Mid Term Review

When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?

0.2 Explanation The percentage change in quantity demanded is 0.02 (= 10/500) and the percentage change in price is 0.1 (= $0.15/$1.50), so elasticity is 0.02/0.1 = 0.2.

Refer to the accompanying figure. Moving from point B to point A, the opportunity cost of 25 more salads is:

10 pizzas

Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour vs Computers Per Hour Smith - 100 vs 10 Jones - 120 vs 6 If Smith and Jones devote all of their resources to producing computers, then the maximum number of computers they can produce in an hour is:

16 Explanation If they devote all of their resources to making computers, Smith can make 10 and Jones can make 6, for a total of 16.

f the demand for a good is highly elastic, that good is likely to have:

many close substitutes. Explanation If a good has many close substitutes, a small increase in its price will motivate consumers to purchase the close substitutes.

A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a:

production possibilities curve. Explanation The production possibilities curve describes the maximum amount of one good that can be produced for every possible amount produced of another good.

If a firm is earning zero economic profit, then: Multiple Choice the firm's revenues are sufficient to pay its explicit costs, but not its implicit costs. the owner will not be able to pay himself or herself a salary. the firm will shut down in the long run, but will continue to operate in the short run. the firm's accounting profit is equal to the firm's implicit costs.

the firm's accounting profit is equal to the firm's implicit costs. Explanation Economic profit equals accounting profit minus implicit costs, so if a firm's accounting profit is equal to its implicit costs, then economic profit will equal zero.

How would each of the following affect the U.S. market supply curve for corn? a. A new and improved crop rotation technique is discovered.The supply curve would ___ b. The price of fertilizer falls.The supply curve would shift to the _____ c. The government offers new tax breaks to farmers.The supply curve would _____ d. A tornado sweeps through Iowa.The supply curve would shift to ______

Explanation a. The supply curve would shift to the right. The discovery is a technological improvement, so the improved technique would allow a farmer to use the same inputs to produce more corn.b. The supply curve would shift to the right. Fertilizer is an input into the production of corn, so this is an example of a decrease in an input price. A decrease in input prices would shift the supply curve to the right.c. The supply curve would shift to the right. New tax breaks would make farming relatively more profitable than before, so those who were earning an income from a non-farming job that paid just a little bit more than farming would switch to farming if the tax break is big enough.d. The supply curve would shift to the left. A tornado would destroy corn fields along with infrastructure used to harvest and store it. Thus, at every given price, the quantity of corn supplied would be lower and the supply curve would shift to the left.

Josh wants to go to the football game this weekend, but he has a paper due on Monday. It will take him the whole weekend to write the paper. Josh decides to stay home and work on the paper. According to the Scarcity Principle, the reason Josh doesn't go to the game is that:

Josh can't go the game and finish the paper. Josh has to make a trade-off: time is a scarce resource and so he must choose between the two activities.

If Les can produce two pairs of pants per hour while Eva can produce one pair per hour, then it must be true that

Les has an absolute advantage in producing pants. Absolute advantage means being able to produce more in a given time period.

Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways?

More drivers would drive on the non-toll road, making the toll road less congested. Explanation Applying the Incentive Principle, in response to higher costs on the toll road, we would expect fewer people to use the toll road.

Entry into a perfectly competitive industry occurs whenever: Multiple Choice accounting profit is equal to zero. accounting profit is greater than zero. economic profit is greater than zero. Correct economic profit is equal to zero.

economic profit is greater than zero. Explanation Entry of new firms is a response to the existence of positive economic profit.

If the percentage change in the price of a good is less than the resulting percentage change in the quantity demanded of that good, then the demand for that good is:

elastic. Explanation If the percentage change in quantity is greater than the percentage change in price, then the price elasticity of demand will be greater than one, implying that demand is elastic.

In general, individuals and nations should specialize in producing goods ______ other individuals or nations.

for which they have a lower opportunity cost compared to Explanation The Principle of Comparative Advantage states that people should specialize in the activities for which their opportunity cost is the lowest.

If an individual consumer is willing to pay $11 for one unit of a good but is able to purchase it for $7, then his or her consumer surplus from the purchase of that unit would be:

$4 Explanation Consumer surplus is a buyer's reservation price minus the price the buyer actually pays.

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. S= world price 1500 Domestic Price with Subsidy 1000 ....8 .....12 With no subsidy, what is consumer surplus?

