficient number are employed, which creates deadweight loss and increased cost of job search e) draw a point at (20, 15) draw a triangle from (18, 15) to (18, 19) to (20, 15) label it FS draw a triangle from (20, 11) to (20, 15) to (21, 13) label it DWL Draw a square from (18, 11) to (20, 15) label it Loss Draw a triangle from (18, 7) to (18, 11) to (20, 11) label it WS https://imgur.com/N2ICCkd
Now luxury boats are taxed at 10 percent tax. What price do buyers pay? How is the tax split between buyers and sellers? a) What is the government's tax revenue? Is this tax efficient? With the tax imposed, the price of a luxury boat is _______. b) With the 10 percent tax on luxury boats, _______. c) The government raises tax revenue of $____ million. d) The tax is ____ because at the quantity produced _____. to draw the excess burden, 436, 3; 436, 3.3; 480, 3 are the three points
a) $3.30 million b) the buyer pays all of the tax c) 436 * .3 million = 130.8 million d) inefficient; marginal benefit exceeds marginal cost
When income rises by 2 percent and other things remain the same, the quantity demanded of good C decreases by 3 percent. Calculate the income elasticity of demand for good C. Is good C a normal good or an inferior good? How does the demand for good C change? a) The income elasticity of demand for good C is ____. b) Good C is ______ good and as income rises, the demand for good C ______.
a) -1.5 b) an inferior; decreases
The table shows a nation's marginal benefit and marginal cost schedules. What is the marginal benefit of a pound of bananas when 3 pounds of bananas is grown? What is the marginal cost of growing 3 pounds of bananas? a) The marginal benefit of a pound of bananas when 3 pounds of bananas is grown is _______. b) The marginal cost of growing 3 pounds of bananas is _______.
a) 1 pound of coffee b) 3 pounds of coffee
The graph shows the supply curve of candles and the market price of a candle. What is the quantity of candles sold? Calculate the producer surplus, the total revenue from the candles, and the cost of producing them. Draw a point to show the quantity of candles sold and the price. Draw a shape that represents the producer surplus. a) The producer surplus is $____. b) The total revenue is $____. c) The total cost of producing 20 candles is $____.
a) 100 b) 400 c) 300 https://imgur.com/wLH97vP
Nelson earns $35,000 and pays $14,000 in tax, while Lillian earns $50,000 and pays $25,000 in tax. If Nelson's income increases by $100, his tax increases by $57, but if Lillian's income increases by $100, her tax increases by $60. What is the average tax rate and marginal tax rate that Nelson pays and that Lillian pays? Is this income tax fair? a) Nelson's average tax rate is ____ percent. b) Nelson's marginal tax rate is ____ percent. c) Lillian's average tax rate is ____ percent. d) Lillian's marginal tax rate is ____ percent. e) This income tax is fair by the ____.
a) 14,000 / 35,000 = 40 percent b) 57 / 100 = 57 percent c) 25,000 / 50,000 = 50 percent d) 60 / 100 = 60 percent e) ability-to-pay principle because a rich person can more easily bear the burden of providing public goods, and by the benefits principle because the rich receive a disproportionately large share of the benefit from law and order
The table shows a nation's marginal benefit and marginal cost schedules. What is the marginal benefit of a pound of bananas when 2 pounds of bananas is grown? What is the marginal cost of growing 2 pounds of bananas? The marginal benefit of a pound of bananas when 2 pounds of bananas is grown is _______.
a) 2 pounds of coffee b) 2 pounds of coffee
The table shows the demand and supply schedules for raspberries. Suppose that the government introduces a production quota for raspberries and sets it at 1,500 pounds per week. What is the market price of raspberries, the producer surplus, and the deadweight loss? Who gains and who loses? a) The market price of raspberries is $____ a pound. b) The producer surplus is $____ c) The deadweight loss is $____ d) With a production quota set a 1,500 pounds a week, ________.
