ECON 3033 Exam 1

In the market for used cars, the demand and supply equations are given by QD = 12,000 - 0.4P and QS = 0.1P + 5,000, where P is the price per car and Q measures the quantity of cars. What is the size of the deadweight loss at a price floor of $15,000?

$1 million

The price of an airline ticket from Denver to Washington, D.C., is $600 while the price of a bus ticket for the same trip is $150. Traveling by plane takes six hours, compared with 36 hours by bus. Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than:

$15 per hour

The market for plywood is characterized by the following demand and supply equations: QD = 800 - 10P and QS = 50P - 1,000, where P is the price per sheet of plywood and Q measures the quantity of plywood. What is the size of the deadweight loss if the government imposes a price ceiling of $25 per sheet of plywood?

$3,750

The demand and supply of ethanol are given by QD = 8,000 - 2,000P and QS = 1,000P - 1,000, where P is price per gallon and Q measures gallons per minute. If the government subsidizes ethanol at $0.30 per gallon, what is the deadweight loss?

$30

In the blackberry market, the quantity demanded is given by QD = 2,600 - 500P, and the quantity supplied is given by QS = -400 + 100P. What are the equilibrium price and equilibrium quantity?

$5 and 100 pounds

If the inverse demand curve for a good is given by P = 100 - 4Q, the price elasticity of demand is elastic at a price of _____ and inelastic at a price of _____.

$55; $35

The demand and supply of movie tickets are given by QD = 30 - 3P and QS = 4P - 19, where P is the price per ticket and Q is in thousands of tickets. If the government places a $1 tax on each ticket, the prices that consumers pay with and without the tax are _____ and _____, respectively.

$7.57; $7

Monroe consumes crab cakes and tuna. Monroe's utility increases with the consumption of crab cakes, but his utility neither increases nor decreases with the consumption of tuna. Assuming tuna is on the x-axis and crab cake is on the y-axis, what do Monroe's indifference curves look like?

horizontal lines

The value of an economic theory in practice is determined by:

how well the theory can predict or explain behavior.

A consumer's bundle includes the inferior good X and the normal good Y. According to the income effect, a(n) _____ in the price of good X or a(n) _____ in the price of good Y will cause the consumer to buy more of good X.

increase; increase

A(n) _______________ bundle is a bundle that the consumer cannot afford to purchase; that is, any bundle that lies above the budget constraint.

infeasible

If the equation of a supply curve is Q = 20P − 500 then the equation of the ______________ supply curve is P = 0.05Q + 25.

inverse

Consider a curve and the straight line tangent to it a given point. The slope of the curve:

is equal than the slope of the tangent line.

Carin consumes bananas (B) and apples (A). Her utility function is given by U = 3B2 + 2A2. That means that bundle I (A = 9, B = 4) and bundle II (A = 2, B = 5):

lie on different indifference curves, and I has greater utility than II.

Genetically modified soybean seed is an example of a new technology that has increased productivity. As a result, this new technology _____ production costs and _____ the supply of soybeans.

lowered; increased

If an increase in income causes demand to rise faster than the growth of income, economists call that good a(n) __________ good.

luxury

The utility function U = Y/X violates the assumption(s) of:

more is better

Leslie derives satisfaction from consuming pizza (P) and tofu (T). Leslie's utility function is given by U= P0.6T0.8. If Leslie increases his consumption of both pizza and tofu by 1%, her utility level will increase:

more than proportionally, i.e., more than 1%.

On some days Gus makes his own salad for lunch, preferring to use either iceberg or romaine lettuce, topped off with lots of fresh tomatoes. The cross-price elasticity of demand for iceberg lettuce with respect to romaine lettuce is _____, and the cross-price elasticity of demand for iceberg lettuce with respect to tomatoes is _____.

positive; negative

An increase in the price of a good, holding everything else constant causes a change in ______________.

quantity demanded

One reason economists focus on a good's price more than other factors is that price is the only factor that exerts a large direct influence on both quantity demanded and ______________.

quantity supplied

Which assumption(s) allow(s) us to draw indifference curves?

rankability and completeness

The principle of opportunity cost evolves from the concept of:

scarcity

Economics is different from other social sciences because it is primarily concerned with the study of ________; it is similar to other social sciences because they are all concerned with the study of ________.

scarcity; human behavior

On a graph, a positive linear relationship: slopes down to the right. slopes up to the left. slopes up to the right. slopes down to the left.

slopes up to the right.

