Econ 1101
The price of a good rises from $5 to $20, and the quantity demanded falls from 100 to 50 units. Calculated with the midpoint method, the price elasticity of demand is
5/9
In a market situation, where consumer and producer surplus are at its maximum, most likely the deadweight loss will be
Zero
What is the deadweight loss if the monopolist can perfectly price discriminate?
Zero
Over time, technological advance increases consumers' incomes and reduces the price of smartphones. Each of these forces increases the amount consumers spend on smartphones if the income elasticity of demand is greater than ________ and if the price elasticity of demand is greater than______________ a. zero, zero b. zero, one c. one, zero d. one, one
b. zero, one
Two drivers, Walt and Jessie, each drive up to a gas station. Before looking at the price, each places an order. Walt says, I'd like 10 gallons of gas." Jessie says, "I'd like $10 worth of gas." What is each driver's price elasticity of demand? (Walt, Jessie) a. zero, zero b. zero, one c. one, zero d. one, one
b. zero, one
The price of a good rises from $5 to $20, and the quantity demanded falls from 100 to 50 units. Calculated with the midpoint method, the price elasticity of demand is: a. 1/5 b.5/9 c. 2 d. 5
b.5/9
Compared to the United States, India provides weak intellectual property protection for pharmaceutical products. The economic incentives for India to pursue this policy include: A. India can free ride on innovations that take place in rich countries. B. By having weak patent protection, India is developing an export business of selling generic equivalents to other countries with weak patent protection. a) A only b) B only c) A and B d) neither are correct
c) A and B
Public goods and common resources are both _______________ goods and the difference is that public goods are _____________ goods and common resources are _____________ goods. a) Non excludable, private, rival b) Excludable, club, rival c) Non excludable, non rival, rival d) Excludable, non rival, rival
c) Non excludable, non rival, rival
The slope of the budget constraint represents_____________ while the slope of the indifference curve represents __________: a) Marginal rate of transformation between two goods, relative price of goods b) Marginal rate of substitution between two goods, elasticity of substitution between two goods c) Relative price of goods, marginal rate of substitution between the two goods d) Elasticity of substitution between two goods, marginal rate of substitution between two goods
c) Relative price of goods, marginal rate of substitution between the two goods Note: Indifference curve and budget constraint slope are EQUAL AT EQUILIBRIUM
A linear downward sloping demand curve is a. inelastic b. unit elastic c. elastic d. inelastic at some points, and elastic at others
d. inelastic at some points, and elastic at others
Which of the following is considered human capital?
e. The skills an accountant learns when attending a class about filing tax returns.
The next three questions use the above figure to go over an international trade example. Suppose when Econland cannot trade with the rest of the world, the supply and demand curves for the domestic industry for candy bars are given in the above figure, where the equilibrium price is $5. Next, suppose Econland opens to trade with the rest of the world at a price of $2. Then Econland's ________ of candy bars equals ________ a. exports, 2 b. exports, 3 c. exports, 4 d. imports, 1 e. imports, 3
e. imports, 3
You are the curator of a museum. The museum is running short of funds, so you decide to increase the revenue. Should you increase or decrease the price of admission? What more information do you need? a. To maximize revenue, you should increase the price of admission under any circumstance. b. To maximize revenue, you should decrease the price of admission under any circumstance. c. If demand is elastic, an increase in the price of admissions will increase total revenue. If demand is inelastic, a decrease in the price of admissions will cause total revenue to rise .d. If demand is elastic, a decrease in the price of admissions will increase total revenue. If demand is inelastic, an increase in the price of admissions will cause total revenue to rise.
.d. If demand is elastic, a decrease in the price of admissions will increase total revenue. If demand is inelastic, an increase in the price of admissions will cause total revenue to rise.
Suppose there is an industry that has two externalities. There is a negatie externality on the production side, so the social marginal cost (SMC in the figure) exceeds private marginal cost (S in the figure). There is a positive externality on the consumption side so the social marginal benefit (SMB in the figure) exceeds private marginal benefit (D in the figure). The market equilibrium quantity equals _____ and the socially efficient quantity equals _____ a) T, U b) T, S c) S, S d) T, T e) U, U
T T
How to calculate fixed cost?
