Econ 1 Final Study Set

Determine whether each of the following topics would be more likely to be studied in microeconomics or macroeconomics.

the effect of the government regulation on the production decisions of a monopolists

Determine whether each of the following topics would be more likely to be studied in microeconomics or macroeconomics.

the effect of the internet on the pricing of cards

Suppose the government imposes a $50 tax on OLED displays. If the demand curve for OLED displays were perfectly inelastic, then how much does the price paid by consumers rise?

By exactly $50.

In the market for peanut butter, which of the following scenarios result in a shift of the demand curve as opposed to a movement along the demand curve? Select all that apply.

Consumers have a change in expectations about peanut butter prices. A decrease in the price of pecan spread, which is a substitute for peanut butter.

Which of the following best describes producer surplus?

the difference between what the seller actually receives and the lowest price the seller is willing to sell at.

Suppose you are the curator of an art museum, which is running low on funds. In which scenario should you raise the price of admission in order to increase revenue?

Only when demand is inelastic

Consider the following developments in the lobster market: Researchers discover that eating lobsters increases heart attack risk. Occurring at the same time, there is a new regulation that limits the quantity of lobsters that people can fish. Without knowing the magnitude of the shifts, what will be the effect on equilibrium price and quantity?

Price change indeterminate, quantity decreases

Suppose a firm that produces in a local market employs a private security team that makes the town residents feel safer. Many of the town residents have no relation with the company itself. Which of the following statements best describes this situation?

Private security in this case represents an externality, resulting in a market failure.

Snowboard rentals in Sierra-at-Tahoe go for $30 and 500 are rented on a typical day. Suppose a tax of $5 per rental is imposed, resulting in a rental price increase to $33 and 450 rentals per day. What is the deadweight loss in this market resulting from the tax?

$125

Your uncle is considering opening an ice cream shop. By his estimation, it would cost $250,000 per year for rent and other expenses. He would also need to quit his current job, which pays $60,000 per year. What is your uncle's opportunity cost of running an ice cream shop?

$310,000

Disco's demand for chocolate bars is given by the following equation: QD=75-2P Disco's maximum willingness to pay for two chocolate bars is

$36.5

Harold bought a headphone amplifier for $400 and claims that his consumer surplus was $75. What was his willingness to pay for the headphone amplifier?

$475

Consider public policy aimed at reducing smoking. Recent studies indicate that the price elasticity of demand for cigarettes is approximately the absolute value of 0.5. If a pack of cigarettes costs $4 and the government wants to reduce smoking by 25 percent, then what should they raise the price per pack to? Use the midpoint method when necessary.

$6.67

Katrina is looking to produce bottles of water. The cost she incurs of producing each bottle of water is as follows: Cost of first bottle: $3 Cost of second bottle: $5 Cost of third bottle: $7 Cost of fourth bottle: $9 If Katrina is willing to supply no more than three bottles of water, which of the following prices are possible?

$8

Suppose at a market price of $50, a firm chooses to produce 30,000 units of output. Furthermore, the firm's average variable cost in this case is $45 and average total cost is $47. What will profit be in the short run?

$90,000

When the price of blueberry jam increased by 5 percent, the quantity of peanut butter sold decreased by 4 percent and the quantity of raspberry jam sold increased by 5 percent. What is the cross-price elasticity of demand between blueberry jam and peanut butter?

-1.25

Suppose bus ridership in Sacramento rose by 10 percent after a fare decrease of 50 cents to $2.00. Using the midpoint method, what is an estimate of the absolute value of the price elasticity of demand for bus rides?

0.45

Consider two points on a demand curve with coordinates (Price, Quantity) of (3, 70) and (2, 90). Using the midpoint method, calculate the absolute value of the price elasticity of demand between these points.

0.63

Shelby is a retired educator who lives in Miami and works as a consultant for extra cash. At a wage of $50 per hour, she is willing to work 7 hours per week. At $65 per hour, she is willing to work 10 hours per week. Using the midpoint method, what is Shelby's elasticity of labor supply between the wages of $50 per hour and $65 per hour?

1.35

Suppose the market for apple pie is perfectly competitive, with supply represented in the graph above. If the market price of a slice of apple pie is $4, what is producer surplus?

162.5

Suppose there are 12 million workers in Japan and that each worker can produce either 2 cars or 40 bushels of wheat in a year. What is the opportunity cost of producing a car in Japan?