a) 6 https://imgur.com/KkTnooX b) Producer surplus equals [1/2×($4.50−$1.50)×1,500] + [($9.00−$4.50)×1,500], which is $9000.00. https://imgur.com/7nLZyjL c) (4.5 * 750) / 2 = 1687.5 d) consumer surplus shrinks and consumers lose, and producer surplus increases and farmers gain
The graph shows the rental market for apartments in Dayton, Ohio. If the city government imposes a rent ceiling of $600 a month, what is the rent and how many apartments are rented in Dayton, Ohio? If a black market develops, how high could the black market rent be? a) The rent is $____ a month and ____ apartments a month are rented. b) If a black market develops, the black market rent may be as high as $____ a month.
a) 600; 1000 b) 1200 https://imgur.com/tysjGLi
The graph illustrates the labor market in a country that does not tax labor income. Suppose that the government introduces a Social Security tax of $2 an hour. If the government splits the Social Security tax equally between workers and employers, how many workers are employed? What is the wage rate paid by employers and what is the workers' after-tax wage rate? a) The number of workers employed is ____. b) The wage rate paid by employers including the tax is $____, and the worker's after-tax wage rate is $____.
a) 800 b) 11; 9 https://imgur.com/juGxl8X
The graph shows the rental market for apartments in Harrisburg, Pennsylvania. What is the rent and how many apartments are rented in Harrisburg, Pennsylvania? If a rent ceiling of $1,000 a month is set, what is the rent and how many apartments are rented? a) The rent is $____ a month and ____ apartments are rented. b) If a rent ceiling of $1,000 a month is set, the rent is $____ a month and ____ apartments a month are rented.
a) 800; 6000 b) 800; 6,000
The table shows the market for apartments. If a rent ceiling is set at $900 a month, what is the housing shortage? If a rent ceiling is set at $1,500 a month, what is the housing shortage? a) When a rent ceiling is set at $900 a month, the housing shortage is ____ apartments a month. b) When a rent ceiling is set at $1,500 a month, the housing shortage is ____ apartments a month.
a) 900 demanded - 600 supplied = 300 apartments in shortage b) 500 demanded - 800 supplied = 0 apartments in shortage https://imgur.com/cXxcI6L
In Belgium, the marginal income tax rates range from 30.7 percent to 53 percent. Which country, Belgium or the United States places a greater weight on the ability-to-pay principle? Which country, Belgium or the United States places a greater weight on efficiency? Which country, Belgium or the United States places a greater weight on fairness? a) Belgium places a _______ weight on the ability-to-pay principle than does the United States. Belgium places a _______ weight on efficiency than does the United States. b) Belgium places a ____ the United States.
a) greater; smaller b) greater weight on fairness than
The graph shows the demand curve for sleeping bags and the market price of a sleeping bag. What is the consumer surplus, the amount spent on sleeping bags, and the total benefit of the sleeping bags bought? a) Draw a point to show the quantity of sleeping bags bought and the price paid. Draw a shape that represents the consumer surplus on the sleeping bags bought. Label it. Draw a shape that represents the amount paid for the sleeping bags bought. Label it. b) The consumer surplus equals $____. c) The total amount paid for the quantity bought is $____. d) The total benefit of the sleeping bags bought is $____.
a) The quantity of sleeping bags bought is the quantity at which the demand curve and the market price line intersect. Consumer surplus is the excess of marginal benefit of a good over the price paid for it, summed over the quantity consumed. So the consumer surplus is represented by the area below the demand curve and above the market price line between the y-axis and the quantity bought. The amount paid is equal to the market price multiplied by the quantity bought. https://imgur.com/3jrxviE b) [90 * (100-40)] / 2 = $2700 c) 90 * 40 = $3600 d) 2700 + 3600 = $6300
Concerned about the political fallout from rising gas prices, the government cuts the tax on gasoline. At the same time, a global shortage of oil sends the price up. What is the effect of this tax cut on the price of gasoline and the quantity bought? a) The tax cut _______ the supply of gasoline, and the oil shortage _______ the supply of gasoline. b) The price of a gallon of gasoline _______ and the quantity of gasoline bought _______.