$4,000 per day Explanation Consumer surplus without a subsidy is ½ × ($2,500 − $1,500) × 8 = $4,000.

Q3Q3 Refer to the accompanying figure. Total utility increases with each additional pizza up to the ______ and then declines, but marginal utility ______ with each additional pizza consumed. points utility to quantity 0,0 30, 1 55,2 75,3 90,4 100,6 105,7

6th pizza; decreases Explanation The total utility curve is positively sloped up to the sixth pizza, indicating that total utility is increasing, On the other hand, the increases in total utility, or marginal utility, are smaller and smaller as consumption increases; as a result, we see that marginal utility is decreasing.

Which of the following statements is true?

Comparative advantage does not require absolute advantage. Comparative advantage and absolute advantage differ: you can have both at the same time, but you can also have one but not the other.

Q14Q3 The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. Moe's short run supply curve is:

Curve A above Curve C Explanation A perfectly competitive firm's supply curve is the segment of the marginal cost curve that lies above the average variable cost curve.

Consumer surplus measures: Multiple Choice the increase in a buyer's total utility when the buyer purchases additional units of a good. the difference between the quantity demanded and the quantity supplied at a given price. the difference between a buyer's marginal utility from consuming a product and the price actually paid. the difference between the most a buyer would be willing to pay for a product and the price actually paid. Correct

the difference between the most a buyer would be willing to pay for a product and the price actually paid. Explanation Consumer surplus is defined as the difference between a buyer's reservation price for a product and the price actually paid.

Refer to the accompanying figure. It is efficient for this farmer to: wheat 1,000 to corn 500

grow 500 bushels of wheat and 250 bushels of corn.

Mary Jane is willing to babysit for $6 an hour. Her neighbor has asked her to babysit for $8 an hour. Assuming Mary Jane accepts the offer:

her economic rent will be $2 per hour.

Joe is shopping for a new computer. A computer can be delivered to Joe's home for $1,200. Alternatively, Joe can pick up the same computer at the warehouse for $1,000. How should Joe buy the computer? Joe should drive to the warehouse because $1,000 is less than $1,200. Joe should drive to the warehouse if his cost of driving to the warehouse is less than $200. Correct Joe should drive to the warehouse if his cost of driving to the warehouse is greater than $200. Joe should drive to the warehouse because the $200 he would save by driving to the warehouse is more than 10% of the purchase price.

Joe should drive to the warehouse if his cost of driving to the warehouse is less than $200. Explanation Joe should drive to the warehouse if the cost of doing so is less than the added $200 cost of having it delivered.

The downward slope of the production possibilities curve illustrates the:

Scarcity Principle. Explanation The downward slope of the production possibilities curve shows that having more of one good means having less of the other.

Which of the following best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand curve would shift to the right, leading to:

a higher equilibrium price in the short run and entry into the market in the long run. Explanation The demand shift increases price and leading to positive economic profit. In the long run, this economic profit will prompt new firms to enter the market.

Economics is best defined as the study of

how people make choices in the face of scarcity and the implications of those choices for society as a whole. Economics is the study of how people make choices under conditions of scarcity and the implications of those choices for society as a whole.

If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as: Multiple Choice inelastic. perfectly inelastic. unit elastic. perfectly elastic.

perfectly inelastic. Explanation The price elasticity of demand along a vertical demand is zero.

Excess demand occurs: whenever the market is in equilibrium. whenever the market is not in equilibrium. when price is above the equilibrium price. when price is below the equilibrium price.

when price is below the equilibrium price. Explanation Excess demand occurs when price is below the equilibrium price, so that the quantity demanded is greater than the quantity supplied.

The accompanying graph depicts demand. 7 6 5, 4 4, 6 3, 8 2, 10 12 14 The price elasticity of demand at point A is:

5/2 Explanation The formula for the price elasticity of demand at a given point is (P/Q) × (1/slope). Here, (5/4) × (1/0.5) = 5/2.

Suppose that at Miles's current level of consumption, his marginal utility from a pizza is 10 utils, and his marginal utility from a pint of ice cream is 16 utils. If the price of a pizza is $8, and the price of a pint of ice cream is $5, is Miles maximizing his utility? Multiple Choice No. He should shift his spending away from ice cream and towards frozen pizza. No. He should buy less frozen pizza and less ice cream. No. He should shift his spending away from frozen pizza and towards ice cream. Correct Yes. He should not change his spending on frozen pizza and ice cream.