20 bushels of wheat

Consider a market described by the following supply and demand equations: Qs=4P QD=100-P Suppose a tax equal to "T" is placed on buyers. What is the price paid by buyers following this tax? Hint: The difference between the price paid by buyers and the price received by sellers is equal to the tax.

20+4T/5

C=2Q2+10 Given the above cost function, what is average cost equal to?

2Q+10/Q

Jessica's production possibilities frontier is illustrated above. She spends 4 hours per day studying. How many pages of psychology and economics can she read per hour?

30 pages of psychology; 40 pages of economics

A German worker takes 600 hours to produce a car and 5 hours to produce a case of wine. An Italian worker takes X hours to produce a car and 4 hours to produce a case of wine. For what values of X will it be possible to achieve gains from trade?

300 All Answers Listed 800 700 4

Suppose that Italy and Germany both produce oil and olives. Italy's opportunity cost of producing a crate of olives is 4 barrels of oil while Germany's opportunity cost of producing a crate of olives is 10 barrels of oil. Suppose that Italy and Germany consider trading oil and olives with each other, Italy can gain from specialization and trade as long as it receives more than ______ of oil for each crate of olives it exports to Germany. Also, Germany can gain from trade as long as it receives more than ______ of olives for each barrel of oil it exports to Italy.

4 barrels; 1/10 crate

Suppose that Italy and Germany both produce oil and olives. Italy's opportunity cost of producing a crate of olives is 4 barrels of oil while Germany's opportunity cost of producing a crate of olives is 10 barrels of oil. Suppose that Italy and Germany consider trading oil and olives with each other, Italy can gain from specialization and trade as long as it receives more than ______ of oil for each crate of olives it exports to Germany. Based on the above answers, which of the following prices of trade would allow both Italy and Germany to gain from trade?

8 barrel of oil per crate of olives

In the market for peanut butter, which of the following scenarios result in a shift of the supply curve as opposed to a movement along the supply curve? Select all that apply.

A change in future price expectations of peanut butter. An increase in the number of producers. A technological innovation in peanut butter manufacturing.

Determine whether each of the following topics would be more likely to be studied in microeconomics or macroeconomics.

the effect of monetary policy on the unemployment rate

Which of the following statements describes the concept of producer surplus?

Amanda sold her laptop for $250, even though she was willing to accept as low as $120 to sell it.

Which of the following implies that the firm should close in the long run? Select the best possible answer.

Average cost is greater than price.

Applebee's Restaurant, a firm in a competitive market, receives $2500 in total revenue and has a marginal revenue of $50. What is the firm's average revenue and how many units were sold?

Average revenue is $50 and 50 units were sold.

Equilibrium in this market has a price P* and a quantity Q*. When a tax is imposed, there is a wedge between the price paid by buyers (Pb) and the price received by sellers (Ps) equal to Pb-Ps. What is the change in consumer surplus following the tax?

B+C

What is the tax revenue in this market?

B+D

Which of the following goods is likely to have the most elastic demand?

Bell Peppers

Consider the market for smartphones with a downward sloping demand curve and an upward sloping supply curve. Suppose a tax is imposed on consumers in this market. Which of the following statements is true?

Consumer surplus decreases, producer surplus decreases, and total surplus decreases.

How does the following event affect the market for hot dogs? The price of hamburgers increases. Assume consumers see hamburgers and hot dogs as substitutes.

Demand curve shifts outward

Suppose the price elasticity of demand for gasoline is 0.1 in the short run and 0.9 in the long run. If the price of gasoline rises from $2.00 to $2.50 per gallon, what will be the quantity of gasoline demanded in the short run and in the long run? Use the midpoint method where applicable.

Demand falls by 2.2% in the short run and falls by 20% in the long run.

Consider the market for smartphones with a downward sloping demand curve and an upward sloping supply curve. Suppose the government wants to impose a tax in this market, but wants to minimize the share of the tax paid by consumers. Which of the following tax proposals would be best for accomplishing this goal?

Each proposal is equivalent with respect to the goal of minimizing the share of the tax paid by consumers.

The average total cost curve is always below the marginal cost curve.

False

Consider an upward sloping supply curve and downward sloping demand curve. Firms are perfectly competitive and maximize profits. An outward shift in the demand curve leads to which long run outcome for firms?