a) increases; decreases b) rises, falls or remains the same; might increase, decrease, or remain the same
a) Draw a point to show the quantity of sleeping bags sold and the price. Draw a shape that represents the producer surplus. b) The producer surplus is $___. c) The total revenue is $____. d) The total cost of producing 30 sleeping bags is $____.
a) The quantity sold is determined at the intersection of the supply curve and the market price line. Producer surplus is the excess of the price of a good over the marginal cost of producing it, summed over the quantity produced. The supply curve tells us the marginal cost of producing each quantity. The market price line tells us the price paid for each unit of the good. So the producer surplus is the area above the supply curve and below the market price line, to the right of the y-axis and to the left of the quantity sold. https://imgur.com/8LiqrQS b) [(40-20) * 30] / 2 = $300 c) 30 * 40 = $1200 d) 1200 - 300 = $900
The graph shows the market for office space in a crowded city center. The government has imposed a land income tax on city center office space. It turns out that the sellers end up paying the entire tax. a) Draw and label the supply curve of city center office space. b) How does the elasticity of supply determine who pays the land income tax? The more ______ the supply, ______.
a) The supply of land is highly inelastic. Draw a vertical line intersecting the demand line and label it S. b) inelastic; the larger is the amount of the tax paid by sellers
The graph shows the market for basketballs, when sellers are taxed $6 a ball. What is the excess burden of the tax? Is the demand for basketballs or the supply of basketballs more inelastic? a) Draw a shape that shows the excess burden of the tax on basketballs. b) The excess burden of the tax on basket balls is $____ million. c) The supply of basketballs is more _______ than the demand for basketballs, and the _______ pays most of the tax.
a) all of the deadweight loss is the total area of the excess burden https://imgur.com/mvTz5e2 b) (12 - 8) * (16 - 10) / 2 = 12 million c) inelastic; seller
The table shows the demand and supply schedules for hay before and during a major drought. If the government takes no action, would the outcome be efficient? a) If the government takes no action, the allocation of resources is ______ before the drought and ______ during the drought. b) With government intervention that leads to overproduction, the outcome is ______ efficient.
a) efficient; efficient b) less
The supply of apartments in New York City is inelastic, and the demand for apartments is elastic. The city introduces a tax on apartment rentals. When is the larger share of the tax paid by the landlord? Why does the government collect a large tax revenue? a) The more _______ the demand and the more _______ the supply of apartments, the larger is the share of the tax paid by the landlord. b) The government collects a large tax revenue because the tax ______ the number of apartments rented.
a) elastic; inelastic; b) decreases by a relatively small amount
a) Which method is used to allocate entry into a parking lot? b) Which method is used to allocate a seat in Congress?
a) first-come, first-served b) majority rule
In the United Kingdom, marginal income tax rates range from 20 percent to 45 percent. In the United States, marginal income tax rates range from 10 percent to 37 percent. Which country places a greater weight on the ability-to-pay principle? Which country places a greater weight on efficiency? Which country places a greater weight on fairness? a) The United Kingdom places a ______ weight on the ability-to-pay principle and a ______ weight on efficiency than does the United States. b) The United Kingdom places ____ the United States.
a) greater; smaller b) a greater weight on fairness than does
California voters overwhelmingly back $2-a-pack increase in the cigarette tax with the revenue being used to fund healthcare for the poor. Source: Los Angeles Times, September 3, 2015 Which principle of fairness would California use to justify this big tax hike? California is using the ______ principle to justify a tax hike on cigarettes because ______.
benefits; the tax revenue raised is used to pay for healthcare of the poor, who are most of the smokers
If Florida introduces a minimum wage for orange pickers of $14.00 an hour, is the minimum wage of $14.00 an hour efficient? Is it fair? Who gains and who loses from the minimum wage of $14.00 an hour? a) The graph shows the market for orange pickers in Florida. If Florida introduces a minimum wage for orange pickers of $14.00 an hour, the minimum wage is ______. b) With the minimum wage, ______ gain and ______ lose.
