Econ-Exam One & Exam Two

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Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his production possibilities frontier is given in the above table. If Mr. Crusoe is on his PPF and he increases the amount of fruit he gathers from 56 to 90 pounds, the opportunity cost is

17 pounds of fish.

On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of bananas?

2 pounds of apples

The graph shows the market for apartments in Rivercity. As a result of the rent ceiling of $400, ________ are rented and people are willing to incur search costs of ________.

2,000; more than $100

In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $8 to $7 is equal to

2.50

Suppose the price of a box of cereal rises from $4 to $6. Using the midpoint method, what is the percentage change in price?

40 percent

What is Jim's quantity demanded when price is $4 and his income is $50,000?

40 units of ice cream per year

Water bottlers announce that next month the price of bottled water will rise by 25 percent. Which of the following occurs immediately?

The demand for bottled water increases

A huge 50 percent off sale on golf clubs is advertised for next week. What happens this week in the market for golf clubs?

The demand for golf clubs decreases.

After long hair for men became popular, barbers found that their incomes fell. In an attempt to boost their incomes, many barbers raised the price of a haircut and yet their total revenue fell even more. What can explain this result?

The demand for haircuts by barbers is elastic because of many substitutes.

Suppose that the equilibrium price and quantity of new houses both increase. Which of the following could be a cause of this change?

The demand for new houses increased, and the supply did not change.

For consumers, taco chips and salsa are complements. If the price of salsa rises, what is the effect on the equilibrium price and quantity of taco chips?

The equilibrium price of taco chips falls, and the equilibrium quantity decreases.

In stores, it is common to find seasonal products marked down when the season ends. What explains this behavior?

The law of demand is being used to increase the quantity demanded.

Which of the following helps explain why the law of supply exists?

The law of increasing opportunity cost

What must be true for a consumer to buy a good or service?

The price must be equal to or less than the marginal benefit.

The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the producer surplus?

area D

Production efficiency occurs

at all points ON the production possibilities frontier.

A surplus of cardboard boxes means that

at the current price of a cardboard box, the quantity demanded is less than the quantity supplied.

The production possibilities frontier is the boundary between the

attainable and unattainable combinations of goods and services.

The figure above shows Liz's and Joe's production possibilities for Salads and Smoothies.Given the information in the figure above, Joe can benefit from trade as far as the price at which he buys Liz's smoothies is

below 5 salads per smoothie.

Consumer surplus is the area

below the demand curve and above the market price.

Consumers regard Dell computers and Apple computers as substitutes. If the price of a Dell computer decreases, the

demand for Apple computers decreases

Car insurance and cars are complements. If the price of car insurance increases, the

demand for cars decreases.

Which of the following shifts the supply curve for oranges?

disastrous weather that destroys about half of this year's orange crop

If both supply and demand decrease by the same amount, the equilibrium price

does not change.

Demand curves slope ________ because as the price increases and other things remain the same, the quantity demanded ________.

downward; decreases

When all of the available factors of production are being efficiently employed, the

economy is producing at a point on its PPF.

If a good has many close substitutes, then its demand is most likely

elastic

Suppose the Chicago Bears football team raises ticket prices by 13 percent and as a result the quantity of tickets demanded decreases by 21 percent. This response means that the demand for Bears tickets is

elastic

The price elasticity of demand for Red Delicious apples, a certain type of apple, is likely

elastic

When the percentage change in the quantity demanded exceeds the percentage change in price, then demand is

elastic

Which is larger: The price elasticity of demand for food or the price elasticity of demand for oranges?

elasticity of demand for oranges is larger than the price elasticity of demand for food because oranges have more substitutes than food

If good weather conditions result in a larger than normal crop of peaches, then the

equilibrium price of peaches falls, and the equilibrium quantity of peaches increases.

Suppose that over the next few years the demand for dancing to country and western music decreases. Hence, at country and western dance clubs the equilibrium price of admission ________ and the equilibrium quantity of dancing ________.

falls; decreases

Suppose that people decide riding scooters is no longer fun. The equilibrium price of a scooter ________, and the equilibrium quantity of scooters ________.

falls; decreases

When the marginal cost of producing a bike is greater than the marginal benefit of the bike, for resource use to be allocatively efficient,

fewer bikes should be produced.

The maximum amount of other goods and services that people are willing to give up in order to get one more unit of a good is defined as the good's

marginal benefit

To an economist, "value" is the same as

marginal benefit

The demand curve is also the

marginal benefit curve.

A supply curve shows quantities supplied at various prices. It also shows the

marginal cost of production.

A country has a comparative advantage in the production of a good if it can

produce the good at the lowest opportunity cost.

Moving along a country's PPF, a reason opportunity costs increase is that

some resources are better suited for producing one good rather than the other.

You are more sensitive to a change in price if you

spend a lot of your income on the good.

split equally between consumers and producers, each paying $1 per gallon.

If the demand for used cars decreases after the price of a new car falls, used cars and new cars are

substitute goods.

One reason why the demand for gasoline is inelastic is because

substitutes for gas are hard to find.

The above figure shows the market for buckets of golf balls at the driving range. A new leisure time tax is placed on suppliers in this market, shifting the supply curve from S0 to S1. The tax incidence is

such that buyers pay $2 per bucket and sellers pay $1 per bucket.