No. He should shift his spending away from frozen pizza and towards ice cream. Explanation Miles's marginal utility per dollar spent on pizza (10/8) is less than his marginal utility per dollar spent on ice cream (16/5). Thus, according to the rational spending rule, he should reallocate his spending away from pizza and towards ice cream.

The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts. The maximum number of dresses that Becky can make in a day is represented by point:

W

Economics is best defined as the study of:

choice in the face of limited resources. Explanation Economics is the study of how people make choices under conditions of scarcity and the implications of those choices for society as a whole.

q9 q2 Refer to the accompanying figure. An increase in supply is represented by a shift from:

curve A to curve B. (lines that look like //)

Suppose that the short-run price elasticity of demand for electricity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being ___________ and the long-run elasticity as being ____________.

inelastic; elastic Explanation If the price elasticity of demand is less than one, demand is inelastic, and if it is greater than one, demand is elastic.

The Cost-Benefit Principle indicates that an action should be taken if:

its extra benefit is greater than or equal to its extra cost. Explanation The extra benefits and extra costs from taking an action determine whether that action should be taken.

The buyer's reservation price for a particular good or service is the: Multiple Choice smallest price the buyer would be willing to pay for it. same as the market price. largest price the buyer would be willing to pay for it. Correct price the buyer must pay to ensure he or she gets it.

largest price the buyer would be willing to pay for it. Explanation By definition, a buyer's reservation price is the largest dollar amount the buyer would be willing to pay for a good.

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's explicit costs were ______, and her implicit costs were ______.

$51,000; $40,000 Explanation Christine's explicit costs are 12 months of rent and the administrative assistant's salary: $36,000 + $15,000. Her implicit costs are her foregone salary of $40,000.

Which of the following describes a surplus-enhancing transaction? The Federal government taxes the wealthy to pay for programs to help the poor. A firm lays off 25 workers in order to cut costs. A person pays $10.00 to buy a scoop of ice cream at a baseball game. Correct Your state government imposes a higher minimum wage than the one set by federal law.

A person pays $10.00 to buy a scoop of ice cream at a baseball game. Explanation A voluntary transaction is evidence that the buyer and the seller both benefit.

According to the accompanying table, Julia has the absolute advantage in making: Time to Make a Pie vs Time to Make a Cake Martha -60 minutes vs 80 minutes Julia -50 minutes vs 60 minutes

both pies and cakes. It takes Julia less time to make both pies and cakes than Martha.

An implication of scarcity is that

people must make trade-offs. The Scarcity Principle states that although we have boundless needs and wants, the resources available to us are limited. So having more of one thing means having less of another.

If fast food is an inferior good then: Multiple Choice the demand for fast food will fall as income falls. the demand for fast food will fall as income rises. Correct the quantity of fast food demanded will rise as the price of fast food rises. the demand for fast food will fall as the price of fast food rises.

the demand for fast food will fall as income rises. Explanation An inferior good is a good for which demand decreases when income rises and for which demand increases when income falls.

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per DayOutput Per Day 0 0 1 40 4 80 9 120 15 160 23 200 What is the marginal cost of production between 80 and 120 units of output each day?

$1.75 Explanation Marginal cost is the change in total cost divided by the corresponding change in output as output changes from one level to another. The total cost of making 80 units of output is $106 [= (4 × $14) + $50)], and the total cost of making 120 units of output is $176 [= (9 × $14) + $50]. Thus, as output increases from 80 to 120 units, marginal cost is $1.75 (= ($176 − $106)/(120 − 80)).

Suppose Ben owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Ben's total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per DayTotal Cost Per Day ($) 0 100 1 110 2 126 3 148 4 172 5 200 6 235 When Ben makes 2 kites per day, what is his average variable cost?

$13 Explanation Ben's fixed cost per day is $100, so when his total cost is $126, his variable cost is $26, and his average variable cost is $26/2 = $13.

Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9th bonbon is _____. Multiple Choice 77 7 Correct 42 4.67

7 Explanation Marginal utility is the additional utility gained from consuming an additional unit of a good. Here, total utility increases by 7 units (from 35 to 42) when consumption increases from 8 to 9, so the marginal utility of the 9th bonbon is 7.