Total cost of production - (Variable cost per unit x Quantity
True or false: If Amy and Betty decide to trade, both will gain from trading: a) True b) False
True - EVERYONE always benefits from trade
Under what assumptions will the long-run supply curve for the widget industry be perfectly elastic (i.e. perfectly flat)? (i) There are no barriers to entry in the industry. (ii) One firm has a monopoly over a resource that is required for production. (iii) Input prices do not change as the industry expands (iv) There is a legal limit on the number of firms that can be in the industry. (v) The same technology is available to all firms. a) (i), (iii), and (v) b) (ii) and (iii) c) (ii), (iii), and (v) d) (i), (iv), and (v) e) (v)
a) (i), (iii), and (v)
Amy and Betty are farmers. Each one owns a 12-acre plot of land. The following table shows the amount of wheat and corn each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing wheat or corn or to produce wheat on some of the land and corn on the rest. Wheat Corn Amy 30 6 Betty 15 5 Who has an ABSOLUTE ADVANTAGE on producing wheat? Who has an absolute advantage on producing corn? a) Amy; Amy b) Amy; Betty c) Betty; Amy d) Betty; Betty
a) Amy; Amy
How does a competitive market compare to a monopoly that engages in perfect price discrimination? a) In both cases, total social welfare is the same. b) Total social welfare is higher in the competitive market than with the perfectly price discriminating monopoly. c) In both cases, some potentially mutually beneficial trades do not occur. d) Consumer surplus is the same in both cases.
a) In both cases, total social welfare is the same.
Which of the following statements regarding "cap and trade" policies is not true? a) It is a kind of "command and control" policy where government regulators make the decision of how a given cutback in carbon production will be achieved. b) The policy is more political feasible than a carbon tax because industry groups that might block a tax can be potentially bought off by being given allowances. c) The European Union has already adopted such a policy to limit carbon. d) The policy has been used in the United States to address the problem of sulphur dioxide pollution
a) It is a kind of "command and control" policy where government regulators make the decision of how a given cutback in carbon production will be achieved.
Continuing with the example of the above graph, suppose on account of technical change, the negative externality is completely eliminated. However, the positive externality remains. The policy that results in the socially efficient quantity is a) a subsidy of EN b) a tax of zero and a subsidy of zero c) a tax of HT d) a subsidy of FK e) a tax of CL
a) a subsidy of EN
The fact that someone with a high risk of medical problems is likely to buy a large amount of health insurance is an example of a) adverse selection. b) monitoring. c) moral hazard. d) screening.
a) adverse selection.
The temptation of workers on a fixed salary to not work hard when the boss isn't watching them is a) an example of the moral hazard problem. b) an example of the adverse selection problem. c) an example of screening. d) an example of signaling.
a) an example of the moral hazard problem.
The stock of ocean fish is a common resource that gives rise to what is sometimes called the "Tragedy of the Commons." This is because the stock of ocean fishing is a) rivalrous in consumption and non-excludable b) rivalrous in consumption and excludable c) non-rivalrous in consumption and excludable d) non-rivalrous in consumption and non-excludable
a) rivalrous in consumption and non-excludable
In markets characterized by oligopoly a) the oligopolists earn the highest profit when they cooperate and behave like a monopolist. b) collusive agreements will always prevail. c) collective profits are always lower with cartel arrangements than they are without cartel arrangements. d) pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market.
a) the oligopolists earn the highest profit when they cooperate and behave like a monopolist.
