Ecnomoics for Managers- Creating Markets

Imagine there are currently 80,000 lawyers in the market. Approximately what is the short-run equilibrium salary paid to lawyers? $280,000 $160,000 $100,000 $30,000

$100,000 At a price of $100,000, firms demand 80,000 lawyers. This answer can be found by looking at the 80,000 mark on the quantity axis and then moving up to where the demand curve "intersects" the 80,000 quantity mark. In the short-run, the supply curve can be thought of as a straight vertical line at 80,000.

Which of the following is likely to increase unemployment the most? A law implements a minimum wage under the market equilibrium wage and the labor supply is elastic. A law implements a minimum wage under the market equilibrium wage and the labor supply is inelastic. A law implements a minimum wage above the market equilibrium wage and the labor supply is elastic. A law implements a minimum wage above the market equilibrium wage and the labor supply is inelastic.

A law implements a minimum wage above the market equilibrium wage and the labor supply is elastic. An elastic supply of labor means that an increase in wages will result in a larger increase in the number of hours employees want to work. This would make a price floor (minimum wage) more likely to lead to a surplus of labor and unemployment.

A day care program frequently has a few parents picking up their children late. In an attempt to curb this, the daycare decides to charge a fine to parents who are more than 10 minutes late. However, after the fine was implemented, the number of late parents increased. Which of these conclusions can be true? The fine eliminated the non-financial incentives to be on time The fine was not high enough to discourage being late The fine was perceived as a price All of the above

All of the above See explanations above.

A state has strict laws stating that all employees, including part-time workers, must be compensated with employer-provided health benefits. Which of the following could result from this legislation? More workers will be hired "informally" and be paid surreptitiously in cash. Wages will decrease. Unemployment will increase. Any of the above could result from the legislation. Any of the above could result from legislation

Any of the above could result from the legislation. See answers above for explanations.

Previous QuestionQuestion 18 of 20Next Question If one Chinese Yuan (CNY) can buy 12.5 Bangladeshi Taka (BDT), which of the following are proper ways of stating the exchange rate? Select all that apply. BDT/CNY = 12.5 BDT/CNY = 0.08 CNY/BDT = 0.08 CNY/BDT = 12.5 1 CNY = 12.5 BDT 1 BDT = 12.5 CNY

BDT/CNY = 0.08 This states that the price of 1 CNY is 12.5 BDT CNY/BDT = 12.5 This states that the price of 1 CNY is 12.5 BDT 1 CNY = 12.5 BDT This states that the price of 1 CNY is 12.5 BDT

How is consumer surplus calculated and which region or regions on the graph below represent consumer surplus? Consumer surplus is the difference between the WTP of the consumer and the price paid by the consumer for every item sold. It is represented by A + B + C. Consumer surplus is the difference between the WTP of the consumer and the price paid by the consumer for every item sold. It is represented by A + B. Consumer surplus is the difference between the WTP of the consumer and the WTS of the producer for every item sold. It is represented by A + B + D. Consumer surplus is the difference between the WTP of the consumer and the WTS of the producer for every item sold. It is represented by A + B + C + D.

Consumer surplus is the difference between the WTP of the consumer and the price paid by the consumer for every item sold. It is represented by A + B. A + B represents the area between the demand curve (WTP) and the price ceiling (price) for all items sold. This is consumer surplus.

From the last question we know that the number of students entering law school will decrease from 80,000. Given that there are 80,000 new law student graduates in the market, approximately how many new students will enter law school this year (round to the nearest 5,000)?

Currently there are 80,000 new law school graduates, resulting in a wage of $100,000. At this wage, only 35,000 new law school graduates are supplied. In this example, that means that only 35,000 prospective law students will enter law school.

The graph below depicts a price ceiling limiting the hourly rate that can be charged by electricians. Which region or regions on the graph represent deadweight loss and the revenue earned by electricians? D + E + F is the revenue earned by electricians and C is the deadweight loss D + E is the revenue earned by electricians and F is the deadweight loss. D + E is the revenue earned by electricians and C is the deadweight loss. B is the revenue earned by electricians and C is the deadweight loss.

D + E + F is the revenue earned by electricians and C is the deadweight loss. The revenue electricians earn can be calculated by multiplying the quantity sold by price, which in this case gives the rectangle made by D + E + F. C is the deadweight loss because it represents the surplus (WTP - WTS) from additional transactions that would take place in equilibrium, but do not occur under the price ceiling

The American Medical Association is considering putting a permanent cap on the number of medical residents (which effectively would cap the number of licensed doctors). What effect would this cap have if it were set below the current number of doctors? Lower wages for existing and future doctors Higher wages for existing doctors Higher wages for existing and future doctors The cap would have no impact on wages for doctors

Higher wages for existing and future doctors A cap will limit the number of doctors now and in the future, making wages higher.

