Exam 2 Assignments/Quizzes/In-Class (Chapters 6, 7, 9 ,10)

The total utility (TU) curve shows the total utility provided by the successive consumption of pizza slices. Place points a, b, c and d of the marginal utility curve to depict the marginal utility of pizza slices.

...

The graph contains information on candy bar consumption and production in the economy. What is the quantity that yields allocative efficiency, or the optimal allocation of candy bars? Quantity of Candy Bars:

300

A perfectly price-inelastic demand curve is:

Vertical

Identify which principle applies to each scenario and place the appropriate terms in the corresponding spaces. a. After spending hours researching his choices, Mark decides on a laptop that will cost him $799. As he walks into his local retailer, a salesman presents him a laptop with marginally better features at the same price. However, Mark would have to do further research to verify that the new alternative is in fact better. As a result, he decides that the laptop he previously decided on is good enough and buys it. - Mark's decision is an example of b. Charlotte delivers food for a fried chicken restaurant. When Charlotte delivers a meal to a household during a major icestorm, the family, feeling sorry that Charlotte has to work in extreme weather, decides to give her a $20 tip for a $10 delivery. - The family's decision is an example of c. Cathy is a very good driver. In fact, she has never been in an accident in her life. However, she still takes out a comprehensive car insurance policy every year, rather than just the liability coverage the state requires. - Cathy's decision is an example of

a. Bounded Rationality b. Fairness c. Risk Aversion

Consider two markets: the market for motorcycles and the market for pancakes. The initial equilibrium for both markets is the same, the equilibrium price is $2.50, and the equilibrium quantity is 23.0. When the price is $7.75, the quantity supplied of motorcycles is 55.0 and the quantity supplied of pancakes is 109.0. For simplicity of analysis, the demand for both goods is the same. a. Using the midpoint formula, calculate the elasticity of supply for pancakes. Please round to two decimal places. b. Supply in the market for motorcycles is

a. 1.37 b. Less elastic than supply in the market for pancakes.

a. Becky only eats out at Macaroni Grill, and she eats out three times per month. She receives a raise from $33,200 per year to $33,500 per year and decides to eat out five times per month. Use the midpoint method to calculate the monthly income elasticity of demand for eating out. Round your answer to two decimal places. b. This good is...

a. 55.58 units b. A normal good and income-elastic

Match the terms listed with their definition. a. the extra satisfaction a person obtains from consuming one more unit of a good or service b. when the consumption of an additional unit of a good or service provides the person with a smaller increase in satisfaction than previous units c. when the consumption of an additional unit of a good or service makes a person worse off d. the satisfaction experienced from consuming a good or service

a. Marginal utility b. Diminishing marginal utility c. Negative marginal utility d. Utility

Answer the questions based on the data in the table. Round all answers to two places after the decimal. a. What is Sally's tax rate? b. What is Pat's tax rate? c. What is the nature of this income tax system?

a. 33% b. 24% c. Regressive

(Table: Market for Pizza) Look at the table Market for Pizza and use the midpoint method. The price elasticity of demand for pizza between $14 and $12 per pizza when income is $1,000 per month is:

1

Last week, Michelle spent $30 on caviar. Today, Michelle still spends $30 on caviar even though its price has doubled. What is Michelle's price elasticity of demand for caviar? (Use the midpoint formula for your calculation.)

1

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:

1.17

(Table: Utility from Oranges and Star Fruit) Look at the table Utility from Oranges and Star Fruit. Oranges cost $2 per pound and star fruit costs $5 per pound. Calvin has $26 to spend. If Calvin buys 4 pounds of star fruit and 3 pounds of oranges, how much is his total utility?

280

The graphs show four markets in which a tax will be imposed. Put the proper label next to each graph according to how the tax will be shared between buyers and sellers once the tax is in place.

Top right graph: Buyers pay the majority of the tax Top left graph: Buyers pay all of the tax Bottom right graph: Sellers pay all of the tax Bottom left graph: Sellers pay the majority of the tax

Tax incidence refers to:

Who really pays the tax.

The budget set, or budget constraint, in the graph shows the possible combinations of brownies and ice cream cones that can be purchased. Assume that this person has a total of $18 to spend on brownies and ice cream cones. a. How much does a brownie cost? b. Assume that at point A, the marginal utility from a brownie is 10 and the marginal utility for an ice cream cone is 18. This person

a. $1 - 18 / 18 b. Should consume more brownies and fewer ice cream cones.

The _____ of an excise tax depends on the _____ of the taxed good's supply and demand curves.

a. Incidence b. Price elasticity

(Table: Consumer Equilibrium) Look at the table Consumer Equilibrium. Assume that the price of both goods is $1 per unit, that you consume three units of good X and three units of good Y, and that you are spending all of your income. To maximize utility, assuming that the goods are divisible, you would consume _____ of X and _____ of Y.

more; less

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

0.2; inelastic

What is the law of diminishing marginal utility?

Additional units provide less additional utility over a short time period.

A linear demand curve has:

Both elastic and inelastic price elasticities of demand.