When indifference curves are relatively flat, consumers are willing to give up a ______ quantity of the good on the vertical axis for one more unit of the good on the horizontal axis.

small

A decrease in production costs causes an increase in _____________.

supply

Starting in 2010, natural gas producers began extracting natural gas from shale using a new technology called "fracking." The quantity of natural gas available on the market increased as a result. This is an example of a change in ______________.

supply

Rationing is:

the allocation of a limited supply of a good or resource among users who would like to have more of it.

When demand and supply are linear, consumer surplus is equal to:

the area between the demand curve and the price, out to the quantity that is exchanged.

A cardinal ranking of bundles of goods implies that:

the consumer is able to rank the bundles from most to least preferred and can also say how much one bundle is preferred to another.

Because consumers value variety, we assume that:

the more of a particular good a consumer has, the less of something else she is willing to give up to get even more of that good.

Using the strictest definition of a market, which of the following is NOT part of the definition?

the names of the buyers and sellers

When the demand curve shifts, the equilibrium price and quantity change in _______________direction(s).

the same

In the market for used cars, the demand and supply equations are given by QD = 12,000 - 0.4P and QS = 0.1P + 5,000, where P is the price per car and Q measures the quantity of cars. What happens at a price floor of $20,000?

there is a surplus of 3,000 cars

Data are important in economics because __________ and __________ they suggest relationships for explanation; allow testing of hypotheses they can be used for tables; they can be graphed they can be used in computers; governments use them they provide interesting information; can be summarized

they suggest relationships for explanation; allow testing of hypotheses

Randy likes baseball more than football, football more than basketball, and basketball more than baseball. Which assumption about consumer preferences does this violate?

transitivity

The additional utility a consumer receives from an additional unit of a good or service is called marginal utility.

true

The cross-price elasticity of demand is the percentage change in quantity demanded of good A caused by a change in the price of good B.

true

The strictest definition of a market identifies the date and time of the transaction.

true

The strictest definition of a market identifies the location of the transaction, t, the geographical area in which transactions occur between a given set of buyers and sellers.

true

The strictest definition of a market identifies the specific product being bought and sold

true

A _____________ is a mathematical function that describes the relationship between what consumers actually consume and their level of well-being.

utility function

_____ studies the economic well-being of society as a whole

welfare economics

Suppose that a firm's demand function is p = 60 - 0.5q where p is price and q is quantity. What is the slope of the demand curve?

-0.5

What is the partial derivative of y = 1.9 + 0.5x - 2.3z + 0.75z2 with respective to z?

-2.3 + 1.5z

Let C be cost and y be output. Suppose that the cost function (the relationship between cost and output) is given by C = 25 + 0.1y + 0.02y2. What is the slope of the cost function?

.1+.04y

Carin consumes bananas (B) and apples (A). Her utility function is given by U = 3B2 + 2A2. That implies that MUA = 4A and MUB = 6B. If apples are on the vertical axis and bananas are on the horizontal axis, the marginal rate of substitution at the point representing bundle I (A = 9, B = 4) is _________.

0.67

The income effect of a price change predicts that a _____ in a good's price will _____ consumer purchasing power, leading to a(n) _____ in consumption of _____ goods.

fall; increase; increase; normal

To economists, "search costs" are the costs incurred by an unemployed worker looking for a job.

false

1. Which of the following statements is FALSE? A utility function gives the relationship between a consumer's well-being and the quantities of goods consumed. Inputs into a utility function may include wool socks, DVD rentals, roller coaster rides, asparagus, and Sunday church services. One person's utility cannot be compared to another person's utility. Utility is the difference between the consumer's assets and her liabilities.

Utility is the difference between the consumer's assets and her liabilities.

Nancy's ratio of marginal utility for coffee and lipstick is 3:1, while the price ratio of coffee to lipstick is 1.5:1. Which of the following statements is (are) TRUE? I. Coffee provides Nancy with 3 times the utility of lipstick. II. Nancy could increase utility by decreasing her consumption of coffee by 3 units and increasing her consumption of lipstick by 1.5 units. III. Nancy could increase utility by decreasing her consumption of lipstick by 3 units and increasing her consumption of coffee by 2 units. IV. Nancy could increase utility by decreasing her consumption of coffee by 1 unit and increasing her consumption of lipstick by 3 units.

