ECO 2314 EXAM 2

When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of

Moral hazard

If the tariff was replaced by a quota which limited rice imports to 16 million pounds, the amount of revenue received by rice importers would equal

$16 million

When output level is 100, what is the total cost of production

$2,000

Figure 11-7 When the output level is 100 units average fixed cost is

$8

Calculate the income elasticity if an 8% increase in income leads to a 4% increase in quantity demanded for organic produce

0.5

Suppose a 4% increase in price results in a 2% increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.

0.5; the product is inelastic

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Midpoint formula

1.62

With the tariff in place, the united states produces

15 million pounds of rice

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10%. What was the percentage change in price that brought about this change in quantity demanded?

2.5%

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand?

2.69

The price of soup is $2 per cup and the price of a sandwich is $3. Keita has $18 to spend on these two goods. If Keita maxims her utility, how many units of each good should she buy?

3 cups of soup and 4 sandwiches

With the tariff in place, the united states consumes

31 million pounds of rice

Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now?

4 cups of soup and 5 sandwiches

Without the tariff in place, the united states consumes

42 million pounds of rice

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

5 utility units

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

57 utility units

As a result of the tariff, domestic producers increase their quantity supplied by

6 million pounds of rice

Without the tariff in place, the united states produces

9 million pounds of rice

What is the area of consumer surplus after the imposition of the quota?

A + G + H

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

A 1% increase in the price of grapefruit leads to a 6% increase in orange juice consumption

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1% increase in the price of the good causes quantity demanded to decrease by 3%

Suppose the value of the price elasticity of supply is 4. What does this mean?

A 1% increase in the price of the good causes quantity supplied to increase by 4%

Which of the following is a factor of production that generally is fixed in the short run

A factory building

The tariff revenue collected by the government equals the area

E

A characteristic of the long run is

All inputs can be varied

The law of diminishing marginal returns

Applies only in the short run

A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called?

Asymmetric information

What is the area of domestic producer surplus after the imposition of a quota?

B + C

What is the area that represents the deadweight loss as a result of the quota?

E + M

The increase in domestic producer surplus as a result of the tariff is equal to the area

C

the loss in domestic consumer surplus as a result of the tariff is equal to the area

C + D + E + F

A. shampoo and conditioner B. iPhones and earbuds c. a laptop computer and desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have cross-price elasticity of zero?

E only

If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could

Change price a little bit and observe what happens to total revenue

Diminishing marginal product of labor occurs when adding another unit of labor

Changes output by an amount smaller than the output added by the previous unit of labor

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

Demand is likely to be relatively inelastic

Figure 11-3 For what quantity of labor does production start to display diminishing returns

For more than 4 units of labor

A demand curve that is horizontal indicates that the commodity

Has a large number of substitutes

Price elasticity of demand measures

How responsive quantity demanded is to a change in price

With the tariff in place, the united states

Imports 16 million pounds of rice

If demand is inelastic, the absolute value of the price elasticity of demand is

Less than one

Last year, sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and sefton purchased 80 pounds of potatoes. All else constant, sefton's income elasticity of demand for potatoes is

Negative, so sefton considers potatoes to be an inferior good

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

Network externalities

Long-run cost curves are u-shaped because

Of economies and diseconomies of scale

Cross-price elasticity of demand is calculated as the

Percentage change in quantity demanded of one good divided by percentage change in price of a different good

Represents demand for ice cream. Which of the following statements is true?

Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream

Marginal utility can be

Positive, negative, or zero

The relationship between the inputs employed by a firm and the maximum output that it can produce with those inputs is the firm's

Production function

If a 35% increase in price of golf balls led to a 42% decrease in quantity demanded, then the demand for golf balls is

Relatively elastic

When there's few close substitutes available for a good, demand tends to be

Relatively inelastic

One reason why adverse selection problems arise in health insurance markets is that

Sick people are more likely to want health insurance than healthy people

The marginal product of labor is defined as

The change in output that a firm produced as a result of hiring one more worker

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

The demand for aspirin is inelastic

When the price of ice cream cones increases from $2 to $3, quantity demanded decreases from 4 ice cream cones to 3 ice cream cones. This change in quantity demanded is due to

The income and substitution effects

When demand is elastic, a fall in price causes total revenue to rise because

The increase in quantity sold is large enough to offset the lower price

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of

The law of diminishing marginal utility

Fancy footwear's marginal product of labor and average product of labor curves in the short run Which of the following statements correctly describes the curves in the figure?

The marginal product of labor cure is represented by curve B and the average product of labor curve is represented by curve A

Most people would prefer to drive a luxury car that has the options, but more people buy less expensive cars even though they could afford the luxury car because

The marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars

The slope of a demand curve is NOT used to measure the price elasticity of demand because

The measurement of slope is sensitive to the units chosen for price and quantity

Avner is maximizing total utility by buying sports magazines and protein supplements. For him to buy more sports magazines

The price of sports magazines has to fall

A network externality occurs when

The usefulness of a good is affected by how many other people use the good

Significant downside to network externalities is that

There may be large switching costs to consumers of changing products so that consumers end up using products with inferior thecnologies

The tariff causes domestic consumption of rice

To fall by 11 million pounds

the basic activity of a firm is

To use inputs to produce outputs of goods and services

Perfectly inelastic demand is represented by a demand curve which is , and relatively inelastic demand is represented by a demand curve which is .

Vertical; downward sloping

Which of the following is an example of a long-run adjustment

WalMart builds another supercenter

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

Wants to consume more ankle socks and fewer bandanas

If the slope of a demand curve is equal to -0.1 then

We don't know whether the demand is elastic or inelastic

If the percentage increase in price is 15% and the value of the price elasticity of demand is -3, then quantity demanded

Will decrease by 45%

All of the following products are likely to have significant network externalities except

cat food

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

complements

Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is

inelastic

Economists assume that the goal of consumers is to

make themselves as well off as possible

The processes a firm uses to turn inputs into outputs of goods and services is called

technology