ECON 2010 - Exam 1

Assume the following: (1) Members of the Tea Party are not Democrats. (2) The existence of the Tea Party makes Democrats happy. (3) Happy people never smile. (4) Obama belongs to the tea party. (5) Sarah P. is not a Republican. (6) The Tea Party exists. And (7) Democrats are people. Which of the following predictions follows from these assumptions? (Asked on an Aplia quiz)

Democrats are not smiling, and Obama is not a Democrat

The purpose of the travel-cost method is to

Estimate demand functions for site-specific activities

An economy is efficient if one person can be made better off by reallocating resources without making anyone else worse off.

False

Market equilibrium will always be efficient even if it is not equitable.

False

You are planning to study eight hours this week for your economics final and are considering studying a ninth hour. You should:

make your decision based on the cost of the next best alternative use of your time compared to the benefit of one more hour of study.

The United States has which type of economic system?

mixed economy

If action A makes you better off and me worse off, before action A is undertaken the allocation is

There is not enough information to tell whether the allocation is efficient before A is undertaken.

The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of scarcity of resources.

True

Donald inherited his mother's emerald broach. He loves wearing it, but Donald is poor and his kids are not getting enough to eat, so Donald would be willing to sell the broach for $100. Wanda saw Donald wearing the broach at a Trump rally. She steals it because she knows she can get away with, but, if she had to, she would have paid Donald $400 for the broach. (Assume no one else is affected) Which alternative is both correct and most informative.

Two of the other alternatives are correct.

Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is:

Whatever Khalil would choose to do if he does not go to the opera including any money he could get from scalping the ticket.

The federal government regulates how much carbon dioxide a factory can emit. This statement best represents this economic concept:

When markets don't achieve efficiency, government intervention can increase efficiency

Consider Xiodo China, a small rural community, Assume the marriage age in China is 25. Assume that twenty-five years ago China invoked a one-child policy (only one child per couple). This decreased the number of children born. It also led to more male babies than female babies. Imagine that before the policy change, at age 25 the number of potential brides and grooms were equal. But now the first post-policy cohort has reached the age of 25. Further assume potential grooms do not import brides from other places. Which of the following is the most reasonable economic explanation of the effect of this policy on the marriage market

When the first post-policy cohort reaches 25, initially the demand for brides will exceed the supply of brides, causing the "price" of wooing a willing bride to increase.

A rational consumer will always choose to consume a bundle of goods that is on her budget line.

Yes

If New York City eliminates its medallion system for taxicabs, assuming that the supply curve of taxicab rides is upward-sloping and the demand curve for taxicab rides is downward-sloping, the price of a taxicab ride would:

decrease

Given that the supply curve is upward sloping, a shift of a demand curve to the right ($ on the vertical axis), all other things unchanged, will:

decrease equilibrium quantity and increase equilibrium price.

A consumer's willingness to pay for each additional unit of a good identifies her ____ for that good.

demand curve

If all of the opportunities to make someone better off without making someone else worse off have been exploited, an economy is:

efficient

A price ceiling will have NO effect if:

it is set above the equilibrium price.

Which of the following is a quota?

limits on the number of bushels of clams that can be caught in New Jersey

Equilibrium exists when:

no economic agent has an incentive to change their behavior. .

Kimberly likes to gamble and party. And, lucky her, she has won an all- expense-paid trip to Vegas over Spring break. She loves Vegas but decides instead to spend $5000 of her own money to go to Africa to dig latrines in a small remote village. The free trip to Vegas would have been her second choice. What do we know about the opportunity cost of Kimberly going to Africa? What do we know about the consumer's surplus she will get from the Africa trip? (Choose the alternative that is correct and most informative.)

opportunity cost is the trip to Vegas and the $5000 to spend on something else; her consumer's surplus from the Africa trip is zero or positive.

For a market commodity ____ is exogenous and quantity is ____. For a nonmarket commodity ____ is exogenous and ____ is endogenous. (choose the best fill-ins)

price, endogenous, quantity, price

When the government removes a binding price floor:

quantity demanded will increase and quantity supplied will decrease.

If goods A and B are substitutes, a decrease in the price of good B will:

shift the demand curve for good A to the left.

Market failure refers to a situation in which:

something in the nature of the markets causes the market equilibrium to be inefficient.

If a market is currently not in equilibrium:

there will be opportunities available to people to make themselves better off.

The basic concern of microeconomics is:

to study the choices people make.

Because of the opportunity cost, if the United States spends $87 billion of its resources in the rebuilding of Iraq, it has to forgo the opportunity to using those resources for other programs.

true

Economic models often:

vary greatly in assumptions and simplifications.

The slope of a straight line is the ratio of the:

vertical change to the horizontal change.

The opportunity cost of something is:

what is given up to acquire it.

My demand curve for cigars, per day, is C=8-4P, where P is the price of a cigar and C is the number of cigars I buy and smoke. Assume the current price is $4/cigar. My WTP to able to buy cigars at $4 each (as compared to no cigars for sale) is

$0

The table Economics Textbooks shows how much money four consumers would each be willing to pay for a new economics textbook. If the price of the textbook is $100, what is the total consumer surplus received by these consumers?