I and III

If your income during one year is $100,000 and the following year it is $120,000, then it has grown by

20%

Suppose that MUX = Y and MUY = X. The prices of good X and good Y are $5 and $4, respectively. How many units of good X does the consumer buy if she has $410 of income?

41

The consumer's budget constraint is $6 = 0.50G + P, where G is packs of gum and P is bags of pretzels. The marginal utility of pretzels is MUP = G0.5, and the marginal utility of gum is MUG = 0.5G-0.5P. The consumer's utility function is U = G0.5P. the utility-maximizing bundle consists of _____ packs of gum and _____ bags of pretzels.

4; 4

2. If the demand curve is QD = 10 - 2P, then the lowest price at which no consumer is willing to buy the good (i.e., the demand choke price) is:

5

The price elasticity of demand is -1.25, and the share of the tax borne by consumers is 0.80. What is the price elasticity of supply?

5

The demand choke price for the demand curve Q = 600 − 10P is:

60

Suppose that the marginal utility of good Y = 2X2 and the marginal utility of good X = 4XY. What is the slope of the indifference curve when Y = 7 and X = 2? Assume that good X is on the horizontal axis and good Y is on the vertical axis.

7

Kermit gets utility from algae (A) and houseflies (H). His utility function is U = 6A0.5H0.5. That implies that MUA is equal to 3(H0.5/A0.5) and MUH is equal to 3(A0.5/H0.5). Kermit's budget for algae and houseflies is $16 per month. The price of algae is $4 per ounce and the price of houseflies is $1 apiece. Kermit's optimum monthly consumption bundle is 2 ounces of algae and __ houseflies.

8

John consumes bananas (B) and apples (A). His utility function is given by U = 3B0.5 + 2A0.5. That implies that MUA = 3(B/A)0.5 and MUB = 3(A/B)0.5. (Note that (A/B)0.5 is the square root of A/B.) If apples are on the vertical axis and bananas are on the horizontal axis, MRSBA is:

A/B

The demand for Fuji apples is probably _____________.

elastic

Brenda's utility function for regular-flavored toothpaste (R) and mint-flavored toothpaste (M) is given by U = 2R + 4M. Which of the following statements is TRUE?

Brenda is willing to give up two tubes of regular-flavored toothpaste for one tube of mint-flavored toothpaste.

Figure 4.3 Which of the following statements is FALSE?

Bundle A is preferred to bundle C.

Cher's marginal rate of substitution of necklaces (N) for earrings (E) is 5 (MRSEN = 5). This information implies that:

Cher is willing to trade away five necklaces for one more pair of earrings, holding her utility constant.

Beth has $200 of income to spend on e-books (E), priced at $10 per book, and Zumba (Z) classes, priced at $8 per class. Which of the following consumption bundles is infeasible?

E = 10 and Z = 13

Chris has just eaten the third slice of pizza. According to our assumptions about consumer behavior, Chris will be willing to give up _________ orange slices for the fourth slice of pizza compared to the number of orange slices given up for the third slice of pizza.

Fewer

Julie spends all of her income on gasoline and pizza. Gasoline costs $4 per gallon and pizza costs $2 per slice. When Julie's income is $50 per week, she purchases 5 gallons of gasoline and 15 slices of pizza. When her income rises to $80 per week, she buys 15 gallons of gasoline and 10 slices of pizza. Which of the following statements is true?

Gasoline is a luxury good.

Which of the following is true of the concept of increasing opportunity cost? It is unimportant in socialist economies because they minimize the use of markets. It suggests that the use of resources to produce a set of goods and services means that as more of one thing is produced, ever-increasing amounts of other things must be sacrificed. Is irrelevant if the production possibilities curve is convex to the origin. It suggests that unlimited wants can be fulfilled.

It suggests that the use of resources to produce a set of goods and services means that as more of one thing is produced, ever-increasing amounts of other things must be sacrificed.