If Bangladesh increases its machinery imports from China, what will most likely happen to the exchange rate? Increase CNY/BDT Decrease CNY/BDT It will have no effect on CNY/BDT

Increase CNY/BDT The new demand for Chinese machinery imports will increase the demand for Chinese Yuan needed to buy the machinery from China. The increased demand for Chinese Yuan (CNY) will increase the price of CNY and thus the exchange rate CNY/BDT.

In the previous example, what will happen to the market for recent law school graduates in the long-run? Less students will enter law school and thus the quantity of lawyers will decrease in the long-run. Firms will eventually raise salaries to the point where 80,000 students are willing to enter law school. Since the market is in short-run equilibrium, neither salaries nor the quantity of lawyers will change.

Less students will enter law school and thus the quantity of lawyers will decrease in the long-run. In order for there to be 80,000 lawyers in equilibrium, firms would have to be willing to pay $280,000 salaries which they are not willing to do. Thus there is an excess supply of lawyers and the number of students entering law school will decrease.

A prediction market has been formed through which participants can bet with each other on the outcomes of the World Cup. One security in this market is priced at $30. This security gives its owner the right to $100 if Country A wins the World Cup and $0 otherwise. Which of the following is true Every participant believes that Country A has less than a 50% chance to win. Most participants believe that Country A has less than a 50% chance to win. A person who believes that Country A has a 25% chance of winning should buy the security for $30. On average, the participants in this prediction market think Country A has a 30% chance to win.

On average, the participants in this prediction market think Country A has a 30% chance to win. On average, participants believe there is a 30% chance Country A will win and the security will be worth $100. Conversely, there is a 70% chance Country A will not win and the security will be worth $0. This equates to a security worth $30.

A movie theater substantially decreases the price of its soda during the same week that a heavily advertised new movie is being released to theaters. Assuming consumers like to enjoy movies, soda, and popcorn together, how does this impact the equilibrium price and quantity of popcorn? Price and quantity both increase. Price decreases and quantity increases. Price increases and the impact on quantity cannot be determined. Quantity decreases and the impact on price cannot be determined.

Price and quantity both increase. The new movie and the low soda prices will both lead to an increase in demand for popcorn, leading to an increase in both price and quantity.

A year of unusually good rainfall has made it cheaper to irrigate farmlands. However, a popular new diet has persuaded some consumers to stop eating vegetable oil, a product often made from canola. What impact have these two changes had on the equilibrium price and quantity sold of canola? Price has decreased and the effect on quantity cannot be determined Price has decreased and quantity has increased Price has increased and quantity has decreased Price and quantity have both decreased

Price has decreased and the effect on quantity cannot be determined Supply increases and demand decreases. Price will certainly decline, but the effect on quantity will depend on the relative magnitude of the two shifts.

Consider the market for print encyclopedias. In the last 10 years, the cost of producing encyclopedias has decreased substantially due to lower printing and information acquisition costs. At the same time, more and more people have started using the internet as their primary source of information. What can we infer about the change in the price and quantity in the encyclopedia market over the last 10 years? Price and quantity have decreased. Price has increased and quantity has decreased. Price has decreased and the effect on quantity cannot be determined Price has increased and the effect on quantity cannot be determined.

Price has decreased and the effect on quantity cannot be determined With a greater number of alternative sources of information, demand for encyclopedias will decrease. This fall in demand will result in both lower prices and quantity. At the same time, the supply of encyclopedias will increase due to lower costs. This lowers the price and increases quantity. Thus, we can only say for certain that price decreases. The overall change in quantity will be determined by the relative magnitudes of the two effects.

A new restaurant has introduced a wildly popular macaroni and cheese dish made with goat cheese. However, at approximately the same time, an outbreak of disease has decreased the local goat population (without impacting the safety of goat cheese). How do the price and quantity of goat cheese change? Price and quantity increase Price increases and the effect on quantity cannot be determined Quantity increases and the effect on price cannot be determined Quantity decreases and the effect on price cannot be determined

Price increases and the effect on quantity cannot be determined Demand has increased due to the new dish, but supply has decreased due to the goat disease. Price will definitely increase, but the effect on quantity depends on the magnitude of the impact of these two events.

