Micro extra credit Mod 11, 13, 15, 17, 18, 20

Suppose at a price of $1.73 per gallon, residents of Tacoma purchase 1 million gallons of gas every week and enjoy a total consumer surplus of $730,000. If gas prices increase to $2.46 per gallon and the demand for gas is perfectly inelastic in Tacoma, residents will end up with a total consumer surplus equal to:

$0. Because the demand is perfectly inelastic, the quantity demanded remains at 1 million gallons per week. Total expenditures on gasoline will thus rise from $1,730,000 to $2,460,000. Think about how this increase will affect the consumer surplus.

The table describes the individual seller costs associated with selling Krispy Kreme doughnuts for a fund-raiser. Seller's name Cost Alpha Chi Omega $2 Sigma Chi 5 Beta Theta Pi 8 Alpha Kappa Alpha 10 Sigma Mu Omega 130 If the actual price of a dozen doughnuts is $10, what is total producer surplus in the market?

$15 Total producer surplus is the sum of the individual producer surplus in the market.

Suppose that the rate for a hotel room is $75 before the imposition of an $8 excise tax. With the tax, the rate rises to $80. What is the consumer's burden of the tax?

$5 The consumer's burden is the amount by which the rate increases due to the imposition of the excise tax.

Marcel consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. His weekly income is 450 euros. Marcel always drinks 2 cups of tea for every pastry he consumes. The optimal weekly consumption bundle for Marcel consists of:

50 cups of tea and 25 pastries. Because Marcel maintains this 2-to-1 ratio of tea-to-pastry, you can think of each unit of consumption as having a cost of 18 Euros. Divide Marcel's income by this amount to find the number of units he can buy.

(Figure: Apartment Market) According to the figure, in which a maximum monthly rent is $1000, there is a(n) _____________ of apartments in Gotham City.

80-thousand-unit shortage

(Figure: Market for Headphones) Sony raises its price on noise-canceling headphones from $50 to $55 because of inflation. This increase in prices changes the producer surplus in the marketplace. Using the figure, which geometric area shows the increase in producer surplus gained by the original sellers of Sony's headphones?

A

If a price floor is imposed above the equilibrium price in a market, what is the effect?

A surplus results.

Nadia operates a frame shop. She charges the perfectly competitive price of $65 for the custom framing of a standard-size picture. In order to maximize her profit, Nadia will:

Accept framing orders up until the point at which the marginal cost of doing so is $65.

Which of the following statements is TRUE?

An increase in income expands the set of consumption choices.

(Figure: Market for Lattes) Starbucks lowers it price on a venti latte from $4.00 to $3.00 due to stiff competition from McDonald's. This decrease in price changes the consumer surplus in the marketplace. Using the figure, which geometric area shows the increase in consumer surplus gained by the new buyers of Starbucks' lattes?

B

You are graphing the budget line for an individual who consumes coffee and bread. How is the budget line affected when the consumer's income increases?

Both the horizontal and vertical intercepts increase. Correct: The budget line retains its slope and shifts outward as income rises. The formula for the vertical intercept is income divided by the price of the corresponding good; the formula for the horizontal intercept is income divided by the price of the corresponding good. Consequently, both of these values will rise as income rises.

In comparing accounting profit with economic profit, all of the following statements are true EXCEPT:

Economic profit ignores all implicit costs.

Gabriel operates a tree-trimming business in Maine. He charges the perfectly competitive price of $47 per hour. The marginal cost of working the 36th hour each week is $42; the marginal cost of working the 37th hour is $44; the 38th hour, $46; and the 39th hour, $48. How many hours should he work each week?

He should work 38 hours per week because this is the workload that maximizes his net gain.

All of the following statements regarding "either-or" decision making are true EXCEPT:

It is a decision that takes into account only explicit costs.

______ is the change in total revenue generated by an additional unit of output.

Marginal benefit or revenue

Mario is willing to mow one lawn for $18; he will mow a second for $22, and a third for $28. Assume that the market rate for lawn mowing is $24. How many lawns will Mario mow? What will be his total revenue? What will be his producer surplus?

Mario will mow two lawns for a total revenue of $48; his producer surplus will be $8. The market price is not high enough to induce Mario to mow the third lawn. Mario will receive a $6 producer surplus from mowing the first lawn, and a $2 producer surplus from mowing the second one.

Which of the following statements regarding price floors is TRUE?

Price floors are intended to help certain people, but they have side effects that may harm others in predictable ways.

The cost to each bakery of producing a 24" × 48" sheet cake is presented in table below. Bakery Cost Angel Food $200 Charm City Cakes 215 Hide-Away 235 Sweet Life 240 Crème de la Crème 260 Suppose the price of cake rises from $230 to $250 because of a rising demand for cakes. Given this change in price, which of the following statements is correct?

The change in producer surplus is equal to $65.

Annette has maximized her utility by consuming both strawberry shakes and hamburgers. The price of hamburgers exceeds that of strawberry shakes. Which of the following statements necessarily must be correct at her current consumption point?

