Microecon Exam 1

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

At the current output level, the marginal social benefit exceeds the marginal private benefit.

Refer to Figure 2-3. Efficient production is represented by which point(s)?

C, D -efficient production is on the curve -inefficient is outside the curve

Refer to Figure 4-6. The shift from S' to S is called

a decrease in supply.

The law of supply states that, other things equal, when the price of a good

rises, the quantity supplied of the good rises.

Efficiency means that

society is getting the most it can from its scarce resources

The opportunity cost of an item is

what you give up to get that item

Refer to Table 2-2. What is the opportunity cost to Supertown of increasing the production of toys from 200 to 300?

500 glasses

Which of the following is likely to have the most price elastic demand?

Häagen-Dazs® vanilla bean ice cream

Refer to Figure 5-4 . Total revenue when the price is P1 is represented by

areas B + D.

Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence's daughter to play the guitar in exchange for Terrence tiling Dale's kitchen floor,

both Dale and Terrence are made better off by trade.

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good.

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

command-and-control policy.

Goods that are rival in consumption include both

common resources and private goods.

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

decreases, and producer surplus decreases

Cadence says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Cadence's

demand for cigarettes is perfectly inelastic.

At the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell.

The failure of markets to adequately protect the environment can be viewed either as a problem of

externalities or as a problem of common resources.

The law of demand states that, other things equal, when the price of a good

falls, the quantity demanded of the good rises.

In the markets for goods and services in the circular-flow diagram,

firms provide households with output.

Soup is an inferior good if the demand

for soup falls when income rises.

The parable called the Tragedy of the Commons applies to goods and services such as

grazing land and fishing.

An example of positive analysis is studying

how market forces produce equilibrium.

Steak and chicken are substitutes. A sharp reduction in the supply of steak would

increase producer surplus in the market for steak and decrease producer surplus in the market for chicken.

An increase in the price of a good will

increase quantity supplied.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

An externality is the uncompensated impact of

one person's actions on the well-being of a bystander.

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

people face tradeoffs.

The adage, "There ain't no such thing as a free lunch," means

people face tradeoffs.

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

positive, and the good is a normal good.

Refer to Figure 4-7. At a price of $15, there would be a

shortage of 400 units.

A baker recently has come to expect higher prices for bread in the near future. We would expect

the baker to supply less bread now than she was supplying previously.

Alana decides to spend 2 hours working overtime rather than going shopping with her friends. She earns $11 per hour for overtime work. Her opportunity cost of working is

the enjoyment she would have received had she gone shopping

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

the nation is not using all available resources or is using inferior technology or both.

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized.

The marginal benefit Joseph gets from purchasing a fourth pair of shoes is

the total benefit he gets from purchasing four pairs of shoes minus the total benefit he gets from purchasing three pairs of shoes.

Economics is the study of how society manages its

unlimited wants and limited resources.

A seller's opportunity cost measures the

value of everything she must give up to produce a good.

A cost-benefit analysis of a highway is difficult to conduct because analysts

will have difficulty estimating the value of the highway.

A state-owned bridge is

a common resource when it is congested, but it is a public good when it is not congested.

Refer to Figure 4-1. The movement from point A to point B on the graph is caused by

a decrease in price.

Consider Miray's decision to go to college. If she goes to college, she will spend $24,000 on tuition, $12,000 on room and board, and $1,900 on books. If she does not go to college, she will earn $16,000 working in a store and spend $8,000 on room and board. Miray's cost of going to college is

$45,900

A manufacturer produces 350 units when the market price is $10 per unit and produces 460 units when the market price is $14 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

.81

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to

1.5

Refer to Figure 10-5. The socially optimal quantity of output is

140 units, since the value to society of the 140th unit is equal to the cost incurred by the seller of the 140th unit.

For which of the following individuals would the opportunity cost of going to college be highest?

A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

Refer to Table 3-2. Assume that England and France each has 40 labor hours available. If each country devotes 20 to production of bread and 20 to production of lemonade, then total production is

24 units of bread and 15 units of lemonade.

If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a

50.00 percent decrease in the quantity demanded.

Refer to Figure 2-5. Which of the following events would explain the shift of the production possibilities frontier from A to B?

A general technological advance -when both items increase

Refer to Figure 10-2. This market is characterized by

A negative externality

Which of the following would not be considered a private good?

Cable TV service

A likely example of complementary goods for most people would be

Coffee and sugar.

Which of the following statements about comparative advantage is not true?

Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.

The distinction between efficiency and equality can be described as follows:

Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

Fossil fuels are considered to be nonrenewable energy sources. Which of the following statements is correct?

Fossil fuels are scarce resources

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils.

Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the change in producer surplus?

Producer surplus increases by $3,125

Trade between countries

allows each country to consume at a point outside its production possibilities frontier.

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

The equilibrium quantity is greater than the socially optimal quantity.

Which of the following events would cause a movement upward and to the left along the demand curve for olives?

The price of olives rises.

Which of the following would not increase in response to a decrease in the price of ironing boards?

The quantity of irons supplied at each possible price of irons

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Zaria pays Hannah $16 so that Zaria can smoke.

Education yields positive externalities. For example,

a more educated population tends to result in lower crime rates.

If the demand for a good falls when income falls, then the good is called

a normal good.

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

a transaction cost.

Refer to Figure 7-1 . Suppose that the price falls from P2 to P1. Area B represents the

additional consumer surplus to initial consumers when the price falls .

Refer to Figure 4-4. The movement from point A to point B on the graph is caused by

an increase in the price of the good.

Refer to Figure 4-1. The movement from point A to point B on the graph shows

an increase in the quantity demanded.

Currently you purchase ten frozen pizza per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are

an inferior good.

Market failure associated with the free-rider problem is a result of

benefits that accrue to those who don't pay.

A supply schedule is a table that shows the relationship between

price and quantity supplied.

For private goods allocated in markets,

prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

Markets fail to allocate resources efficiently when

property rights are not well established.

People cannot be prevented from using a good if the good is a

public good or common resource

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the

quantity demanded of physicals increases, and the quantity supplied of physicals decreases.

If a nonbinding price floor is imposed on a market, then the

quantity sold in the market will stay the same.

It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that

weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable.

The maximum price that a buyer will pay for a good is called

willingness to pay.