MICRO MIDTERM

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1 . If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is a. $10. b. $80. c. $20. d. $30.

a. $10.

Differences in opportunity cost allow for gains from trade. a. True b. False

a. True

29. Tax and Elasticity If the supply curve is perfectly elastic (horizontal) and a $12 per unit sales tax is imposed on the buyers then the net price received by suppliers will a. decrease by exactly $12. b. not decrease c. decrease by more than $12. d. decrease but by less than $12.

b. not decrease

A tax on sellers increases supply. a. True b. False

b. False

Suppose a gardener produces both tomatoes and squash in his garden. If he must give up 8 bushels of squash to get 5 bushels of tomatoes, then his opportunity cost of 1 bushel of tomatoes is

1.6 bushels of squash.

Which of the following will NOT increase the demand for cereal? - A decrease in the price of milk. - An increase in consumer incomes. - Both a and c. - A decrease in the price of cereal. - An increase in the cost of oats.

A decrease in the price of cereal. An increase in the cost of oats.

In our simple comparative advantage model, we know that opening trade between one country with high wages and one country with low wages will a. raise the standard of living in both countries b. lower the standard of living in both countries c. possibly raise or lower the standards of living in each country d. lead to an inappropriate allocation of resources e. make some workers less efficient

a. raise the standard of living in both countries

When the market price is above the equilibrium price, suppliers are unable to sell all they want to sell. a. True b. False

a. True

Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is a. $60. b. $45. c. $30. d. $15.

b. $45.

Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve, up to the point of equilibrium. a. True b. False

b. False

​ When it is said that trade between nations can make both sides of the trade better off, this means that all citizens in each nation will benefit. a. True b. False

b. False

Taxes on labor encourage which of the following? a. Mothers to stay at home rather than work in the labor force b. Labor demand to be more inelastic c. Fathers to take on second jobs d. Workers to work overtime

a. Mothers to stay at home rather than work in the labor force

A price ceiling set below the equilibrium price causes quantity demanded to exceed quantity supplied. a. True b. False

a. True

An increase in the price of ink will shift the supply curve for pens to the left. a. True b. False

a. True

Changes in one variable on a graph might be caused by the other variable on the graph or by a third omitted variable. a. True b. False

a. True

If a price ceiling of $1.50 per gallon is imposed on gasoline, and the market equilibrium price is $2, then the price ceiling is a binding constraint on the market. a. True b. False

a. True

If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss. a. True b. False

a. True

If something happens to alter the quantity demanded at any given price, then the demand curve shifts. a. True b. False

a. True

Ryan produces hair clips and earrings. Celia also produces hair clips and earrings, but Ryan is better at producing both goods. In this case, trade could a. benefit both Celia and Ryan. b. benefit neither Celia nor Ryan. c. benefit Celia, but not Ryan. d. benefit Ryan, but not Celia.

a. benefit both Celia and Ryan.

The deadweight loss from a tax per unit of good will be smallest in a market with a. inelastic supply and inelastic demand. b. elastic supply and elastic demand. c. elastic supply and inelastic demand. d. inelastic supply and elastic demand.

a. inelastic supply and inelastic demand.

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus a. may increase, decrease, or remain unchanged. b. is unchanged. c. decreases. d. increases.

a. may increase, decrease, or remain unchanged.

Refer to Figure 7-26. At the equilibrium price, consumer surplus is a. $600. b. $900. c. $1,500. d. $1,800

b. $900. =(.5*30*60)

If the equilibrium wage is $4 per hour and the minimum wage is $5.15 per hour, then a shortage of labor will exist. a. True b. False

b. False

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax. a. True b. False

b. False

Production possibilities frontiers cannot be used to illustrate tradeoffs. a. True b. False

b. False

A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton a. is between 0 and 1. b. is equal to 1. c. is equal to 0. d. is greater than 1.

b. is equal to 1.

A likely example of substitute goods for most people would be a. peanut butter and jelly. b. pencils and pens. c. tennis balls and tennis rackets. d. televisions and subscriptions to cable television services.

b. pencils and pens.

Refer to Figure 5-5. Using the midpoint method, between prices of $50 (quantity = 25) and $60 (quantity = 20), the price elasticity of demand is about a. 0.22. b. 0.82. c. 1.22. d. 2.

c. 1.22.

