Econ Final

(Figure: Producer Surplus) In the diagram, if the market price of coffee is $6, how much producer surplus do suppliers earn?

$62.50

Nigeria receives $53 of producer surplus from each barrel of oil sold at $60. At that level of production, Nigeria's cost to produce a barrel of oil is:

$7

(Figure: Bananas) Refer to the figure. If the price of bananas is $2 a pound, how many pounds of bananas will suppliers supply?

0

The U.S. Congress first instituted the minimum wage in:

1938.

(Figure: Price and Quantity 2) At a cost of $20 per unit in the diagram, the value of the unexploited gains from trade is represented by areas:

E + F.

In the market for fertilizer, an:

advance in technology will increase the supply of fertilizer.

All booms and busts:

affect the rate of economic growth.

In the 1800s, the federal government paid railroad companies for each mile of track built. This payment scheme created incentives for railroad companies to lay track:

between points A and B using the most indirect route.

Economists have discovered that economic booms and busts:

can be moderated but not eliminated.

A high-school graduate deciding to go to college makes that decision by:

comparing the additional income earned per year after graduating from college with the additional cost of going to college.

A decrease in income causes demand for a normal good to ________, and an increase in income causes demand for an inferior good to ________.

decrease; decrease

The Dark Ages was a period in which trade:

decreased because world markets became more isolated.

When a price ceiling is in effect:

demanders cannot signal their needs to suppliers.

What does the Russian concept of blat refer to?

having connections that enable one to obtain favors

It makes sense that Martha Stewart hires another person to do her ironing because:

her opportunity cost of ironing is higher than the opportunity cost for the person she hires.

(Table: Equilibrium Price, Quantity) Refer to the table. If the price in the market was $12, there would be a:

shortage of 10 units.

The demand curve:

shows how much buyers are willing and able to buy at different prices.

Self-interest can be aligned with the social interest by:

the enactment of government policies that increase incentives to work and trade.

A shortage occurs when:

the quantity demanded is greater than the quantity supplied.

Recall the discussion in your textbook about the supply curve for oil. What explains why the supply curve for oil is positively sloped?

As the price of oil rises, more producers enter the market.

(Figure: Four Panel 2)Which of the four panels shows an increase in income on an inferior good?

Panel A

In Vernon Smith's supply and demand lab experiment:

Smith knew the true demand and supply curves, but the subjects did not.

An increase in quantity demanded is a movement along a fixed demand curve caused by a shift in the supply curve.

True

Figure: Demand Shift Which of the following factors would cause the change in the figure?

an increase in the price of a substitute good

An increase in the general price level is:

inflation.

If supply increases, ceteris paribus, market price will be ______ at the new equilibrium point.

lower

Consider the (world) market supply curve for oil. Saudi oil production inhabits the _____ part of the curve, and Canadian oil production inhabits the _____ part of the curve.

lower; upper

Alex and Tyler enjoy the food at a restaurant named China Star. Alex values a meal there at $15, and Tyler values it at $26. If the restaurant charges only $10 a meal, what is Alex and Tyler's joint consumer surplus from a meal at China Star?

$21

Conan O'Brien hosts the Conan show and Andy Richter, his sidekick, writes for it. Conan needs 4 hours to rehearse and host a good show. It takes Andy 10 hours to do the same. Conan writes one usable joke in an hour, but Andy needs 2 hours to do the same. Conan's opportunity cost of writing a single usable joke is:

0.25 unit of hosting.

Figure: Demand Curve Refer to the figure. What is the maximum number of books that buyers are willing and able to pay at a price of $45 per book?

100

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as Y = 50 - 2X. What is the opportunity cost of producing a tenth unit of fish (i.e., going from 9 units of fish production to 10)?

2 Viking hats

(Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one sofa in the United States is _________, and the opportunity cost of producing one sofa in Germany is _______.

2.5 clocks; three clocks

Conan O'Brien hosts the Conan show and Andy Richter, his sidekick, writes for it. Conan needs 4 hours to rehearse and host a good show. It takes Andy 10 hours to do the same. Conan writes one usable joke in an hour, but Andy needs 2 hours to do the same. Andy's opportunity cost of rehearsing and hosting a show is:

5 usable jokes.

Figure: Basic Supply and Demand In a free market, as illustrated in the diagram, total gains from trade are greatest when:

50 units are sold at a price of $3.