A region is in the middle of a very cold and snowy winter. As a result, hot chocolate has become more desirable, and many of the shipping channels for imported goods have closed due to the weather. What will happen to the price and quantity sold of hot chocolate made with imported cocoa? Price and quantity will both increase Price will increase and the effect on quantity cannot be determined Price will increase and quantity will decrease Neither the effect on quantity nor the effect on price can be determined

Price will increase and the effect on quantity cannot be determined The cold weather will increase the demand for hot chocolate, but the snow and blocked shipping channels will reduce the supply of hot chocolate. Price will certainly increase, but without knowing the relative magnitude of the effects of these changes, we cannot determine the effect on quantity.

The graph below depicts a price floor on the sale of electrician services. Which region or regions represent producer revenues? Producer revenues are given by D + E + F. Producer revenues are given by A. Producer revenues are given by B + C + D + E. Producer revenues are given by B + D + E + F

Producer revenues are given by B + D + E + F. The revenue earned can be calculated by multiplying the quantity sold by the price, which in this case gives the tall rectangle made by B + D + E + F. The height of the rectangle represents the price, and the width of the rectangle represents the quantity sold.

A price ceiling is set at 10% below the market equilibrium price. Which of the following must result from the price ceiling? Select all that apply. Consumer surplus decreases Producer surplus decreases Total surplus decreases Deadweight loss increases There is no effect because the price ceiling is below the market equilibrium price.

Producer surplus decreases Under the price ceiling, fewer consumers are purchasing the good and they are each buying it at a lower price. Both effects lower producer surplus. Total surplus decreases Total surplus is WTP - WTS for each item sold. Under the price ceiling, the WTP and the WTS are not changing, but the number of items sold has decreased. Thus, total surplus has decreased. Deadweight loss increases Deadweight loss is the amount of total surplus that would have been created at the equilibrium price but is not created due to the market intervention. If total surplus decreases, then deadweight loss must increase.

Assume that there are 150 firms, each of which gains a different benefit from polluting. Each firm is allocated one pollution permit by the government, and it can either use it or trade it for money in the market. Suppose the demand and supply curves for permits look like the following: The market equilibrium is at a price of $11,500 and 115 permits sold. What does this market equilibrium say about firms' willingness to pay to be able to pollute? Select all that app That some firms are willing to pay more than $11,500 for one pollution permit. That no firm is willing to pay over $15,000 for one pollution permit. That most firms are not willing to pay $11,500 for one pollution permit. That no firm has more than half of the permits.

That most firms are not willing to pay $11,500 for one pollution permit. 115 firms sell their permits, thus all of those firms are not willing to pay $11,500 for the right to pollute, or they would buy back their permit at that price. 115 is more than half of the total number of firms (150). That some firms are willing to pay more than $11,500 for one pollution permit. The demand curve shows us that some permits are demanded at prices higher than $11,500. For example, 100 permits are demanded at a price of $12,500. That no firm is willing to pay over $15,000 for one pollution permit. At a price of $15,000 and higher, all firms are willing to sell their permit. Thus none of those firms would be willing to buy back that permit at a price higher than $15,000.

A polling agency decides to set up a prediction market for the presidential election. There are only two candidates in the election, Candidate A and Candidate B. The polling agency sets up a security that pays $100 to the owner if Candidate A wins the election and $0 otherwise. The current price for the security is $50. Which of the following is the best conclusion that the polling agency can make given the security price? That the number of people who believe Candidate A will win is equal to the number that believe Candidate B will win That, on average, people believe that Candidate A is less likely to win the election than Candidate B. That, on average, people believe that Candidate A and Candidate B are equally likely to win the election. That, on average, people believe that Candidate A is more likely to win the election than Candidate B.

That, on average, people believe that Candidate A and Candidate B are equally likely to win the election. A $50 security indicates that market participants, on aggregate, believe the security is worth $50 - that is, Candidate A has a 50% chance of winning. Since there are only two candidates this means that on aggregate market participants believe both candidates have a 50% chance of winning.

A bakery famous for its cupcakes opens its doors at 9 a.m. and allows each customer to purchase up to 2 cupcakes until the day's supply of cupcakes runs out. Customers begin lining up around 8 a.m. each day and the cupcakes usually run out around 9:30, leaving dozens of unserved customers disappointed. Which of the following statements about this market are true? Select all that apply The cupcakes are being sold below their equilibrium price. The bakery is maximizing its short-run producer surplus. The customers who receive cupcakes are the customers with the highest willingness to pay for cupcakes. The bakery is not using price as the only means of allocating cupcakes to its customers Consumer surplus is being maximized.

The cupcakes are being sold below their equilibrium price. If the cupcakes were being sold at or above their equilibrium price, there would not be dozens of disappointed customers left over when the bakery runs out of cupcakes.

