Eco Exam Study Guide

Suppose that Paulie and Vinny each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny each can produce in 11 hours, respectively, if they devote all of their time and effort into making the good. Round all answers to two decimal places. 1. What is Paulie's opportunity cost of producing a cup of ice cream? 2. What is Vinny's opportunity cost of producing a t-shirt

1. 8 2. 0.64

Vincent and Jean are two cooks who work in a village. Each of them can either bake cakes or make pizzas. Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Please answer the four questions. 1.Which cook has the absolute advantage in baking cakes? 2.Which cook has the absolute advantage in making pizzas? 3.Which cook has the comparative advantage in baking cakes? 4.Which cook has the comparative advantage in making pizzas?

1. jean 2. jean 3. vincent 4. jean

The figures illustrate the production possibilities available to Kate and Sarah with eight hours of labor in their bakery. Answer the questions according to these figures. REFER TO GRAPH Kate has a comparative advantage in Sarah has a comparative advantage in

Kate= cake, sarah= bread

Assume Italy and Morocco can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in Italy can produce 10 t of grain or 5 t of dates in a season. Each farmer in Morocco can also produce 10 t of grain or 25 t of dates. 1.Which country has the absolute advantage in producing dates? 2.Which country has the absolute advantage in producing grain? 3. Which country has the comparative advantage in producing dates? 4.Which country has the comparative advantage in producing grain?

1. morocco 2. neither 3. morocco 4.italy

What is the value of consumer surplus? Look at graph on laptop

11.25 0.5(9-4.5)x5

A farmer produces both beans and corn on her farm. If she must give up 16 bushels of corn to be able to get 6 bushels of beans, then her opportunity cost of 1 bushel of beans is

2.67 bushels of corn 16/6

Suppose that Ned can produce either potato chips or computer chips. If he only produces potato chips he can produce 16 bags in a day. If he only produces computer chips, he can produce 12 in a day. Drag the endpoints of the line to plot his production possibilities frontier (PPF) on the graph. What is the opportunity cost of potato chip production (in terms of computer chips/bags of potato chips)?

3/4

Suppose that Paulie and Vince each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vince each can produce in one hour, respectively, if they devote all of their time and effort to making the good. Ice cream (cups)T-shirts (quantity)Paulie4 17 Vince8 12 What is Paulie's opportunity cost of producing one cup of ice cream (round to two decimal places)?

4.25 17/4

How many more chicken feet were demanded in 2018, at a price of $3.00 a pound, than in 2008?

6.2 , the demand curve shifted to the right.

What is the value of producer surplus? Look at graph on laptop

8.75 0.5(4.5-1)x5

Christine and Paul are deciding how to split their time between writing music and lyrics for their new album. Their PPFs for 72 h of work are shown. Christine and Paul have to write music for 8 songs and lyrics for 12 songs (4 songs already have music). When they are done, they can go to a private island and relax from all their hard work. It is possible that they will use more than 72 h. Once they start writing lyrics and music, assuming their hired help packs for them and their plane is waiting outside their door, in how many hours can they board the plane to their relaxing island getaway?

96 h Christine will write music for 0 songs. Paul will write music for 8 songs Christine will write lyrics for12 songs. Paul will write lyrics for 0 songs.

Consider four of Aesop's fables. 1. A lion and a bear seized a lamb at the same moment and fought fiercely until they collapsed, exhausted. A fox ran in, seized the lamb, and quickly ran off. The lion and the bear watched him and said, "Just our luck, that we fought, only to serve the reward up to the fox." 2. A hound chased a rabbit but gave up after a long run. A shepherd watched and said, "The rabbit is the better runner." The Hound replied, "I only ran for dinner. He ran for his life." 3. As Patty walked to the market, her milk pail on her head, she planned what she would do with the money she earned. "I'll buy hens, and sell their eggs. Then I'll buy a new dress! Polly will be jealous, but I shall just toss my head like this." As she tossed her head back, the pail fell off, and all the milk was spilled. 4. One day a farmer found an egg of pure gold in the goose's nest. The goose laid a golden egg every morning, and the farmer soon grew rich - and greedy. Thinking he would get all the gold at once, he killed it but found no gold inside. Which fable from Aesop best illustrates the moral idea that incentive spurs effort?