Mauricio has a circus act that involves monkeys on unicycles. Mauricio has a fixed amount to spend on unicycles and monkeys. The graph shows Mauricio's initial budget constraint. The price per unicycle is $120 and per monkey is $90. Using the graph, show what happens to Mauricio's budget line when the price of unicycles increases to $180. What is Mauricio's budget for monkeys and unicycles?

Mauricio's budget: $720

Over longer periods of time, demand tends to become

More elastic

Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be levied on goods for which demand is _____ and supply is _____.

inelastic; inelastic

Utility is most closely related to:

satisfaction

When there are fewer substitutes, demand tends to be

Less elastic

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.

Quantity; Price; Decrease

(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per unit of the good sold, consumer surplus will be reduced by:

$175.

Total revenue is:

The price of a good times the quantity of the good that is sold.

The deadweight loss from an excise tax comes about because:

The number of transactions in the market is reduced and some mutually beneficial transactions do not take place.

Suppose that Sam allocates his income between milk and cereal. Milk costs $2.50/gallon and cereal costs $5.00/box. Sam has $50/week to spend on these two goods. The table shows Sam's preference for consumption bundles as well as how Sam's marginal utility (𝑀𝑈) for milk and cereal, respectively, varies as consumption varies. Given the information provided here, how should Sam allocate his income between milk and cereal? As this is his optimal consumption bundle, Sam should purchase

4 gallons of milk and 8 boxes of cereal

The city council is deciding whether or not to build a new stadium. Which descriptions are sunk costs and should therefore not be a part of their decision? Please place each description into the most appropriate category.

Is A Sunk Cost: - The cost of the previous stadium. - The cost of last year's renovation of the old stadium. Is Not A Sunk Cost: - The cost of destroying the old stadium to make room for the new one. - The cost of labor for building the new stadium.

The graph shows demand and supply in the market for airline tickets. The government decides to introduce an excise (or commodity) tax that pushes up the price for consumers from 𝑃e to 𝑃c and decreases the quantity supplied from 𝑄e to 𝑄1. Identify the areas that match the terms indicated. Each letter may be used multiple times, and some terms will require more than one letter to identify the appropriate area on the graph. a. Government tax revenue b. Producer surplus before tax c. Producer surplus after tax d. Consumer surplus before tax e. Consumer surplus after tax f. Deadweight loss after tax

a. B, C b. C, D, G c. D d. A, B, F e. A f. F, G

The graph shows the market for office rental space. A $400 per month excise tax is imposed on firms selling office space. D is the demand curve, S1 is the supply curve in the absence of the tax, and S2 represents the supply curve that includes the tax. a. Which group has the larger tax incidence? b. This excise tax falls on this group because

a. Producers (suppliers) b. the supply of office rentals is more inelastic than the demand for office rentals.

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. If Faruq spends all of his income, the opportunity cost of one taco equals _____ milkshakes.

5

(Figure: Budget Lines for Oranges and Apples) Look at the figure Budget Lines for Oranges and Apples. For some time, Antonio has had $5 per month to spend on oranges and apples. The price of an orange is $0.50 and the price of an apple is $0.25. Which of the charts shows what will happen to his budget line if his income decreases to $4?

C

Identify whether the following statements about the economics of taxes are true or false. a. The incidence of a tax is determined by which group (buyers or sellers) must write the check to the government. b. The effect of an excise (or commodity) tax on the equilibrium price is the same regardless of who the tax is levied upon. c. An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions. d. When the price elasticity of demand is low and the price elasticity of supply is high, the burden of a tax falls mainly on producers. e. When the price elasticity of demand is high and the price elasticity of supply is low, the burden of a tax falls mainly on consumers.

a. False b. False c. True d. False e.False

(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market for Taxi Rides. If the government imposes an excise tax of $1 per ride (causing the supply curve to shift upward by that amount), then the government will collect tax revenues of _____. However, the tax will cause a _____ deadweight loss to society.

$9 million; $0.5 million

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The horizontal intercept for Faruq's budget line is _____ tacos.

10

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

Different elasticities, depending on whether price decreases or increases.

Classify each of the scenarios as an "either-or" decision or a "how much" decision.

Either-or Decision: - After graduation from law school, Frank is offered one job in Chicago and another in New York. Where should Frank work? - Bella is accepted to four graduate school programs. Where should she go to school. How Much Decisions: - Jake needs to stay awake while he studies for his midterm tomorrow. What quantity of coffee should Jake drink? - Marvin arrives at his favorite buffet to eat Chinese food. Sometimes, he overeats and leaves the buffet with a stomach ache.

(Table: Utility from Oranges and Star Fruit) Look at the table Utility from Oranges and Star Fruit. Oranges cost $2 per pound and star fruit costs $5 per pound. The table shows Calvin's total utility from eating various amounts of oranges and star fruits. If Calvin has $26, he should eat _____ oranges and _____ pounds of star fruit, and he will have _____ left over.