a) inefficient and not fair (its not fair because it delivers an unfair result and imposes unfair rules.) b) orange pickers who find work; orange growers and unemployed pickers
In Canine Ville, the price elasticity of demand for dry dog food is 0.8, the income elasticity of demand for dry dog food is 0.2, and the cross elasticity of demand for dry dog food with respect to canned dog food is 0.6. Is the demand for dry dog food elastic or inelastic? Why? How does an increase in the price of a package of dry dog food change total revenue? a) The demand for dry dog food is ______ with respect to the price of a package of dry dog food because the ______ elasticity of demand is less than 1. b) An increase in the price of a package of dry dog food will ______ total revenue.
a) inelastic; price b) increase
Online sellers guide to eBay spring update On eBay, the bidder who places the highest bid wins the auction and pays what the second highest bidder offered. Each spring, eBay updates its rules and fees and in spring 2019 it announced higher fees to start later in the year. Source: EcommerceBytes, May 19, 2019 What method is used to allocate goods on eBay? How does an eBay auction influence consumer surplus on the good traded? How does eBay's fee for service influence consumer surplus? a) The method use to allocate goods on eBay is _______. b) When a consumer chooses to buy an item through an eBay auction rather than at Walmart, his consumer surplus on the eBay purchase is _______ the consumer surplus he would get on the Walmart purchase. c) eBay's fee for service _______.
a) market price b) greater than c) decreases because the equilibrium price rises and the equilibrium quantity decreases
The table shows the demand and supply schedules for hay before and during a major drought. During the drought, suppose the government gave all farmers an equal quantity of hay. Resale of hay is not permitted. How would total surplus and the price of a bale change? a) Suppose the government buys the equilibrium quantity of hay determined by demand and supply during the drought. Total surplus is ______ and the price of a bale ______ compared to the pre-drought price. b) Suppose the government buys more than the equilibrium quantity of hay and pays the supply price for this quantity. Total surplus ______ compared to the total surplus when the equilibrium quantity is purchased, and the price of a bale ______ compared to the equilibrium price.
a) maximized; rises When the government buys the equilibrium quantity of hay, as determined by demand and supply during the drought, the market is efficient. Total surplus is at its maximum. The demand for hay rises, so the price of a bale rises. b) decreases; rises When the government buys more than the equilibrium quantity of hay, overproduction occurs. A deadweight loss arises and total surplus is less than the total surplus when the efficient quantity is produced. And the price rises along the supply curve to a price that is greater than the equilibrium price.
Economy forces many to shorten summer vacation plans Americans are taking fewer exotic holidays and are visiting local scenic places instead. The financial crisis has encouraged many to cut their holiday budgets. Source: USA Today, May 22, 2009 Is the income elasticity of demand for exotic holidays positive or negative? Is the income elasticity of demand for local holidays positive or negative? Are exotic holidays a normal good or an inferior good? Are local holidays a normal good or an inferior good? a) The income elasticity of demand for exotic holidays is ______ and the income elasticity of demand for local holidays is ______. b) Exotic holidays are ______ good and local holidays are ______ good.
a) positive; negative b) a normal; an inferior
eBay saves billions for bidders On eBay, the bidder who places the highest bid wins the auction and pays only what the second highest bidder offered. Researchers Wolfgang Jank and Galit Shmueli reported that purchasers on eBay in 2003 paid $7 billion less than their winning bids. Because each bid shows the buyer's willingness to pay, winners receive a consumer surplus, estimated at an average of $4 or more. Source: Information Week, January 28, 2008 Does the seller receive a producer surplus? Are auctions on eBay efficient? a) In an eBay auction, the seller ______. b) Auctions on eBay are ______ because ______.
a) receives a producer surplus the price he receives exceeds the marginal cost of producing the good b) efficient; the quantity sold is determined by equating marginal benefit and marginal cost
In Switzerland, the marginal income tax rates range from 10.2 percent to 24.7 percent. Which country, Switzerland or the United States places a greater weight on the ability-to-pay principle? Which country, Switzerland or the United States places a greater weight on efficiency? Which country, Switzerland or the United States places a greater weight on fairness? a) Switzerland places a _______ weight on the ability-to-pay principle than does the United States. Switzerland places a _______ weight on efficiency than does the United States. b) Switzerland places a _______ the United States.