A price change causes the quantity demanded of a good to decrease by 30%, while the total revenue of that good increase by 15 percent. Is the demand curve elastic or inelastic? a. Demand is inelastic b. Demand is unit elastic c. Demand is elastic d. We cannot determine the elasticity of demand from this information
a. Demand is inelastic
Under what assumptions will the long-run supply curve for the widget industry be perfectly elastic (i.e. perfectly flat)? I. The same technology is available to all firms. II. There are high barriers to entry in the industry. III. The average total cost is falling (economies of scale) over the entire range of Q. IV. Input prices change as the industry expands. V. The long-run demand curve is perfectly inelastic a. I only b. III and IV c. I, III, and IV d. I, III, IV, and V e. II, III, IV, and V
a. I only
The price of tomato sauce falls Shifter Input Price a. Qpizza↑ and Ppizza↓ b. Qpizza ↓ and Ppizza↓ c. Qpizza ↑ and Ppizza↑ d. Qpizza ↑ and Ppizza↑
a. Qpizza↑ and Ppizza↓
Two things happen: (i) The price of tomato sauce falls (ii) The health hazard of hamburgers (a substitute for pizza) is widely publicized: a. Qpizza↑ and we can't tell what happens to the Ppizza b. Qpizza ↓ and we can't tell what happens to the Ppizza c. Ppizza↑ and we can't tell what happens to the Qpizza d. Ppizza↓ and we can't tell what happens to the Qpizza
a. Qpizza↑ and we can't tell what happens to the Ppizza
A life- saving medicine without any close substitutes will tend to have a. a small elasticity of demand b. a large elasticity of demand c. a small elasticity of supply d. a large elasticity of supply
a. a small elasticity of demand
A life-saving medicine without any close substitutes will tend to have a. a small elasticity of demand b. a large elasticity of demand c. a small elasticity of supply d. a large elasticity of supply
a. a small elasticity of demand
An increase in the supply of a good will decrease the total revenue producers receive if a. the demand curve is inelastic b. the demand curve is elastic c. the supply curve is inelastic d. the supply curve is elastic
a. the demand curve is inelastic
At the quantity where marginal revenue equals zero_________ a.) Revenue is maximized b.) The elasticity of demand is greater than one c.) The elasticity of demand is less than one d.) Marginal revenue equals average revenue e.) None of the above
a.) Revenue is maximized
At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely TRUE? a) The quotas are probably the result of lobbying from U.S. consumers of sugar. The quotas increase consumer surplus for the United States, reduce producer surplus for the United States, and harm foreign sugar producers. b) The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States and reduce consumer surplus for the United States. c) The quotas are probably the result of lobbying from foreign producers of sugar. The quotas reduce producer surplus for the United States, increase consumer surplus for the United States, and benefit foreign sugar producers. d) U.S. lawmakers did not need to be lobbied to impose the quotas because total surplus for the United States is higher with the quotas than without them.
b) The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States and reduce consumer surplus for the United States.
At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true? a) The quotas are probably the result of lobbying from U.S. consumers of sugar. The quotas increase consumer surplus for the United States, reduce producer surplus for the United States, and harm foreign sugar producers. b) The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States and reduce consumer surplus for the United States. c) The quotas are probably the result of lobbying from foreign producers of sugar. The quotas reduce producer surplus for the United States, increase consumer surplus for the United States, and benefit foreign sugar producers. d) U.S. lawmakers did not need to be lobbied to impose the quotas because total surplus for the United States is higher with the quotas than without them.
b) The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States and reduce consumer surplus for the United States.
When trade is based on ___________, trading partners must be _________ in terms of their production possibility frontiers, in order for there to be gains from trade. a) comparative advantage, the same b) comparative advantage, different c) increasing returns, different d) none of the above
b) comparative advantage, different Note: the same person can't be both picked for CA
Suppose you are covered under health insurance or belong to a Health Maintenance Organization (HMO), and you are insured against all or most of the costs of visits to the doctor. As a result you are likely to make greater use of medical services of all kinds. This tendency of people with insurance to change their behavior in a way that leads to more claims against the insurance company is called a) adverse selection. b) moral hazard. c) screening d) signaling.
b) moral hazard.
Which of the following would shift a market labor supply curve to the left? a. A decrease in the price of output. b. A decrease in immigration. c. A labor-saving technological change. d. A decrease in the wage rate. e. A decrease in the number of close substitutes.
b. A decrease in immigration.
In an industry, (1) demand is perfectly inelastic and (2) supply is perfectly elastic. If a tax is imposed in this industry, ________ bear the entire burden of the tax and equilibrium quantity ________. a. Buyers, decreases. b. Buyers, is unchanged. c. Sellers, decreases. d. Sellers, is unchanged.
b. Buyers, is unchanged.
When Econland opens itself to world trade in chocolate chips, the domestic price of chocolate chips rises. Which of the following describes the situation? a. Domestic production of chocolate chips rises, and Econland becomes a chocolate chips importer b. Domestic production of chocolate chips rises, and Econland becomes a chocolate chips exporter c. Domestic production of chocolate chips falls, and Econland becomes a chocolate chips importer d. Domestic production of chocolate chips falls, and Econland becomes a chocolate chips
b. Domestic production of chocolate chips rises, and Econland becomes a chocolate chips
Which of the following does not explain why wages are different between people? a. Compensating wage differential. b. Job descriptions. c. Differences in human capital. d. Labor market discrimination. e. Unions
b. Job descriptions.