If marginal benefit is equal to marginal cost, then the

sum of producer surplus and consumer surplus is as large as possible.

Suppose the equilibrium price of oranges is $2.00 per pound. If the actual price is above the equilibrium price, a

surplus exists and the price falls to restore equilibrium.

If a market begins in equilibrium and then the demand curve shifts leftward, a

surplus is created, which is eliminated by a fall in price.

Suppose the current price of a pound of steak is $12 per pound and the equilibrium price is $9 per pound. In this case, there is a

surplus, so the price falls and quantity demanded increases.

To calculate the revenue government receives when a tax is imposed on a good, multiply the

tax by the after-tax quantity.

People who benefit from a rent ceiling include

tenants who have a rent-controlled apartment.

Hot dogs and hot dog buns are complements. If the price of a hot dog falls, then

the DEMAND for hot dog buns will increase.

What is the "quantity demanded"?

the amount of a good people are ABLE and WILLING to buy during a specific time period and at a given price

How a moderate leftward shift in the supply curve is going to affect total revenue generated at a market if in the initial market equilibrium demand is elastic?

total revenue goes down

Suppose that bad weather negatively affects supply of oranges in Florida. How a moderate shift in the supply curve caused by this event is going to affect total revenue generated at this market if in the initial market equilibrium demand is inelastic?

total revenue goes up

The price of the good multiplied by the quantity sold is its

total revenue.

Were you able to make up and write down a combination of these two goods that is inefficient?

true

If the price elasticity of demand for opera tickets in Orlando is 1.00, then the demand for opera tickets in Orlando is

unit elastic

The diagram shows a supply curve for corn when the next month's price is expected to be $200 per ton. How the supply curve for corn is going to shift if the expected price of corn drops to $150 per ton?

upward

If the local government set the highest legally permitted rent at $400 per month, what would the deadweight loss resulting from this restriction be?

$1,125

$1,200

The figure above illustrates the current market for fast-food restaurant jobs in Springfield. If the city government imposes a minimum wage of $12 an hour, how much resources will be lost because of an increase in search activity?

$1,200 a week

The above figure shows the market for 2 bedroom town homes in San Diego. If a rent ceiling is set at $1,000 per month, what is the maximum rent someone is willing to pay in the black market?

$1,300 per month

Suppose that supply and demand at a market are represented by curves S and D at the figure above (notice that the vertical axis grid has increments of $2) and then a tax of $6 dollars per unit is imposed on SELLERS. How much the sellers are getting per unit after paying the tax?

$10

The figure above shows the market for tires. The government has imposed a tax on tires, and the buyers pay ________ of the tax.

$10

In the figure above, at the market price of $15, the consumer surplus equals

$10,000

The figure shows the labor market for fast food workers. A minimum wage of ________ per hour will create unemployment of ________ workers.

$15; 150,000

$16

The figure above shows the market for tires. The government has imposed a tax on tires, and the sellers tax burden is

$20

Bill and Krista sell potted plants from a roadside stand. The figure above shows Bill and Krista's marginal cost curve and the market price. If Bill and Krista sell 60 plants per week at $8 per plant, their producer surplus from all their plants is

$240

In the figure above, suppose that the government imposes a tax of $4 per pizza. Then, the tax revenue collected by the government equals

$240

In the figure above, what is the total revenue at point A?

$3,000

The figure above shows the market for tires. The figure shows that the government has imposed a tax of ________ per tire.

$30

In the figure above, suppose that $20 is the market equilibrium price. What is the amount of the consumer surplus?

$375

The figure above shows Kaley's marginal benefit from swimming with manatees and Scott's marginal cost of providing manatee swimming tours. At 1 manatee swim per week, Kaley's marginal benefit is ________ and Scott's marginal cost is ________.

$40, $10

The above figure shows a labor market with a minimum wage of $8 an hour. How many people are employed when the minimum wage is in place?

$40,000

If the local government set the highest legally permitted rent at $400 per month, how much resources will be lost because of search activity caused by the shortage?

$6,750

This figure illustrates the current market for fast-food restaurant jobs in Springfield. If the city government imposes a minimum wage of $12 an hour, what is the deadweight loss resulting from this restriction on wages?

$600 a week

The figure above shows the market for tires. According to the figure, the government collects ________ per month in total tax revenue.

$600 million

The figure above shows that for the 8,000th ticket, the marginal benefit is ________ and the consumer surplus is ________.

$60; $20

The figure above shows that the total benefit equals ________ which is the total of ________.

$900,000; consumer surplus plus the amount paid

When combination A is being produced, how much resources is being used to produce bread?

What is the opportunity cost per one extra ton of corn for Jim?

0.25

How much is it per one book?

0.33

How much is it per one gallon in #8?

0.33

How much is it per one gallon of ice cream in #11?

0.33 of ?

In the figure above, using the midpoint method, what is the price elasticity of demand between points A and B?

0.43

How much does Jim gain in potatoes compared to his initialproduction?

0.75

When the price of a cup of coffee falls from $3.00 to $2.50, the quantity demanded increases from 1,000 per month to 1,150 per month. This means that price elasticity of demand is:

0.77

When the price of a cup of coffee falls from $3.00 to $2.50, the quantity demanded increases from 1,000 per month to 1,150 per month. Using the midpoint method, the price elasticity of demand is

0.77

What is the opportunity cost per one extra ton of potatoes for Peter?