a) smaller; greater b) smaller weight on fairness than
How does income redistribution create a tradeoff? Income redistribution creates a tradeoff _______.
and the greater the amount of income redistribution through income taxes, the greater is the tradeoff between efficiency and fairness
Consumer surplus _______.
arises because we don't always have to pay as much as we're willing to pay
The demand for labor is more elastic than the supply of labor. A Social Security tax imposed equally on workers and employers ______.
decreases employment and workers pay most of the tax
What is the result when an effective production quota is applied to the wheat market? An effective production quota in the wheat market _______.
decreases the quantity of wheat supplied
The Australian dollar has soared 26 percent against the U.S. dollar since last June, making foreign lift tickets cheaper than those in Australia, and travel agents report a jump in interest in travel to North American ski destinations like Vail and Aspen. As Australians switch from skiing in Australia and flock to Vail and Aspen, how will the Australian ski operators' producer surplus change? How will the Vail and Aspen ski operators' producer surplus change? As Australians switch from skiing in Australia and flock to Vail and Aspen, the Australian ski operators' producer surplus _______. The Vail and Aspen ski operators' producer surplus _______.
decreases; increases (As Australians switch from skiing in Australia and flock to Vail and Aspen, the demand for ski tickets in Australia decreases. The price and quantity of tickets sold decreases. Producer surplus is the price of a good in excess of the marginal cost of producing it, summed over the quantity produced. So the Australian ski operators' producer surplus decreases. As Australians switch from skiing in Australia and flock to Vail and Aspen, the demand for ski tickets in Vail and Aspen increases. The price and quantity of tickets sold increases. So the Vail and Aspen ski operators' producer surplus increases.)
New York has the highest cigarette taxes in the country. The price of an average pack of cigarettes in New York City is $13.00. The combined state and city taxes are $5.85 a pack. The average income of smokers is less than that of non-smokers. The graph shows the market for cigarettes with no tax. Show the market equilibrium quantity and price. Label it 1. Now show the effects of a $6 per pack tax on cigarettes on the buyer's price, the seller's price, the quantity of cigarettes bought, and the tax revenue. Draw a line that shows how a changes the supply of cigarettes. Label it S + tax At the new equilibrium quantity, show the price paid by buyers. Label it 2. At the new equilibrium quantity, show the price received by the seller. Label it 3. Show the tax revenue received by the government. Does the buyer or seller pay more of the tax? Why? The _______ pays more of the tax because _____.
draw a point where S intersects D, labeled 1. draw a point where S + Tax intersects D, labeled 2. Draw a point on the same x-coordinate as 2, but on the original S line, label it 3. Connect 2 and 3 to draw a rectangle to the left side of the graph for the government's revenue from the tax. buyer; the elasticity of supply is greater than the elasticity of demand
Coal shortage at China plants The government of China has set price controls on coal and gasoline in an attempt to shield poor urban families and farmers from rising world energy prices. Chinese power plants have run short of coal, sales of luxury, gas-guzzling cars have increased, and gasoline consumption has risen. Oil refiners are incurring losses and plan to cut production. Are the price controls described in the news clip price ceilings or price floors? The graph shows the market for coal in China when a price control is in effect. Draw an arrow at the price control to show the shortage or the surplus created by the price control. Give it the appropriate label. The price controls described in the news clip are ______.
draw an arrow on the price control line from (150, 30) to (500, 30) and label it 'Shortage' price ceilings https://imgur.com/Q8WnXKl
If the price of a good falls and expenditure on the good rises, the demand for the good is _______.
elastic
A 5 percent increase in the price of a good increased the quantity supplied of the good by 10 percent after one month. Is the supply of this good elastic, unit elastic, or inelastic? Is this good likely to be produced using factors of production that are easily obtained? What is the price elasticity of supply of this good? Supply of this good is ______. The good is most likely produced using factors of production that are _______.
elastic; plentiful or easily obtained the price elasticity of supply of this good is 2.0.