Income of consumers rises and pizza is an inferior good in consumers' preference mapShifter Income a. Qpizza↑ and Ppizza↓ b. Qpizza ↓ and Ppizza↓ c. Qpizza ↑ and Ppizza↑ d. Qpizza ↑ and Ppizza↑
b. Qpizza ↓ and Ppizza↓
A professor wants to know how much prior knowledge her students have before beginning the class so she gives them a pre-test. This action is an example of a. Signaling b. Screening c. Adverse selection d. Moral hazard e. Behavioral economics
b. Screening
The fact that big banks like Citigroup are considered "To Big to Fail," (or TBTF) a) creates a problem of adverse selection. Bank regulators solve this problem by signaling their hidden information. b) creates a problem of adverse selection. Bank regulators solve this problem by screening the banks to separate healthy banks from unhealthy banks. c) creates a problem of moral hazard. Banks take hidden actions that determine the riskiness of their loan portfolios. Because of the free insurance the big banks get from TBTF, the big banks will select loan portfolios that are excessively risky. d) creates a lemons problem. In the long run equilibrium with TBTF, only the "lemon" banks will survive.
c) creates a problem of moral hazard. Banks take hidden actions that determine the riskiness of their loan portfolios. Because of the free insurance the big banks get from TBTF, the big banks will select loan portfolios that are excessively risky.
When a country allows trade and becomes an importer of a good a) both domestic producers and domestic consumers become better off. b) both domestic producers and domestic consumers become worse off. c) domestic producers become worse off, and domestic consumers become better off. d) domestic producers become better off, and domestic consumers become worse off.
c) domestic producers become worse off, and domestic consumers become better off.
When a country allows trade and becomes an importer of a good a) both domestic producers and domestic consumers become better off. b) both domestic producers and domestic consumers become worse off. c) domestic producers become worse off, and domestic consumers become better off. d) domestic producers become better off, and domestic consumers become worse off.
c) domestic producers become worse off, and domestic consumers become better off.
Which of the following describes the Giffen good case? When the price of the good a) rises, the income effect is opposite to and greater than the substitution effect, and consumption falls. b) falls, the income effect is in the same direction as the substitution effect, and consumption rises. c) falls, the income effect is in the opposite direction to the substitution effect, and consumption falls. d) falls, the income effect is in opposite direction to the substitution effect and consumption rises. e) none of the above
c) falls, the income effect is in the opposite direction to the substitution effect, and consumption falls.
Suppose Econland is initially in autarky. Then after it opens up to trade, widget producers in Econland become better off while widget consumers in Econland become worse off. After Econland leaves autarky, a) it must be using an import quota on widgets. b) it must be using a tariff on imported widgets. c) it must be exporting widgets. d) None of the above.
c) it must be exporting widgets.
Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long runI f the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (use midpoint method for your calculations)(Short run, long run): a. -14%, -4% b. -6%, -9% c. -4%, -14% d. -9%, -6%
c. -4%, -14%
Which of the following is an example of an adverse selection problem? a. A customer purchases four pears, two of which are bruised. b. A card shop puts its Halloween merchandise on sale on November 1 st . c. A job application fails to reveal that they were fired from their last job due to incompetence. d. An individual rents a car and then drives it less carefully and fills it with cheaper gas than they would if they owned it.
c. A job application fails to reveal that they were fired from their last job due to incompetence.
Consider the following statements about income elasticity I. For inferior goods, income elasticity is positive. II. For necessity goods, income elasticity is between zero and one. III. When income elasticity for a good is less than one, the share of income spent on the good is higher with higher income. 21. Which of the above statements about income elasticity are true? a. I and II only b. II and III only c. II only d. III only e. I, II, and III
c. II only
Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run Why might this elasticity depend on the time horizon? a. Elasticity does not depend on time horizon b. People will make more money over time so quantity demanded will increase with a longer time horizon c. Over time, consumers can adjust their homes by purchasing alternative heat sources such as natural gas or electric furnaces. Thus, they can respond more easily to the change in the price of heating oil in the long run than in the short run. d. Consumers will stop using any heating elements entirely
c. Over time, consumers can adjust their homes by purchasing alternative heat sources such as natural gas or electric furnaces. Thus, they can respond more easily to the change in the price of heating oil in the long run than in the short run.