When a surplus exists in a market, we know that the actual price is:

above equilibrium price, and quantity supplied is greater than quantity demanded.

The theory of comparative advantage is:

always relevant for identifying whether gains from trade can be obtained.

Because rent controls on apartments reduce profits:

apartment managers will give less consideration to renters' complaints.

(Figure: Price Floor) Refer to the figure. What are the lost gains from trade as a result of the imposition of the price floor?

areas (C + F)

What can cause both equilibrium price and quantity to increase?

consumer tastes becoming more favorable toward the good

Trade increases production partly by taking advantage of:

economies of scale.

Immediately after a hurricane, it is likely that the quantity demanded for tree cutting/removal services will ______ the quantity supplied, causing the price of tree cutting/removal services to ______.

exceed; rise

An inferior good is one that:

experiences decreased demand when income increases.

Conan O'Brien hosts the Conan show and Andy Richter, his sidekick, writes for it. Conan needs 4 hours to rehearse and host a good show. It takes Andy 10 hours to do the same. Conan writes one usable joke in an hour, but Andy needs 2 hours to do the same. Conan's opportunity cost of rehearsing and hosting a show is:

four usable jokes.

A farmer can grow soy or sorghum. If the price of soy increases, the opportunity cost of growing sorghum ______, shifting the supply curve of sorghum ______.

increases; up and to the left

The average age in the United States is _____, causing the demand for prescription drugs to _____.

increasing; increase

Adam Smith advocated the benefits of:

international trade.

The opportunity cost of committing a crime and spending 5 years in jail:

is higher for people who are employed than for the unemployed.

The deregulation of the airline industry caused:

lower prices and more flights.

Regulation of airline fares under the Civil Aeronautics Board:

meant the government prevented the entry of new competitors to maintain high ticket prices.

Trade creates value because:

people exchange things they do not want for things they do

Division of knowledge refers to:

people learning different tasks in which they specialize.

We commonly associate ______ with agricultural products.

price floors

If the market for iPads experiences a surplus, then the:

price of iPads will fall.

In a market, the equilibrium condition is given by the following:

quantity demanded = quantity supplied.

Technological advances have increased the supply of digital cameras. As a result the:

quantity demanded for digital cameras will increase.

Economists believe that socially good outcomes arise whenever:

self-interest is pursued and it aligns with social interest.

The most common example of a price being controlled above market levels involves a good for which the:

sellers outnumber the buyers.

Imagine a free market in equilibrium. After a sudden increase in supply (but before the price can adjust), the market experiences a:

surplus.

When deciding whether or not to undertake an activity, economists compare:

the additional cost of the activity against the additional benefits received.

Patterns of specialization and trade are explained by:

the principle of comparative advantage.

Conan O'Brien hosts the Conan show and Andy Richter, his sidekick, writes for it. Conan needs 4 hours to rehearse and host a good show. It takes Andy 10 hours to do the same. Conan writes one usable joke in an hour, but Andy needs 2 hours to do the same. If each party produces according to his comparative advantage:

Conan will host and Andy will write.

Which of the following statements is TRUE?

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and its market price.

Which of the following statements is TRUE?I. Compared with a modern economy, the division of knowledge is greater in a primitive economy because every family is self-sufficient: growing their own food, making their own clothes, and constructing their own shelter.II. Nobody understands the entire process of producing even the simplest products, like a lead pencil, in a modern economy.III. The collapse of communism and the opening of the Chinese economy to the rest of the world have increased the division of knowledge, leading to increased world output.

II and III only

Why is the long-run supply curve of rent-controlled apartments typically more elastic than the short-run supply curve?

In the long run, fewer new apartments are built, and older apartments are torn down or turned into condominiums.

What will happen to the supply of workers 18 to 21 years after a baby boom?

It will increase because of the influx of new adults into the labor market.

When the government decreases the supply of money, there is an increase in the general level of prices.

False

Which of the following events occurred during the 1973-1974 oil crisis in the United States?

Gas stations were ordered to be closed between 9 PM on Saturday and 12:01 AM on Monday. Daylight savings time was implemented. There were shortages of steel drilling equipment. ***All of the answers are correct.***

In ancient Egypt, the Bronze Law set maximum prices for wages, preventing them from rising above what rulers perceived as the minimum needed to survive. If this was 10¢ a day for a porter (someone who carries things short distances) and the market wage was 8¢ a day, which of the following would be a plausible consequence of this law?

