Microecon Exam 2 (Ch. 7, 8, 9, 10, 11, 13)

You're an analyst for Royal Caribbean, a primary cruise line servicing the Caribbean Sea. In 2021, the price of a seven-day Caribbean cruise was $1500 per ticket. A year later, as demand increased as COVID cases fell, the price per person rose to $2000 per ticket. The accompanying table provides information on the supply of cruise travel. If the marginal cost of providing a ticket on a cruise for one traveler is $1200, what was the change in producer surplus from 2021 to 2022?

$1.7 million

(Figure: MSB and Demand Curves) The graph shows the marginal social benefit and demand curves in the shampoo market. What is the marginal external benefit?

$2

(Figure: MSC and MPC Curves) The graph shows marginal social cost and marginal private cost curves. What is the marginal external cost?

$2

(Figure: Demand Curve 3) Use the graph of a demand curve for jugs of laundry detergent to answer the question. What is the total consumer surplus if 50 jugs are sold at a price of $6?

$350

You are the manager at Pure Sweat Studio, a membership-based sauna club, assigning closing duties to your team members. In 12 minutes, Sadiquah can fold all of the clean towels needed for a sauna room for the next day's use. She can clean a sauna room in 9 minutes. Landon can fold the towels in 10 minutes or clean a room in 15 minutes. Sadiquah's opportunity cost of folding towels is ____ sauna rooms.

1.33

(Table: Cooking Time.) The table provides data on how long it takes Marla and Jason to cook lasagna and chicken curry. Marla's opportunity cost of making lasagna is ___ and Jason's opportunity cost is ___. Hours it takes to cook: Lasagna: Marla 4; Jason 3 Chicken curry: Marla 3; Jason 1

1.33 chicken curries; three chicken curries

___ advantage is the ability to do the job better or faster

An absolute

Which is NOT an example of a rule enacted to prevent negative externalities?

County governments fund public elementary schools through tax revenue.

(Figure: Equilibrium in the Market for Mechanical Pencils) Consider the figure Equilibrium in the Market for Mechanical Pencils. At the equilibrium price, the producer surplus is equal to area:

DIF

(Figure: Producer Surplus in the Market for Baseballs) Consider the figure Producer Surplus in the Market for Baseballs. At a price of P1, the producer surplus equals the area:

P1K0

Why does Apple design the iPhone in California but assemble the iPhone in China?

The United States has a comparative advantage in iPhone design.

Which statement makes use of positive analysis?

The federal government spends $500 billion on education per year.

Which of these will NOT happen when the wages of pharmacists fall?

The supply curve for pharmacists will shift to the left.

On camping trips, Katie is much faster than her husband, Brett, at putting up a tent and starting a fire. Who should do each task if they want to maximize their time sitting around the campfire?

They should first each focus on that task in which they have a comparative advantage. When one finishes the assigned task, they can help the other.

____ is an example of a positive externality and ____ is an example of a negative externality.

Wearing a mask; pollution

Cornell can type reports faster and more accurately than Alice, so Cornell has a(n) _____ in typing reports.

absolute advantage

Economic Surplus can be used to measure value for items that have no price tag measure how well-off we are as a society compare outcomes of a government policy all of these

all of these

Which statement illustrates an environmental policy that uses cap and trade?

allowing drivers to buy and sell rights to emit specified levels of vehicle emissions

When trade is based on comparative advantage...

both trading partners end up better off than when there is no trade.

If the government sets a permitted limit on the amount a company can pollute, but lets companies trade these permits to determine which companies are willing to cut emissions, this is called

cap and trade

You determine that an additional worker generates an extra $250 a day in revenue for your business. The $250 a day represents the ___ of the worker.

marginal revenue product

The socially optimal outcome occurs where the ___ benefit equals the ___ cost.

marginal social; marginal social

(Market 6) The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. The socially optimal quantity is ___ and the price is $ ___.

six; 9

When a country's production mix becomes more specialized due to increased international trade based on comparative advantage:

some industries in the country will shrink and possibly disappear.