Two things happen: (i) The price of mozzarella cheese rises (ii) The health hazard of hamburgers (a substitute for pizza) is widely publicized a. Qpizza↑ and we can't tell what happens to the Ppizza b. Qpizza ↓ and we can't tell what happens to the Ppizza c. Ppizza↑ and we can't tell what happens to the Qpizza d. Ppizza↓ and we can't tell what happens to the Qpizza
c. Ppizza↑ and we can't tell what happens to the Qpizza
A linear downward sloping demand curve is a. inelastic b. unit elasticc. elastic d. inelastic at some points, and elastic at others
d. inelastic at some points, and elastic at others
Suppose that a rare virus infects and kills a significant percentage of the population. Assuming that land and labor are complements in a farming production function, what would happen to the wages earned by workers and the rents earned by landowners? a. Both wages and rents would increase. b. Both wages and rents would decrease. c. Wages would increase, and rents would decrease. d. Wages would decrease, and rents would increase. e. Both wages and rents would remain the same.
c. Wages would increase, and rents would decrease.
The ability of firms to enter and exit a market over time means that, in the long run, a. the demand curve is more elastic b. the demand curve is less elastic c. the supply curve is more elastic d. the supply curve is less elastic
c. the supply curve is more elastic
Which of the following statements is correct? a) The value of the marginal product curve is the labor demand curve for competitive, profit-maximizing firms. b) A competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage. c) By hiring labor up to the point where the value of the marginal product of labor equals the wage, the firm is producing where price equals marginal cost. d) All of the above are correct.
d) All of the above are correct.
Some prescription drugs sell for more in the United States than they do in other countries. Which of the following statements about this issue is most likely to be true? a) Drug companies are engaging in price discrimination, and this practice certainly reduces global social welfare. b) Global social welfare could be improved if the price in the United States were reduced to the price charged in other countries. c) Global social welfare could be improved if the price in the other countries were increased to the price charged in the United States. d) Drug companies are engaging in price discrimination, but this might improve global social welfare if it gives more people access to the drugs.
d) Drug companies are engaging in price discrimination, but this might improve global social welfare if it gives more people access to the drugs.
A cartel is more likely to be successful in sustaining prices close to the monopoly level if a) interaction is frequently repeated and participants care about the future. b) there are few firms participating in the cartel. c) players can quickly react to deviations by other players from the cartel agreement. d) all of the above.
d) all of the above.
Each of the following is likely to be a successful way for the government to solve the problem of overuse of a common resource except a) selling the common resource to a private entity. b) taxing the use or consumption of the common resource. c) regulating the use or consumption of the common resource. d) asking individuals to voluntarily reduce their use of the resource.
d) asking individuals to voluntarily reduce their use of the resource.
Two things happen: (i) Income of consumers rises (ii) the price of tomato sauce falls a. Qpizza↑ and we can't tell what happens to the Ppizza b. Qpizza ↓ and we can't tell what happens to the Ppizza c. Ppizza↑ and we can't tell what happens to the Qpizza d. Ppizza ↓ and we can't tell what happens to the Qpizza
d. Ppizza ↓ and we can't tell what happens to the Qpizza
The health hazard of hamburgers (a substitute for pizza) is widely publicized.Shifter Taste/Preference: a. Qpizza↑ and Ppizza↓ b. Qpizza ↓ and Ppizza↓ c. Qpizza ↑ and Ppizza↑ d. Qpizza ↑ and Ppizza↑
d. Qpizza ↑ and Ppizza↑
The price of mozzarella cheese rises. Shifter Input Price: a. Qpizza↑ and Ppizza↓ b. Qpizza ↓ and Ppizza↓ c. Qpizza ↑ and Ppizza↑ d. Qpizza ↓and Ppizza↑
d. Qpizza ↓and Ppizza↑
In an industry, (1) demand is perfectly elastic and (2) supply is perfectly inelastic. If a tax is imposed in this industry, _____ bear the entire burden of the tax and equilibrium quantity _____. (Fill in the blanks). a. Buyers, decreases. b. Buyers, is unchanged. c. Sellers, decreases. d. Sellers, is unchanged.
d. Sellers, is unchanged.
When demand and supply intersect, price on the demand curve reflects those buyers with the________willingness to pay and price on the supply curve reflect those sellers with the_________costs of production. a. lowest, highest b. highest, highest c. lowest, highest d. highest, lowest e. none of the above
d. highest, lowest