Econ 1201 Microeconomics UCONN
In the diagram, point A provides the _____, point B the _____, and point C the _____.
equilibrium price; market equilibrium; equilibrium quantity
What is the impact of an increase in worker productivity when demand is relatively more elastic?
An increase in sales revenue received by the firm
At what price is total revenue maximized? Total revenue is maximized when price equals . (Enter your response as a real number rounded to two decimal places.)
$9.00
Consider the market for a new DVD movie, where the price is initially $10 and 40 copies are sold per day at a superstore, as indicated in the figure to the right. The superstore is considering lowering the price to $8. What is the price elasticity of demand between these two prices (use the Midpoint Formula)? The price elasticity of demand is negative 0.43−0.43. (Enter your response as a real number rounded to two decimal places.)
-0.43
Consider the figure to the right and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number of health-care providers also increases, but by only 25%. What is the effect on the price of health-care services over time?
. It increases because demand increased by more than supply.
Economic surplus in a market is the sum of _____ surplus and _____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a _____ when the market is in _____.
. consumer; producer; maximum; equilibrium
Suppose the figure to the right illustrates the marginal cost and marginal benefit from reducing sulfur dioxide pollution. Suppose also that the United States is currently generating 13.0 million tons of pollution per year. What is the optimal level of pollution reduction? The optimal level of pollution reduction is 1010 million tons per year. (Enter your response rounded to one decimal place.)
10 million
Suppose initially that the United States is consuming 12 boots and 2 shirts and Canada is consuming 2 boots and 18 shirts, as indicated in the figure. Then, suppose the United States and Canada specialize by each only producing the good for which they have a comparative advantage and then trade. In particular, suppose the United States trades Canada half of its production for half of what Canada produces.
16, 0, 0, 12
Suppose that France is currently producing 1 bottle of wine and 12 pounds of cheese and Germany is currently producing 3 bottles of wine and 10 pounds of cheese. Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 14 pounds of cheese.
2,1
Suppose the United States has two utilities, Commonweath Utilities and Consolidated Electric. Both produce 20 million tons of sulfur dioxide pollution per year. However, the marginal cost of reducing a ton of pollution for Consolidated Electric is $225 per ton and the marginal cost of reducing a ton of pollution for Commonwealth Utilities is $300 per ton. The government's goal is to cut sulfur dioxide pollution in half (by 20 million tons per year). If the government issues 10 million tradable pollution permits to each utility, what will be the cost of eliminating half of the pollution to society? Using a cap-and-tradeLOADING... system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of $45004500 million per year. If the permits are not tradable, what will be the cost of eliminating half of the pollution? If permits cannot be traded, then the cost of the pollution reduction will be $5,2505,250 million per year.
4500 5250
For example, if the total cost of producing three units of output is $2,368 and the total cost of producing four units of output is $3,151, then the marginal cost of the fourth unit is $783783. (Enter your response as an integer.)
783
According to the law of supply,
A and C only
"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a
A. normative statement. The statement is concerned with what should be.
Which of the following would cause a shift in the demand curveLOADING... from point A to point B?
All of the above.
Alzania produces and consumes 500,000 tons of cotton during a year. Reports indicate that Alzania's neighbor, which also employs the same number of people in the cotton industry, consumed 400,000 tons of cotton. This led industry experts to believe that Alzania had an absolute advantage in the production of cotton over its neighbor. Which of the following, if true, could weaken this view?
Alzania's neighbor exported half its production of cotton that year.
Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the diagram, deadweight loss is equal to the area(s):
C & E.
the percentage change in the quantity demanded divided by the percentage change in price.
D1
Consider the demand curve illustrated in the figure to the right. Is demand elastic or inelastic?
Demand is elastic at all prices above $9.00 and inelastic at all prices below $9.00.
How do property rights affect externalities and market failure?
Externalities and market failure will result from the difficulty of enforcing property rights.
Suppose that France and Germany both produce wine and cheese. The table below shows combinations of the goods that each country can produce in a day. Who has the comparative advantage in producing wine and who has the comparative advantage in producing cheese?
France has a comparative advantage producing wine and Germany has a comparative advantage producing cheese.
A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of "beds" it offers at its nursing homes.
Given the changes to Medicare, if the marginal benefit of offering an additional bed is $1,000 and the marginal cost is $5,000 per bed, then the corporation SHOULD NOT offer additional beds.