Nothing unusual would happen.

Which statement(s) about price ceilings is TRUE?I. Price ceilings cause quantity demanded to exceed quantity supplied.II. When including time costs and bribes, consumers pay a total price in excess of the price ceiling.III. All else equal, it is more wasteful to allocate goods based on bribes than on waiting time costs.

I and II only

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?

The equilibrium price decreases; the change in the equilibrium quantity is uncertain.

You must decide whether to attend class tomorrow morning or take your friend to the airport. Your decision highlights the following "Big Idea" in economics.

Trade-offs Are Everywhere.

Consumer surplus can be defined as the net benefit to consumers from participating in a market.

True

Effective price ceilings cause misallocation of resources because scarce resources are usually not allocated to their highest-value uses.

True

For countries to be wealthy, they need lots of physical and human capital per worker, which, in turn, depends on a system of private property rights, political stability, a just legal system, honest government, and competitive and open markets.

True

In addition to monetary incentives, economists also believe people respond to incentives like fame, power, reputation, and love.

True

Price ceilings misallocate resources because with them, resources are not necessarily allocated to their highest-value use.

True

Trade allows countries to consume more than their ability to produce.

True

Trade refers to the exchange of goods or services between two parties.

True

U.S. pharmaceutical companies sell drugs to Kenya, and Kenyan farmers sell flowers to the United States. This pattern of trade suggests that the United States is the low-opportunity-cost producer of drugs, and Kenya is the low-opportunity-cost producer of flowers.

True

When the price of oil used for generating electricity increases, the demand for nuclear power will increase.

True

Ben is willing to work for $4/hour and an employer is willing to hire Ben for $7/hour. Which statement is TRUE?

A minimum wage of $7.50/hour would prevent this mutually beneficial exchange.

What is the difference between a shift in the demand curve and a movement along the demand curve?

A shift implies a change in the whole demand curve; a movement does not.

Which of the following is an example of self-interest that attempts to promote the public interest?

An entrepreneur risks his life savings to open up a grocery store in an underserved area.

Rent controls create large shortages in the long run rather than the short run because the long-run supply curve for apartments is inelastic.

False

Some countries have comparative advantages in everything.

False

A student spends 4 years in college. College tuition, fees, and room and board cost $10,000 per year. This student's opportunity cost of attending college is $10,000.

False

Gains from trade are largest when two parties are similar in terms of opportunity costs of production.

False

In a free market equilibrium, the gains from trade are always greater for consumers than for producers.

False

In order for the gains of trade to be maximized, everyone whose willingness to pay for the good is greater than zero must receive it.

False

Inflation increases the value of money by increasing the purchasing power of money.

False

Markets align self-interest with the social interest as long as the government doesn't interfere.

False

Phil can clean and polish silverware in 2 hours and change spark plugs in a car in 4 hours. Betty can clean and polish the same silverware in 1 hour and change spark plugs in a car in 1 hour. Phil does not have a comparative advantage in either activity.

False

There is a positive relationship between price and quantity demanded.

False

(Figure: Price Ceiling of Ps) Refer to the figure. Suppose a price ceiling of Ps is imposed. As a result:

The quantity supplied in the market is Qs. Buyers' willingness to pay for the good is Pd. The quantity demanded in the market is Qd. ***All of the answers are correct.***

At a price ceiling of $6 per sheet of drywall, quantity demanded is 100 and quantity supplied is 75. What will happen in the drywall market if there is an increased demand for drywall in the construction industry?

The shortage of drywall will increase above 25 units.

Which of the following statements is TRUE?

When the price of oil rises, consumers tend to use oil for uses in which there are few substitutes for it.

(Figure: Effects of Price Ceilings) Refer to the figure. At a price ceiling of $2:

bribes of $1 per unit may be common.

When the price of inputs increases:

the supply curve shifts up and to the left.

The fundamental idea behind the production possibilities frontier is:

the trade-offs that exist in production.

If instead of specialized doctors (neurologists, cardiologists, gastroenterologists, etc.) we had doctors who each knew the same things about all aspects of medicine, it would be:

worse because total medical knowledge in society would decrease.