Microeconomics Exam 2 (Lee)

d. the law of diminishing marginal utility.

"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects a the endowment effect. b consumer irrationality. c the second law of demand. d the law of diminishing marginal utility.

a. Even if they are offered a price greater than the price they would pay if they did not already own the good

According to the endowment effect, people are unwilling to sell a good they already own in which of the following cases? a Even if they are offered a price greater than the price they would pay if they did not already own the good b If they are offered a price lower than the price they would have to pay to replace the good c If they can't replace the good d If the good was a gift

a an increase; positive

An increase in the price of a substitute for Good X will lead to _____ in the quantity demanded of Good X, so the cross-price elasticity of demand will be _____. a an increase; positive b an increase; negative c a decrease; positive d a decrease; negative

b property rights are well-defined and enforced.

Competitive markets generally give consumers and producers correct incentives when a externalities are present in the market. b property rights are well-defined and enforced. c the good being produced and consumed is a pure public good. d there is a substantial lack of information on the part of either buyers or sellers.

c a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

Economic efficiency is a a market outcome in which the marginal benefit to consumers of the last unit produced is greater than its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. b a government outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. c a market outcome in which the marginal benef

d all economic activity generating more benefits than costs be undertaken.

Economic efficiency requires that a individuals produce at their maximum level b only long-lasting, high-quality products be produced without regard to cost. c income be distributed equally among consumers. d all economic activity generating more benefits than costs be undertaken.

c. take actions that are appropriate to reach goals given available information.

Economically rational means that consumers and firms a obtain full information prior to taking actions to reach goals. b take into account monetary costs and sunk costs. c take actions that are appropriate to reach goals given available information. d are realistic about the present but not necessarily the future. e take into account monetary costs but ignore nonmonetary opportunity costs.

a. Firms will not raise prices in response to an increase in demand.

How does the fact that consumers apparently value fairness affect the decisions that businesses​ make? a Firms will not raise prices in response to an increase in demand. b Firms will not raise prices in response to an increase in costs. c Firms will raise prices in response to an increase in demand. d Firms are not affected by​ consumers' value of fairness.

d 0.2 and the demand for hula hoops is inelastic.

If a 50 percent increase in the price of hula hoops led to a 10 percent reduction in the quantity of hula hoops demanded, the price elasticity of demand is a 5 and the demand for hula hoops is elastic. b 0.2 and the demand for hula hoops is elastic. c 5 and the demand for hula hoops is inelastic d 0.2 and the demand for hula hoops is inelastic.

a. consumers may be more likely to buy the product because it is more useful.

If a network externality is present for a product, then a consumers may be more likely to buy the product because it is more useful. b producers may be less likely to supply the product to avoid switching costs. c producers may be less likely to supply the product because it is less unique. d consumers may be more likely to buy the product to create path dependence.

c inelastic.

If a sandwich shop near campus increases its prices by 5 percent, and revenues from its sales increase, the price elasticity of demand for the services offered by the sandwich shop must be a elastic. b unit elastic. c inelastic. d equal to 0.5.

a the effect of a price change on the quantity demanded

If you know the value for price elasticity of demand, then which of the following can you compute? a the effect of a price change on the quantity demanded b the responsiveness of the quantity supplied of a good to changes in the price c the price elasticity of supply d All of the above

% change in quantity / % change in income

Income elasticity of demand equation?

d All of the above

Jane received a 10 percent increase in her salary and purchased 20 percent more jewelry. For Jane, jewelry a has an income elasticity of two. b is a normal good. c is a luxury good. d All of the above

c. producer surplus of $600.

John advertises his used car for $3,000 in the newspaper. He would be willing to sell his used car for as low as $2,000. He is offered $2,600 for if from a buyer and accepts it. In this trade, John receives a producer surplus of $3,000. b producer surplus of $2,600. c producer surplus of $600. d producer surplus of $400.

a individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.

Markets may have difficulty providing the proper quantity of a public good because a individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good. b the good generally has a very large value to consumers relative to its cost of production. c the good is one that tends to benefit a large number of people. d the large profit involved in the production of a public good is generally too much for private fi

c Area B is consumer surplus transferred to producers.

Refer to the graph below. After a price of P1 is imposed by the government in this market, what meaning do we give to area B? a Area B is tax revenue. b Area B is deadweight loss. c Area B is consumer surplus transferred to producers. d Area B is producer surplus transferred to consumers.

b Area E

Refer to the graph below. How much producer surplus is lost when the price is P1? a Area D b Area E c Area B + D d Area C + E

c result in poor service and quality deterioration of many rental units.

Rent control has been used extensively in New York City. Economic theory suggests that rent controls a create a surplus of rental housing. b promote a rapid increase in the future supply of housing. c result in poor service and quality deterioration of many rental units. d lead to a reduction in housing discrimination against minorities.

b The price will be too low, and the output will be too large.

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency? a The price will be too high, and the output will be too large. b The price will be too low, and the output will be too large. c The price will be too low, and the output will be too small. d The price will be too high, and the output will be too small.

d 2.67.

Suppose that the quantity of chain saws sold increased from 200 to 400 when the price fell from $225 to $175. Over this price range, the absolute value of the price elasticity of demand for chain saws is a 0.25. b 0.375. c 1.0. d 2.67. e 4.0.

c when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.

The Laffer curve illustrates the concept that a an increase in marginal tax rates will always cause tax revenues to increase. b an increase in marginal tax rates will always cause tax revenues to decrease. c when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase. d when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline.

a. the horizontal sum of all individual demand curves for the good.