0.8

When the price of Cosmopolitan magazine decreases from $5 to $3, the quantity demanded increases from 600,000 to 1,000,000 copies each month. Using the midpoint method, the price elasticity of demand equals

How much milk it takes to increase production of ice cream from 0 to 3 milliongallons per year?

1 million gallons of milk

The figure above shows the production possibilities frontiers for the United Kingdom and France. What is the opportunity cost of one bushel of wheat for the United Kingdom?

1 pound of fish

How much does Peter gain in the amount of each good compared to his initial production?

1 ton of potatoes and 1 ton of corn

A firm can sell 10 units if the price is $100 and can sell 8 units if the price is $125. Using the midpoint method, what is the price elasticity of demand?

1.00

What is the highest amount of good produced by Peter that he will be willing to give to Jim per one unit of his good when trading?

1.25

What is the opportunity cost per one extra ton of corn for Peter?

1.25

How much potatoes and corn Jim has after trade?

1.5

In the table above, how many jackets must Mary forgo for every dress she makes?

1.5 jackets

The figure above shows the production possibilities frontier for a country. The opportunity cost of a gallon of milk between combination point A and B is

1/3 of a gallon of ice cream for a gallon of milk.

The figure above shows the production possibilities frontiers for the United Kingdom and France. What is the opportunity cost of one bushel of wheat in France?

1/4 of a pound of fish

What is the opportunity cost of increasing production of books from 400 units to 700 units?

100

What is Jim's quantity demanded when price is $3 and his income is $30,000?

25 units of ice cream per year

The above figure shows the market for gourmet ice cream. In effort to reduce obesity, government places a $2 tax per gallon on suppliers in this market, shifting the supply curve from S0 to S1. The quantity of ice cream consumed before the tax is ________ gallons and the quantity consumed after the tax is ________ gallons.

250,000; 200,000

The table above shows a nation's production possibilities frontier. If the nation chooses to increase the production of robots from 2 to 3 and it is on its PPF, it will have to forgo ________ pizzas.

How much milk it takes to increase production of ice cream from 3 to 4 million gallons per year?

3 million

How much is it per one unit of bread in the previous question (in #4)?

3.5

How much potatoes Peter has after trade?

3.5

The figure shows a demand curve. Using the midpoint formula, the elasticity of demand moving from point A to point B equals

What is the highest amount of good produced by Jim that he will be willing to give to Peter per one unit of his good when trading?

What is the opportunity cost per one extra ton of potatoes for Jim?

Deb and Pete have volunteered to help their favorite charity mail out fundraiser information. The figure above shows their production possibilities frontiers for assembling packets and stuffing envelopes. What is Deb's opportunity cost of assembling 1 packet?

4 envelopes

Deb and Pete have volunteered to help their favorite charity mail out fundraiser information. The figure above shows their production possibilities frontiers for assembling packets and stuffing envelopes. If Deb and Pete specialize and trade, how many packets will be assembled?

Deb and Pete have volunteered to help their favorite charity mail out fundraiser information. The figure above shows their production possibilities frontiers for assembling packets and stuffing envelopes. If Deb spends all her time assembling packets, how many can she assemble?

Suppose a country operates on its production possibility frontier when it produces 1,000 books and 1,000 tables. The combination of ________ reflects ________.

500 books and 1,000 tables; an inefficient but attainable point

Using the data in the table above, the equilibrium quantity and equilibrium price for a cellular telephone is

60,000 and $50.

How many books it takes to increase production of bread from 200 units to 400 units?

700

Suppose the local university charges $85 per credit hour. If tuition increases from $85 to $93 per credit hour, using the midpoint method, what is the percentage change in price?

8.99 percent

Which of the following is correct about comparative advantage?

A country has a comparative advantage in the production of a good if it can produce the good at lower opportunity cost than any other country.

Which of the following statements is correct?

An increase in price decreases consumer surplus.

Suppose that good weather positively affects supply of bananas in CostaRica. How a moderate shift in the supply curve caused by this event is going to affect total revenue generated at this market if in the initial market equilibrium demand is elastic? Use the following diagram by showing a shift in the supply curve along the elastic section of the demand curve and a resulting change in total revenue on the righthand diagram:

As supply increases, the price drops and the total revenue increases

The above figure shows the market for pizza. The market is in equilibrium when some of the pizza firms go out of business. What point represents the most likely new price and quantity?

The above figure shows the market for pizza. The market is in equilibrium when the wages paid pizza workers increases. What point represents the most likely new price and quantity?

The above figure shows the market for 2 bedroom town homes in San Diego. If a rent ceiling is set at $1,000 per month, what is true?

Black market rents might be as high as $1,300 per month.

Ben's cost of making an additional rocking chair is $75.

Both answers If he sells it for a $100, his producer surplus is $25 and His marginal cost is equal to $75 are correct.

In the figure above, suppose that the government imposes a tax of $4 per pizza. Then, the

Both answers buyers and sellers equally share the incidence of the tax and shaded area is the deadweight loss from the tax are correct.

A point on the demand curve shows the

Both answers price and the corresponding quantity demanded and marginal benefit from that unit are correct.

