ECON 2020 Midterm

If the consumer surplus is $1000 and the producer surplus is $300, the social surplus is

$1300

The conditions of demand and supply are given in the table below. What is the equilibrium price?

$2.80

What is the relationship between total surplus and economic efficiency?

An economically efficient market will have the maximum possible total surplus given the supply and demand curves.

Which of the following four statements are normative?

Congress gives too many tax breaks to corporations

Which of the following examples describe a progressive tax?

Income tax with a %10 tax rate on low income households and 20-30% tax rates on higher income households

Refer to the figure below. Which area represents consumer surplus?

Point above equilibrium but under demand curve

Which of the following are positive?

Social security benefits are not taxed.

Identify the macroeconomic issue among the following statements.

The average cost of producing electricity nationally is rising.

Using the midpoints method, calculate the price elasticity of demand of Good X using the following information: When the price of good X is $50, the quantity demanded of good X is 400 units. When the price of good X rises to $60, the quantity demanded of good X falls to 300 units.

The price elasticity of demand for good X=1.57

How does a production possibilities model differ from a budget constraint model?

The production possibilities model demonstrates diminishing returns.

Which of the following best defines consumer surplus?

The social surplus minus producer surplus

The circular flow diagram demonstrates

a direct relationship between groups in an economy

when the mix of goods being produced represents the mix that society most desires

allocative efficiency

law of diminishing returns

as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline

according to the law of demand, assuming other factors are held constant

as the price of bread increases, the quantity of bread will decrease.

According to the law of supply, assuming other factors are held constant

as the price of milk decreases, the quantity of milk supplied will decrease.

all possible combinations of goods that someone can afford, given the prices of goods, when all income (or time) is spent

budget constraint

The law of demand states that as the price of a good increases

buyers desire to purchase less of it.

other things being equal

ceteris paribus

The demand for cigarettes is highly inelastic. This suggests that the incidence of a higher tax on cigarettes will fall primarily on:

cigarette consumers

a diagram indicating that the economy consists of households and firms interacting in a goods-and services market and a labor market

circular flow diagram

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

comparative advantage

Negative cross price elasticity of demand between two goods indicates that the two goods are

complements

goods that are often used together, so consumption of one good tends to enhance consumption of the other

complements

Making an economically rational decision requires

considering all prospective marginal benefits marginal costs to oneself

After cost overruns of the electric project, $20 million was already spent and unrecoverable. It was going to cost $12 million more in order to complete the project, and now society somehow needs to make the rational choice to

continue with the project provided that the additional electricity is worth more than $12 million.

The percentage change in the quantity of good A that is demanded as a result of percentage change in the quantity of good B demanded

cross-price elasticity of demand

Given the total revenue = price x quantity, what will happen to total revenue if price increases when demand is elastic?

decrease

a graphic representation of the relationship between price and quantity of a certain good or service demanded, with quantity on the horizontal axis and the price on the vertical axis.

demand curve

A positive statement is always

devoid of value judgements

a relationship between two variables such that both either increase or decrease together; also called a "positive relationship"

direct relationship

Supply is said to be _______ when the quantity supplied is very responsive to changes in price.

elastic

when the elasticity of demand is greater than 1, indicating a high responsiveness of quantity demanded to changes in price

elastic demand

Teenage workers are assumed to have ________ labor supply, therefore a 5% increase in wage would result in __________ percentage change in quantity of labor supplied

elastic, greater

when the quantity demanded is equal to the quantity supplied

equilibrium

A price ceiling creates _________ when it is set __________ the equilibrium price.

excess demand -- below

A price floor creates __________ when it is set _________ the equilibrium price.

excess supply --- above

a relationship or expression involving one or more variables

function

A perfectly elastic supply curve is

horizontal

the percentage change in quantity demanded divided by the percentage change in income

income elasticity of demand

Complete the following sentence: If people think that the price of electronics will increase in the near future, that belief may cause a(n)

increase in the demand for electronics today.

a relationship between two independent variables such that when one changes, the other does not change, and vice versa; also called a "constant relationship"

independent relationship

when the elasticity of demand is smaller than 1, indicating a low responsiveness of quantity demanded price changes.

inelastic demand

a good for which the quantity demanded falls as income rises, and the quantity demanded rises as income falls

inferior good

the point on a graph where two lines cross

interception point

a relationship between two variables such that when one increases, the other decreases, or vice versa; also called "negative relationship"

inverse relations

If a graph data line indicates that there is a zero slope, this means there

is a constant relationship between x and y.