Intel has long been the world's biggest computer chip manufacturer having both absolute and comparative advantages in the production of high quality chips. Apple has indicated that they will/have begun developing their own computer chips and will transition away from using the Intel chips in their products. Consider the beginning of this process and describe the advantages and disadvantages apple would have with: 1) Focusing on building up a comparative advantage in chip production 2) Focusing on building up an absolute advantage in chip production What are the strengths and weaknesses of these strategies? Is there one you prefer?

Apple would have a disadvantage when it comes to comparative advantage because Intel is the leading manufacturer in the market. It would take them quite some time to develop the product, become more efficient, and dominate the market. It think Apple would have a good chance at taking the absolute advantage over time due to the fact that they manufacturer electronic components in a high quantity already. Apple would just have to produce more than Intel and a lower cost, which may be hard since Intel specializes in the chips already. It's not impossible, it would just take time and a large number of consumers for them to have the comparative as well.

ohn Jones owns and manages a café in Collegetown whose annual revenue is $5,000. Annual expenses are as follows: Expense - Amount Labor $2,000 Food and drink 500 Electricity 100 Vehicle lease 150 Rent 500 Interest on loan for equipment 1,000 a. Calculate John's annual accounting profit. $ . b. Suppose John could earn $1,000 per year as a recycler of aluminum cans, but he prefers to run the café. In fact, he would be willing to pay up to $275 per year to run the café rather than to recycle. Is the café making an economic profit? (Yes/No) the café is making an economic (profit/loss) of $ ___ per year. Should John stay in the cafe business? __ c. Suppose the café's revenues and expenses remain the same, but recyclers' earnings rise to $1,100 per year. Is the café making an economic profit? (Yes/No), the café is making an economic (profit/loss) of $____ per year Should John stay in the café business? d. Suppose John had not had to get a $10,000 loan at an annual interest rate of 10 percent to buy equipment, but instead had invested $10,000 of his own money in equipment. Calculate John's annual accounting profit. $ e. As in part b, suppose John could earn $1,000 per year as a recycler and he has to pay $1,000 per year in interest on his loan, but, unlike part b, suppose John likes recycling just as well as running the café. How much additional revenue would the café have to collect each year to earn a normal profit? $

Explanation a) John's accounting profit is his revenue minus his explicit costs:$5,000 - $4,250 = $750b) In this case, John's opportunity cost of running the café is $725 per year ($1,000 − $275 = $725). Thus, the café is making an economic profit of $25 per year ($5,000 − $4,250 − $725 = $25). Since the café is earning an economic profit, John should stay in the café business. c) In this case, John's opportunity cost of running the cafe is $825 per year ($1,100 − $275 = $825). Thus, the cafe is earning an economic loss of $75 per year ($5,000 − $4,250 − $825 = −$75). Since the café is earning an economic loss, John should not stay in the café business. d) John's accounting profit equals his revenue minus his explicit costs. If he doesn't need a loan, then his explicit costs equal $3,250. So, his accounting profit equals $1,750 (= $5,000 − $3,250). e) To earn a normal profit, the café would have to cover all its implicit and explicit costs. The opportunity cost of John's time is $1,000 per year while the café's accounting profit is only $750 per year. Thus, the café would have to earn additional revenues of $250 per year in order for John to make a normal profit.

Suppose Alex owns a business making quilts that generates $7,000 a month in revenue. Each month, Alex spends $1,500 on fabric and other sewing materials, and he pays his two employees a combined total of $4,000 per month (they each earn $2,000). Alex makes his quilts in a workshop he has set up in his basement. If Alex did not own the quilt business, he would work as a yoga instructor earning $2,300 per month, and he would use the basement as a TV room, an option he would value at $40 per month. a. What is Alex's accounting profit? Instructions: If you are entering a negative number, be sure to include a negative sign (-). b. What is Alex's economic profit? c. If the market for quilts is perfectly competitive, and other quilt producers face the same costs as Alex, then what would you expect to happen to both the number of firms making quilts and the equilibrium price of quilts in the long run. Briefly explain.

Explanation a. Accounting profit = $7,000 - $1,500 - $4,000 = $1,500 b. Economic profit = $7,000 - $1,500 - $4,000 - $2,300 - $40 = -$840 c. You would expect firms to exit the industry, leading to a decrease (leftward shift) in the industry supply. As a result, the equilibrium quantity of quilts would fall, and the equilibrium price would rise.