A Hound Chased a Rabbit

comparative advantage

A country has this, in producing goods for which it has the lower opportunity costs.

demand curve

A function that shows the quantity demanded at different prices

supply curve

A function that shows the quantity supplied at different prices

inferior good

A good for which demand decreases as when income increases

normal good

A good for which demand increases when income increases

Which of the examples provides the best evidence that inflation has occurred?

A person whose salary has increased is able to purchase fewer goods and services.

shortage

A situation in which the quantity demanded is greater than the quantity supplied

surplus

A situation in which the quantity supplied is greater than the quantity demanded

absolute advantage

Ability to product the same good using fewer inputs than another producer

inflation

An increase in the general level of prices

Assume that a monsoon destroys the coffee crop in Vietnam, one of the world's largest coffee producers. What will likely occur?

Consumers will try to find alternatives to coffee due to increases in the price of coffee.

Suppose the accompanying graph depicts a market for one pound bags of candy. Place the line labeled Excess Demand at a price that would generate an excess demand (shortage). Then, determine the size of the excess demand. Excess Demand = __________ million bags

Excess demands moves to to the bottom on the Y access and stops at a horizontal continues. 4 million bags (7-3) each side subtracted from each other

Thom, Juliana, D'arcy, and Cindy are trying to form a band. They each have some basic skills on most instruments, so their current plan is for each of them to rotate among vocals, guitar, bass, and drums. After a year of practice and rehearsals the band still sounds awful. Thom cannot keep a steady beat when on bass or drums, D'arcy sounds terrible on everything except the bass, nobody except Juliana can remember all the chords on guitar, and even Cindy's own mother thinks her singing sounds like a dying cow. At their current rate, they expect it will be several years before they are good enough to land their first paid performance. None of them have enough money saved up to last that long. They all know you are taking economics and ask your advice. What would you say to them?

Have each member specialize in the role that they are best in to take advantage of benefits from specialization.

substitutes

If two goods are this, then a decrease in the price of one good leads to a decrease in the demand for the other good.

complements

If two goods are this, then a decrease in the price of one good leads to a increase in the demand for the other good

Which scenario would least likely change an individual's behavior?

In an effort to make people eat healthier, the city of Bakersville tells its residents to eat wheat bread instead of white bread.

Which demonstrates a scenario with no opportunity cost?

It's Friday night and you stay up late talking and hanging out with your friends. The chemistry club is giving out free pizza for lunch to all who come to their table to get it. Naomi, age 8, is at a bookstore and chooses to buy a book about a young wizard instead of buying a math textbook that she would probably never open. Chez Moi and Chez Nous, two premiere French restaurants with three Michelin stars, both offer you a full time sous chef job at the same salary. You are ecstatic because you know it is a win-win scenario and choose to work for Chez Nous. All of these scenarios have an opportunity cost.

total producer surplus

Measured by the area above the supply curve and below the price.

total consumer surplus

Measured by the area beneath the demand curve and above the price.

Juan Valdez, a coffee farmer in Colombia, sells his coffee to Cafe Emporium, a U.S. firm which specializes in gourmet coffee blends. What must be true of this arrangement? What can be inferred from the fact that Juan has voluntarily entered into a contract with Cafe Emporium?

None of these statements must be true., Juan is better off as a result of his deal with Cafe Emporium.

complementary good

Products and services that are used together. When the price of one falls, the demand for the other increases

In 2008, Betserai was a 10-year-old quintrillionaire living in Bulawayo, Zimbabwe. He was literally rolling in money. In fact, Betserai has so much money that he decided to make kites out of billion dollar bills instead of putting the money into the bank to earn interest. None of Betserai's friends bothered to save their money, either. Rupert was Betserai's American pen pal and heard of Betserai's story and was extremely confused. He was taught that Zimbabwe was one of the poorer countries in the world, or at the least substantially poorer than the United States. Which statement best explains this phenomenon?

Rapid rises in price levels made the Zimbabwean dollar near worthless in terms of purchasing power.

quantity supplied

The amount of a good that sellers are willing and able to sell at a particular price

consumer surplus

The consumer's gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price

In economics, what is meant by "optimal decisions are made at the margin?"