A city government hopes to decrease the number of sugary drinks consumed and is planning to implement a tax on the drinks. Should the government tax companies that sell sugary drinks, or the consumers who purchase them? The companies that sell the drinks The consumers who purchase the drinks The impact of the tax will be the same regardless of who pays the tax The quantity of drinks consumed will not decrease as a result of the tax

The impact of the tax will be the same regardless of who pays the tax Prices will adjust so that the impact on consumers and producers will be the same regardless of who officially pays the tax.

A university is hoping to limit the amount of junk food that is consumed by students at the university food halls. The university is considering putting a tax on junk food. Which of the following taxes will be the most efficient at limiting the amount of junk food consumed? A tax imposed on the students A tax imposed on the vendors selling the food The impact of the tax will be the same regardless of whom the tax is imposed on. The tax will not decrease consumption of junk food

The impact of the tax will be the same regardless of whom the tax is imposed on. The impact of the tax does not depend on whom it is imposed on because in either case, the price will change and students and the vendors will adjust their quantity demanded and supplied accordingly. The magnitude of the reduction depends solely on the price elasticity of demand and supply.

The cost of rare earth metals used in electronics is steadily rising due to the increasing difficulty of mining them as they become scarcer. At the same time, laptops, tablets, and smartphones are becoming increasingly popular as substitutes to desktop computers. What impact will these two events have on the equilibrium price and quantity of desktop computers? The price and quantity will decrease. The price will decrease and quantity will increase. The price will increase and quantity will decrease. The impact on price cannot be determined and the quantity will decrease

The impact on price cannot be determined and the quantity will decrease. Higher costs will decrease the supply of desktop computers. This fall in supply causes quantity to fall and prices to rise. The greater prevalence of substitutes for desktop computers will decrease demand. This also causes quantity to fall, but lowers prices. Thus we can only say for certain that quantity decreases. The direction of price will be determined by the relative magnitude of the previous two shifts.

Consider the market for chocolate bars. A major chocolate company is trying to project their revenue for the upcoming year. Due to excellent predicted weather conditions, the cost of cocoa, a key ingredient in chocolate, will decrease for next year. At the same time, a popular magazine has started promoting the health benefits of chocolate. Just from this information, what can the company know about next year's revenue? Revenues will increase from the current year. Revenues will decrease from the current year Revenues will be unchanged from the current year. The impact on revenues cannot be determined.

The impact on revenues cannot be determined. Due to the increased demand, prices and quantity increase. Due to the increased supply, prices decreases and quantity increases. Thus quantity increases but the impact on price cannot be determined. Revenue is equal to price multiplied by quantity. As a result, the effect on revenue cannot be determined.

After an earthquake disrupts the supply of clean drinking water to many residents of a city, the city restricts grocery stores from raising the prices they charge for bottled water. If no side markets arise, which of the following statements is true? The law restricting a price increase will exacerbate the water shortage (or "excess demand"). Water will be allocated to the consumers with the highest willingness to pay for it. Water will be allocated to the consumers who need it most.

The law restricting a price increase will exacerbate the water shortage (or "excess demand"). Some residents might be able to limit their water consumption and would purchase less water if prices rose. If prices are kept low, the quantity of water demanded will be very high, creating more of a water shortage.

A country has passed a law setting a minimum wage for factory workers 5% below the equilibrium price. How will this law impact the labor market? The law will likely cause a shortage of labor. The law will likely increase unemployment. The law will have no impact on the market. The law will increase prices without affecting quantity.

The law will have no impact on the market. Since the minimum wage is below the equilibrium price, it will have no impact on market outcomes.

Three years ago, law school admits deciding whether or not to attend the schools they were admitted to typically underestimated the future demand for lawyers. This forecasted demand corresponded with salaries that many admit were unwilling to accept, and fewer students than usual ended up attending law school. Now that these students have completed law school, the small graduating classes have led to a more limited supply of lawyers than is generally available. What will be the result of this mismatch? The lower supply of lawyers will lead to high salaries, and current law school admits will be more likely to decide to attend The lower supply of lawyers will lead to high salaries, and current law school admits will be less likely to decide to attend The lower supply of lawyers will lead to low salaries, and current law school admits will be more likely to decide to attend The lower supply of lawyers will lead to low salaries, and current law school admits will be less likely to decide to attend

The lower supply of lawyers will lead to high salaries, and current law school admits will be more likely to decide to attend Salaries will rise as law firms compete to hire the smaller supply of lawyers, and higher salaries will attract more admits to law school.