3; 4; no money - (2 x 3) + (4 x 5)

(Figure: Budget Lines for Oranges and Apples) Look at the figure Budget Lines for Oranges and Apples. For some time, Antonio has had $5 per month to spend on oranges and apples. The price of an orange is $0.50 and the price of an apple is $0.25. Which of the charts shows what will happen to his budget line if his income increases to $6?

A

Diego spends all of his income on milkshakes and french fries. At his current consumption levels the marginal utility of one milkshake and the marginal utility of one order of french fries are equal. According to the optimal consumption rule:

Diego is maximizing his utility only if one milkshake and one order of french fries have the same price.

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2:

Producers are paying more of the tax than are the consumers.

Sam allocates his income between milk and cereal. Milk costs $2.50 per gallon, and cereal costs $5.00 per box. Sam has $50 each week to spend on both goods. The table shows Sam's marginal utility (𝑀𝑈) for varying levels of milk and cereal consumption. Given the information provided, how should Sam allocate his income between milk and cereal to arrive at the optimal consumption bundle?

Sam should purchase 4 gallons of milk and 8 boxes of cereal.

Jenny believes that spending one hour studying for economics will increase her grade by 20 points. Studying for a second hour will increase her grade by 10 points. She also believes that studying for an hour for history will increase her grade by 15 points, but spending a second hour will increase her grade by only 5 points. Jenny has two hours to study. If Jenny wants to maximize her scores, what should she do?

Study 1 hour for economics and 1 hour for history

Reggie owns and operates a cheese shop in the village of Somerset. While Reggie has a degree in mechanical engineering and could easily go to work for his brother's company earning $76,000/year, his true passion is for cheese. The table displays Reggie's expenses from 2018. Please use the information provided to answer the questions. a. What is Reggie's accounting profit? b. What is Reggie's economic profit?

a. $63,000 b. $-13,000

Jacquelyn is a student at a major state university. Which of the following is NOT an explicit cost of her attending college?

The salary that she could have earned working full-time

(Table: Marginal Analysis of Sweatshirt Production I) Look at the table Marginal Analysis of Sweatshirt Production I. The optimal quantity of sweatshirts to produce is:

Three - highest number after subtraction

Suppose the Canadian government has decided to place an excise tax of $20 per tire on producers of automobile tires. Excise taxes are also called sales or commodity taxes. Previously, there was no excise tax on automobile tires. As a result of the excise tax, producers of tires, such as Bridgestone and Michelin, are going to alter their tire prices. a. The graph illustrates the demand and supply curves for automobile tires before the excise tax. Please shift the appropriate curve or curves on the graph to demonstrate the new equilibrium. b. What is the price consumers pay for a tire post tax? Round to the nearest 10. c. What is the price producers receive for a tire net of taxes? Round to the nearest 10.

a. b. price paid by consumers: $100 c. price received by producers: $80

The citizens of Springfield love donuts. Due to health concerns, the city has decided to make citizens responsible for paying a per donut tax of 50 cents. a. On the graph, please shift the appropriate curve to illustrate the effect of the tax. b. Move the shaded region labeled Tax Revenue to the area of the graph representing tax revenues. c. What is the revenue generated from this excise or commodity tax (round to the nearest whole number)?

c. tax revenue: $250

(Table: Consumer Equilibrium) Look at the table Consumer Equilibrium. Assume that the price of both goods is $1 per unit, that you consume four units of good X and two units of good Y, and that you are spending all of your income. To maximize utility, assuming that the goods are divisible, you would consume _____ of X and _____ of Y.

less; more

Assume that diminishing marginal utility applies to both coffee and football tickets and that the consumer is spending all of her income. If a consumer purchases a combination of coffee and football tickets such that MUCoffee / PCoffee = 20 and MUFootball tickets / PFootball tickets = 10, to maximize utility, the consumer should buy _____ coffee and _____ football tickets.

more; fewer

Xavier notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps him study. If Xavier keeps the tutor until his grade actually begins to fall, his marginal utility for the last hour of tutoring will be:

negative.

The table shown lists two goods along with their cross-price elasticities, where the percentage change in quantity is measured for Good 1 and the percentage change in price is for Good 2. Identify the relationship between each of the pairs of goods.

negatives are complements positives are substitutes

(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government wants to limit shrimp sales to 250 pounds, it can impose a _____ excise tax on sellers, and the total tax revenue generated will be _____.

$10; $2,500

(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts. The marginal cost of the third sweatshirt is:

$13

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____.

$209; $204.25

Nancy is consuming her optimal consumption bundle of burritos and margaritas. The marginal utility of her last burrito was 75 utils, and each burrito costs $3. Her marginal utility of her last margarita was 100 utils. What is the price of a margarita?

$4

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, all other things unchanged, demand will:

Increase by about 2.9%.

(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts. The marginal cost of producing sweatshirts is an example of ______ marginal costs.

Increasing

Kimiko is planning a party to celebrate her birthday. She has decided to serve sushi and yakitori meat skewers. Each serving of sushi is $8 and each yakitori is $2. Kimiko has $240 to spend on the party, and her budget line is shown below. Her friend Barry thinks there will not be enough food, so he gives Kimiko $80 more to spend on the party (she now has $320). Show Kimiko's new budget line in the graph below and answer the question. Which good will Kimiko buy more of?

