ECN 150: Mid term

(Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of the value of wasted time if a price ceiling of $4 is implemented? $160 $180 $320 $220

$160

(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax, the deadweight loss is: $10. $35. $20. $40.

$20.

In the diagram, for a market price of $4 total consumer surplus equals: $30. $60. $100. $75.

$30.

Refer to the figure. What is the maximum price per book that buyers are willing to pay for 2,500 books? $60 $45 $30 $15

$45

In the figure, a $10 tax is imposed on the market for lobsters. What is the market price that lobster producers would need to receive to induce them to produce 5,000 bushels of lobster per day? $10 $40 $50 $60

$60

(Figure: Demand and Supply) Refer to the figure. Which statement is TRUE? The gains from trade are maximized at 20 units of output. At 16 units of output, there are unexploited gains from trade. Buyers are willing to pay $20 for the 16th unit of output and it costs sellers $60 to produce that unit. A free market is likely to produce less than 12 units of output.

Buyers are willing to pay $20 for the 16th unit of output and it costs sellers $60 to produce that unit.

A commodity tax increases gains from trade. True False

False

A market shortage can be defined as a situation in which the quantity supplied in a market is greater than the quantity demanded, at the given price. True False

False

Although a minimum wage increases unemployment, it doesn't create a deadweight loss. True False

False

Demand for necessities is elastic, while demand for luxuries is inelastic. True False

False

Anita can bake 10 cakes in a day, but has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John makes equally delicious cakes and cookies but can only make 7 cakes or 100 cookies in a day. Based on this information, which of the following statements is TRUE? Anita has the comparative advantage in the production of cakes. John has the comparative advantage in the production of cakes. John has the absolute advantage in the production of cookies. Anita has the comparative advantage in the production of both cakes and cookies.

John has the comparative advantage in the production of cakes.

A major hurricane damages many oil refineries, which increases the market price of gasoline from $3.50 to $5 per gallon. The Attorney General threatens legal action against gas station owners who raise prices above pre-hurricane levels, causing gas station owners to reluctantly sell gas for $3.50 per gallon. At $3.50 per gallon, shortages cause buyers to wait in line for 2 hours. If the average purchase is 15 gallons and buyers value their time at $20 an hour, is the Attorney General helping? No, paying $92.50 at $3.50 per gallon is more expensive than $75 at $5.00 per gallon. Yes, paying $52.50 at $3.50 is cheaper than $75 at $5.00 per gallon. Yes, gas is cheaper at $3.50 per gallon because the waiting costs keep gas prices low. No, $5.00 per gallon would insure that buyers could always buy as much as they want.

No, paying $92.50 at $3.50 per gallon is more expensive than $75 at $5.00 per gallon.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Resource prices in this market increase; at the same time, the consumer population declines as migration causes an outflow of population to other regions. What happens to the supply curve and/or demand curve? S1 shifts to S2 but then shifts back to S1. D1 remains at D1. S1 shifts to S3 and D1 shifts to D2. S1 shifts to S2 and D1 shifts to D3. S1 shifts to S2 and D1 shifts to D2.

S1 shifts to S2 and D1 shifts to D2.

Refer to the figure. It shows two different demand curves. Based on the graph, which statement is TRUE? Elasticity of demand equals the slope of the curve so demand curve A is more elastic. Elasticity of demand equals the slope of the curve so demand curve B is more elastic. Since these two linear demand curves run through a common point we can say that at any given quantity, demand curve A is more elastic than curve B. We cannot infer anything about elasticity from this diagram because slope does not equal elasticity.

Since these two linear demand curves run through a common point we can say that at any given quantity, demand curve A is more elastic than curve B.

(Figure: Comparative Advantage) The figure illustrates both the U.S. and Japanese production possibilities frontiers for TVs and wheat. Based on this information, which of the following is TRUE? The United States has the comparative advantage in the production of TVs. The United States has the comparative advantage in the production of wheat. Japan has the comparative advantage in the production of wheat. Japan has the absolute advantage in the production of TVs.

The United States has the comparative advantage in the production of wheat.

(Figure: Comparative Advantage) The figure illustrates both the U.S. and Japanese production possibilities frontiers for TVs and wheat. Based on this information, which of the following is TRUE? The opportunity cost of producing a TV in the United States is 1/3 of a bushel of wheat. The opportunity cost of producing a TV in the United States is 900 bushels of wheat. The opportunity cost of producing a TV in Japan is 2 bushels of wheat. The opportunity cost of producing a bushel of wheat in Japan is 2 TVs.