A supply curve

Both answers slopes upward and is a graph of the relationship between quantity supplied of a good and its price are correct.

The figure above shows Kaley's marginal benefit from swimming with manatees and Scott's marginal cost of providing manatee swimming tours. For Kaley and Scott, allocative efficiency is achieved at what point?

If Country A can produce an extra plane by giving up two boats, and Country B can produce an extra plane by giving up three boats, then

Country A has a comparative advantage over Country B in the production of planes.

The above figure shows the market for pizza. The market is in equilibrium when the cheese used to produce pizza falls in price. What point represents the most likely new price and quantity?

David takes 10 minutes to process a customer, and 20 minutes to stock the shelves. Danny takes 15 minutes to process a customer, and 15 minutes to stock the shelves. Which of the following statements is true?

David has a comparative advantage in processing customers but not in stocking shelves.

Deb has a comparative advantage in stuffing envelopes.

Both the demand for and supply of cars changes in France. You observe that the quantity of cars does not change but the price rises. Thus, which of the following occurred?

Demand increased and supply decreased by an equal amount.

If the total revenue moves in the opposite direction of the price, then what can we say about elasticity of demand?

Demand is elastic

A firm lowers the price it charges. The firm's total revenue decreases. What can we conclude about the price elasticity of demand?

Demand is inelastic

If the total revenue moves in the same direction as the price, then what can we say about elasticity of demand?

Demand is inelastic

If the total revenue does not change much as the price of the good changes, then what can we say about elasticity of demand?

Demand is unit elastic

The above figure shows the market for pizza. The market is in equilibrium when people's incomes decrease. If pizza is a normal good, then which point represents the most likely new price and quantity?

The above figure shows the market for pizza. The market is in equilibrium. Pizza and tacos are substitutes for consumers. The price of tacos falls. What point represents the most likely new price and quantity?

Suppose improvements in technology cause the supply of natural gas to increase and at the same time the demand for natural gas increases. What are we sure of?

Equilibrium quantity increases.

A construction boom occurs and many of the new buildings need plywood for their framing. Which of the figures above best illustrates this change?

Figure A

In an effort to protect endangered species from the effects of logging in America's national forests, the federal government passes a law prohibiting logging in most of the state of Washington. Which of the figures above best illustrates the effect of this new law?

Figure C

New technology for producing plywood is developed. Which of the figures above best illustrates this change?

Figure D

The number of logging firms increases. Which of the figures above best illustrates this change?

Figure D

Suppose India and France have the same PPF, shown in the figure above. Based on their current production points, which are France's and India's most likely future PPFs?

France PPF1, India PPF2

Goods A and B are substitutes in production. The price of good A rises. As a result, the equilibrium price of good B ________, and the equilibrium quantity ________.

Huey and Steve can grow potatoes or tomatoes. The table above shows the pounds of potatoes and tomatoes Huey and Steve can grow in a week. Based on the table, which of the following statements is correct?

Huey has an absolute advantage in both potatoes and tomatoes.

In a housing market with a rent ceiling below the equilibrium rent, apartment seekers spend more time searching for an apartment than they would in a housing market without a rent ceiling. Why does this difference exist?

In the market with the rent ceiling, the quantity of housing demanded is greater than quantity supplied at the ceiling price.

How Jim's demand for ice cream changes when his income drops from $50,000 to $30,000 while the price remains at $4?

Jim's demand for ice cream goes down by 20 units of ice cream per year

New York City, which has had a rent ceiling law for more than sixty years, has many abandoned apartment buildings throughout the city. Which of the following explains this?

Landlords have no incentive to finance maintenance and remodeling of apartment buildings.

In a recession, consumers have less income to spend. As a result, if dining out is a normal good, then which of the following would happen to the demand curve for dining out?

The demand curve would shift leftward.

The figure above shows Liz's and Joe's production possibilities for Salads and Smoothies.Using the figure above, suppose with no trade Liz and Joe each produce at point A on their respective PPFs. Then, Liz suggests that they specialize and trade. She would produce only smoothies and Joe would produce only salads. Then she would sell 10 smoothies to Joe at a price of 2.5 salads per smoothie. In this scenario,

Liz gains 10 smoothies and 5 salads, and Joe gains 5 smoothies

Which of the following is necessary for allocative efficiency to be achieved?

Marginal benefit must equal marginal cost.

Other things equal, if Mexico devotes more resources to train its population than Spain,

Mexico will grow faster than Spain.

If the demand curve for desktop computers shifts rightward and at the same time the supply curve shifts leftward, then

More information is needed to determine the effect on the equilibrium quantity.

What happens to the demand for a good if a complement's price increases?

The demand decreases and the demand curve shifts leftward.

Which of the following is an example of the unfairness of rent ceilings?

Newcomers have a more difficult time finding apartments.

Of the following, which good has the most elastic demand?

Post Raisin Brand purchased at a Safeway grocery store

Which of the following are the rules for finding the point of allocative efficiency?

Produce on the PPF and then produce where marginal benefit equals marginal cost.

Which of the following increases the supply of a good?

Productivity improves.

What is gained when people engage in specialization and trade?

Specialization and trade allow people to consume outside their individual production possibilities frontiers.

Supply curve is shifting up by $6.

Why is a production possibilities frontier bowed out (concave)?