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a a. 0.4 percent increase in the quantity demanded. b. 2.5 percent increase in the quantity demanded. c. 3.6 percent increase in the quantity demanded. d. 6 percent increase in the quantity demanded

c. 3.6 percent increase in the quantity demanded. = (3)1.2 = 3.6

Production Frontier goes from 240 cashews - 8 peanuts Refer to Figure 3-2. If the production possibilities frontier shown is for 24 hours of production, then how long does it take Brazil to make one peanut? a. 1/10 hour b. 1/3 hour c. 3 hours d. 10 hours

c. 3 hours

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a. Three months after the price increase b. Immediately after the price increase c. One year after the price increase d. One month after the price increase

c. One year after the price increase

A decrease in the price of oranges would lead to a(n) a. increased supply of oranges. b. increase in the prices of inputs used in orange production. c. a movement down and to the left along the supply curve for oranges. d. a movement up and to the right along the supply curve for oranges.

c. a movement down and to the left along the supply curve for oranges.

A good will have a more inelastic demand, the a. greater the availability of close substitutes. b. longer the period of time. c. broader the definition of the market. d. more it is regarded as a luxury.

c. broader the definition of the market.

Refer to Figure 8-6. When the tax is placed on this good, the quantity sold a. is 600, and buyers effectively pay $10. b. is 300, and buyers effectively pay $10. c. is 600, and buyers effectively pay $16. d. is 300, and buyers effectively pay $16.

d. is 300, and buyers effectively pay $16.

If the demand for a good falls when income falls, then the good is called a. an ordinary good. b. an inferior good. c. a regular good. d. a normal good.

d. a normal good.

Soup is an inferior good if the demand a. for soup rises when the price of soup falls. b. curve for soup slopes upward. c. for soup falls when the price of a substitute for soup rises. d. for soup falls when income rises.

d. for soup falls when income rises.

Microeconomics and macroeconomics are closely intertwined. a. True b. False

a. True

If the price of cola does not affect the amount of beer that people drink in any way then we know that - the cross-price elasticity for cola and beer is zero - none of the above - the income elasticity of beer is positive - the price elasticity of demand for cola and beer is zero - the price of cola is too high

the cross-price elasticity for cola and beer is zero

Table 7-16 Price QuantityDemanded QuantitySupplied $12.00 0 36 $10.00 3 30 $ 8.00 6 24 $ 6.00 9 18 $ 4.00 12 12 $ 2.00 15 6 $ 0.00 18 0 Refer to Table 7-16. Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus is a. $24. b. $32. c. $48. d. $64.

a. $24. Area of triangle = 1/2 base× height Here, Base= 12 Height=4 Area =1/2×12×4 = 24.

Alex is willing to pay $10, and Bella is willing to pay $8, for 1 pound of ribeye steak. When the price of ribeye steak increases from $9 to $11, a. Alex experiences a decrease in consumer surplus, but Bella does not. b. Bella experiences a decrease in consumer surplus, but Alex does not. c. both Bella and Alex experience a decrease in consumer surplus. d. neither Bella nor Alex experiences a decrease in consumer surplu

a. Alex experiences a decrease in consumer surplus, but Bella does not.

Refer to Figure 2-14. If this society is producing at point T, a. there is unemployment. b. production is efficient. c. growth can only be achieved through an advancement in technology. d. the opportunity cost of producing one more sweater is approximately 40 bushels of apples

a. there is unemployment.

Refer to Figure 7-27. If the government mandated a price increase from P1 to a higher price, then a. total surplus would decrease. b. consumer surplus would increase. c. total surplus would increase, since producer surplus would increase. d. total surplus would remain unchanged.

a. total surplus would decrease.

One common example of a price ceiling is rent control. a. True b. False

a. True

Price controls are usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers. a. True b. False

a. True

The demand for Rice Krispies is more elastic than the demand for cereal in general. a. True b. False

a. True

Which of the following quantities decrease in response to a tax on a good? a. the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus b. the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good c. the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus d. None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

b. the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good

The equilibrium price is at $50 and quantity demanded is at 100 Refer to Figure 7-22. If 110 units of the good are bought and sold, then a. the marginal cost to sellers is equal to the marginal value to buyers. b. the marginal value to buyers is greater than the marginal cost to sellers. c. the marginal cost to buyers is greater than marginal value to sellers. d. producer surplus is greater than consumer surplus.

b. the marginal value to buyers is greater than the marginal cost to sellers.

The price elasticity of supply measures how much a. the quantity supplied responds to changes in input prices. b. the quantity supplied responds to changes in the price of the good. c. the price of the good responds to changes in supply. d. sellers respond to changes in technology.

b. the quantity supplied responds to changes in input prices.