states that more of a good will be demanded (bought) the lower its price, and less of a good will be demanded (bought) the higher its price, ceteris paribus (other things being equal)

law of demand

states that more of a good will be provided the higher its price; less will be provided the lower its price, ceteris paribus (other thing being equal)

law of supply

Increased competition due to a greater number of producers will cause

lower prices due to an increase in the quantity supplied at every price

Which of the following will cause the supply curve to shift to the right?

lower product taxes

comparing the costs and benefits of a little more or a little less

marginal analysis

the tax rate an individual would pay on one additional dollar of income; the change in tax divided by the change in income

marginal tax rate

Syd is an economist putting together an economic model to predict outcome from particular causes and effects in the economy. What tool is best for testing out his model?

mathematical functions

the regulated legal minimum price or wage (price floor) for unskilled labor which is set above an unregulated market equilibrium wage rate

minimum wage

indicates that two variables are negatively related; when one variable increases, the other decreases, and when one variable decreases, the other increases

negative slope

a good for which the quantity demanded rises as income rise, and the quantity demanded falls as income falls

normal good

when income increases and the demand for a good increases, the good is considered a

normal good

are subjective; they describe the world as it ought to be

normative statements

Consumer surplus is best described as the extra benefit consumers receive when they _______.

pay less than they would have been willing to pay

are objective; they describe the world as it is

positive statements

Once a model of reality is constructed around certain assumptions, it can be tested to determine its value in

predicting outcomes.

a legal maximum price

price ceiling

government laws to regulate prices instead of letting market forces determine prices

price control

percentage change in the quantity of a good or service demanded divided by the percentage change in price

price elasticity of demand

percentage change in the quantity of good or service supplied divided by the percentage change in price

price elasticity of supply

a legal minimum price

price floor

The production possibilities model shows an inverse relationship between the amount of one thing that can be produced and the amount of something else because

production of different types will compete for limited recources

The distinguishing feature of economic capital (as opposed to financial capital, like money) is that it is

productive

when it's impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

productive efficency

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it have available

productive possibilities frontier (or curve)

a tax that collects a greater share of income from those with high incomes than from those with lower incomes

progressive tax

a tax that is a flat percentage of income earned, regardless of level of income

proportional tax

a tax in which people with higher incomes pay a smaller share of their income in tax

regressive tax

The price elasticity of demand measures the

responsiveness of a quantity demanded to a change in price.

when a change in some economic factor (other than price) causes a different quantity to be demanded at every price

shift in demand

when a change in some economic factor (other than price) causes a different quantity to be supplied at every price

shift in supply

at the existing price, the quantity demanded exceeds the quantity supplied; also called "excess demand"

shortage

Which of the following factors does NOT influence the price elasticity of demand of a product?

slope of the supply curve

which of the following examples describe a regressive tax?

social security tax rate of 6.2% on earned income below %117,000 and 0% on income earned above $117,000

a good that can replace another to some extent, so greater consumption of one good tends to mean less of the other

substitute

costs that are incurred in the past and can't be recovered

sunk costs

at the existing price, quantity supplied exceeds the quantity demanded

surplus

manner in which the tax burden is divided between buyers and sellers

tax incidence

As life would have it, we all come to forks in our paths when we need to make a choice, knowing that...

the correct choice depends upon the opportunity cost of a choice.

The agricultural extension agent told the farmer that one more crop/dusting will likely add a ton of additional wheat to the harvest. The rational farmer then calculated the selling price of a ton of wheat, since he would decide to crop-dust again if and only if

the marginal benefit is greater than the marginal cost of an additional crop-dusting.

The elasticity of supply is defined as the

the percentage change in quantity divided by the percentage change in price.

If a data line on a graph slopes upward as it goes to the right, it is depicting that

the relationship between the variables on the axes is direct.

The slope of a budget constraint line is influenced by

the relative prices of the two goods competing to satisfy wants.

social surplus is ________.

the sum of consumer surplus and producer surplus

A sever freeze has damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of

the supply curve.

In the case of an inverse relationship between two variables, all else remaining constant

the value of the two variables will move in opposite directions from eachother

The price of an item multiplied by the number of units sold

total revenue

The very best models have an unusual combination of characteristics. They are both

useful and simple.

Normative statements are based upon

value judgements

a quantity that can assume a range of values

variable

the horizontal line on a graph

x-axis

the vertical line on a graph

y-axis

the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; also called "perfect inelasticity"

zero elasticity