$125

Vonda and Aleiyah are shopping together at the mall for new jeans. Vonda is willing to pay $90 and Aleiyah is willing to pay $50 for a pair of jeans (they have no WTP for a second pair). If the price of jeans is $59, how much total consumer surplus will Vonda and Aleiyah achieve in this market?

$31

The Atlanta Symphony wants to make sure that its concerts are affordable for all residents of Atlanta and therefore prices all of its tickets at $25. However, outside Symphony Hall, people can sell the same tickets for $75 or more. The true cost to the concertgoer of a ticket to the symphony is at least:

$75

My demand curve for cigars, per day, is C=8-4P, where P is the price of a cigar and C is the number of cigars I buy and smoke. Assume the current price is $4/cigar. My total WTP for cigars is

$8

Assume the demand function curve for football tickets ($ on the vertical axis) is a straight line. The number of seats in a football stadium is fixed at 70,000. The team raises the price of a ticket from $30, at which 70,000 are sold, to $40, and it sells 60,000 tickets. The price change caused a change in the consumer surplus of:

-$650,000

If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no cabbages and 100 pounds of potatoes and if he faces a linear production possibility frontier, the opportunity cost of producing an additional pound of cabbage is _____ pound(s) of potatoes.

0.5

If a supply curve (price on the vertical axis, quantity on the horizontal axis) is represented by the equation Q = 10 + 2P, what is its slope of the graph?

1/2

Assume a world of no external effects, and consider the demand and supply curves for low-skilled workers with the wage rate on the vertical axis. Now assume that the government has imposed a binding maximum wage for low-skilled workers. That is, firms cannot pay workers more than the legislated amount. Choose the statement about the effect of this binding maximum wage that is both correct and most informative.

A. From an efficiency perspective, too few of the low-skilled will work, and there will be firms who want to hire the low skilled at the legislated maximum wage, but cannot. B. There will be an excess demand for low-skilled workers at the legislated maximum wage, and the allocation of low-skilled workers will be inefficient D. More than one of the other answers is correct

Society consists of only George and Mabel. George kicks her ***********, making himself better off (he likes to kick women) and Mabel worse off. If he had to, George would have paid $10 for the opportunity to kick Mabel. Mabel does not like George and does not like being kicked, but would have voluntarily let him kick her for $12. Assuming no one else is affected, which alternative is both correct and more informative.

George kicking Mabel would decrease efficiency

Assume I and II: I is "Fish need water". II is "All living things need water". It logically follows from I and II that fish are living things.

Incorrect

Consider a situation where a potential seller's WTA (willingness-to-accept) the loss of the good is less than a potential buyer's WTP (willingness-to-pay) for the good. This situation could occur in an equilibrium.

Incorrect

People who make more money income necessarily face fewer constraints than do people who make less money income.

Incorrect

Suppose Alice consumes only wine and cheese. Alice's income increases, the price of wine decreases, and the price of cheese increases. Consider Alice's budget line with wine on the horizontal axis and cheese on the vertical axis. What will happen to the slope of Alice's budget line?

It becomes flatter

Is the following statement true or false? "Google is a large centrally planned economy."

It is true

Society is made up of only Jane and wolves. and deer, but they don't like to run with her. Note that the deer are not members of society. Currently, Jane is not allowed to run with the deer or the wolves. What of the following changes would necessarily increase efficiency? (Choose the answer that is both correct and most informative.)

Jane is allowed to run with the deer

If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. We know that:

Laurence's opportunity cost of writing programs is less than Carrie Anne's.

In Spumoni Colorado, Mary and Jane work at the one ice-cream parlor. They both can make ice-cream sundaes or ice-cream cones. Working for one hour, Jane can make 20 sundaes, and working for one hour Mary can make 30 sundaes. Alternatively, in one-hour Jane can make 16 cones whereas Mary can make 24 cones. Choose the alternative that is both correct and most informative.

Mary has an absolute advantage in the production of both cones and sundaes but a comparative advantage in the production of neither.

Rapidly increasing health costs have been a major political concern since at least 1992. Suppose the government sets the maximum price for a normal doctor visit at $20 to control rising health costs but the current market price is $40. What will happen?

More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.

A rational consumer will always choose to consume a bundle of commodities that is on her budget line.

No

An economic agent will continue to consume more units of a commodity as long as total benefits are greater than total costs.

No

Suppose Mindy and Jeanine are roommates in an apartment that allows smoking indoors (A fact initially overlooked by Jeanine when she signed the lease). Mindy is a regular cigarette smoker and her roommate Jeanine is not. Mindy values being able to smoke in the house at $300 a year. Jeanine puts a value of $200 to avoid second hand smoke in the apartment. Jeanine offers Mindy $250 to walk out to the patio to smoke her cigarettes. Would this bargain increase efficiency?

No, it would not

Which of these two statements is incorrect? A) The opportunity cost of activity I is always expressed in units of activity I B) The opportunity cost of activity I in terms of activity II is the inverse (reciprocal) of the opportunity cost of activity II in terms of activity I.

