MIRCOECON EXAM REVIEW #1

A tax imposed on new SUVs and collected from consumers would cause the:

demand curve to shift downward by the amount of the tax.

When there is a shortage of highly skilled workers in a particular region, the:

demand for skills education increases.

The price elasticity of demand for snowboarding lessons at Jay Peak resort in Vermont is greater than 1. This means that the demand for snowboarding lessons is _____. neither elastic nor inelastic. perfectly elastic inelastic elastic

elastic

What happens to the equilibrium price and quantity when demand decreases and simultaneously supply increases, and the demand shift is smaller than the supply shift?

The equilibrium price falls, and the equilibrium quantity rises.

Inelastic number range

A score between 0 and 1 is considered inelastic, since variation in price has only a small impact on demand. A product with an elasticity of 0 would be considered perfectly inelastic, because price changes have no impact on demand.

Which good is MOST likely to have a vertical supply curve? A. olive oil B. pepper C. prescription drugs D. sculptures by Michelangelo

Correct! sculptures by Michelangelo Explanation: A vertical supply curve indicates that the quantity supplied does not respond to changes in price. In other words, the quantity supplied remains constant regardless of price changes. WHICH MEANS IT'S INELASTIC Perfectly inelastic supply: There is no change in the quantity of goods supplied when the price rises, so the supply curve shows a vertical line. This type of supply curve is common for products or services with limited quantities, such as original art or precious metals.

The Federal Reserve is expected to lower interest rates three to six months from now, creating expectations of a hotter housing market. The number of houses for sale in the market today will likely:

FALL Explanation: If the Federal Reserve is expected to lower interest rates in the future, creating expectations of a hotter housing market, it implies that borrowing costs for homebuyers may decrease. Lower interest rates typically make financing more affordable, which can stimulate demand for houses. When demand increases, there is a tendency for the number of houses for sale to fall.

What problem does price discrimination resolve that occurs when businesses exploit market power? underproduction overproduction high prices high costs

UNDERPRODUCTION

Why might you underestimate the increase in market quantity demanded when you lower your price?

You may not take into account potential new customers attracted by the lower price.

In the market for organic beef, what would cause a price increase? a fall in the price of chicken a consensus among doctors that beef is heavy in saturated fat, which causes heart attacks a rise in the prices of grass and organic corn a trend toward veganism in the United States

a rise in the prices of grass and organic corn Explanation: If the prices of inputs used in the production of organic beef, such as grass and organic corn, increase, it raises the cost of production for organic beef. Producers may then pass on these increased costs to consumers in the form of higher prices for organic beef.

Which factor would cause an INCREASE in the supply of light bulbs? A. a decrease in the number of firms manufacturing light bulbs B. an increase in the price of light bulbs C. an advance in the technology of producing light bulbs D. expectations that the price of light bulbs will rise

an advance in the technology of producing light bulbs

For normal goods:

an income tax cut will lead to a rise in demand. Explanation: Normal goods are goods for which demand increases as consumer incomes rise. An income tax cut effectively increases disposable income, giving consumers more purchasing power. With more money available, consumers are likely to buy more normal goods, leading to an increase in demand.

Kathleen is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes until the marginal:

benefit of watching another episode is equal to the marginal cost.

If a product has a large network effect, it will lead to:

greater marginal benefits from using the product and increased demand for the product.

If quantity supplied does not respond substantially to a relatively large change in price, supply is:

inelastic.

What number is perfectly elastic? What about perfectly inelastic?

infinity, shown as a horizontal line on the demand curve - A good is perfectly elastic if the price elasticity is infinite (if demand changes substantially even with minimal price change). If price elasticity is greater than 1, the good is elastic; if less than 1, it is inelastic. = 0 A Perfectly Inelastic Demand Curve is vertical (η = 0). has a vertical demand curve.

Which pair of goods is MOST likely to have a cross-price elasticity of demand that is greater than zero? bacon and eggs cars and tires skates and skating rinks pineapples and honeydew melons

pineapples and honeydew melons because it's greater than zero, that means it's classified as a substitute. pineapple is a fruit sub for honeydew melons

Benjamin is a milliner—that is, he designs, makes, and sells women's hats. Currently, he sells just enough hats that his economic profits are zero. In other words, his total revenue equals: A. what he could earn in any alternative profession for which he's suited. B. the financial cost of running the business. C. the financial cost of running the business plus what he could earn in any alternative profession for which he's suited. D. the financial cost of running the business minus what he could earn in any alternative profession for which he's suited.

the financial cost of running the business plus what he could earn in any alternative profession for which he's suited.

Demand curves slope downward due to:

the law of demand.