Firms will enter the industry until profits are driven down to zero.

For a perfectly competitive firm who maximizes profits, which of the following is always true regarding the short run? Select all that apply.

Fixed costs are considered sunk and should not be taken into consideration. The firm should remain operational if average variable cost is less than average revenue.

Which of the following statements is true regarding fixed costs?

Fixed costs don't vary with the quantity of output produced. Average fixed cost always decreases when quantity of output produced increases. Marginal costs do not depend on fixed costs.

Which of the following pairs of goods are considered to be substitutes? Select all that apply.

Frozen yogurt and ice cream Cell phones and conventional phones

The article found in Mankiw, Chapter 10 titled, "The Most Sensible Tax of All" (also found in Module 6 on Canvas if you have an old version of the book) argues that a carbon tax is a good idea because:

Higher carbon taxes could mean lower income taxes and less pollution

When Kayla produces nothing, she incurs a total cost of $50. When she produces one widget, she incurs a total cost of $70. When she produces two widgets, she incurs a total cost of $85. Which of the following statements is true?

Kayla's marginal cost is decreasing.

James and Charlotte each drive to a local gas station. Before looking at the price, each driver places an order. James says "I'd like 15 gallons of gas," whereas Charlotte says "I'd like 30 dollars worth of gas."

James' absolute value of the price elasticity of demand is perfectly inelastic.

Jim's pool cleaning service is a perfectly competitive firm who maximizes profits. Jim cleans pools for $50 each and cleans about 7 pools per day. Also, his total costs each day add up to $400, with $80 of that being fixed costs. What should Jim do in the long run?

Jim should close his firm in the long run

Given the same description of Jim's pool cleaning firm from the previous problem, what should Jim do in the short run?

Jim should not shut down his firm in the short run.

Which of the following are characteristics of competitive markets? Select all that apply.

Many buyers and sellers. Products are identical across firms. Free entry and exist for firms from the industry.

The county government is considering the following tax proposal: A lump-sum tax of $500 on each fast food restaurant. Which of the following statements is true regarding the tax?

Marginal cost will be unchanged.

Which of the following activities involve firm-to-household dollar flows? (Check all that apply)

Nicole earns $16 per hour working at a restaurant. Jeff earns $70,000 from his 20% ownership of Acme Incorporated.

Draw a market with a negative externality. Be sure to label the social marginal cost and private marginal costs curves carefully. Draw a single demand "private value" curve. Label Qmarket and Qoptimum. Now impose a pigouvian tax on this market. Where is the new Qmarket?

On top of, equal to, Qoptimum

When the price of blueberry jam increased by 5 percent, the quantity of peanut butter sold decreased by 4 percent and the quantity of raspberry jam sold increased by 5 percent. What can you say about the relationship between blueberry jam and raspberry jam? What about the relationship between blueberry jam and peanut butter?

Raspberry jam is a complement; Peanut butter is a substitute

Suppose Sam is a store owner. Which of the following are examples of implicit costs? Select all that apply.

Rental income received if Sam chooses to rent out the building. The salary Sam could earn if he worked for a law firm.

Continuing the narrative from Question 10, suppose eventually Samsung's patent expires and other firms are able to use the new manufacturing process. What happens in the long run?

Samsung's profits fall to zero The market price of memory decreases. The average total cost curve for all firms shifts downward.

Samsung introduces a new manufacturing process that reduces the cost of producing memory. If Samsung prevents others from using their new manufacturing process, then which of the following is true in the short run?

Samsung's profits increase Samsung's average total cost curve shifts downward. The price of memory remains the same.

True or false: It is impossible for a tax that raises no revenue to have any deadweight loss.

Snowboard rentals in Sierra-at-Tahoe go for $30 and 500 are rented on a typical day. Suppose a tax of $5 per rental is imposed, resulting in a rental price increase to $33 and 450 rentals per day. What is the deadweight loss in this market resulting from the tax?

Which of the following statements are normative?

Society ought to require welfare recipients to seek employment. The government should provide subsidies to domestic export industries.

Which of the following events would cause a shift in the supply curve in the market for strawberries? Select all that apply.

Some workers decide to move out of the strawberry farming business to pursue other career paths. Unanticipated favorable weather conditions result in a large harvest of strawberries.