Refer to Figure 4-27. Which of the four panels represents the market for winter coats as we progress from winter to spring? a. (Price - up) (Quantity - up) Panel (a) b. (Price - down) (Quantity - down) Panel (b) c. (Price - down) (Quantity - up) Panel (c) d. (Price - up) (Quantity - down) Panel (d)

b. (Price - down) (Quantity - down) Panel (b)

Hours needed to make one unit England Cheese : 1 | Wine : 4 France Cheese 5 | Wine : 2 Number of Units Produced in 40 hours England Cheese :40 | Wine : 10 France Cheese : 8 | Wine : 20 Refer to Table 3-3. Assume that England and France each have 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is a. 8 units of cheese and 10 units of wine b. 24 units of cheese and 15 units of wine c. 40 units of cheese and 20 units of wine d. 48 units of cheese and 30 units of wine

b. 24 units of cheese and 15 units of wine

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded. a. True b. False

b. False

Suppose a tax of $3 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $3,900 and decreases producer surplus by $3,000. The tax generates tax revenue of $6,000. The tax decreased the equilibrium quantity of the good from a. 2,000 to 1,500. b. 2,400 to 2,000. c. 2,600 to 2,000. d. 3,000 to 2,400.

c. 2,600 to 2,000.

Refer to Figure 3-14. Which of the following is not correct? a. Arturo and Dina could each consume 100 tacos and 100 burritos without trade. b. Neither Arturo nor Dina could each consume 200 tacos and 200 burritos without trade. c. Arturo and Dina could each consume 200 tacos and 200 burritos with trade. d. Total consumption of burritos could not be 600 either with or without trade.

c. Arturo and Dina could each consume 200 tacos and 200 burritos with trade.

Equilibrium price must decrease when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. b. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously.

c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is .a. positive, so Joan considers hamburger to be an inferior good. b. positive, so Joan considers hamburger to be a normal good and a necessity. c. negative, so Joan considers hamburger to be an inferior good. d. negative, so Joan considers hamburger to be a normal good but not a necessity

c. negative, so Joan considers hamburger to be an inferior good.

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should a. plant more corn so that they would be able to sell more each year. b. increase spending on fertilizer in an attempt to produce more corn on the acres they farm. c. reduce the number of acres on which they plant corn. d. contribute to a fund that promotes technological advances in corn production.

c. reduce the number of acres on which they plant corn.

(The equilibrium is at Price = $10 & Quantity = 50) ​Refer to Figure 6-32. Which of following statements is true based upon the conditions in the market? a. ​a shortage will develop when a price ceiling is imposed at a price of $10. b. ​a surplus will develop when a price floor is imposed at a price of $8. c. ​a surplus will develop when a price floor is imposed at a price of $12. d. ​a shortage will develop when a price ceiling is imposed at a price of $14.

c. ​a surplus will develop when a price floor is imposed at a price of $12.

When a tax is imposed on a good for which both demand and supply are very elastic, a. sellers effectively pay the majority of the tax. b. buyers effectively pay the majority of the tax. c. the tax burden is equally divided between buyers and sellers. d. None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

d. None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

When drawing a demand curve, a. demand is measured along the vertical axis, and price is measured along the horizontal axis. b. quantity demanded is measured along the vertical axis, and price is measured along the horizontal axis. c. price is measured along the vertical axis, and demand is measured along the horizontal axis. d. price is measured along the vertical axis, and quantity demanded is measured along the horizontal axis.d.

d. price is measured along the vertical axis, and quantity demanded is measured along the horizontal axis.d.

14. When the government places a production subsidy on a product in an efficient market a. the welfare (surplus) gains to buyers and sellers will be more than the amount of government spending on the subsidy. b. the welfare of the sellers will rise by more than the welfare of the buyers. c. none of the above. d. without additional information, such as the elasticity of demand for this product, it is impossible to compare the welfare gains of the sellers with the welfare gains of the buyers. e. the welfare of consumers will rise by more than the welfare of producers.

d. without additional information, such as the elasticity of demand for this product, it is impossible to compare the welfare gains of the sellers with the welfare gains of the buyers.

Table 7-4For each of the three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. Willingness to Pay (Dollars) First Orange Second Orange Third Orange Allison2.001.500.75Bob1.501.000.60Charisse0.750.250.00 Refer to Table 7-4. Who experiences the largest gain in consumer surplus when the price of an orange decreases from $1.05 to $0.75? a. Charisse b. Allison and Bob experience the same gain in consumer surplus, and Charisse's gain is zero c. Bob d. Allison

d. Allison

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9? a. The tax on airline tickets increases from $15 per ticket to $135 per ticket. b. The tax on airline tickets increases from $15 per ticket to $60 per ticket. c. The tax on airline tickets increases from $20 per ticket to $90 per ticket. d. The tax on airline tickets increases from $20 per ticket to $60 per ticket.

d. The tax on airline tickets increases from $20 per ticket to $60 per ticket. Rest of the options are not the factor 0f 9 so other options are wrong