The daily demand and supply curves for milk in the small town of Dairyville are as shown in the figure. (in phone) Suppose the government imposes a price ceiling on milk of $5 per gallon. a. How many gallons of milk will be bought and sold each day after the imposition of the price ceiling? b. What will be the excess demand for milk each day after the imposition of the price ceiling? c. What will be consumer surplus after the imposition of the price ceiling? d. What will be producer surplus after the imposition of the price ceiling? e. What will be the loss in total economic surplus each day that results from the imposition of the price ceiling?

Explanation a. If the price of milk is $5 per gallon, producers will be willing to produce no more than 400 gallons per day, so this will be the quantity bought and sold. b. At a price of $5, the quantity supplied will be 400 gallons per day, and the quantity demanded will be 1,000 gallons per day, so the excess demand will be 600 gallons per day. c. Consumer surplus will be the area below the demand curve above the price ceiling ($5 per gallon) up to the new equilibrium quantity (400 gallons per day). Breaking this area up in two smaller areas (a triangle and a rectangle), consumer surplus equals (1/2 × $2 × 400) + ($3 × 400) = $1,600. d. Producer surplus will be the area of the triangle below the price ceiling ($5 per gallon) above the supply curve up to the new equilibrium quantity (400 gallons per day), or 1/2 × $4 × 400 = $800 e. The loss in total economic surplus will be the area of the triangle between the demand curve and the supply curve from 400 to 600 gallons per day, or 1/2 × $3 × 200 = $300.

Unskilled workers in a poor cotton-growing region must choose between working in a factory for $6,000 a year and being a tenant cotton farmer. One farmer can work a 120-acre farm, which rents for $10,000 a year. Such farms yield $20,000 worth of cotton each year. The total nonlabor cost of producing and marketing the cotton is $4,000 a year. A local politician whose motto is "working people come first" has promised that if he is elected, his administration will fund a fertilizer, irrigation, and marketing scheme that will triple cotton yields on tenant farms at no charge to tenant farmers. a. If the market price of cotton would be unaffected by this policy and no new jobs would be created in the cotton-growing industry, how would the project affect the profits of tenant farmers in the short run? In the long run? Instructions: Leave no cells blank. Be certain to enter "0" if needed. Short-run economic profit: $ ____ per lease. Long-run economic profit: $ ___per lease. b. Who would reap the benefit of the scheme in the long run? How much would they gain each year? _____ would gain $ ______ per plot each year due to higher rent for land Correct.

Explanation a. The short-run economic profit for a cotton farmer is: Economic profit = Total revenue - Explicit costs - Implicit costs Economic profit = $60,000 - $14,000 - $6,000 Economic profit = $40,000 per lease. In the long run, factory workers would want to move into cotton farming, and would thereby bid up the rent on cotton farms. The rent would continue to rise until it reached $50,000 per farm. At that point, the incentive to leave a factory job would no longer exist, since cotton farmers would again be making zero economic profit. b. Landowners would reap the long-term benefits of the scheme. Their income would rise by $40,000 per year per 120-acre plot because rent would rise from $10,000 to $50,000.

Q3Q6 Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then the market demand for hamburger will be 9 pounds per week when the price of hamburger is: Laura's demand (p/q) 3,3 2.5,3 1,3 0.5,3.5 Chris's Demand 3,2 2.5,3 2,4 1.5,5 1,6 0.5,7

Explanation At a price of $1.00 per pound, Laura wants to buy 3 pounds per week and Chris wants to buy 6 pounds per week, so market demand is 9 pounds per week.

Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, the government sets the price for prescription drugs. One can conclude that the government has: set the price too high. set the price above the equilibrium price. encouraged buyers to hoard prescription drugs. set the price below the equilibrium price.

Explanation If there is a shortage, then this suggests that the regulated price is lower than the equilibrium price.

Suppose the weekly demand and supply curves for used DVDs in Lincoln, Nebraska, are as shown in the diagram. Calculate the following at the equilibrium price of $10.50: a. The weekly consumer surplus. b. The weekly producer surplus. c. The maximum weekly amount that producers and consumers in Lincoln would be willing to pay to be able to buy and sell used DVDs in any given week (total economic surplus).