Vertical equity is the requirement that taxpayers with ____ ability to pay should pay _____ share of taxes.
greater; a greater
How Canada's supply management system works A national marketing agency sets a milk production quota and a farmer must hold a quota to sell up to a set amount. The system has been blamed for raising the price of milk—but a lot of American producers wish they had something like it. Source: Canadian Broadcasting Corporation News, June 16, 2018 Draw a graph to illustrate the Canadian market for milk. With a production quota, show the quantity of milk produced, the price, consumer surplus, producer surplus, and the deadweight loss created. The graph shows the demand curve and supply curve in the Canadian milk market. Draw a line to indicate the production quota if the production quota is 250 million gallons a year. Label it. Draw a point to show the quantity produced and the price paid by consumers. Draw shapes to show the consumer surplus, the producer surplus, and the deadweight loss created. Label them.
https://imgur.com/bfasxHq
The graph shows the market for movie downloads in which the government has imposed a tax of $6 per movie download. Draw a point to show the price paid by buyers and the quantity bought. Draw shapes that represent the following: 1) consumer surplus. Label it CS. 2) producer surplus. Label it PS. 3) the tax revenue received by the government. Label it TR. 4) the deadweight loss created by the tax. Label it DWL.
https://imgur.com/ywYyGA3 Draw the point where S + tax meets the demand curve. Draw CS from that point to the top of the demand curve Draw TR from the base of the CS to the first Supply curve Draw PS from the base of TR to the bottom of the Supply curve Draw the DWL in the triangle made by tax revenue's edge and the demand curve.
The allocation of resources is fair ______.
in the fair-rules view if owners of the resources are protected by property rights and all transfers of resources are voluntary
National parks to offer free-entry weekends Interior Secretary Ken Salazar has urged everyone to visit the national parks over the weekends of June 20-21, July 18-19, and August 15-16 when admission will be free. Kathy Kupper, spokeswoman for the National Parks Service, said that she couldn't remember the fee having been waived in more than 20 years. Source: Los Angeles Times, June 3, 2009 How will waiving the admission charge influence consumer surplus? Waiving the admission charge _______.
increases consumer surplus
A 6 percent increase in the price of a good increased the quantity supplied of the good by 3 percent after one month. Is the supply of this good elastic, unit elastic, or inelastic? Is this good likely to be produced using factors of production that are easily obtained? What is the price elasticity of supply of this good? Supply of this good is ______. The good is most likely produced using factors of production that are _______.
inelastic; unique or rare The price elasticity of supply of this good is 0.5.
When the price of a good increased by 8 percent, the quantity demanded of it decreased 4 percent. Does this good have close substitutes or poor substitutes? Is this good more likely to be a necessity or a luxury and to be narrowly or broadly defined? Most likely, this good ______ and ______.
is a necessity; has poor substitutes
What is a feature of a flat tax? A flat tax ____.
is less inefficient that a progressive tax.
In the United States, the demand for labor is more elastic than the supply of labor. Currently the law says that the Social Security tax falls equally on workers and employers. Does the Social Security tax fall equally on workers and employers? In reality, the Social Security tax _______.
is paid mostly by the worker
What is the result when a minimum wage is introduced that is above the equilibrium wage rate? If a minimum wage is introduced that is above the equilibrium wage rate, _______.
job-search activity increases
A minimum wage law is a government regulation that makes hiring labor services for _____ than a specified wage _____.
less; illegal
Which of the following statements describes the big tradeoff? Sharing the pie more equally _____ .
makes it smaller
Which of the following statements describes the big tradeoff? Sharing the pie more equally _____ .
makes it smaller. The big tradeoff is the tradeoff between efficiency and fairness that recognizes the cost of income transfers. "Sharing the pie more equally makes it smaller" is a simple way of describing the big tradeoff.