The opportunity cost of producing a TV in Japan is 2 bushels of wheat.

A decrease in the supply of milk will lead to a decrease in the QUANTITY DEMANDED of milk. True False

True

A period marked by falling wages, falling national output, and rising unemployment is called a recession. True False

True

Assume a product has a rather elastic demand. If the producer of the good raises the price of the product, that producer's total revenue will decrease. True False

True

Evidence from history shows that when the extent of trade expands, the result is prosperity. True False

True

High inflation in Zimbabwe in 2009 was a result of the Zimbabwean government's printing too much money. True False

True

(Figure: Basic Supply and Demand) In the diagram, which of the following statements is TRUE? When the price is $3, the quantity demanded exceeds the quantity supplied by 60 units. When the price is $2, the quantity demanded exceeds the quantity supplied by 40 units. When the price is $4, the quantity demanded is less than the quantity supplied by 40 units. When the price is $2, there is a tendency for the price to rise in the future.

When the price is $2, there is a tendency for the price to rise in the future.

A free market maximizes the gains from trade, the sum of consumer and producer surplus, meeting all of the following conditions EXCEPT: all buyers who are willing to pay positive prices are able to receive goods from trade. the supply of goods is bought by the buyers with the highest willingness to pay. the supply of goods is sold by the sellers with the lowest costs. there are no unexploited gains from trade between buyers and sellers.

all buyers who are willing to pay positive prices are able to receive goods from trade.

Which of the following factors would cause the change in the figure? an increase in the price of a complement good a decrease in peoples' willingness to pay for the good an increase in the price of a substitute good an increase in income for an inferior good

an increase in the price of a substitute good

A good with an absolute value of the price elasticity of demand of 0.5 has: an elastic demand. an inelastic demand. unit elastic demand. perfectly inelastic demand.

an inelastic demand.

Adam Smith: believed that trade in local communities is good for the economy, but trading with people located in foreign countries is bad for the economy. did not discuss or have an opinion about international trade. argued that it is beneficial to buy a product if the seller can sell it to us cheaper than we can make it for ourselves, regardless of the product's country of origin. believed that trade in local communities is bad for the economy, but trading with people located in foreign countries is good for the economy.

argued that it is beneficial to buy a product if the seller can sell it to us cheaper than we can make it for ourselves, regardless of the product's country of origin.

Adam Smith's metaphor of the "invisible hand" refers to the notion that: greed is always good when externally motivated. behavior based on self-interest can lead to an overall benefit to society. market incentive can lead to negative side effects. markets always align self-interest with social interest.

behavior based on self-interest can lead to an overall benefit to society.

An increase in a per unit production tax ______ supply. increases decreases does not change changes in an indeterminate direction

decreases

A wage subsidy would: decrease the demand for labor, lowering wages. increase the demand for labor, increase the wages received by workers, and lower the wages paid by firms. decrease employment by raising the wages paid by firms. decrease the supply of labor, driving wages up and employment down.

increase the demand for labor, increase the wages received by workers, and lower the wages paid by firms.

A wage subsidy will: reduce the wages received by workers. reduce the number of workers employed. increase the number of workers employed. increase the unemployment rate, especially among low-skilled workers.

increase the number of workers employed.

For a price increase from $100 to $110, supply is the most elastic when quantity supplied: increases from 20 to 30. increases from 20 to 40. does not change. increases from 20 to 22.

increases from 20 to 40.

Airline regulation from 1938 to 1978 was successful in keeping prices high because: it controlled price, but not entry into the airline market. it controlled both price and entry into the airline market. it listened to the requests of suppliers during this time at the expense of consumers. of declining production costs.

it controlled both price and entry into the airline market.

A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker: should use a simple rule: once inflation is gone, it will always be gone. needs to know the causes of inflation, for example, the government's printing of too much money. should find out if people are really better off as a result of the inflation. should realize that inflation can be reduced without any costs.

needs to know the causes of inflation, for example, the government's printing of too much money.

A tax on sellers of popcorn will: increase the size of the popcorn market. reduce the size of the popcorn market. may increase, decrease, or have no effect on the size of the popcorn market. have no effect on the size of the popcorn market.

reduce the size of the popcorn market.

A dependable legal system and competitive, open markets help to: shape incentives that induce economic growth. reduce liberty and varied freedoms. bring about honest government and political stability. increase inefficiencies.

shape incentives that induce economic growth.