If the equation of a supply curve is Q = 20P − 500 then the equation of the inverse supply curve is:

P = 0.05Q + 25.

If the equation of a demand curve is Q = 600 − 20P, then the inverse demand curve is:

P = 30 − 0.05Q.

Demand is QD = 5,000 − 4P and supply is given by QS = 7P − 500. The equilibrium price and quantity are:

Q = 3,000, P = 500.

Which of the following supply curves (where P is price per bushel and QS measures number of bushels) generates $64 of producer surplus at a market price of $10 per bushel?

QS= 2P-4

For Sara, ramen noodles are a normal good, however Sean considers ramen noodles to be inferior. If Sara and Sean have the same amount of income:

Sean's demand for ramen noodles will be less price elastic than Sara's.

Which of the following statements is normative? Faster economic growth should result if an economy has a higher level of investment. Changing the level of interest rates is a better way of managing the economy than using taxation and government expenditure. Higher levels of unemployment will lead to higher levels of inflation. The average level of growth in the economy was faster in the 1990s than the 1980s

The average level of growth in the economy was faster in the 1990s than the 1980s

Which of the following does not violate the laws of transitivity?

The consumer prefers bundle A to bundle B, bundle B to bundle C, and bundle A to bundle C.`

Which of the following statements violates the assumption of transitivity?

The consumer prefers bundle A to bundle B, bundle B to bundle C, bundle C to bundle D, and bundle C to bundle A.

The Internet has made learning to play a musical instrument easier than ever, with thousands of Web sites offering free music lessons. What happens in the musical instruments market as a result of the availability of these free lessons?

The demand curve shifts out, pushing up the price.

Leslie derives satisfaction from consuming pizza (P) and tofu (T). Leslie's utility function is given by U= P0.5T0.5. If there are equal percentage increases in Leslie's consumption of pizza and tofu, Leslie's utility will increase more from the increased consumption of:

equal percentage changes in tofu and pizza indicate equal increases in utility.

A feasible bundle is

a bundle that the consumer has the ability to purchase: one that lies on or below the consumer's budget constraint.

An indifference curve is:

a mathematical representation of the combination of all of the consumption bundles that provide a consumer with the same utility.

Which of the following will not cause demand for apples to increase or decrease?

a reduction in the price of apples

One unusual fact about the way economists draw demand curves is that:

even though Q is the dependent variable and P is the independent variable, the graph of a demand curve has P on the vertical axis and Q on the horizontal axis.

In the market for oranges, we observe that the equilibrium price increased and the equilibrium quantity increased. What could have caused this change?

an increase in demand

A decrease in production costs usually causes:

an increase in supply

Economic models are:

based with assumptions

When two people trade goods: one person always gains at the expense of the other. both people usually gain from the exchange. one person usually gains at the expense of the other. the overall well-being of the two people remains unchanged.

both people usually gain from the exchange.

The fact that we can draw indifference curves is the result of our assumption of:

completeness and rankability.

An assumption of the supply and demand model is that there are many __________ and producers of the good.

consumers

When the marginal rate of substitution is small

consumers are willing to give up a large quantity of the good on the horizontal axis for one more unit of the good on the vertical axis.

When an indifference curve intersects the budget line on either the horizontal or vertical axis, the consumption bundle is called a(n) ______ solution.

corner

If the government subsidizes the production of a good:

deadweight loss results because too much of the good is exchanged.

The government wants to transfer welfare from buyers to sellers by collecting a $1 tax on a good from buyers and subsidizing sellers $1 for each unit of the good sold. This policy will:

decrease the equilibrium price

Chris will be willing to give up less slices of orange in exchange for further slices of pizza. In this case, his preferences satisfy:

decreasing marginal utility.

An increase in income usually causes an increase in _____________.

demand

During the winter of 2011-2012, many areas of the U.S. experienced warmer weather than usual. As a result, natural gas (used to heat homes) sales fell dramatically. This is an example of a change in:

demand

Based on the consumer's indifference curves and budget constraints, which of the following demand curves reflects the consumer's demand for water park tickets? Assume the consumer has income of $100.

demand curve A

Which of the following functions has a derivative of zero? y = 16. y = 16 + 0.5x. y = 1.2xy. y = 3.1459y2.

y = 16.