Nissan manufactures sedans and pickup trucks. As one of Nissan's economists, you're in charge of ensuring efficient management of costs. At one manufacturing plant, if Nissan devotes all of its resources to manufacturing sedans, it can produce 480,000 sedans per year. If Nissan devotes all of its resources to manufacturing trucks, it can produce 240,000 trucks per year. What is Nissan's opportunity cost of producing one truck at this manufacturing plant?

two sedans Opportunity cost 480,000/240,000 = 2 So, for every one truck produced, Nissan forgoes the production of two sedans. Therefore, the correct answer is: 2

The price elasticity of supply for a good is 2 if a _____ in price leads to a 4% decrease in the quantity supplied.

2% decrease

Which of these can a government use to change the quantity traded in a market? (i) quotas (ii) binding price floors (iii) binding price ceilings (iv) taxes

(i), (ii), (iii), and (iv) ALL OF EM

Which will give the owners of Jenning's Java, a coffee roasting factory, an incentive to hire more workers? A. generally lower incomes due to a recession—freshly roasted coffee beans are a normal good B. an increase in the market labor supply of workers with the skills Jenning's requires C. a change in consumer preferences toward tea and away from coffee D. bad weather in Central America, which results in higher coffee bean prices

an increase in the market labor supply of workers with the skills Jenning's requires

A doctor has worked as a general practitioner for several years, earning an annual salary of $150,000. They are now deciding whether they want to open their own private practice or continue as a team member in the existing office. One-time start-up costs for the practice would be $100,000. If they open their own practice, they will receive a salary of $50,000 from the business annually until the practice is well-established. They anticipate the practice will take TWO years to become fully established. They paid $200,000 for medical school. They should open their own practice if the future benefits exceed:

$300,000 Future benefits of opening own practice = Salary from the business - Start-up costs 50,000*2-100,000 = 0 , which means breakeven AND Future benefits of continuing as a team member = Annual salary as a general practitioner $150,000*2= 300,000 Since the doctor would earn $300,000 by continuing as a team member, and opening their own practice would result in breaking even after two years, the future benefits of continuing as a team member exceed those of opening their own practice.

As Edwin's annual income increased from $40,000 to $50,000, his purchases of tickets to see LA Kings hockey games increased from two to four per year. Using the midpoint method, you find his income elasticity of demand for LA Kings hockey tickets to be _____, and hockey tickets are a(n) _____ good.

+3; normal midpoint: New-old/ new+old/2 * 100 2 to 4 tickets 4-2 / 4+2/2 *100 2/3 *100 = 33.33

The price of a dozen eggs falls from $2.50 to $1.50. In response to the price change, quantity demanded for eggs increases by 30%. Based on the midpoint method, the absolute value of the price elasticity of demand for eggs is _____, and the price elasticity of demand is _____.

0.6; inelastic Explanation: Midpoint formula: % change in QUANTITY / % change in price (New Price - Old Price) / New Price + Old Price)/2 * 100 -50 --> .50/.30 = 0.60, inelastic Explanation: Since 0.60 is less than 1, we classify the elasticity as inelastic.

What is cross-price elasticity of demand?

1. Substitute Goods: If the cross-price elasticity is positive, it indicates that the two goods are substitutes. An increase in the price of one good leads to an increase in the quantity demanded of the other, and vice versa. 2. Complementary Goods: If the cross-price elasticity is negative, it indicates that the two goods are complements. An increase in the price of one good leads to a decrease in the quantity demanded of the other, and vice versa. 3. Unrelated Goods: (*meh this one doesn't matter as much) If the cross-price elasticity is close to zero, the goods are considered unrelated. Changes in the price of one good have little effect on the quantity demanded of the other.

You are thinking of going out to dinner at a restaurant with your friends. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $20. You value the restaurant meal at $20, and the time spent with your friends at $30. If you did not go out to the restaurant, you would eat at home using groceries that cost you $10. You should _____ to dinner with your friends because the benefit of doing so is _____ than the cost. A. not go; less B. go; greater C. not go; greater D. go; less

A. not go; less cause you'll end up spending WAY more $$$. b/c the cost EXCEEDS the benefit

Most people consider toothpaste to be a necessity. The income elasticity of demand for toothpaste is likely to be _____ and _____. A. positive; close to 0 positive; above 1 negative; close to 0 negative; below −1

A. positive; close to 0 Explanation: Toothpaste is generally considered a necessity or a staple item in most households. Necessities tend to have income elasticity of demand values that are positive but less than 1. This is because as income increases, people may buy more toothpaste, but the increase in quantity demanded is not proportionally large.

A SHIFT of the demand curve for fried chicken would NOT result from a change in: A. the price of fried chicken. B. the popularity of fried chicken. C. the price of hot dogs. D. income.

A. the price of fried chicken.....*hint, hint*, PRICE (but it is a factor in the MOVEMENT of the demand curve) Explanation: A shift in the demand curve reflects a change in the quantity demanded at each price level, and it is caused by factors other than the price itself. The factors that can lead to a shift in the demand curve include changes in consumer preferences, income, prices of related goods, and expectations.

If a firm produces a product that has easily available variable inputs, its supply curve will be: A. relatively steep. B. relatively flat. C. perfectly elastic. D. perfectly inelastic.