Only statement A is incorrect

Which of the following statements is both correct and most informative.

Some people without children chose to not have children, some people because they are constrained to not have children

Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two windows per hour or he can iron five shirts per hour. (Choose the answer that is both correct and most informative.)

Susan has an absolute advantage over Paul in washing windows. Susan has a comparative advantage over Paul in washing windows. Paul has a comparative advantage over Susan in ironing shirts.

Which of the following would cause the demand for chocolate bars to increase while not shifting the demand curve for chocolate bars (price on the vertical axis, quantity on the horizontal axis?

The US government imposing a binding price ceiling on Reese's Pieces. An increase in the supply of chocolate bars at every price.

Which of the following is the best definition of an economic system?

The process (or processes) a society uses to determine what will be produced and how it will be distributed

Your theory makes three assumptions: (1) Kids who have divorced parents are unhappy. (2) Unhappy kids earn failing grades. (3) Zack earns failing grades. Which of the following statements is both correct: and most informative?

The three assumption do not imply that Zack has divorced parents.

In places like Aspen, If wood-burning fireplaces and stoves are unregulated there will be too much smoke from an efficiency point of view: Aspen is a box canyon and the smoke has nowhere to go. The city government is consider requiring permits for wood-burning devices. Which of the following narratives is, in Edward's view, both correct and most generally informative? (asked on the Aplia quiz on messing with markets)

This is an example where a binding quota, achieved by requiring but limiting the number of permits, can increase efficiency (achieves the efficient number of wood- burning devices) rather than causing inefficiency.

In places like Aspen, If wood-burning fireplaces and stoves are unregulated there will be too much smoke from an efficiency point of view: Aspen is a box canyon and the smoke has nowhere to go. The city government is considering requiring permits for wood-burning devices. Which of the following narratives is, in Edward's view, both correct and most generally informative?

This is an example where a binding quota, achieved by requiring but limiting the number of permits, can increase efficiency (achieves the efficient number of wood- burning devices) rather than causing inefficiency.

Binding quotas on the amount of a good that can be produced necessarily cause inefficiency.

This statement is incorrect

A shift of the demand curve for thin-crust pizza (income on the vertical axis, quantity demanded on the horizontal axis) could be caused by a change in the price of thin-crust pizza.

Yes, it could

One of the constraints faced by students wanting to take Econ, 2010, Fall 2017 semester was that one of the sections will be taught by Edward Morey at 9:30 a.m. on Tuesdays and Thursdays.

Yes, this was a constraint

A price control is:

a legal restriction on how high or low a price in a market may go.

Raclette is a popular wintertime dish in Switzerland. It is essentially melted cheese over boiled new potatoes. Assume that Raclette is only made at home. If the price of cheese decreased, we would expect to see: Choose the answer that is both correct and most informative. (assume price in Swiss Francs is on the vertical axis).

a shift to the right in the consumer's demand function for new potatoes, and a movement along the consumer's demand function for Raclette

Consider two competing motorcycle manufacturers, Harley- Davidson and Honda. If Harley-Davidson raises the price of its motorcycles, we can expect: (assume $ on the vertical axis, quantity on the horizontal axis)

a shift to the right in the demand curve for Hondas and higher prices for Hondas.

Is the following statement true or false? "George's demand function for Diet Coke(s) and George's marginal willingness-to-pay function for Diet Coke contain the same information, neither contains more nor less.

correct

Economists may disagree about policies because they:

assume different things in their models.

An economy is said to have a comparative advantage in the production of a good if it can produce that good:

at a lower opportunity cost than another economy.

A choice made _____ is a choice whether to do a little more or a little less of something.

at the margin

Assume one model uses inflation to explain unemployment, and another model uses unemployment to explain inflation. In the first model, inflation is an ___ variable and in the second model it is an ____ variable.

exogenous, endogenous

A consumer's willingness to pay for a surfboard is the minimum price at which he or she would buy the surfboard.

false

A town hires more police officers and then has an increase in arrests. One can conclude that the larger police force caused more crime.

false

Markets are always the best way to organize economic activity. Any policies that interfere with markets reduce society's welfare.

false

Suppose the U.S. government imposes a binding quota on the number of Japanese-made cars allowed into the United States. Assuming that Japanese-made cars and U.S.-made cars are substitutes in consumption, we would expect the price of Japanese cars to _____ and the price of U.S.-made cars to _____.

increase; increase

Market failure may occur because:

individual actions have side effects that are not properly taken into account by the market

Consumer surplus for an individual buyer is equal to:

the consumer's willingness to pay for the good minus the price of the good.

How people choose among the alternatives available to them is:

the study of microeconomics.

When a market is efficient:

there is no way to make some people better off without making other people worse off

Suppose Alice consumes only wine and cheese. Alice's income increases, the price of wine decreases, and the price of cheese decreases. Consider Alice's budget line with cheese on the vertical axis and wine on the horizontal axis. What will happen to the slope of Alice's budget line?

there is not enough information to tell