ECN 351 Midterm

If an increase in the price of a good has no impact on the total revenue in that market, demand must be

unit price elastic

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is

$20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

Which of the following takes place when a tax is placed on a good?

. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold

If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is

1.00

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable television in Small Town?

1.4

If the economy were operating at point E,

20 additional units of eggs can be produced with no impact on bacon production.

if the economy is operating at point C, the opportunity cost of producing an additional 15 units of bacon is

20 units of eggs

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000. At which of the following prices does Small Town Cablevision earn the greatest total revenue?

30 per month

Referring to question 17, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than

800

In making which of the following statements is an economist acting more like a scientist?

A reduction in unemployment benefits will reduce the unemployment rate

Which of the following statements is true if the government places a price ceiling on gasoline at $4.00 per gallon and the equilibrium price is $3.00 per gallon?

A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint

Which of the following activities is most likely to produce an externality

A student has a party in her dorm room

Which of the following statements is true about a market economy?

Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being.

Which of the following situations describes the greatest market power

Microsoft's impact on the price of desktop operating systems

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?

Price will increase; quantity is ambiguous.

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today?

Price will increase; quantity is ambiguous.

Which of the following statements about the burden of a tax is correct?

The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation.

Which of the following statements is true about the impact of an increase in the price of lettuce?

The equilibrium price and quantity of salad dressing will fall

Which of the following statements regarding the circular-flow diagram is true?

The factors of production are owned by households

Suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls?

The quality of apartments will improve

Which of the following statements about a binding price ceiling is true?

The shortage created by the price ceiling is greater in the long run than in the short run

which of the following statements about microeconomics and macroeconomics is not true?

The study of very large industries is a topic within macroeconomics.

Which of the following statements is normative?

The unemployment rate should be lower

Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples?

There is an increase in the demand for apples and an increase in the quantity supplied of apples

n which of the following cases is the assumption most reasonable?

To address the benefits of trade, an economist assumes that there are two people and two goods.

Point F represents

a combination of production that can be reached if there is a sufficient advance in technology

Which of the following will not shift a country's production possibilities frontier outward?

a reduction in unemployment

Economic growth is depicted by

a shift in the production possibilities frontier outward

Which of the following is most likely to produce scientific evidence about a theory?

a tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending

Foreign trade

allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home.

All of the following shift the supply of watches to the right except

an increase in the price of watches.

If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is

an inferior good

Consumer surplus is the area

below the demand curve and above the price.

The surplus caused by a binding price floor will be greatest if

both supply and demand are elastic

Economic models are

built with assumptions.

If the cross-price elasticity between two goods is negative, the two goods are likely to be

complements

An inferior good is one for which an increase in income causes a(n)

decrease in demand

in the short run

decrease in inflation temporarily increases unemployment

Which of the following shifts the demand for watches to the right?

decrease in the price of watch batteries if watch batteries and watches are complements

An increase in the price of a good along a stationary demand curve

decreases consumer surplus

Studies show that a 10 percent increase in the minimum wage

decreases teenage employment by about 1 to 3 percent.

The law of demand states that an increase in the price of a good

decreases the quantity demanded for that good

Within the supply-and-demand model, a tax collected from the buyers of a good shifts the

demand curve downward by the size of the tax per unit.

The burden of a tax falls more heavily on the sellers in a market when

demand is elastic and supply is inelastic.

The burden of a tax falls more heavily on the buyers in a market when

demand is inelastic and supply is elastic.

A decrease in supply (shift to the left) will increase total revenue in that market if

demand is price inelastic.

If consumers think that there are very few substitutes for a good, then

demand would tend to be price inelastic.

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars." The other economist responds, "That's ridiculous. If the government spent an additional 50 billion dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!" These economists

disagree because they have different scientific judgments

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "That's ridiculous. Inflation is the greatest social evil." These economists

disagree because they have different values.

Which of the following involve a trade-off

e. All of the above involve trade-offs.

Points on the production possibilities frontier are

efficient

If demand is linear (a straight line), then price elasticity of demand is

elastic in the upper portion and inelastic in the lower portion.

For which of the following products would the burden of a tax likely fall more heavily on the sellers?

entertainment

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect th

equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

Suppose there is an increase in both the supply and demand for personal computers. Furthermore, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect the

equilibrium quantity to rise and the equilibrium price to fall

A tax placed on a good that is a necessity for consumers will likely generate a tax burden that

falls more heavily on buyers.

Which of the following products would be least capable of producing an externality

food

High and persistent inflation is caused by

governments increasing the quantity of money too much.

Raising taxes and increasing welfare payments

improves equality at the expense of efficiency

Productivity can be increased by

improving the education of workers

The law of supply states that an increase in the price of a good

increases the quantity supplied of that good

If the income elasticity of demand for a good is negative, it must be

inferior

An increase in the price of beef provides

information that tells producers to produce more beef.

If a nation has an absolute advantage in the production of a good,

it can produce that good using fewer resources than its trading partner

If supply is price inelastic, the value of the price elasticity of supply must be

less than 1

Which of the following is not a factor of production?

money

A tax of $1.00 per gallon on gasoline

places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive.

If there is excess capacity in a production facility, it is likely that the firm's supply curve is

price elastic

In general, a flatter demand curve is more likely to be

price elastic.

In general, a steeper supply curve is more likely to be

price inelastic

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

reduce total revenue to farmers as a whole because the demand for food is inelastic.

Trade-offs are required because wants are unlimited and resources are

scarce

The scientific method requires that

scientists be objective.

Economics is the study of how

society manages its scarce resources.

Positive statements are

statements of description that can be tested

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent,

students will shift majors from education to accounting

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are

substitutes

Within the supply-and-demand model, a tax collected from the sellers of a good shifts the

supply curve upward by the size of the tax per uni

A buyer's willingness to pay is

that buyer's maximum amount he is willing to pay for a good

A rational person does not act unless

the action produces marginal benefits that exceed marginal costs

Which of the following issues is related to microeconomics?

the impact of oil prices on auto production

Which of the following is not part of the opportunity cost of going on vacation?

the money spent on food

As we move from point A to point D,

the opportunity cost of eggs in terms of bacon rises

The price elasticity of demand is defined as

the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good

If a supply curve for a good is price elastic, then

the quantity supplied is sensitive to changes in the price of that good.

When a tax is collected from the buyers in a market,

the tax burden on the buyers and sellers is the same as an equivalent tax collected from the seller

The demand for which of the following is likely to be the most price inelastic?

transportation

Workers in the United States enjoy a high standard of living because

workers in the United States are highly productive.

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing.)

yes

If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, the fisherman's price elasticity of supply for fresh fish is

zero