Which of these government regulations is LEAST likely to lead to market failure?

subsidies for vaccinations

Incentives to encourage people to take on more activities that create positive externalities is sometimes called a ____. A good example of this would be _____.

subsidy; giving people free masks to wear in public.

The ____ measures how people respond to a change in relative prices when the wage rises.

substitution effect

When a manager uses comparative advantage to assign tasks in a workplace, then each

task is assigned to the worker with the lowest opportunity cost for performing the task.

The marginal social cost of a unit of pollution is:

the marginal private cost plus marginal external cost from one extra unit of pollution.

The full set of cost and benefits, including the impact on society, is referred to by economists as

the marginal social costs and the marginal social benefits

Economists generally believe that a person should specialize in the production of a good or service if:

they can produce the product while forgoing fewer alternative products than any other person

When economic efficiency increases, the ____, and the benefits ____ be spread across all people.

total gains exceed the costs; may or may not

The efficiency problem that results from market power is that the market:

underproduces

Thinking like an economist, you should consider a career

where capital goods are a complement

Which benefit could a company gain from using internal markets?

Better allocation of its resources and more accurate predictions.

Suppose that the government increases the child tax credit, which increases the after-tax income of families with children. How will this decision affect the amount of labor supplied by parents, assuming that leisure is a normal good?

We don't know what will happen to the quantity of labor supplied, since we don't know whether the income effect or substitution effect will dominate.

Alena manages a small theme park. She hires one more custodian at $450 per week, making her park cleaner and more attractive. As a result of this improvement, ticket sales rise by 40 tickets per week. Tickets sell for $12. Use the Rational Rule for Employers to determine if hiring the extra custodian was a good move.

Yes, it was a good move because it added more to revenue than to cost.

You apply for a job, using a 3-D printer to make coffee mugs, that pays $15 an hour. The mugs sell for $4 each. Part of the hiring process is to demonstrate how good you are at making the mugs. You make an average of five acceptable mugs per hour. Will you get the job?

Yes, since your marginal revenue product is at least as large as your marginal cost.

Which statement BEST describes a negative externality?

Your neighbor has an ornamental pond that breeds mosquitoes.

An externality is NOT:

a price change

Ariana bought a new pair of shoes at Nordstrom. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these shoes!" This BEST represents the concept of:

consumer surplus

(Figure: Producer Surplus and Mystery Books) Avery, Amanda, Lucan, Henry, and Imelda are used booksellers, each of whom has a rare print of The Soothsayer's Gambit, the classic mystery novel by Joan Reeves. The booksellers vary widely in their valuations of their copies of the book and thus in what price they would need to part with it. When the market price of the book falls from $45 to $35, the producer surplus ____, leaving the total producer surplus at ____.

decreases by $40; $60

In the market for labor, businesses are the

demanders

You recently renovated a large historic building in the heart of your city to convert it into a boutique hotel, of which you're now the owner and operator. After a few months, you've noticed that the quantity of hotel bookings vary. Sometimes more rooms are booked on weekends, but sometimes certain events through the week result in a greater quantity of rooms booked. You now want to forecast when to expect the most bookings, but you don't know which events will bring the most people to the hotel

design an internal prediction market for employees to indicate their expectations.

Along a supply curve, a rise in the price of a good will:

increase the producer surplus.

During an economic downturn, a state government debates what type of economic stimulus -- a tax cut or spending increase -- would produce the most efficient outcome, that is, the outcome with the:

largest economic surplus.

Minglewood Hall, a music venue in Memphis, Tennessee, often hosts loud concerts that play late into the night. Minglewood provides an annual allotment of free concert tickets to residents who live in the houses directly behind the venue. Which solution to the externality problem does Minglewood use?

side payment

The marginal revenue product is calculated as:

MPL X P.

During the summer, you work with a service that stocks vacation homes on a lake to save the owner's time. After your boss cuts your hourly wage by 10%, you service more homes, working more hours. This means that:

NOT "the income effect is smaller than the substitution effect."