The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.

equilibrium price

The price at which the quantity demanded is equal to the quantity supplied

producer surplus

The producer's gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity

equilibrium quantity

The quantity at which the quantity demanded is equal to the quantity supplied

quantity demanded

The quantity that buyers are willing and able to buy at a particular price

opportunity cost

The value of the opportunity lost

The day-to-day living conditions of modern Americans are very different from what they were in the 20th century. While doing research for an economics project, Charlie discovers that more households today, as compared to households 100 years ago, have electricity, air conditioning, and a car. Which of the following explains why modern Americans enjoy a higher standard of living than Americans 100 years ago?

There has been economic growth in our society

Which is an issue that makes central banking difficult for the Federal Reserve Bank (the Fed)?

There is a lag between when policies are enacted and when the effects of those policies can be seen.

If the price of hockey pucks goes up from $7.99 to $14.99, what can be expected from suppliers of hockey pucks as a result?

There will be an increase in quantity supplied.

Great Economic Problem

To arrange our scarce resources to satisfy as many of our wants as possible.

Stone and brick are substitutes in home construction. Consider the market for bricks depicted below. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks. a. Equilibrium price and why? b. Equilibrium quantity and why?

a. increases because the price increase b. increases because the demand curve shift to the right - only the demand curve move because supply is not directly being affected

incentive

a reward or penalty that motives behavior

Suppose the cost of lithium-ion batteries, input into the production of electric vehicles, has dropped more steeply than expected. The accompanying graph depicts a market for electric vehicles. Demonstrate the effect of a reduction in the price of lithium-ion batteries by adjusting the accompanying diagram. REFER TO ELECTRIC VEHICLES PICTURE a. Equilibrium price and why? b. Equilibrium quantity and why?

a. decrease because supply curve shifts to right decreasing price b. increase because supply curve shift to the right increasing the quantity

Suppose that there has been a sudden influx of refugees in the small town of Dallon, leading to a doubling of the local population. The accompanying graph depicts Dallon's market for food. Adjust the graph to show the immediate impact that this rise in population has on the food market. Then determine what happens to equilibrium price and quantity. MARKET FOR FOOD GRAPH IN PICTURES a.Equilibrium price and why? b. Equilibrium quantity and why?

a. increase because demand increased b. increase because demand shift to the right - supply does not change

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market. REFER TO ETHANOL MARKET GRAPH a. Equilibrium price and why? b. Equilibrium quantity and why?

a. increase because the supply curve was shifted to the left b. decrease because the supply curve shifted to the left

The accompanying diagram represents the market for violins. Suppose that new technology allows beginner-level violin producers to make violins at a substantially lower (marginal) cost while retaining the same quality. REFER TO VIOLINS GRAPH a. Use the graph to illustrate the effect that this will have on the supply and demand of beginner-level violins and then answer the following three questions. b. How much does this new technology increase consumer surplus? c. How much does this new technology increase producer surplus?

a. supply shift to the right because they want to make violins at a lower cost so the price does not increase and if supply was shifted to the left then the price will increase. b. 1050 c. 1050

Producer surplus is shown graphically as the area

above the supply curve and below the market price

Which term best describes the situation that, relative to England, France can produce beef at a lower cost of production (i.e., can produce beef using fewer inputs)?

absolute advantage

What is inflation?

an increase in the overall price level

Alice is willing to spend $30 on a pair of jeans, and has a coupon for $10 off which she found online. She selects and purchases a $35 pair of jeans which cost $35 pre-discount.

consumer surplus because she paid 5 more then she wanted to pay

Roy is willing to pay $2.50 for a sports drink. He puts $5.00 into the vending machine and pushes the button for the sports drink without noticing that the price has increased to $2.75 until he counts the change he gets back.

consumer surplus of -0.25 because he went over what he oringinally wanted to spend

Emily is deciding between her two favorite restaurants. One makes Indian food and the other makes Chinese food. The Indian restaurant has just raised its prices. The opportunity cost of Chinese food has

decreased

An outbreak of mad cow disease causes Americans to abstain from eating beef. What is the cause?

downward pressure on price

Nike river flooded this year add an exceptional amount of silt to the soil, resulting in increases crops of cotton. What is the effect?

downward pressure on price

A gardener can produce either beans or corn in her garden. The gardener's opportunity cost of a bushel of beans multiplied by her opportunity cost of a bushel of corn is

equal to one

Absolute advantage is the source of the potential gains from specialization and trade

false

With enough careful planning, fiscal and monetary policy can prevent recessions

false

a nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good

false

the process of specialization and trade has positive net benefits and is beneficial to everyone

false

How to find equilibrium price?