Consumer surplus is the _____ from a good or service, in excess of the _____, summed over the quantity consumed.
marginal benefit; price paid for it
The American families most likely to visit the national parks on free weekends are families that ______. The idea of waiving the admission is to allow families to enjoy an affordable vacation in these hard times. This policy is fair by the fair-result view if ______ and it's fair by the fair-rules view if ______.
own a car and don't work on weekends the families hit by hard times are the ones that visit the national parks; the families who visit the national parks do so voluntarily
Producer surplus is the _____ a good or service, in excess of the _____ of producing it, summed over the quantity produced.
price of; marginal cost
The graph shows the supply curve of smart watches and the market price of a smart watch. Draw the producer surplus from smart watches. Label it. What is producer surplus? Producer surplus is _______.
received by a producer when price exceeds the marginal cost of production https://imgur.com/t1skQMj
Mumbai's tap water now fit for direct consumption Water from Mumbai's taps can now be consumed directly. Though access to clean drinking water is considered a human right, almost 75% of India's households do not have access to drinking water. Would a free world market in clean drinking water achieve a fair use of the world's water resources? Explain why or why not and be clear about the concept of fairness that you are using. In a free world market in clean drinking water, the allocation of water would be fair by the fair-_________ view because _______.
rules; the exchange of water is voluntary
Why does Jordan Spieth pay his own Social Security tax and the PGA (the Professional Golfers' Association) pay none of it? Jordan Spieth pays his own Social Security tax and the PGA pays none of it because the _______ Jordan Spieth's labor is _______.
supply of; perfectly inelastic
What influences the elasticity of supply of a good today? The elasticity of supply of a good today is influenced by _______.
the possibility to store some of today's production for later sale
What are the characteristics of a black market that emerges as the result of a price ceiling? A black market that emerges as the result of a price ceiling is an illegal market in which _______.
the price exceeds the legally imposed price ceiling
What taxes generate the greatest deadweight loss? The taxes that generate the greatest deadweight loss are ____.
those on the income from capital
Deadweight loss is the decrease in _____ that results from an inefficient _____ or _____.
total surplus; underproduction; overproduction
What is the effect in a labor market when the government introduces a minimum wage above the current market wage rate? When the government introduces a minimum wage above the current market wage rate, _______.
unemployment increases
Allocative efficiency is a situation in which the quantities of goods and services produced are those that people _____ - it is not possible to produce more of a good or service _____ some of another good that people _____.
value most highly; without giving up; value more highly
What is the difference between the price of a flight and the value of a flight? The price of a flight is ______. The value of a flight is ______.
what you pay for the flight; the marginal benefit of the flight (The price of a flight is what you pay—the price of the ticket plus the booking fee. The value of a flight is the marginal benefit you get from using the airline ticket. It is the maximum amount you are willing to pay for another ticket.)
An earthquake destroys the homes of a quarter of a city's population. People who are lucky enough to own one of the remaining homes offer rooms for rent at the highest amount that people are willing to pay. Is the outcome efficient? Is the outcome fair? a) The outcome is ______ because ______. b) Based on the fair-result view of fairness, the outcome is unfair if ______. c)
a) efficient; the people who value the rooms most highly use them b) the rooms are shared unequally by the people who have an equal need for the rooms c) homeowners' property rights are enforced and voluntary exchange between the homeowners and renters is allowed.
The graph shows the market for paper. Lobbyists persuade the government to pass a law that requires producers to sell 50 tons of paper a day. Is the market for paper efficient? If not, what is the deadweight loss? This market for paper is ______ because ______.
a) inefficient; the marginal cost of the 50th ton of paper is greater than the marginal benefit of the 50th ton of paper https://imgur.com/ze3TtG0
The graph shows the market for paper. Lobbyists persuade the government to pass a law that limits the quantity of paper that producers sell to 40 tons of paper a day. Is the market for paper efficient? If not, what is the deadweight loss?
inefficient; the marginal benefit of the 40th ton of paper is greater than the marginal cost of the 40th ton of paper