(Figure: Change in Market Graphs) The popularity of smartphones led app developers to be more highly valued in the labor market than their desktop computer programming colleagues. Which of the following graphs best represents what would happen in the market for desktop computer programmers as smartphones became popular?

NOT Graph B (increased labor supply)

A firm's demand curve for labor will shift because of:

a change in the demand for a firm's product.

Both emissions taxes and tradable emissions permits:

are efficient (and cost-minimizing) methods of pollution reduction

When good are allocated in a way that creates the largest economic surplus:

efficient allocation has been achieved.

In the labor market for computer programmers, the labor demand curve represents:

employers looking to hire programmers.

You decide to start a house-painting business next summer. When you hire employees, you are involved in a(n) ____ market, and when you and your employees paint the houses, you are involved in a(n) ____ market.

factor; output

When tasks are allocated to the person with the lowest opportunity cost

gains from trade occur.

The 'Kim Kardashian Problem' highlights that even though market outcomes might be efficient, it might not be equitable. This is because some wealthy, like Kim Kardashian, has a higher willingness to pay due to

having a lower opportunity cost of money.

You're performing a competitive analysis for Dove, a leading personal care brand in the United States. Your findings indicate a trend toward consumer preference for deodorants made with more naturally derived ingredients. Because of the high price competitors are receiving for natural deodorants, Dove follows your recommendation and enters the natural deodorant market by launching the Dove Care by Plants line. For Dove, the high price acted as a(n):

incentive

When wages ____, if the substitution effect dominates, the quantity of labor supplied will ____.

increase; increase

A woman resigns from her executive position to care for her young children. When her kids are older, she decides to resume her career. She finds her earnings are reduced because of the time she spent outside of the labor market. This is an example of the

interdependence principle

During the coronavirus pandemic, global supply chain issues caused the supply of new cars to shift left. Which role did price play in the new car market? Price was a(n):

message to potential buyers that the marginal cost of manufacturing new cars is rising.

According to separate analyses by the Organization for Economic Cooperation and Development (OECD and the World Population Review, respectively, the United States ranks fifth among OECD countries in productivity, and twenty-seventh in social mobility. While one observer might commend the United States in terms of ____, that is, economic ____, another might criticize it in terms of ____, that is, its relative ____.

outcome; efficiency; process; inequality of opportunity

A prediction market is a market where:

payoffs are linked to whether an uncertain event occurs.

Consider these claims concerning the Affordable Care Act (a.k.a. Obamacare) in 2009-10: (i) In the late 2000s, the number of uninsured Americans hit a record high of 60 million. (ii) Health care reform of some kind was needed to address the widespread lack of access to medical care. (iii) Among the options available, the Affordable Care Act provided the best fit to the mix of public and private institutions that make up the American health care system. (i) reflects ____ analysis; (ii) reflects _

positive; normative; normative

External benefits are generated by garden supplies that are used to beautify gardens and yards in neighborhoods. In equilibrium, the market will:

price garden supplies at less than the marginal social benefit.

Georgia-Pacific, one of the world's largest manufacturers and distributors of paper products, operates multiple paper mills throughout the United States. The process of converting wood pulp into paper releases air pollutants. However, if new technology enabled zero-emission paper production, the marginal:

private cost would equal the marginal social cost.

(Figure: Public Goods and Common Resources) Use Figure: Public Goods and Common Resources. The figure lists the type of goods that are available for consumption. Panel D depicts a good that is both nonrival in consumption and nonexcludable. Such a good would be considered a:

public good

Wikipedia is a widely used, free online encyclopedia, funded entirely by donations, rather than by selling advertising or user data. Wikipedia is a:

public good

Markets are all about

reallocating tasks so that each is done by the right person for the job.

On hot summer days, parking lots at Disneyland are usually full by early morning, even though one must pay to park there. Parking at such lots is ___ in consumption and ____.

rival; excludable

Price is functioning as a message when it:

is a line of communication between buyers and sellers in a market

You and your colleague are sales representatives. The table displays the number of minutes it takes you to perform your primary tasks. Place a phone call: You 7; Your colleague 5 Process an application: You 11; Your colleague 13 Prior to specialization, in an hour, you place five phone calls and process two applications. Your colleague places six phone calls and processes two applications. After specialization, the gains from trade are ____ phone calls and ____ application(s).