Explanation a. Consumer surplus is the triangular area between the demand curve and the equilibrium price. Its area is equal to (1/2)(base)(height). The base is 6 units and the height is 1.5 units, measured in dollars. Therefore, consumer surplus is (1/2)($1.50/unit)(6 units/week) = $4.50 per week. b. Producer surplus is the triangular area between the equilibrium price and the supply curve. Using the base-height formula, producer surplus is (1/2)($4.50/unit)(6 units/week) = $13.50 per week. c. The maximum weekly amount that consumers and producers together would be willing to pay to trade in used DVDs is the sum of the gains from trading in used DVDs — namely, the total economic surplus generated per week, which is $18 per week.

tate whether the following statements are true or false. a. The economic maxim "There's no cash on the table" means that there are never any unexploited economic opportunities. b. Firms in competitive environments make no accounting profit when the market is in long-run equilibrium. c. Firms that can introduce cost-saving innovations can make an economic profit in the short run.

Explanation a. False. The maxim tells us that there are no unexploited economic opportunities when the market is in long-run equilibrium. In fact, there often are unexploited economic opportunities in the short run when markets are not in equilibrium. b. False. Firms in long-run equilibrium make zero economic profits. They make a positive accounting profit since, in order to stay in business, the firm must earn enough revenue to cover both explicit costs and implicit costs. Thus, accounting profit, which is equal to total revenue minus explicit costs, must equal the opportunity cost of the owner's resources that have been invested in the firm. c. True. Firms that introduce cost-saving innovations can earn economic profits until other firms adopt their innovations. As the innovations spread, the industry supply curve will shift to the right, causing the market price of the good to fall and short-term economic profits to fall.

Due to COVID-19, most restaurants have been forced to shut down, with many facing the possibility of closing for good. As the economy begins to improve across the country, restaurant owners face the decision of when, and in what capacity, to reopen. Many have found success by offering take-out, delivery, and increased outside seating capabilities. In 3-4 sentences, write about some different factors that restaurants need to think about when making their decision. What are some reasons one restaurant is able to reopen while another is not? Include the varying effects that different restaurants face due to their fixed costs, variable costs, and changing consumer demand since COVID-19. Real life examples from local restaurants are encouraged, and there is no one right answer to this question.

Factors that restaurants need to take into consideration when determining to reopen depends mainly on the set-up, location, and type of food they serve. For example, Big City Gyros in Shawano has decided to open for take out and delivery only. Their seating area is too small to accomadate multiple people sitting safely spaced apart in the dining area. They made this decision due to the rising number of cases in our area after the recent county fair. Meanwhile, Four Seasons restaurant has decided to open due to their being more space for people to spread out. They are famous in this area for thier salad bar, which many other places to not have. Due to Covid, customers are not allowed to use the salad bar themselves. Waitstaff are the only ones who can serve you buffet items.

A good example of central planning at work in the U.S. is: -car manufacturers establishing suggested retail prices. -McDonald's fries being the same everywhere. -unions working with businesses to establish wages. -New York City's rent control program.

New York City's rent control program. Explanation In New York, the rent that can be charged for certain apartments is regulated by the government.

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day) vs Total number of windows cleaned 0 vs 0 1 vs 7 2 vs 11 3 vs 14 4 vs 16 5 vs 17 Should John spend a third hour cleaning windows?

No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7. Explanation In the third hour John spends cleaning windows he cleans 3 additional windows and earns $2 per window for a total benefit of $6. He could have spent that hour earning $7 at the store, so his opportunity cost is $7. Since $6 is less than $7, he should not clean windows for a third hour.

Suppose it takes Paul 3 hours to bake a cake and 2 hours to mow the lawn, and suppose it takes Tom 2 hours to bake a cake and 1 hour to mow the lawn. Which of the following statements is correct?

Paul has the comparative advantage in baking cakes. Explanation For Paul, in the time it takes him to bake a cake, he could have mowed the lawn 1.5 times, and the time it takes him to mow the lawn, he could have made 2/3 of a cake. For Tom, in the time it takes him to bake a cake, he could have mowed the lawn 2 times, and in the time it takes him to mow the lawn, he could have baked 1/2 of a cake. Thus, Paul has a comparative advantage in baking cakes (because 1.5 < 2), and Tom has a comparative advantage in mowing the lawn (because 1/2 < 2/3). Tom has an absolute advantage in both tasks since he can do each more quickly than Paul.