The market demand for a good is a the horizontal sum of all individual demand curves for the good. b generally upward sloping, unlike individual demand curves. c usually a vertical line at a quantity of one hundred. d the average amount purchased by each individual in the market.

b fall on buyers.

The more elastic the supply of a product, the more likely it is that the burden of a tax will a fall on sellers. b fall on buyers. c fall equally on both buyers and sellers. d be borne by the public sector, and not by market participants.

c the actual division of the burden of a tax.

The term tax incidence refers to a the type of product the tax is levied on. b the amount of revenue collected by the government from a tax. c the actual division of the burden of a tax. d the actual versus the desired impact of a tax burden.

(% change in quantity of good X)/ (% change in price of good Y)

What is the Cross-Price Elasticity of Demand equation?

c Imposing quantitative limits on the amount of pollution firms are allowed to generate.

What is the focus of a command and control approach to reducing pollution? a Imposing taxes intended to bring about an efficient level of output in the presence of externalities. b Offering subsidies intended to bring about an efficient level of output in the presence of externalities. c Imposing quantitative limits on the amount of pollution firms are allowed to generate. d Trading licenses to pollute for cash payments.

(q1-q2)/(q1+q2/2) / (p1-p2)/(p1+p2/2)

What is the midpoint formula?

% change in quantity demanded / % change in price

What is the price elasticity of demand equation?

d The tragedy of commons refers to the tendency for a common resource to be overused.

What is the tragedy of commons? a The tragedy of commons refers to the fact that some people benefit from a good without paying for it. b The tragedy of commons is the tendency for some goods to be excluded from public consumption c The tragedy of commons refers to the fact that a good can be rival but nonexcludable. d The tragedy of commons refers to the tendency for a common resource to be overused.

b too little

When a positive externality is present in producing a good or service, _____ of the good or service will be produced at private market equilibrium. a too much b too little c the optimal quantity d none

d supply curve for the good will understate the true social cost of producing the good.

When production of a good generates external costs, the a demand curve for the good will overstate the true social benefits from consumption of the good. b demand curve for the good will understate the true social benefits from consumption of the good. c supply curve for the good will overstate the true social cost of producing the good. d supply curve for the good will understate the true social cost of producing the good.

c elastic and the percent change in quantity is greater than the percent change in price.

When the price elasticity of demand is greater than one, it means that demand is a inelastic and the percent change in quantity is greater than the percent change in price. b inelastic and the percent change in quantity is less than the percent change in price. c elastic and the percent change in quantity is greater than the percent change in price. d elastic and the percent change in quantity is less than the percent change in price.

b. Marginal utility equals zero.

When total utility is maximized, which of the following is true concerning marginal utility? a Marginal utility is equal to total utility. b Marginal utility equals zero. c Marginal utility is also maximized. d Marginal utility is minimized.

c The flu shot reduces the likelihood others will catch the flu.

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot? a The flu shot is cheaper than the cost of treatment when you get the flu. b The income of doctors increases when you get the flu shot. c The flu shot reduces the likelihood others will catch the flu. d The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.

b. Some people receive utility from goods they believe are popular

Which of the following factors best explains why consumers would prefer to go to a restaurant that was popular than another restaurant that had similar décor and serves similar food but had fewer customers? a Network externalities b Some people receive utility from goods they believe are popular c Endowment effects d Celebrity endorsements

d The more narrowly defined a product is, the larger the price elasticity of demand.

Which of the following is a true statement? a The fewer substitutes available for a product, the greater the price elasticity of demand. b The more time that passes, the more inelastic the demand for a product becomes. c The demand curve for a luxury is less elastic than the demand curve for a necessity. d The more narrowly defined a product is, the larger the price elasticity of demand.

d. Consumers always make choices with perfect information.

Which of the following is not a fundamental that underlies consumer behavior? a Goods can be substituted for one another. b Consumers make decisions purposefully based on past experience and knowledge. c The law of diminishing marginal utility applies. d Consumers always make choices with perfect information.

c national defense

Which of the following is the best example of a public good? a a government-run health care system b he Walt Disney World amusement park c national defense d long-distance telephone service

d a decrease in the employment of unskilled workers

Which of the following is the most likely result of an increase in the minimum wage? a an increase in the employment of unskilled workers b a decrease in the number of workers seeking minimum wage jobs c an increase in the demand for unskilled workers d a decrease in the employment of unskilled workers

d. All of these are true.

Which of the following is true about marginal benefit? a A consumer's marginal benefit is equal to the height of the demand curve. b Consumers will continue to purchase a good up until the point where marginal benefit equals price. c Marginal benefit declines as consumption increases because of the law of diminishing marginal utility. d All of these are true.

d All of the above

Which of the following is true regarding the price elasticity of demand? a Demand is generally more elastic in the long run than in the short run. b Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices). c A demand curve that is flatter is relatively more elastic than a demand curve that has a steeper slope. d All of the above

d. All of the these explain why people are overweight.

Which of the following reasons do economists use to explain why people are​ overweight? a People undervalue the utility to be received in the future. b People's preferences are not consistent over time. c People overvalue the utility from current choices. d All of the these explain why people are overweight.

d Black market

Which of the following terms corresponds to a market in which buying and selling takes place at prices that violate government price regulations? a Price conspiracy b Scalping c Competitive market d Black market

% change in quantity supplied / % change in price

what is the price elasticity of supply equation?