Only Kimiko knows; the question does not provide enough information.

Now imagine the price of butter falls to $25 per gallon. Graphically, how has Billy's budget line changed?

Shifted out along the butter's axis

An excise tax that the government collects from the producers of a good:

Shifts the supply curve upward.

(Table: The Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. Marginal utility becomes negative at the _____ roll.

Sixth

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:

Substitute goods.

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

The responsiveness of the quantity change to the price change.

Determine whether each of the statements given is true or false.

True - A Swiffer floor sweeper and a broom would have a positive cross-price elasticity of demand. False - When supply is perfectly inelastic, a change in demand has no effect on the price. - The short-run elasticity of supply is larger than the long-run elasticity of supply because changes in equilibrium will adjust elasticity accordingly. - When the price increases, total revenue always increases because of the price effect. - A key consideration as to whether the price elasticity of supply is elastic or inelastic is whether the good supplied is a luxury item.

For each scenario, calculate the cross-price elasticity between the two goods and identify how the goods are related. Please use the midpoint method when applicable, and specify answers to one decimal place. a. A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B. b. Product C increases in price from $5 a pound to $11 a pound. This causes the quantity demanded for Product D to increase from 10 units to 18 units. c. When the price of Product E decreases 2%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 17%.

a. - cross-price elasticity between A and B: 0 - relationship between A and B: No relationship b. - cross-price elasticity between C and D: 0.8 - relationship between A and B: Substitutes c. - cross-price elasticity between E and F: -8.5 - relationship between A and B: Complements

Suppose that Joe consumes tulips and DVDs. The price of tulips is $5 per unit and the price of DVDs is $10 per unit. The table shows Joe's utility from the consumption of each good; each row represents a possible consumption bundle. Currently, Joe is consuming 18 tulips and 9 DVDs. a. Calculate the marginal utility per dollar of going from eight to nine DVDs. b. To increase total utility without increasing spending, should Joe change the amount of consumption of either good? c. What is the total utility at the optimal consumption bundle?

a. 0.9 b. Yes, Joe should choose fewer tulips and more DVDs. c. 281.30

Use the table below to calculate the accounting and economic profit for Abner's Apple Art. a. What is Abner's Apple Art's accounting profit? b. What is Abner's Apple Art's economic profit?

a. Accounting profit = $228 thousand b. Economic profit = $128 thousand

The graph shows two budget lines and six consumption points (A, B, C, D, E, and F) for Pepsi and Dr Pepper. Note that budget line 1 is before the increase in Fred's income, whereas budget line 2 is after the increase in Fred's income. Assume that the consumer, Fred, attempts to maximize his utility and exhausts his budget on the two goods. a. If Fred's income increases, the movement from point A to point _____ is consistent with Pepsi being a normal good and Dr Pepper being an inferior good. b. If Fred's income increases, the movement from point A to point _____ is consistent with Dr Pepper being a normal good and Pepsi being an inferior good.

a. D b. F

On your way home from Super Groceries, your car breaks down. It is a hot summer day and you have nobody to call. With little time before the food spoils, you decide to prioritize what to carry on the walk home. You choose to take three items with you. Since you will need all five items today, you will replace the two abandoned items at the corner store near your house, Convenient Grocers. The table contains the prices you paid for each good at Super Groceries and the prices you will need to pay at Convenient Grocers to replace the goods. a. Which three items should you save?

a. Eggs, Beef, Fruit - convenient - super (positive numbers)

Match the definitions with the terms that most closely align with the description. a. The cost of producing one more unit of a good or service b. The benefit experienced from undertaking one more unit of an activity c. The amount that, when produced or consumed, results in the greatest possible net gain d. The situation where an additional unit of a good or service costs the same as each of the former units e. A situation where the expense of producing one more unit of a good or service is greater than that of producing the previous unit f. The situation where the gain from an additional unit of a good or service is less than the gain from producing the previous unit

a. Marginal cost b. Marginal benefit c. Optimal quantity d. Constant marginal cost e. Increasing marginal cost f. Decreasing marginal benefit

Decision Making by Individuals and Firms — End of Chapter Problem Assume De Beers is the sole producer of diamonds. When it wants to sell more diamonds, it must lower its price in order to induce shoppers to buy more. Furthermore, each additional diamond that is produced costs more than the previous one due to the difficulty of mining for diamonds. De Beers's total benefit schedule is given in the accompanying table, along with its total cost schedule. a. What is the optimal quantity of diamonds to produce? b. Calculate the total profit to De Beers from producing each quantity of diamonds. Which quantity gives De Beers the highest total profit?

a. Optimal output: 5 diamonds b. Profit-maximizing output: 5 diamonds

Brayden receives some utility from consuming a frozen dinner (an inferior good) but would much rather purchase healthier food (a normal good). Suppose the price of a frozen dinner increases and the quantity that Brayden purchases increases. Assume that a frozen dinner is not a Giffen good. a. Which effect causes Brayden's quantity demanded of a frozen dinner to decrease? b. Which effect causes Brayden's quantity demanded of a frozen dinner to increase?

a. Substitution effect b. Income effect

(Figure: The Market for Productivity Apps) Look at the figure The Market for Productivity Apps. If the government imposes a tax of $1 in this market, consumers will pay _____ more per app and purchase _____ fewer apps.