The marginal utility from the last hamburger exceeds the marginal utility from the last strawberry shake. Correct: Because she has paid more for the last hamburger than for the last strawberry shake, Annette must derive greater marginal utility from the last hamburger. At the point of utility maximization, the ratio of marginal utility to price will be equal across all goods consumed. Because the hamburger price is higher, its marginal utility must also be higher.

What is the effect of the quota on sugar imports to the United States?

The price of sugar in the United States is roughly twice the world price.

Which of the following is a likely result of a price floor imposed on providers of a particular service?

The service providers will offer an inefficiently high quality.

All of the following are likely results of a tariff levied on an imported good EXCEPT:

an increase in the quantity of the good imported.

Evan spends all of his income on cheese and wine. A bottle of wine costs $20, and a pound of cheese costs $12. At his current consumption level, the marginal utility of a pound of cheese is 30 utils, and the marginal utility of a bottle of wine is 60 utils. In order to maximize his utility, Evan should:

buy more wine and less cheese. Correct: At his current consumption level, each dollar spent on wine is adding to Evan's utility more than is each dollar spent on cheese. The last dollar spent on wine brought Evan 3 utils. The last dollar spent on cheese brought him only 2.5 utils. You can derive these numbers by dividing the price of each good into the corresponding marginal utility number. What this analysis shows is that the money currently spent on wine is better at providing him with added utility.

Economic theory asserts that:

consumers instinctively follow the optimal consumption rule. Correct: The "instinct" of the optimal consumption rule is the desire people have to improve their overall well-being.

When the United States exports skill-intensive products like aircrafts while importing labor-intensive products like clothing, all of the following are likely to occur EXCEPT:

downward pressure on wages for domestic aircraft workers.

A relatively ______________ demand curve reflects a _____________ price elasticity of demand.

flat; high

When the price elasticity of supply is ___________ the price elasticity of demand, an excise tax falls ___________.

greater than; mainly on consumers A low price elasticity of demand means that consumers have few substitutes for the good and cannot move away from that good when the price rises. A high price elasticity of supply means that producers have many consumers to sell to and therefore they do not have to accept lower prices. So the incidence falls more heavily on consumers, not producers.

The effect of a tariff is to:

increase both the price paid by consumers and the price received by producers.

The economic profit of a given project will usually be ________ than the accounting profit because of the presence of ________ costs.

less; implicit

The profit-maximizing principle of marginal analysis says that firms maximize profits by choosing output such that:

marginal benefit (or revenue) is greater than or equal to marginal cost.

The marginal benefit (or revenue) curve illustrates how:

marginal benefit (or revenue) varies as output varies.

In maximizing net gains, a firm will seek to:

maximize profit.

The incidence of an excise tax is the:

measure of who really bears the burden of the tax.

An excise tax imposed on chocolate would create a deadweight loss because it will:

prevent some mutually beneficial trades from occurring.

Which of the following is NOT one of the standard arguments for restricting imports?

preventing an outflow of gold

A binding minimum wage is a type of:

price floor.

The graphical result of a price ceiling is:

quantity demanded exceeds the amount at the equilibrium price, and quantity supplied is less than the amount at the equilibrium price.

The graphical result of a price floor is:

quantity supplied exceeds the amount at the equilibrium price, and quantity demanded is less than the amount at the equilibrium price.

The effect of international trade on U.S. factor markets is to ________ the wage rate of highly educated American workers and _______ the wage rate of unskilled American workers.

raise; reduce

One of the results of international trade is that it ________ the income inequality between countries and ________ the standard of living of poor countries exporting to rich countries.

reduces; improves

An excise tax imposed on hotel owners:

shifts the supply curve for hotel rooms up by the amount of the tax. Correct: The tax adds the amount of the tax, per unit of the good, to the price of the good. This shifts up the supply curve by the amount of the tax

Which area on a graph showing a firm's supply curve represents producer surplus?

the area above the supply curve up to a line indicating price

Consumer surplus is:

the difference between the price that consumers are willing to pay for a good and the amount they actually pay. Consumer surplus is the net gain to the buyer from his or her purchase of a good, the difference between what he or she is willing to pay and what he or she actually pays

The amount of the deadweight loss resulting from an excise tax is:

the difference between the reduction in total surplus resulting from the imposition of the excise tax and the government revenue from the tax.

At the profit-maximizing quantity of output:

the marginal cost curve crosses the marginal revenue curve.

Which of the following would make the budget line steeper?

the price of the good measured on the horizontal axis increases

What is the set of consumption possibilities for an individual?

the set of goods that are affordable, given her income and the current prices of the goods Correct: The set of consumption possibilities is the set of points on or below the consumer's budget line. This set of consumption bundles will change as the consumer's income and the prices of the goods change.

Under what circumstances does the burden of an excise tax fall mainly on producers?

when the supply is relatively inelastic and demand is fairly elastic Correct: Under conditions of a fairly inelastic supply and a fairly elastic demand, the selling price will not increase much in response to the imposition of the tax. The burden of a tax always falls on that side of the market that has lower elasticity. Sketch a graph with a flatter (elastic) demand curve and a relatively steeper (inelastic) supply curve. Now see how the imposition of a tax distributes the tax burden more toward the seller rather than toward the buyer.