ECON 202 Final

Suppose a city block was going to be used for a parking lot in both New York City and a small town. The opportunity cost would be

greater in New York City because the alternative uses of the city block are more valuable.

Refer to the diagram. A decrease in demand is depicted by a

shift from D2 to D1

A student will decide to attend class when

the marginal benefit of attending exceeds the marginal cost of attending

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be

f and c, respectively

Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is:

4 pens

Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are shown in the following table. suppose that the government establishes a price ceiling of $3.70 for wheat. What might prompt the government to establish this price ceiling? explain carefully the main effects. demonstrate your answer graphically. next, suppose that the government establishes a price floor of $4.60 for wheat. what will be the main effects of this price floor? demonstrate your answer graphically

- to control food prices. price ceilings represent established maximums on a price. this means to control prices as it creates the upper limit for a price. -it will create a surplus. if the government establishes a price floor at $4.60 there will be a surplus of 14,000 bushels. buyers demand 65,000 bushels at the price of $4.60, but sellers supply 79,000 bushels

Explain the typical shapes of marginal-benefit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product? Explain

-any economic activity should be expanded as long as marginal benefit exceeds marginal cost -any economic activity should be reduced if marginal cost exceeds marginal benefit -the optimal amount of the activity occurs where MB=MC -achieving the optimal output requires the expansion of a good's output until its MB=MC

supply curve

-curve S -corresponds with price-quantity data -upward slope reflects the law of supply -producers offer more of a good, service, or resource for sale as its price rises

What are determinants of demand? What happens to the demand curve when any of these determinants change? distinguish between a change in demand and a movement along a fixed demand curve, noting the cause(s) of each

-factors other than price that determine the quantities demanded of a good or service -changes in the determinants of demand will cause the demand curve to shift either right or left -change in quantity demanded is a movement from one point to another point along a fixed demand curve or schedule. the cause is an increase or decrease in the price of the product under consideration.

What are the determinants of supply? what happens to the supply curve when any of these determinants change? distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each

-factors other than price that determine the quantities supplied of a good or service -changes will cause the supply curve to shift either right or left -change in supply; shift to right is an increase and shift to the left is a decrease. anything affecting cost -changes in quantity supplied movement from one point to another along a fixed supply curve. cause is change in the price of the specific product being considered

Critically evaluate "In comparing the two equilibrium positions, I note that a smaller amount is actually demanded at a lower price. This observation refutes the law of demand"

-increase in demand increases both equilibrium price and equilibrium quantity. vice versa. -decline in supply increases equilibrium price and decrease equilibrium quantity

demand curve

-inverse relationship between price and quantity demanded for any product -quantity demanded on horizontal axis -price on vertical axis -downward slope

What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: allocating a square block in the heart of New York City for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain

-the amount of other products that must be forgone or sacrificed to produce a unit of a product -the economic resources needed to make goods and services are in limited supply. scarcity restricts options and demand choices. these sacrifices are known as opportunity costs.

explain the law of demand. Why does a demand curve slope downward? How is a market demand curve derived from individual demand curves?

-the principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price -downward slope reflects the law of demand-people buy more of a product, service, or resource as its price falls -by adding the quantities demanded by all consumers at each possible price

In which of these two statements are the terms "supply" and "demand" used correctly?

Statement B "The price of corn rises and falls in response to changes in supply and demand."

a. What are the determinants of supply? b. What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. i. Change in market price: ii. Change in factor productivity: iii. Change in producer expectations: iv. Change in the price of other goods: v. Change in technology: vi. Change in resource prices: vii. Change in taxes:

a.

a. Explain the typical shapes of the marginal-benefit and marginal-cost curves. The marginal-benefit curve is __ sloping. The marginal-cost curve is __sloping. b. With these curves, the optimal allocation of resources to a particular product will occur when c. If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product?

a. -downward -upward b. MB=MC c. fewer

Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each. a. Complete the table below (gray-shaded cells) showing the alternative combinations of the two products that are available. b. Use the data in the table to plot a budget line in the graph. What is the opportunity cost of one more candy bar? Do these opportunity costs rise, fall, or remain constant as additional units are purchased? c. Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to buy? d. Suppose that you had won $30 on your ticket, not $15. Is the slope of a new budget line flatter, steeper, or the same as in the diagram above? Has the number of available combinations increased or decreased?

a. 10, 8, 6, 4, 2, 0 -0.5 -remain constant -no -the same -increased

Refer to the figure below. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. a. Will the MC curve shift up or down? b. Will the optimal amount of pizza increase or decrease?

a. MC will shift down b. the optimal amount of pizza will increase

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market? That is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts? a. Supply decreases and demand is constant. Price __and quantity __ b. Demand decreases and supply is constant. Price ___and quantity___ c. Supply increases and demand is constant. Price___and quantity____ d. Demand increases and supply increases. Price __and quantity __ e. Demand increases and supply is constant. Price ___and quantity__ f. Supply increases and demand decreases. Price ___and quantity ___ g. Demand increases and supply decreases. Price___and quantity__ h. Demand decreases and supply decreases. Price ___and quantity ___

a. increases, decreases b. decreases, decreases c. decreases, increases d. is indeterminate, increases e. increases, increases f. decreases, is indeterminate g. increases, is indeterminate h. is indeterminate, decreases

a. The next- best thing that must be forgone in order to produce one more unit of a given product: b. the pleasure, happiness, or satisfaction obtained from consuming a good or service: c. the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity: d. Making choices based on comparing marginal benefits with marginal costs:

a. opportunity cost b. utility c. economics d. marginal analysis

Critically evaluate: "In comparing the two equilibrium positions in the figure below, I note that a smaller amount is actually demanded at a lower price. This observation refutes the law of demand." a. A decrease in demand from D1 to D2 results in a b. This causes the price to c. This change in price results in __in quantity demanded along demand curve D2. d. This change in price results in a __in quantity supplied. e. The new equilibrium has a ___and __when compared to the original equilibrium. f. Does this refute the law of demand: __ g. Why:

a. surplus b. fall c. an increase d. a decrease e. lower price, lower quantity f. no g. because there was a change in demand

A production possibilities table for bananas and apples is shown below: b. Does the economy above demonstrate the law of increasing opportunity cost? c. Based on this information, what is the opportunity cost of a pound of apples? What is the opportunity cost of a pound of bananas?

b. no c. 0.80 pounds of bananas 1.25 pounds of apples

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market

demand has increased and equilibrium price has decreased.