The bowed shape reflects INCREASING opportunity cost.

Assume that an association of young workers has lobbied Congress to require that all workers retire once they reach the age of fifty. What impact would this law have on the nation's production possibilities frontier?

The production possibilities frontier would shift inward.

Assuming that the rent ceiling is strictly enforced so that there is no black market, which of the following statements about a housing market with a rent ceiling set below the equilibrium rent is correct?

The rent ceiling creates a deadweight loss.

Which of the following occurs when a market is efficient?

The sum of consumer surplus and producer surplus is maximized.

Plywood is used in the construction of houses. If the price of plywood rises, what happens to the supply of houses?

The supply decreases so that the supply curve shifts leftward.

Milk can be used to produce cheese or butter. If the price of a pound of butter rises, what happens to the supply of cheese?

The supply of cheese decreases.

If demand is price inelastic and the price is lowered, which of the following occurs?

The total revenue of the firms selling the product decreases.

The price of salsa rises. How does the increase in the price of salsa affect the supply of salsa?

There is no change to the supply of salsa, but the quantity of salsa supplied increases.

Were you able to make up and write down a combination of these two goods that is unattainable?

True

If Wendy can produce more of all goods than Tommy in an hour, then

Wendy has an absolute advantage in all goods.

When two countries will not be able to benefit from specialization and trade when producing only two goods?

When the opportunity cost of producing these two goods are exactly the same for both countries.

It is expected that the price of a bushel of wheat will increase in one month. This belief will result in

a decrease in the current supply of wheat.

Which of the following shifts the demand curve for movies leftward?

a decrease in the price of NetFlix, a substitute for movies

Gasoline prices increase by 50 percent and other things remain the same. As a result, there is

a decrease in the quantity of gasoline demanded.

The law of supply states that other things remaining the same, a decrease in the price of a kayak leads to

a decrease in the quantity of kayaks supplied

In the above figure, the shift in the supply curve from S to S1 reflects

a decrease in the supply of pizza.

A rise in the price of a substitute in production for a good leads to

a decrease in the supply of that good.

A decrease in the price of a complement in production leads to

a decrease in the supply of the good in question.

Consider the market for burritos. The law of demand can be illustrated by

a movement along the demand curve for burritos due to a change in the price of a burrito.

An increase in the quantity demanded is shown as

a movement along the demand curve.

If the demand for digital cameras increases when consumers' incomes rise, then digital cameras are

a normal good

A housing shortage results when

a rent ceiling below the equilibrium rent is imposed.

Which of the following increases the demand for a good or service?

a rise in the price of a substitute good or service

Which of the following does NOT increase the supply of personal computers, that is, does NOT shift the supply curve of personal computers?

a rise the price of a personal computer

The demand and supply schedules for pizza are in the table above. A price ceiling of $2 per slice results in

a shortage of 20 slices of pizza.

If the local government sets the highest legally permitted rent at $400 per month, would there be a shortage or surplus? How large?

a shortage of 45 apartments

Suppose the equilibrium rent in Denver is $1,050. A rent ceiling of $755 per month leads to

a shortage of apartments in Denver.

In the figure above, a price of $15 per dozen roses results in

a shortage.

In the figure above, a price of $35 per dozen roses results in

a surplus.

In the figure above, if the minimum wage rate is $8 per hour, then after taking account of resources lost in job search, the workers' surplus is the area ________ and the firms' surplus is the area ________.

a,f

Ramen noodles are a staple food item for many college students. Ramen noodles are very inexpensive, easy to prepare, and can be combined easily with other foods. After students graduate, find employment, and earn a higher income, they decrease their Ramen noodle purchases significantly. In this case, Ramen noodles are

an inferior good

A market is defined as

any arrangement that brings buyers and sellers together.

The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, after taking account of the resources lost in search, what area is equal to the consumer surplus?

area A

The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the resources lost due to search?

area B

The figure above shows Liz's and Joe's production possibilities for Salads and Smoothies.Using the figure above, suppose with no trade Liz and Joe each produce at point A on their respective PPFs. Then, Joe suggests that they specialize and trade. He would produce only salads and Liz would produce only smoothies. Then, Joe says, he would buy 16 smoothies from Liz at a price of 1.5 salads per smoothie. Liz should

accept Joe's offer since she will gain 4 smoothies and 4 salads.

Marginal benefit is the

additional benefit we receive from consuming one more unit of a good or service.

The table above gives four production possibilities for airplanes and cruise ships. In possibility A, how many resources are devoted to the production of airplanes?

all

Specialization and trade

allows nations to consume combinations of products that are outside their individual production possibilities frontier.

In a production possibilities frontier graph, the cost of producing more units of a good is measured by the

amount of the other good or service that must be forgone.

Sales taxes are usually collected from sellers, who view the tax as

an additional cost of selling the good.

An increase in both the equilibrium price and quantity can be the result of

an increase in demand.

In the above figure, the shift in the demand curve from D to D1 can be the result of

an increase in the price of a sub sandwich, a substitute for pizza.

Which of the following increases the quantity supplied of yoga pants but does NOT increase the supply of yoga pants?

an increase in the price of a yoga pants

Consider the market for smart phones. Which of the following shifts the demand curve rightward?

an increase in the price of land-line phone service, a substitute for smart phones

Which of the following results in a movement upward along the supply curve for movies in theaters?

an increase in the price of movie tickets

In the above figure, the movement from point a to point b reflects

an increase in the price of pizza.