$0.50; 5

Andrina always spends 30% of her income on drumsticks. Assume that her income increases by some percentage while the price of drumsticks remains constant (and that all drumsticks cost the same). What is her income elasticity of demand for drumsticks?

1 Irrespective of any change in income, the proportion of income spent on whozits remains the same. This means the income elasticity of demand is 1, unit elastic. In other words the %change in quantity demanded is same as %change in income.

Assume that Billy gets no utility from saving. His total income is $240 and that the two goods he must choose across are cream ($50 per gallon) and butter ($30 per gallon): What is Billy's best mix of the two goods?

3 creams, 3 butters

Angus works as a dairy farmer and loves his work. However, because the dairy business has not been doing well lately, Angus is considering changing careers. He could work as a technician at the local dairy plant and earn $27,000/year. Angus decides to make a list of the costs of staying in business as a farmer and asks you for help. Please classify each of Angus's costs as explicit or implicit.

Explicit Costs: - The wages he pays to his hired hand. - The feed he buys for his cows. - The gas he uses for his farm truck. - The cost of veterinary care for his cows. Implicit Costs: - The time it takes him to milk all of his cows. - The $27,000 annual salary he would receive from working at the dairy plant.

Russ owns a fried chicken stand at the local beach. In calculating how much he earns from his business, Russ notices a difference between his economic and accounting profits. - Why would Russ' economic profits differ from his accounting profits? - They could differ because

He may have implicit costs associated with operating the chicken stand in addition to explicit costs.

Wendy is in school learning to be a welder. She spends long hours studying (and drinking coffee) and long hours practicing in the hot, dirty shop (and therefore takes frequent showers). Wendy has $70.00 per month to spend on the soap and coffee she needs to function properly. In the accompanying graph, move the BC line to correctly depict Wendy's budget constraint, assuming the soap costs $3.50 per bottle, and the coffee costs $14.00 per pound. If a point will not go where you want to put it, try placing the other endpoint there. Then, classify the lettered points according to whether they describe baskets of goods that are unaffordable, affordable and exhaust Wendy's budget, or affordable with money left over.

Unaffordable: - B - D - H Affordable and exhausts Wendy's budget: - C - E Affordable with money left over: - A - F - G

Ebenezer Scrooge has just been elected the new President of Christmasland. As his first action, he is thinking of introducing an excise (or commodity) tax on either Santa hats or Christmas lights. The demand and supply curves for both products are shown on the graphs. Use the graphs to answer the questions. a. What would be the total deadweight loss of a $3 tax on Santa hats? b. What would be the total deadweight loss of a $3 tax on Christmas lights? c. The deadweight loss for Santa hats and the deadweight loss for Christmas lights are different because the graph with the higher deadweight loss has a more

a. $3,000 b. 1,500 c. Elastic demand curve

a. If the price of Product E decreasing by 2% causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase by 17%, what is the cross-price elasticity of demand? Round your answer to one decimal place. b. What is the relationship between these goods?

a. -8.5 b. Complements

a. If a 30% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B, what is the cross-price elasticity of these goods? Round your answer to one decimal place. b. What is the relationship between these goods?

a. 0 b. No relationship

For each scenario, calculate the income elasticity of demand, determine whether the good is inferior or normal, and classify the good's income elasticity. When calculating the income elasticity of demand, use the midpoint formula. Round your answers to the nearest hundredth. a. - Sylvia's annual salary increases from $100,500 to $109,500, and she decides to increase the number of vacations she takes per year from three to four. Calculate her income elasticity of demand for vacations. - Vacations are a.. - As a good, vacations are b. - Blake eats two bags of generic potato chips each day, and does not purchase any name-brand chips. Blake's hourly wage increases from $8.75 to $15, and he decides to eat one name-brand bag and one generic-brand bag each day. Calculate Blake's income elasticity of demand for generic potato chips. - Generic potato chips are a - As a good, generic potato chips are

a. - Income elasticity (vacations) = 3.33 - Normal good - Income-elastic b. - Income elasticity (generic chips) = -1.27 - Inferior good - Neither income-elastic nor income-inelastic

Consider the graph. a. What is the marginal benefit (MB) of the 300th unit? b. What is the marginal cost (MC) to the firm of producing the 100th unit? c. Select the expression that best describes the relationship between the marginal benefit and the marginal cost when allocative efficiency is achieved.

a. MB: $35 b. MC: $10 c. MB = MC

Cookie Monster loves cookies! The table shows how his utility varies with cookie consumption, but the table is missing some numbers (possibly because Cookie Monster also loves to eat many other things). a. Cookie Monster's marginal utility from the fourth cookie is b. What is Cookie Monster's total utility when he eats 6 cookies? c. Cookie number __ tastes the best to Cookie Monster.