B. relatively flat. Explanation: If a firm produces a product with easily available variable inputs, it implies that the firm can easily adjust its production levels in response to changes in the market price. In such a case, the supply curve is likely to be more elastic. The term "elastic" in economics refers to the responsiveness of quantity supplied to changes in price. If a firm can quickly and easily adjust its production in response to changes in price, the supply curve is considered elastic.

Which factor is MOST likely to SHIFT the supply curve for milk to the left? A. an increase in household income, milk being a normal good B. new dairy farms entering the market C. a tax on each gallon of milk produced D. a decrease in the price of feed given to dairy cows

C. a tax on each gallon of milk produced - When a tax is imposed on each gallon of milk produced, it increases the cost of production for dairy farmers. As a result, producers may supply less milk at each given price level, leading to a leftward shift of the supply curve.

Which statement is an accepted insight into imperfect competition? A. Market power leads all sellers to accept the market equilibrium price. B. A seller's best choice depends on the actions that other businesses take. C. Market power grows when a product is standardized and identical across sellers. D. The higher the number of competitors, the greater the market power of firms

Correct! A seller's best choice depends on the actions that other businesses take.

Price takers are: A. control the prices of their own products. B. set the market price. C. produce only agricultural products. D. charge the prevailing price and cannot affect the market price.

Correct! charge the prevailing price and cannot affect the market price. Explanation: Price takers are firms or individuals in a market who accept the prevailing market price for their products and cannot influence or set the market price. They have no market power to control prices and must adjust their quantity of production or sales to the market-determined price.

An absolute value greater than one is inelastic or elastic?

If the formula creates an absolute value greater than 1, the demand is elastic. In other words, quantity changes faster than price. If the value is less than 1, demand is inelastic. In other words, quantity changes slower than price.

What is cross-price elasticity of demand?

Measures the responsiveness in the quantity demanded of one good when the price changes for another good.

You are studying the international market for coffee. The world production of coffee beans increases, and at the same time, consumers worldwide start favoring tea over coffee. What is the effect on the equilibrium price and the equilibrium quantity in the coffee market?

The equilibrium price falls, and the change in the equilibrium quantity is ambiguous. explanation: The increase in coffee bean production would lead to an increase in the supply of coffee. Simultaneously, the change in consumer preferences toward tea over coffee would decrease the demand for coffee.

The Rational Rule summarizes the marginal principle. It says that if something is worth doing, keep doing it until your marginal:

benefits equal your marginal costs. marginal benefit = marginal cost

Diminishing marginal benefit implies that:

buying an additional unit of an item yields a smaller benefit than the previous unit purchased.

What is elasticity?

change/response to demand in the environment. IT IS AFFECTED. Inelasticity is unbothered.

Paint and paintbrushes are complements. A decrease in the price of paintbrushes will cause the demand for:

paint to increase. Explanation: Since paint and paintbrushes are complements, they are typically used together. Therefore, a decrease in the price of paintbrushes, being a complement to paint, would likely lead to an increase in the demand for paint.

Which of these statements is correct? A. With a price regulation, the new price will be whatever buyers are willing to pay for the amount being sold. B. When a quota is placed on a market, the new price will be regulated by the government. C. When a tax is levied on a product, the new price that buyers pay will always be the old price plus the tax. D. With a price regulation, the new price will be the regulated price, but with a quota, the new price will be whatever buyers are willing to pay for the limited quantity available.

Correct! With a price regulation, the new price will be the regulated price, but with a quota, the new price will be whatever buyers are willing to pay for the limited quantity available. explanation: D. This statement is correct. With price regulation, the government sets a specific price that sellers can charge, and with a quota, the quantity is restricted, allowing the price to be determined by the interaction of supply and demand for the limited quantity available.

At Trader Joe's, the price of chocolate chip cookies falls. As a result, you would expect to see a(n): A. decrease in the demand for chocolate chip cookies. B. increase in the demand for chocolate chip cookies. C. rise in the quantity demanded of chocolate chip cookies. D. drop in the quantity demanded of chocolate chip cookies.

Correct! rise in the quantity demanded of chocolate chip cookies. Explanation: When the PRICE of a good falls, it generally leads to a MOVEMENT along the demand curve, resulting in a change in the quantity demanded. This is referred to as a change in quantity demanded rather than a change in demand.

Two products have a cross-price elasticity of demand of 1.5. Based on this value of cross-price elasticity, which products are they most likely to be? a brand of tea and a brand of sugar two competing brands of soft drinks a brand of juice and a brand of computer a brand of hot dog and a brand of hot dog bun

Correct! two competing brands of soft drinks Explanation: A cross-price elasticity of demand of 1.5 indicates that the two products are likely substitutes. This means that if the price of one product increases, the quantity demanded for the other product is expected to increase by 1.5 times the percentage change in price.

In which product line is perfect price discrimination MOST feasible? A. an all-you-can-eat buffet that charges a fixed price to each diner B. a cinema C. shampoo D. used car sales

Correct! used car sales