The ride sharing service Uber uses a surge pricing algorithm, allowing the platform to charge some multiple of the base price of any given ride. Explain how supply and demand dynamics may play into these price calculations. Can anything be definitively said about consumer surplus changes in the event of surge pricing? Do you think Uber rides are a normal good?

Supply and Demand are relevant in this situation for multiple reason. In this case, the supply is the person who going to be providing the service of a taxi. The demand is the person in need of a ride. I would imagine that the alogrothim factors time of day into the pricing scale. Rides during peak traveling times may be more expensive and rides during low traveling times may be cheaper. I think if there was a surplus in changes, there may be a surge in pricing. It is also entirely possible that commuters will find alternative ways to get to and from their destinations if Uber becomes too expensive. I think that Uber may be considered a normal good in larger cities.

Any combination of goods that can be produced with currently available resources is an:

attainable point. Explanation Attainable points are defined as any combination of goods that can be produced using currently available resources.

Refer to the accompanying figure. At quantities less than 50 doughnuts per day: Multiple Choice marginal cost is declining. the return to the firm's variable factors of production must be increasing. average cost is declining because marginal cost is increasing. average cost is declining because marginal cost is less than average cost.

average cost is declining because marginal cost is less than average cost. Explanation If the added (or, marginal) cost of producing an additional unit of output is less than average cost, then average cost will fall as output increases.

In general, individuals and nations should specialize in producing those goods for which they have a(n):

comparative advantage. Explanation The Principle of Comparative Advantage states that people should specialize in the activities for which their opportunity cost is the lowest (that is, the activities in which they have a comparative advantage).

If the demand for steak increases as income increases, then steak is a(n):

normal good. Explanation A normal good is a good for which an increase in income leads to an increase in demand and a decrease in income leads to a decrease in demand.

Suppose rice is a normal good. If consumers' incomes fall, and a new technology is introduced that lowers the marginal cost of producing rice, then the equilibrium: price of rice will increase, but we cannot say for sure what will happen to the equilibrium quantity. price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity. Correct quantity of rice will increase, but we cannot say for sure what will happen to the equilibrium price. Incorrect quantity of rice will decrease, but we cannot say for sure what will happen to the equilibrium price.

price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity. Explanation A decrease in the marginal cost of producing rice will increase supply, and a decrease in income will decrease demand if rice is normal good. When demand decreases and supply increases, the new equilibrium price will be lower, but we cannot say for certain whether equilibrium quantity will increase or decrease.

Assume that each day a firm uses 13 employee-hours per day and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ______ of ______. Multiple Choice profit; $370 loss; $200 profit; $170 Correct loss; $170

profit; $170 Explanation Revenue is $5 times 100, or $500. Total labor costs are $130 (= 13 ×$10) and rent is $200, so total costs are $330. Thus, profit is $500 - $330 = $170.

Suppose that Cathy spends all of her income on 20 units of good X and 25 units of good Y. Cathy's marginal utility from the 20th unit of good X is 9 utils, and her marginal utility from the 25th unit of good Y is 19 utils. If the price of good X is $0.50 per unit and the price of good Y is $1.00 per unit, then to comply with the rational spending rule, Cathy should: Multiple Choice purchase more than 20 units of good X and less than 25 units of Y. purchase less than 20 units of good X and more than 25 units of good Y. Correct purchase more than 20 units of good X and more than 25 units of good Y. continue to purchase 20 units of good X and 25 units of good Y.

purchase less than 20 units of good X and more than 25 units of good Y. Explanation Since MUX/PX = 18 and MUY/PY = 19, to comply with the rational spending rule, Cathy should reallocate her spending away from good X and towards good Y.

Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its: Multiple Choice marginal cost. fixed cost. variable cost. total cost.

variable cost. Explanation The firm must pay fixed costs whether it operates or not. As long as the firm is covering its variable cost, it should produce a positive level of output. Otherwise, it should shut down.

For two goods, X and Y, to be classified as substitutes, it must be the case that: Multiple Choice X and Y are identical. consumers tend to purchase both items together. when the price of X rises, the demand for Y decreases. when the price of X rises, the demand for Y increases.

when the price of X rises, the demand for Y increases. Explanation A substitute is a good for which demand will increase if the price of a related good increases.

If you have a comparative advantage in a particular task, then

you give up less to accomplish that task than do others. Comparative advantage means having a lower opportunity cost.