1; 1

(Figure: Market 3) The graph shows the marginal social cost, supply, and demand curves in the hand sanitizer market. At what quantity could the government set a quota to control this externality?

8

Without regulation, waste runoff from pig factory farming impacts the quality of nearby property. Which graph is accurately labeled to represent the market for pork products?

A

(Figure: Labor Supply) Which graph shows the income effect dominating labor supply decisions at high but not low wages?

Graph D (backward C shaped curve graph)

Diminishing returns to an input occur when:

NOT at least one input is variable. at least one input is fixed?

(Table: The Market for Power Tools) Use Table: The Market for Power Tools. In the table, the total product of labor is shown for the hourly production of power tools. Assume that the market for power tools is perfectly competitive. If the price of a power tool is $2, and the wage rate is $90 per hour, the profit-maximizing quantity of labor is ____ workers.

NOT four

You pay a plumber to install a new dishwasher in your home. Which statement is FALSE?

Only the plumber experiences gains from trade because they received money.

Which statement is normative?

Scientists should not make normative statements.

(Table: Joachim and Zane's Opportunity Cost) The table shows data on how long it takes Joachim and Zane to clean the bathrooms and wash the windows at a home. Who has a comparative advantage in washing windows? Clean the bathroom: Joachim 4; Zane 3 Was the windows: Joachim 10; Zane 6

Zane, because he has a lower opportunity cost

Chantelle grows tomatoes and sells them at the farmer's market. Because the price of tomatoes rises, she is encouraged to grow and sell more. This is an example of price functioning as

an incentive

Since the advent of the digital age, the demand for in-person telephone operators has fallen dramatically. Which factor would account for this development?

an increase in the number of automated answering services

When the price of the last unit sold equals its marginal cost, a seller will:

earn producer surplus on all units sold except the last one.

The gap between how much you are willing to pay for an item and the cost of that item to the seller is called

economic surplus

You should delegate tasks if

it allows you to focus your time on tasks where you have a comparative advantage.

As a rule, a profit-maximizing dance studio owner employs labor up to the point at which the marginal revenue product of the ____ unit of labor is ____ that factor's price (wage).

last; equal to

To obtain a license to work as a barber, hairstylist, or cosmetologist, one must graduate from a state-approved barber or cosmetology program and pass a state exam, limiting the number of people who can practice these professions. In this scenario, market failure would arise from:

market power.

An efficient allocation is one that

maximizes the gap between the buyer's willingness to pay and the seller's marginal cost.

The less work people do, all other things equal, the:

more leisure they have.

As long as people have different ________, everyone has a comparative advantage in something.

opportunity costs

(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are external costs:

resources will be over allocated to the production of the good.

A familiar example of a negative externality is loud music in a busy park on a weekend. In principle, it should be possible to solve this externality by permitting park visitors to negotiate rights to play music in particular locations or at specific times. The most likely reason these negotiations do NOT occur is that:

the bargaining costs of identifying and establishing communications between all affected parties would be high.

After a year delivering pizzas, you get a raise, and you cut back on your hours. For you:

the income effect is stronger than the substitution effect.

The efficient quantity prevails in a market when:

the market yields the largest possible economic surplus.

Thomas works 55 hours per week as a legal-aid lawyer for the city of Chicago, and his wage is $35 per hour. If his wage increases to $70 per hour:

the substitution effect implies that he will work more.

Harrison is willing to buy the last ticket to the Billy Elliot play for $15, while Stefania is willing to pay $25. Harrison is first in line and buys a ticket for $15. He then resells his ticket to Stefania for $20. By reselling the ticket instead of going to the play himself, Harrison caused: the sum of the consumer and producer surplus to increase. the sum of the consumer and producer surplus to decrease. a deadweight loss of $5. the consumer surplus to decrease and the producer surplus to in

the sum of the consumer and producer surplus to increase.