find where quantity supplied and quantity demanded are equal. Then, find the price associated with that quantity

Jacob has a bagel or a muffin for breakfast. Muffins are on sale, so they cost $1$1 less than usual.The opportunity cost of eating a bagel has

increased

Justin decides to take the bus to school instead of driving to school. The price of gasoline has just decreased. The opportunity cost of taking the bus has

increased

Taylor has to take time off work to study. Since her wage has increased from $10$10/hour to$15$15/hour, the opportunity cost of studying has

increased

Absolute advantage can be determined by comparing different producers

input requirements per unit of output.

Daniel is a baker who has decided to create his own brand of chain restaurants, Short and Sweet. He negotiates with three suppliers for weeks and ultimately signs contracts with these suppliers. Francis, who owns a new sugar plantation, agrees to sell Daniel freshly refined sugar on the condition that Daniel helps him advertise his brand of sugar. Diana runs an orchard and provides Daniel with fruit. She enters into the partnership knowing that she can dramatically increase her profits if she can sell fruit to Daniel. Lastly, Ryan, who owns a mill, decides to purchase a new piece of machinery so that he can sell Daniel flour at a lower price than his competitor. The end result of Daniel's interactions with his suppliers is that folks in his neighborhood have a chance to buy delicious baked goods at reasonable prices. Daniel's situation with his suppliers is an example of

invisible hand

The demand curve

is a graphical representation of the relationship between price and quantity demanded.

Claire is trying to sell her used calculus textbook online. She asks for $150$ or best offer, and is willing to sell for anything over $100. She is able to sell it for $125.

it is a producer surplus of 25

Kate has an absolute advantage in Sarah has an absolute advantage in REFER TO ABSOLUTE

kate= neither, sarah=both goods

When trading with more developed countries,

less developed countries have a comparative advantage in the production of some goods or services.

giffen good

low income, non-luxury product for which demand increases as the price increase

When prices fall or rise, what do the supply curve do?

move along the the supply curve instead of shifting

The country of Sabora currently bans all international trade. Sabora makes high-quality spears and is currently producing as many spears as the local population wishes to buy at $50$50 each. Other countries currently produce and sell spears at $125$125 each. The newly elected president of Sabora decides to allow international trade for the first time in Sabora's existence. They will begin trade next year. Saboran spear-makers will happily engage in trade. Assume there is free trade, and that Sabora will sell all the spears they make. Note that not all statements will be used. You are currently in a sorting module. Turn off browse mode or quick nav, Tab to items, Space or Enter to pick up, Tab to move, Space or Enter to drop. What will happen to the quantity and price of Sabora's spears next year?

movement along supply curve an sabora an greater quantity of sabora is supplied at a higher price

scarce

not enough resources to satisfy all of our needs in a society

Do not encourage investments in physical and human capital

political instability, corrupt government, trade restrictions

Encourage investments in physical and human capital

property rights, dependable legal system, competitive markets

demand increase shift where

right

supply increase shit where

right

The price of goose feathers, an input for pillows, increases sharply. In the market for pillows,

supply curve changes

Select the correct definition of the term "comparative advantage."

the ability to produce a good or service at a lower opportunity cost than another

Producer surplus is the difference between

the market price and the minimum price a seller is willing to accept.

Consumer surplus is equal to the difference between

the maximum price a buyer is willing to pay and the market price.

What is the great economic problem?

to satisfy as many wants as possible with our limited resources

If Kate and Sarah both specialize in the good in which they have a comparative advantage, the REFER TO GRAPH

total production of bread will be 12 loaves, and the total production of cake will be 8 units.

.Booms and busts are natural responses to ever‐changing economic conditions.

true

.Had the U.S. government used fiscal and monetary policy more effectively, many economists believe that the Great Depression would not have been as severe.

true

At the time of the Great Depression, fiscal and monetary policy were not well understood

true

Countries specialize in the production of goods for which they have a comparative advantage

true

it can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another

true

Consumer surplus is shown graphically as the area

under the demand curve and above the market price

An impending nuclear war causes people to stock up on twonkies, a popular snack cake provided by many companies. What is the effect?

upward pressure on price