Suppose over the next several years the productivity of firms producing electric cars improves dramatically. The advance in productivity leads to

an increase in the supply electric cars so that the supply curve shifts rightward.

Which of the following lowers the equilibrium price of a canoe?

an increase in the supply of canoes

Oil refiners can refine a barrel of petroleum so that it yields either more home heating oil or more diesel fuel. If the price of diesel fuel falls, there is

an increase in the supply of home heating oil

The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the deadweight loss?

area C

The figure above shows the t-shirt market. Market failure will occur in the t-shirt market if the quantity produced equals

both 20,000 because a deadweight loss occurs due to underproduction and 35,000 because a deadweight loss occurs due to overproduction. are correct.

In a market with a rent ceiling set below the equilibrium rent, the producer and consumer surplus

both decrease, but generally not to zero.

For a given supply elasticity, the more inelastic the demand for a good, the larger the share of the tax paid by the

buyers

The marginal cost of a good or service

can be derived from the production possibilities frontier.

In the table above, Jack's comparative advantage is producing ________ and Jill's comparative advantage is producing ________.

clothing; food

Mulch is shredded wood and is a by-product in the production of lumber. Because these two goods are produced together, they are

complements in production.

If the production possibilities frontier between two goods were a straight line, then the opportunity cost of one good in terms of another would be

constant

Jake just bought a new hockey stick. When he was leaving the shop, he thought that he such a great deal and would have paid $50 more dollars for the stick. Jake received

consumer surplus.

When demand increases,

consumers are willing to buy more at any price

If the price of tangerines increases, the price of oranges also rises because

consumers consider the two goods substitutes and demand for oranges increases.

As a falling price eliminates a surplus in the jersey market

consumers increase the quantity of jerseys they demand.

Consumer surplus exists when

consumers value the good more highly than what they must pay to buy it.

Which good should Jim specialize in producing for them to benefit from specialization and trade?

corn

A rent ceiling set below the equilibrium rent

creates a situation in which the quantity demanded of housing is greater than quantity supplied.

In a competitive labor market, a minimum wage law set above the equilibrium wage rate

creates a surplus of labor.

Rent ceilings are difficult to abolish because

current renters offer political support for ceilings.

Neither the demand for gasoline nor the supply of gasoline is perfectly elastic or inelastic. If the federal government eliminated the 18.4 cents per gallon gasoline tax, the price paid by buyers would

decrease by less than 18.4 cents.

If the price elasticity of demand for a good is 2, then a 10 percent increase in the price of that good ________ the quantity demanded by ________ percent.

decreases 20

Marginal benefit

decreases as more of a good is consumed.

Use the following diagram to figure out how a $1 increase in price along the ELASTIC section of the demand curve affects the total revenue. Fill in the blank spaces: as price increases from $7 to $8, total revenue __________ from ___ to ____

decreases from $104 to $80

The graph illustrates the demand curve for soda. After a rise in the price of a soda from $1.00 a can to $2.00 a can, the quantity of soda demanded

decreases from 2 cans to 0 cans a day.

A sales tax imposed on sellers of a good

decreases the supply and shifts the supply curve leftward.

Computer chips are a normal good. Suppose the economy slips into a recession so that income falls. As a result, the demand for computer chips ________ so that the price of a computer chip ________.

decreases; falls

Suppose the price of leather used to produce shoes increases. The higher price of leather ________ the supply of shoes and the supply curve of shoes ________.

decreases; shifts leftward

The point that each glass of lemonade consumed on a hot day brings lower and lower levels of satisfaction is known as the principle of

decreasing marginal benefit.

Moving downward along a linear (straight-line) downward-sloping demand curve, the

demand becomes less elastic.

The figure above shows the production possibilities frontiers for the United Kingdom and France. If the United Kingdom and France specialize and engage in trade, the United Kingdom will export ________ and France will export ________.

fish; wheat

For country Gamma the opportunity cost for producing 1 computer is 10 tons of steel. For country Beta the opportunity cost for producing 1 computer is 6 tons of steel. Which country has the comparative advantage in the production of steel?

gamma

In Tanzania a larger proportion of income is spent on food compared to Canada.As a result, we'd expect the price elasticity of demand for food to be

greater in Tanzania.

The figure above shows the market for tires. According to the figure, the price elasticity of demand is ________ the price elasticity of supply.

greater than

The marginal benefit of the first hotdog consumed is ________ the marginal benefit of the fifth hotdog consumed.

greater than

Which of the following statements is true about a competitive market? A competitive market

has so many buyers and sellers that no one can influence the price

If a product is narrowly defined, it is likely to

have many substitutes and therefore its demand is elastic.

The price elasticity of demand measures which of the following?

how responsive the quantity demanded is to changes in price

Which of the following results from a price ceiling? i.increased search activity ii.surplus iii.black market

i or iii

A rent ceiling creates a deadweight loss

if it is set below the equilibrium rent.

The law of supply states that, other things remaining the same,

if the price of a good increases, the quantity supplied increases.

To calculate the opportunity cost per unit, you divide the decrease in the quantity of the forgone item by the

increase in the quantity of the other item obtained.