a. 140 units b. 705 units c. 2

Noah produces hand‑blown light bulbs out of his garage and has a steady customer base. As his business grows, he realizes that selling packs of light bulbs instead of selling them individually is more profitable. He must decide how many bulbs to include in each pack. Each light bulb costs $1.00 to produce. The graph depicts the marginal benefit received from each additional bulb that he includes in the pack. a. Place Point A on the optimal point of production on the graph. b. If Noah initially put seven light bulbs in each pack, which of the following would increase his profit?

a. Graph b. Include fewer light bulbs in each pack.

a. Sylvia's annual salary increases from $102,300 to $109,500. Sylvia decides to increase the number of vacations she takes per year from three to four. Use the midpoint method to calculate her income elasticity of demand for vacations. Round your answer to two decimal places. b. This good is...

a. 4.2 units b. A normal good and income-elastic

Patrick has chosen to double major in finance and microbiology and studies 14 hours a day as a result. To make it through his studies, Patrick relies on GreenCow energy drinks. Consider the chart of his marginal costs (MC) and marginal benefits (MB) from consuming GreenCow. a. What is the optimal quantity of GreenCow drinks for Patrick? b. What occurs if Patrick consumes more than the optimal quantity?

a. 5 cans b. The extra energy benefits Patrick gets from another can are no longer worth the cost.

(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The total cost of mowing three lawns is approximately:

$33

Albert owns a breakfast diner and decides to add a new item, the Peerless Omelet, to his menu. Albert must decide how many eggs to include in each omelet so that he makes the highest profit. Please use the information in the chart to answer the questions. a. How many eggs should Albert include in the omelet? b. What kinds of marginal cost does Albert have?

a. 6 eggs - subtract and find highest value b. Constant

(Table: Marginal Utility per Dollar of M&Ms) Look at the table Marginal Utility per Dollar of M&Ms. The price of M&Ms is $2 per bag. The marginal utility per dollar of the first bag of M&Ms is:

3

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:

Equal to 1.

The optimal consumption rule for all goods requires:

The marginal utility of all goods consumed divided by the respective price to be equal.

The economic entity with the _____ in terms of their production and consumption _____ incur the largest burden of excise taxes.

a. least flexibility b. substitutes

Label demand as elastic, unit elastic, or inelastic for each scenario. Use the midpoint method when applicable to calculate the price elasticity of demand. a. Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00 to $4.00. As a result, the quantity sold drops from 20,000 to 15,000. b. Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5. c. Capital Metro decided to increase bus fare rates from $2.00 to $2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

a. Unit elastic b. Inelastic c. Elastic

The accompanying diagram depicts a demand curve for DVDs for a monopoly currently producing at point 𝐵. Specify answers to the nearest dollar, and use a negative sign to indicate decreases in revenue. a. If the firm lowers DVD prices from $16 to $14, what is the change in revenue, assuming quantity remains the same? In other words, focus only on the price effect. b. What is the change in revenue that results just from the increased quantity at $14? In other words, focus only on the quantity effect. c. What is the overall net effect of this price decrease on the firm's total revenue? d. What is the price elasticity of demand?

a. $-400 b. $1,400 c. $1,000 d. Elastic

The graph shows the demand and supply of bungee jumps in Xtremeland. The government decides to impose an excise tax on bungee jumps to help pay for the high number of back and neck injuries. a. What would the government's tax revenue be if it imposes a tax of $80 on each jump? b. What would the government's tax revenue be if it imposes a tax of $40 on each jump? c. What would the government's tax revenue be if it imposes a tax of $120 on each jump? d. What principle of taxation does the graph help demonstrate?

a. 1,600,000 b. 1,200,000 c. 1,200,000 d. Setting too high a tax rate can reduce tax revenue

Label each scenario with the term that best describes it. Use the midpoint method when applicable. a. Marcel Duchamp was a famous artists prior to his death, and was known for his Dada artwork, including works such as "Soft Toilet". All of his original sculptures and paintings go on sale. b. Paul owns a Tim Horton's, a famous donut and coffee franchise. He is willing to sell as many maple glazed donuts as customers want at a price of $1.00 each, but he refuses to sell any donuts for any price lower than $1.00. c. The price of facial tissues rises from $2.85 per box to $3.15. As a result, P&G increases production from 15 million boxes to 25 million boxes of facial tissues. d. With the school semester starting for both high school and college, Papermate chooses to increase production of pens from 38 million to 42 million after global prices of writing instruments increase from $1.90 a package to $2.10 a package. e. Bright Ideas increases its production of lightbulbs by 15% after a 400% increase in the price of fluorescent bulbs.

a. Perfectly inelastic supply b. Perfectly elastic supply c. elastic supply d. unit-elastic supply e. inelastic supply

The graph depicts five demand curves. Please rank each curve in terms of elasticity. A curve that is more elastic than another curve for any given quantity can be considered more elastic.