In England during the Middle Ages, each village had an area of pasture, known as a commons, on which any family in the village was allowed to graze its cows or sheep without charge. Was the common land used optimally?
Grazing created a negative externality, resulting in the commons being overused.
How can marginal cost be expressed mathematically? Marginal cost (MC) can be expressed as
MC=ΔTC/ΔQ, where TC is total cost and Q is output.
A price ceiling is a legally determined price that sellers may charge. A price floor is a legally determined price that sellers may receive.
Maximum Minimum
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
The marginal cost of production shows the change in a firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost curve? Graphically, the marginal cost curve is
a U shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling
Which of the following events would cause the supply curve to increase from S1 to S3?
a decrease in the price of inputs.
A black market is
a market in which buying and selling take place at prices that violate government price regulations.
Economic efficiency is
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
Consider the consumption of electricity. What type of good is electricity? Electricity is
a quasi−public good.
Panel a Price (dollars per player) Quantity (millions of players per month) $300 50 250 45 200 40 150 35 100 30 The diagram in panel b is an example of
a supply curve
The parties involved in an externality have an incentive to reach an efficient solution because
both parties become better off when an efficient solution is reached
When are we likely to see private solutions to the problem of externalities?
all of the above.
What must be true for the Coase TheoremLOADING... to hold? For the Coase Theorem to hold,
all parties to an agreement must have full information about the costs and benefits of the externality
What is the difference in the short run and the long run? In the short run,
at least one of the firm's inputs is fixed, while in the long run, the firm is able to vary all its inputs, adopt new technology, and change the size of its physical plant.
In the diagram to the right, illustrating a binding price floor at P1, the amount of consumer surplus transferred to producers is represented by area B and the deadweight loss is equal to areas C and E .
b c and e
Your company incurs a cost for machinery, which, in the short run, is fixed. What happens to this cost in the long run? In the long run, the cost of
becomes a variable cost.
The production possibilities frontiers depicted in the diagram to the right illustrate
both the labor force and capital stock increasing.
A market is a group of of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
In the diagram to the right, illustrating a binding price ceiling at P3, the amount of producer surplus transferred to consumers is represented by area C and the deadweight loss is equal to areas B and D .
c b and d
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a economy in which the government decides how economic resources will be allocated. Or a society can have a economy in which the decisions of households and firms interacting in markets allocate economic resources.
centrally planned market
Consider the market for fish in public water, illustrated in the figure to the right, where S1 is marginal private cost and D1 is marginal private benefit. Fish are an example of a common resource. Suppose that the use of fish in public water generates a negative externality of $75 per unit. If so, then according to the figure, the optimal quantity of fish in public water for society is 44 units. (Enter your response as an integer.)
common resource 4
surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram by area .
consumer A
In the diagram to the right, illustrating a per-unit tax equal to P2 minus P3, tax revenue is represented by the areas D and F and the excess burden of the tax is represented by areas E and G .
d and f e and g
Suppose gasoline has few close substitutes available. If so, then an increase in the price of gasoline will likely
decrease the quantity of gasoline demanded by a relatively small amount.
Panel a Price (dollars per player) Quantity (millions of players per month) $300 30 250 35 200 40 150 45 100 50 The diagram in panel b is an example of
demand curve
Consider firms that introduce new products, such as DVDs in 2001. When firms introduce new products, how do they typically determine the price elasticity of demand for those products? Firms with new products often
estimate price elasticity of demand by experimenting with different prices.
The Coase Theorem states that
if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
In the diagram, marginal benefit is equal to marginal cost at output level Q2. This output level is considered economically efficient.
is equal to efficient
Suppose the government requires each firm to reduce sulfur dioxide emissions by an equal amount such that total emissions are reduced by 7.0 million tons per year. Is this approach necessarily economically efficient? This command-and-control approach
is not efficient because firms can have different costs of reducing pollution
Suppose the figure to the right illustrates the marginal cost and marginal benefit from reducing sulfur dioxide pollution. How could the government use a command-and-controlLOADING... approach to reduce pollution to the optimal level for society? The government could
limit sulfur dioxide pollution to a particular quantity per year.
Compare the demand for sugar with demand for gasoline. The demand for sugar is likely
more inelastic because sugar tends to represent a smaller fraction of a consumer's budget.