Rent ceilings

increase search activity

In the labor market, as wages rise, households

increase the quantity of labor supplied.

In the figure above, when the price falls from $8 to $7, total revenue

increases from $120 to $210 so demand is elastic.

Use the following diagram to figure out how a $1 increase in price along the inelastic section of the demand curve affects the total revenue. Fill in the blank spaces to explain your work: as price increases from $2 to $3, total revenue __________ from ___ to ____ .

increases from $76 to $104

An increase in the number of fast-food restaurants

increases the supply of fast-food meals.

A minimum wage law

increases the time spent searching by workers who cannot find a job.

The supply curve is upward sloping because of

increasing marginal cost.

If a good has only a few, poor substitutes, then its demand is

inelastic

The demand for a necessity generally is

inelastic

When the percentage change in the quantity demanded is less than the percentage change in price, then demand is

inelastic

If the supply of a good decreases and it causes total revenue to increase, this shows that the good has an

inelastic demand.

A Minnesota snowmobile dealer lowers its prices in February by 16 percent and the quantity demanded increases by 2 percent. Thus the demand for snowmobiles from this dealer is ________ and the dealer's total revenue will ________.

inelastic; decrease

You own a small store. Your cashier thinks you should raise prices to increase your total revenue and your customer thinks you should lower prices to increase your total revenue. The cashier thinks the price elasticity of demand is ________ and the customer believes the price elasticity of demand is ________.

inelastic; elastic

A demand schedule

is a list of the quantities demanded at each different price when all other influences on buying plans remain the same.

The principle of decreasing marginal benefit explains why the marginal benefit curve

is downward sloping.

The market demand curve

is the horizontal sum of individual demand curves.

A price ceiling

is the maximum price that can legally be charged.

In the figure above, what happens to total revenue as we move from point A to point B?

it decreases

How Jim's quantity demanded changes if price rises from $2 per unit of ice cream to $4 while his income remains at $50,000?

it drops by 20 units of ice cream per year

How does Jim's quantity demanded changes if price drops from $5 per unit of ice cream to $2 while his income remains at $30,000?

it goes up by 15 units of ice cream per year

How Jim's demand for ice cream changes when his income increases from $30,000 to $50,000 while the price remains at $2 per unit of ice cream?

it goes up by 30 units of ice cream per year

If the market for bicycles is efficient, then

it is not possible to produce more bicycles without sacrificing another, more highly valued good.

As an economy grows,

its PPF shifts outward.

The diagram shows a supply curve of tires when price of rubber is $5,000 per ton (tires are made out of rubber). How the supply curve for tires is going to shift if the price of rubber increases to $7,000 per ton?

leftward

The tollway authority must decide the efficient allocation of resources to build toll roads. To determine the efficient allocation of resources, the tollway authority must compare

marginal cost to marginal benefit.

Teenagers drink more soda than other age groups. If the number of teenagers increases, everything else remaining the same,

market demand for soda increases.

The production possibilities frontier illustrates the

maximum combinations of goods and services that can be produced.

If a nation has an absolute advantage in producing a good, then it

might or might not have a comparative advantage in producing that good.

The longer the time that has elapsed since the price of a good changed, the

more elastic the demand for that good.

Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis. As the country moves along the frontier closer to the horizontal axis,

more shoes are produced

If the demand for insulin is inelastic, an increase in insulin prices leads to

more total revenue for insulin makers.

Suppose the current equilibrium wage rate for housekeepers is $8.60 per hour. An increase in the minimum wage to $7.50 per hour leads to

no change in the market for housekeepers.

Marginal benefit is the benefit that a person receives from consuming

one more unit of a good or service.

The United Auto Workers bargained for higher wages and more benefits for autoworkers. As a result of the higher wages and increased benefits, i.the quantity of new automobiles supplied decreases. ii.the supply of new automobiles decreases. iii.the supply of new automobiles increases.

only ii

If a $10 sales tax is imposed on a good and the equilibrium price increases by $10, the tax is

paid fully by buyers.

The price of furnace filters increased by 5 percent and the quantity demanded did not change. The price elasticity of demand for furnace filters is

perfectly inelastic

Consumer surplus exists when a

person buys something with a marginal benefit more than what they paid.

Which point in the figure above is an attainable combination that would have unemployed resources?

point C

Which good should Peter specialize in producing for them to benefit from specialization and trade?

potatoes

Value and price can be compared by noting that

price is what we must pay and value is what we are willing to pay.

What is the formula for the price elasticity of demand? The percentage change in the

quantity demanded divided by the percentage change in price.

The diagram shows a supply curve for SUVs when price of pickup trucks is $30,000 per unit (they are substitutes in production). What is going to happen on the supply diagram if their price increases from $40,000 to $50,000 per unit?

quantity demanded for SUVs goes up

The figure above illustrates the current market for fast-food restaurant jobs in Springfield. If the city government imposes a minimum wage of $12 an hour, what would be the amount of labor demanded and the amount of labor supplied?

quantity supplied will be 500 worker hours a week and quantity demanded will be only 200 worker hours a week.

In the figure above, if the minimum wage is $8 per hour, then

resources used in job-search activity increase compared to the situation before the minimum wage.