C E B D A

Consider the statements regarding elasticity. a. Over longer periods of time, demand tends to be b. With fewer substitutes, demand tends to be c. Demand for an item that uses a large portion of your budget tends to be d. Demand for a luxury item tends to be

a. More elastic b. Less elastic c. More elastic d. More elastic

Poppy likes to eat hot peppers. A coworker brought Poppy a jar of extremely hot ghost peppers. The accompanying graph illustrates Poppy's total utility for these peppers. Use the graph to answer the question and assume that Poppy seeks to maximize her utility. a. Poppy asks if she should consume seven peppers. What would your advice be? b. Marginal utility becomes negative with the consumption of which pepper?

a. Consume fewer than seven peppers and you will be better off. b. The consumption of the sixth pepper

If a good is a necessity with few substitutes, then demand will tend to:

Be more price-inelastic.

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?

Quantity demanded will decrease; total revenue will rise.

a. If Good C increases in price by 50% a pound, and this causes the quantity demanded for Good D to increase by 60%, what is the cross-price elasticity of the two goods? Round your answer to one decimal place. b. What is the relationship between the two goods?

a. 1.2 b. Substitutes

Suppose a small city has a kimchi factory on its outskirts. The local government decides to impose a tax on kimchi. Press releases focus on reducing the fermented cabbage smell during the workweek, but unnamed sources within the government also cite additional revenue as a possible reason for the tax. a. The accompanying diagram shows the market for kimchi in this city. Show the tax revenues (TR) associated with a $2, $4, and $8 per jar tax on kimchi. b. Which tax level generates the most revenue?

a. Graph b. The $4 per jar tax generates the most revenue.

The accompanying graphs depict the market for bags of potato chips, which is currently at an equilibrium price of $1.67 per bag and an equilibrium quantity of 3.33 million bags. Suppose that, in an attempt to lower blood pressure and reduce healthcare costs, the government imposes a $1.00 excise (or commodity) tax on potato chips. Scroll down to answer all 6 parts of the question a. Suppose the government levies this tax on manufacturers for each bag of potato chips they produce. Please shift the curve(s) to illustrate this. b. What is the price paid per bag by consumers (Pc) after the production tax? c. What is the price received net of tax (Pp) per bag by producers after the production tax? d. Suppose the government, instead of levying the tax on producers, levies this tax on consumers for each bag of potato chips they purchase. Please shift the curve(s) to illustrate this. e. What is the effective price paid per bag by consumers (Pc) after the consumption tax? f. What is the price received net of tax (Pp) by producers after the consumption tax?

a. First graph b. $2 c. $1 d. Second graph e. $2 f. $1

The graphs show the market for bags of potato chips, which is currently at an equilibrium price of $1.33 per bag and an equilibrium quantity of 5.33 million bags. Suppose that, in an attempt to lower blood pressure and reduce healthcare costs, the government imposes a $1.00 excise (or commodity) tax on potato chips. a. Suppose the government levies this tax on manufacturers for each bag of potato chips they produce. Please shift the appropriate curve or curves to illustrate this. b. What is the price paid per bag by consumers (Pc) with this new tax? c. What is the price received net of tax (Pp) per bag by producers with this new tax? d. Suppose the government, instead of levying the tax on producers, levies the tax on consumers for each bag of potato chips they purchase. Please shift the appropriate curve or curves to illustrate this. e. What is the effective price paid per bag by consumers (Pc) with this new tax? f. What is the price received net of tax (Pp) per bag by producers with this new tax?

a. First graph b. Pc = $2 c. Pp = $1 d. Second graph e. Pc = $2 f. Pp = $1

If the estimated price elasticity of demand for foreign travel is 4:

A 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

What is the primary difference between accounting profits and economic profits? The primary difference is that

Accounting profits ignore implicit costs; economic profits consider them.

Suppose that a city government introduces a $0.50 excise (commodity) tax on consumers of bottles of soda to improve the health of its citizens. Manipulate the accompanying graph to demonstrate the impact of the tax on the market for soda What would be the new equilibrium quantity if instead of taxing consumers, the city taxed producers?

4 thousand bottles

In anticipation of a major hurricane hitting the Gulf Coast, the quantity of gasoline sales rise from 360 million gallons to 375 million gallons. Based on this information, what is the percent change in gasoline sales? Please specify your answer to one decimal place and use the midpoint formula.

4.1%

(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand (using the midpoint formula) between $2.50 and $2.25?

19

Amy is in school learning to weld. She spends long hours studying (and drinking coffee), and long hours welding in the hot, dirty shop (and therefore takes frequent showers). Amy has $70.00 a month to spend on the soap and coffee she needs to function properly. Draw Amy's budget constraint, assuming the soap costs $3.50 per bottle, and the coffee costs $14.00 a pound. Also assume that Amy spends all of her money on either soap or coffee or some combination of both. Every time Amy buys a pound of coffee, she is giving up the opportunity to buy... Every time Amy buys a pound of coffee, she is giving up the opportunity to buy

4 bottles of soap

Maurice is a barbecue aficionado and loves hosting people at his ranch with his upright drum smoker. As a good host, he wants to create the perfect consumption bundle for his five guests but needs to operate under a reasonable hosting budget. Assume that ribs and brisket both cost $3 a pound. A table of the various consumption bundles and their associated utility representing Maurice's budget constraint is shown. If the goal is to maximize utility, which option will Maurice choose?