Suppose the production of electricity by a utility generates pollution that harms others. Suppose also that Coase bargainingLOADING...can occur between the utility and the victims of pollution but that the utility has not been legally liable for the damages from its pollution. How would making the utility legally liable for the damages from its pollution affect pollution reduction? If the electric utility and the people suffering the effects of the utility's pollution can bargain, then making the utility legally liable for the damages from its pollution will
not change the amount of pollution reduction because the marginal benefit and marginal cost of pollution reduction will not change.
How might society solve problems associated with externalities and market failureLOADING...? If an externality is present, resulting in market failure, then
private solutions may reduce or correct market failure.
surplus is the difference between the lowest price a firm would be willing to accept and the price it actually receives. This component of economic surplus is illustrated in the diagram by area .
producer b
How do externalitiesLOADING... in the production of electricity result in market failureLOADING...? Because of externalities, the market for electricity will
provide too much electricity
Compare the demand for water with the demand for wine. The demand for wine is likely
relatively more elastic because wine is a luxury.
Consider a Lacoste shirt. Is the consumption of Lacoste shirts rival and excludableLOADING...? The consumption of Lacoste shirts is
rival and excludable
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
In the diagram to the right, when the price is $29 per player, the amount of the is million players per month.
shortage, 56
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency.
The distinction between substitutes and complements is
substitute goods are used for the same purposes while complementary goods are used together.
The figure to the right illustrates the U.S. market for rugs made in a particular foreign country. Suppose the market price of rugs is $2,250. At a price of $2,250, there will be a surplus of rugs. To reach an equilibrium, the price of rugs in this market must fall.
surplus, fall
Suppose the figure to the right illustrates the market for toilet paper, where S1 represents the marginal private cost of production and D1 represents the marginal private benefit from consumption. Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Assume that S2 represents the marginal social cost of producing toilet paper (incorporating the externality). What could the government do to internalize the externality? In the presence of a negative externality, the government could tax toilet paper production. In particular, the government should set a Pigovian taxLOADING... of $150150 per ton of toilet paper produced.
tax 150
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
Tax incidence is
the actual division of the burden of a tax between buyers and sellers in a market.
Suppose a common resource—wood in a public forest—is being overused because residents consider the benefits of gaining firewood or wood for building but do not account for the cost of deforestation when chopping down trees. What could be done to prevent wood in the forest from being overused? To prevent overuse of the common resource,
the community could establish norms where social pressure limits deforestation.
Examples of transaction costs include (check all that apply):
the cost of drafting a contract or agreement the time required to negotiate an agreement. the cost of monitoring an agreement.
What information must economists have to estimate the price elasticity of demand? To estimate the price elasticity of demand, economists need to know
the demand curve for a product.
Prepping for a next-day exam over the course of an evening (and possibly into the wee hours of test day) poses increasing costs since
the longer you choose to study will result in an increase in the number and value of foregone activities.
What do economists mean by "an economically efficient level of pollution"? The economically efficient level of pollution is that amount where
the marginal cost of pollution reduction equals the marginal benefit of pollution reduction
How is the price elasticity of demand measured? The price elasticity of demand is measured as
the percentage change in the quantity demanded divided by the percentage change in price.
How do externalitiesLOADING... affect markets? If a positive externality in consumption is present in a market, then
the private benefit from consumption will be differant then the social benefit from consumption
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
Over the past 30 years, the price of oil has been relatively unstable, fluctuating between $11.00 and well over $100 per barrel. Which of the following potentially contributes to oil-price instability? Oil prices are relatively unstable because
the supply of oil is inelastic.
Suppose a professional basketball game is to be played at a suburban arena, which increases demand for parking on the night of the game. If the suburban area has the ability to create additional parking during periods of peak demand, then
the supply of parking will be more elastic and the price of parking will increase by a relatively small amount the night of the game.
The distinction between a normal and an inferior good is
when income increases, demand for a normal good increases while demand for an inferior good falls.
Consider the demand for cigarettes. Suppose the government decreases the price of cigarettes by lowering cigarette taxes. How will this affect the demand for cigarettes over time? If the price of cigarettes decreases, then the quantity of cigarettes demanded will
increase and this effect will likely become larger(in absolutevalue) over time.
Consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is
false: decreases in price affect the quantity demanded, not demand.
Consumer and producer surplus measure the _____ benefit rather than the _____ benefit.
net; total