The diagram shows a supply curve for tables when productivity of a worker is 4 tables per week. How the supply curve for tables is going to shift if the productivity of a worker increases to 5 tables per week?

rightward

The diagram shows a supply curve of cars when price of pickup trucks is $30,000 per unit (they are substitutes in production). How the supply curve for cars is going to shift if the price of pickup trucks drops to $25,000 per unit?

rightward

The diagram shows a supply curve of mulch when price of lumber is $3,000 per cubic meter (they are complements in production). How the supply curve for mulch is going to shift if the price of lumber increases to $4,000 per ton?

rightward

Suppose the equilibrium quantity of movie tickets is 1,000. If the demand curve shifts ________, the equilibrium quantity of movie tickets will ________.

rightward; increase

If consumers buy a large number of plug-in electric cars, the equilibrium price of electricity will ________ and the equilibrium quantity of electricity will ________.

rise; increase

Neither the demand nor the supply of gasoline is perfectly elastic or inelastic. When the government increases the federal tax on gasoline, the effect on buyers is that the price they pay

rises

Total revenue increases if the price of the good

rises and demand is inelastic.

Suppose that the price of flour used to produce bagels increases. Hence the equilibrium price of a bagel ________, and the equilibrium quantity ________.

rises; decreases

Assume a competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result the equilibrium price ________, and the equilibrium quantity ________.

rises; increases

The phrase "a change in demand" refers to a

shift of the demand curve.

Two brands of water, Natural Water and Mountain Water, are close substitutes. If the price of Mountain Water decreases, the fall in price

shifts the demand curve for Natural Water leftward

In the above figure, an increase in cost of the cheese used to produce pizza

shifts the supply curve from S to S1.

The above figure shows the market for 2 bedroom town homes in San Diego. If a rent ceiling is set at $1,000 per month then there is a

shortage equal to 150,000 town homes.

If the price is greater than the marginal cost of producing a good, the seller has

some producer surplus from the sale.

The American Dairy Association starts a highly successful advertising campaign that makes most people want to drink more milk. As a result,

the demand for milk increases.

Which of the following increases the demand for a good?

the expectation that future income will be higher

The table above shows the situation in the gasoline market in Tulsa, Oklahoma. If the price of a gallon of gasoline is $2.25, then

the gasoline market in Tulsa is in equilibrium.

The demand for insulin is quite inelastic. The demand for Pepsi is quite elastic. Suppose the elasticity of supply for insulin is the same as the elasticity of supply for Pepsi. If a $0.20 tax was imposed on each of these goods (holding everything else constant), which consumers would pay more of the tax?

the insulin consumers

Mark loves ice cream. At any point in time, he will buy an additional ice cream cone if

the marginal benefit from it exceeds the price.

If the price is $6 per serving, ________ each week.

the market Demand is 3 servings

Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis. As a country moves along the frontier closer to the vertical axis,

the opportunity cost of producing jeans INCREASES.

Marginal cost equals

the opportunity cost of producing one more unit of output.

When a surplus of rice occurs,

the price of rice falls.

If the supply of solar panels increases,

the price of solar panels decreases and the quantity increases.

Changes in which of the following factors do NOT shift the demand curve?

the price of the good

The price elasticity of demand measures the extent to which the quantity demanded changes when

the price of the good changes.

As we move along the production possibilities frontier,

the production of one good increases as the production of the other good decreases.

Market equilibrium occurs when

the quantity demanded equals the quantity supplied.

The price of cotton clothing falls. As a result,

the quantity demanded of cotton clothing increases.

A price ceiling in the market for gasoline that is below the equilibrium price will lead to

the quantity demanded of gasoline exceeding the quantity supplied.

In the production possibilities model, the vertical axis measures ________ and the horizontal axis measures ________.

the quantity of a good or service; the quantity of another good or service

When the price of oranges increases,

the quantity of oranges supplied increases.

The people who immediately benefit from a minimum wage are

the workers who retain their jobs after enactment of the minimum wage.

When underproduction occurs,

there is a deadweight loss that is borne by the entire society.

The "law of demand" refers to the fact that, other things remaining the same, when the price of a good rises,

there is a movement up along the demand curve to a smaller quantity demanded

If the price is below the equilibrium price,

there is a shortage.

If a price ceiling is set above the equilibrium price, then

there will be neither a shortage nor a surplus of the good.

Suppose the nation is producing at a point on its PPF. If the marginal cost of producing one more computer is greater than the marginal benefit, the nation is producing

too many computers to be allocatively efficient.

Studies have shown that as people's income is growing, the proportion of income that they spend on food is getting smaller. People in developing countries have low incomes and therefore spend a large part of it on food. For example, in Tanzania 62 percent of income is spent on food. On the other hand, in United States only 12 percent of income is spent on food. Based on this information, in which country we would expect elasticity of demand for food to be higher: in United States or in Tanzania?

we would expect elasticity of demand for food to be higher in Tanzania, because people in Tanzania spend larger share of their income on food

Resource use is allocative efficient

when we produce goods and services that we value most highly.

Did you show this new bundle for Jim as a point on the diagram?

yes

Were you able to show this new bundle for Peter as a point on the diagram?

yes

Suppose the demand for peaches sold from one roadside stand in Georgia is perfectly elastic. As a result, a 7 percent increase in the price charged by the owner of this stand leads to

Econ-Exam One & Exam Two

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