4 lbs of ribs; 5 lbs of brisket

The percentage change in quantity demanded of one good or service divided by the percentage change in the price of a related good or service is the _____ of demand.

Cross-price elasticity

If the price of chocolate-covered peanuts decreases from $1.15 to $1.05 and the quantity demanded increases from 190 bags to 220 bags, then the price elasticity of demand (by the midpoint method) is:

Greater than 1.

(Table: The Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. Total utility is maximized at the _____ roll.

fourth

Label the scenarios as examples of elastic, inelastic, or unit elastic demand. a. When Ruko, a device used to stream movies at home, increases price by 48%, total revenue decreases by 67% b. When Cinema Supreme increases ticket prices by 26%, total revenue does not change. c. When Bluebox, a DVD rental kiosk, increases its prices by 41%, total revenue increases by 28%.

a. Elastic b. Unit Elastic c. Inelastic

(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the lowest price elasticity?

D4

(Table: The Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. The marginal utility for the second roll is:

15

Suppose the government levies a $4 per month excise tax on cable TV. If the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) elastic, then the price of cable TV will:

Increase by less than $4.

Which of the following statements is TRUE?

Utility maximization requires seeking the most utility from a given budget.

Miles is three years old and his grandparents have given him money to spend at the toy store as a birthday present. Miles' number one favorite thing to play with is building blocks. Assume that Miles' utility will increase by 100 units if he purchases a new set of building blocks and and it will cost him $50. His second favorite thing to play with is fire trucks. Fire trucks cost $20 and each new fire truck improves Miles' utility by 80 units. His third favorite toy is trains. Trains improve his utility by 15 units and cost $5 each. Miles does not have to spend all of his money at once, but wants to get as much happiness as possible from his money. a. If Miles buys only one toy, which should he buy to maximize his utility? b. Which relationship between marginal utility (MU) and price (P) indicates that a consumer is maximizing his or her utility regarding spending on two goods?

a. A fire truck b. (MUx / Px) = (MUy / Py)

Please match each of the scenarios with the term that best fits the description provided. a. Jackson manages his father's fruit stand. He takes an accounting of all of the company's assets , including equipment, tools, financial assets, and inventory. These items are examples of _____. b. Abe owns a candy shop and at year-end calculates his revenue minus his explicit costs. The results is an example of _____. c. Hailey decided to buy a pretzel from the cart outside her office. She pays $3.25 in cash for her lunch. The $3.25 is an example of _____. d. Annabelle runs a tutoring company. In determining her costs and benefits from the venture, she includes her opportunity costs from choosing to open the tutoring business. She is evaluating the firm's _____. e. Sacha leaves his job as a nuclear engineer to become a train conductor. One day, while riding the rails, he considers the salary he could have earned had he remained an engineer. This is an example of _____. f. Ginny works for an investment firm, and, after reviewing the investment decisions her firm made in the last year, she considers other ways the funding could have been used. She is considering the _____.

a. Capital b. Accounting profit c. Explicit cost d. Economic profit e. Implicit cost f. Implicit cost of capital

Please identify the mistake made in regard to economic decision-making in each scenario. a. Alexander is heavily invested in the stock of Nortel, a telecommunications giant. However, Nortel has been in steady decline, and even though all signs point to the fact that Nortel will likely go bankrupt, Alexander holds onto his stocks, unwilling to sell unless he makes back at least the money he invested. - Alexander's mistake is an example of b. Jim is washing his laundry and, as he checks his pockets, finds an unexpected windfall of $50. Elated because it is $50 more than he had before, he decides to splurge on a lobster-and-filet-mignon dinner. - Jim's mistake is an example of c. Geneva is a researcher at a biotech firm, and faces decision paralysis every time a big question is posed to her. Whenever her boss asks her what project she wants to work on, she always says she is indifferent, so eventually her boss stops asking for her input and just assigns her however he wants. - Geneva's mistake is an example of d. Tiffany lives in Alameda, California. She recently received two job offers, one in Oakland and one in San Francisco. The San Francisco job pays $1000 more per year, so Tiffany accepts the job. However, the travel time, which is an hour more each way, quickly becomes a burden. - Tiffany's mistake is an example of e. Steve is trying to diet. Each day he says the diet will begin today, but each time he sees potato chips, he indulges in them. The next day, he promises his diet will really start, but the vicious cycle continues - Steve's mistake is an example of

a. Loss aversion. b. Mental accounting. c. Status quo bias. d. Misperceiving opportunity costs. e. Overconfidence.

Tom is trying to decide how to allocate his $50 budget for music downloads and online movie streaming when the price of a music download is $1 and the price of a movie is $5. (Scenario: Tom's Budget Constraint) Read the scenario Tom's Budget Constraint. The combination _____ music downloads and _____ movies lies INSIDE Tom's budget line. (Tom can afford this combination, but he will not be spending the entire $50.)

no; 5