Microeconomics 221

A consumer likes to spend her weekly income on new CDs and tickets to see movies. The price of a CD is $12 and the movie ticket price is $10. THe graph shows the consumer's budget line. What is her weekly income

$120

The market for beef is in long run equilibrium at a price of $3.25 per pound. The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to $2.00 per pound. If the long run supply curve is horizontal, then when long run equilibrium is reestablished the price will be:

$3.25 per pound

Moral hazard occurs when:

An individual knows more about his or her actions than other people do

Gas prices recently increased by 25%. In response, purchase of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is:

0.2

The opportunity cost of producing one unit oc=f cell phones for sweden is

10 units of herring

If you are willing to give up 10 units of good Y for 5 units of good x and your level of satisfaction is unchanged, the marginal rate of substitution is:

2

If the price of hamburgers increases, it would probably result in BLANK in the demand for hamburger buns

A decrease

Which of the following is an example of a normative statement?

A high rate of economic growth is good for the country.

Which of the following is an example of a club good?

A pay per view boxing match on cable television

In the figure, if the price is P2 then the maximum profit the firm can earn is:

B: DE x Q2

The table shows how many cabinets your firm can make with a variable quanitty of labor hired. After which worker does the firm begin to experience diminishing returns to labor?

B: Second

A mens tie store sold an average of 30 ties per ay when the prices was $5 per tie. The same store sold 60 of the same ties per day when the price was $3 per tie. IN this case the absolute value of the price elasticity of demand, using the midpoint method is:

C: greater than one but less than three

If each cabinetmaker could be hired at no cost, how many workers would your firm employ?

C: seven

In this graph, a price floor has been imposed at the price shown as point B. The area of deadweight loss can be found at

EGH

Accounting profit differs from economic profit because

Economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

The price of microchips used to produce computers falls. As a result the equilibrium price of computers BLANK and the equilibrium quantity BLANK

Falls; Increases

A rent ceiling must be set above the equilibrium to be binding

False

Economists know that a particular good can be classified as an inferior good if BLANK in buyers income causes BLANK.

Increase, decrease in demand

In order to obtain maximum profits, the monopoly should produce the output determined by point:

G

Price takers are individuals in the market who

Have no ability to affect the price of a good in a market

Sweden has a comparative advantage in producing:

Herring only

Sweden has an absolute advantage in producing:

Herring only

After you graduate from college, you open a business selling computers there are many other businesses in your city that sell similar computers, based on this information the price elasticity of demand for the computers that your business sells will be:

Highly elastic

If the opportunity cost of manufacturing automobiles is lower in the united states than in britain and the opportunit ycost of manufacturing airplanes is higher in the United States than in britain then gains from trade will be experienced if the united states will:

Import airplanes from britain and export automobiles to britain

Common resources tend to be overused because...

Individuals tend to ignore the cost their use of the resource has on others

There is one gas station in a small town. The owner of the station claims that he will sell the same quantity of gas, no matter how high or low the price. If he is correct in this assertion, what must be true about the demand curve for gas at his station?

It must be vertical with a price elasticity of zero

The cost of sensors used in making digital cameras falls, while a successful ad campaign makes digital cameras more fashionable. As a result, the equilibrium relative price of digital cameras BLANKS and the equilibrium quantity BLANK.

May increase, decrease, or stay the same

The best example of a good whose consumption is nonexclusive is

National defense

An individual is more likely to free ride when a good is

Nonexcludable

If the price falls from P2 to P1, producer surplus decreases by the area

P2 P1 KM

The profit maximizing price is BLANK and will generate total economic profit of BLANK

P3; the rectangle P2 P3 EF

In the short run, a perfectly competitive firm produces output and earns an economic profit if

P> ATC

A club good is a good or service for which exclusion is:

Possible and is nonrival in consumption

The burden of tax that is imposed on a good is said to fall completely on the consumers if the

Price paid y consumers for the good increases by the amount of the tax

Suppose that more police and security workers become aware that wearing bulletproof vests can protect them from injury and decide to start wearing bulletproof vests. At the same time, the price of ceramics used to produce the vests falls. Then, the equilibrium relative price of bulletproof vests BALNK and the equilibrium quantity produced BLANK

Probably changes, but in an ambiguous direction, increases

The most profitable level of output occurs at quantity

S

In practice insurance companies faced with adverse selection use which of the following strategies to deal with it?

Signals

You notice that the price of DVD players falls and the quantity of DVD players sold increases. Which of the following may cause this change?

Supply of DVD players shifts to the right

Which of the following will lead to a decrease in total revenue

The price increases and demand is price elastic

For most goods as we move down an indifference curve:

The slope gets flatter

Health insurance policies include deductibles

To minimize the impact of moral hazard

For a public good, non payers Can/cannot be excluded from obtaining the benefits of the good

cannot be

In the figure, if an effective price ceiling exists in this market, then producer surplus BLANK and total surplus BLANK

decreases, decreases

A common resources is a good or service for which exclusion is

not possible and which is rival in consumption

the figure shows the supply and demand curves for a good. if an excise tax equal to $1.10 is imposed on this good, then the price paid by consumers will

rise by $0.50

If economic profit for a firm is negative

the firm should exit the industry in the long run