In which of the following scenarios would both the price and quantity sold of paperback books increase? he government passes new environmental regulations that increase the price of paper. The price of e-books, a substitute for paperback books, decreases Printers develop processes that significantly decrease their costs The price of bookmarks, a complementary good to paperback books, decreases...

The price of bookmarks, a complementary good to paperback books, decreases. This would shift demand to the right, increasing both price and quantity.

Computer prices in the last year have gone down due to technological advancements. At the same time, there has been a large decrease in the supply of new software developers, raising the costs of producing computer software. What will be the impact on the equilibrium price and quantity of computer software? The price and quantity will increase. The price will increase and quantity will decrease. The price will increase and the impact on quantity cannot be determined The impact on price cannot be determined and quantity will decrease.

The price will increase and the impact on quantity cannot be determined. Computers and computer software are complements. As a result of the fall in computer prices, demand for computer software will increase. The increased demand will cause both prices and quantity to rise. At the same time, the supply of software will fall due to the higher costs. This raises the price of software and causes quantity to fall. Thus we can only say for certain that price increases. The overall change in quantity will be determined by the relative magnitudes of the two shifts

A local government implements a price ceiling of $4/gallon on milk. If the equilibrium price is $3 what will be the effect on the market for milk? There will be a shortage of milk. There will be a surplus of milk There will be no effect on the market for milk..

There will be no effect on the market for milk. A price ceiling limits how high a price can be charged. Setting a price ceiling above the equilibrium price will have no impact on the market, since the equilibrium price already conforms to the law.

Which of the following statements is true of active secondary markets? They can undo some of the intended effects of a price ceiling They exacerbate excess demand for a product They exacerbate excess supply for a product All of the above

They can undo some of the intended effects of a price ceiling A secondary market can allow consumers with low WTP to resell the product to consumers with high WTP, undermining a price ceiling.

This graph shows a price ceiling, representing the maximum rate that taxi drivers are permitted to charge for a ride from the airport in a city. Assuming that the price ceiling is effective, what regions on the graph represent total surplus and deadweight loss? Total surplus is A+B+D+E and deadweight loss is F Total surplus is A+B+D+E and deadweight loss is C Total surplus is D+E and deadweight loss is C Total surplus is A+B+D and deadweight loss is C

Total surplus is A+B+D and deadweight loss is C Total surplus is the difference between the demand curve and supply curve for all of the units sold, A+B+D. Deadweight loss (C) is the difference between the demand curve and the supply curve for all of the units that could have been sold, but were not, due to the price ceiling.

The Namibian government has assigned ownership rights of many endangered species to local communities, who have in turn sold hunting licenses for some of the species. Will this process preserve the endangered species? No, the hunting will reduce the population and lead to its eventual extinction. No, the black market for species will definitely lead to the population's extinction. Yes, if the price of licenses motivates the local community to protect the endangered population. Yes, since poachers (people who hunt illegally) will respect the new ownership rights.

Yes, if the price of licenses motivates the local community to protect the endangered population. The local community may believe that the revenues it will receive over time from legal hunting are worth the cost of protecting the animals from poaching.

A price ceiling on apartment rentals, commonly called "rent control," can lead to all of the following except: increases in landlords discriminating against potential renters improvements in apartment quality decreases in efficiency of the rental market decreases in future supply of apartments

improvements in apartment quality If landlords are restricted from raising rents, they have less motivation to improve their apartments.

Firms bear more of the incidence of a tax when demand is: more elastic. less elastic.

more elastic. When the demand curve is less steep, or more elastic, consumers are more sensitive to the price change caused by the tax, and as a result are able to adjust quantity demanded accordingly. Thus consumers will end up "paying" a smaller portion of the tax and firms will bear more of the incidence of the tax.

Consumers bear more of the incidence of a tax when supply is: more elastic. less elastic.

more elastic. When the supply curve is less steep, or more elastic, firms are more sensitive to the price change caused by the tax, and as a result are able to adjust quantity supplied accordingly. Thus firms will end up "paying" a smaller portion of the tax and consumers will bear more of the incidence of the tax.

In an unregulated, competitive market consumer surplus exists because: some sellers are willing to take a lower price than the equilibrium price. some consumers are willing to pay more than the equilibrium price. some sellers will only sell at prices above equilibrium price (or actual price). some consumers are willing to make purchases only if the price is below the actual price.

some consumers are willing to pay more than the equilibrium price. Consumer surplus is defined as the difference between equilibrium price and willingness to pay.

A market's equilibrium outcome maximizes: producer surplus. consumer surplus. the sum of producer surplus and consumer surplus. All of the above.

the sum of producer surplus and consumer surplus. Total surplus is maximized at the market outcome.