How does the following event affect the market for hot dogs? An innovation in meat processing technology allows for more hot dogs to be produced at a lower cost than before.

Supply curve shifts outward

The quantity of cold brew coffee fell sharply last year, while the price remained the same. While of the following explanations could be correct? Select all that apply.

Supply decreased, but demand was perfectly elastic. Demand decreased, but supply was perfectly elastic. Demand decreased, but supply decreased at the same time.

Consider two goods which are considered complements: bagels and cream cheese. If there is a rise in the price of milk, an input of making cream cheese, what is the effect on the market for cream cheese and for bagels?

Supply for cream cheese decreases; Demand for bagels decreases

When an economic boom raises people's income, the price of restaurant meals rises." When evaluating the supply and demand in the market for restaurant meals, is the statement above true or false? Which curve shifts in this case: supply or demand?

True; Demand Curve

Despite their differences, with which proposition are two economists chosen at random most likely to agree?

Tariffs and import quotas generally reduce economic welfare.

Draw your own market for immunizations assuming that the immunization market has positive externalities. Carefully label the social value and the private value curves. Be sure that you have a single supply or "private cost" curve. Label Qmarket and Qoptimum.

The Qmarket is left of Qoptimum and there is underproduction and underconsumption of immunizations

Consider the market for rotary phones with an upward-sloping supply curve and downward-sloping demand curve. Suppose there are innovations in cell phone technologies, making them cheaper to produce. Which of the following is most likely true in this scenario?

The demand curve shifts inward and producer surplus decreases.

Which of the following topics directly relate to macroeconomics? (Check all that apply)

The effect of an increase in income taxes on national income.

If a firm can increase production without changing long-run average total cost, then which of the following is true?

The firm experiences constant returns to scale

Consider a competitive market for soda, where the equilibrium price is $1.00 per bottle. Which of the following is an example of a binding price floor in this market?

The government imposes a legal minimum price of $1.50 per bottle of soda.

Consider the market for strawberries with an upward-sloping supply curve and downward-sloping demand curve. Suppose that favorable weather results in a large strawberry harvest. Which of the following is true in this scenario?

The supply curve shifts outward and consumer surplus increases.

Suppose the supply of heavy metal concert tickets is upward sloping and the demand for heavy metal concert tickets is downward sloping. Heavy metal enthusiasts convince Congress to impose a price ceiling of $50 per ticket. Suppose the equilibrium price of concert tickets was $70 per ticket. What will be the effect of the $50 per ticket price ceiling?

There will be fewer people attending heavy metal concerts compared to if there wasn't a price ceiling.

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem (given the Coase Theorem) is that

Wally keeps the dog as this is an efficient market solution

Consider a Round Table Pizza looking to make decisions in the short run. Which of the following are examples of variable inputs? Select all that apply.

Workers hired Supply of paper plates

Which of the following statements are true? (Check all that apply)

Workers in importing industries are likely to oppose trade. Two countries can gain from specialization and trade as long as they have different opportunity costs in the production of some goods.

Economists believe that eliminating all pollution using a command and control approach is:

a problem. Eliminating pollution has costs and those costs should be considered.

Suppose Japan produces only cars and trucks. The resources that are used in the production of these two goods are not specialized, i.e., the same set of resources is just as useful in producing both cars and trucks. The shape of Japan's production possibilities frontier (PPF) should reflect the fact that as Japan produces more trucks and fewer cards, the opportunity cost of producing each additional truck Based on this description, the trade-off Japan faces between producing cars and trucks is best represented by which of the following shapes for the PPF?

a straight-line PPF

A recent innovation has lowered the manufacturing cost of cell phone batteries, leading to ____________ in the supply of cell phones.

an increase

Which of the following is an example of an externality?

cigarette smoke that permeates an entire restaurant a flu shot that prevents a student from transmitting the virus to her roommate a beautiful flower garden outside of the local post office

Therefore, the innovations in cell phone battery manufacturing cause the demand for landline telephones to ____________.

decrease

Suppose that Megan, an economist from a research institute in California, and Ronda, an economist from a school of industrial relations, are arguing over government intervention. The following dialogue represents an excerpt from their debate: Ronda: The usefulness of government intervention in the economy is a long-standing issue that many economists continue to debate. Megan: I believe that government involvement in the economy should be reduced. Government programs cause more harm than good. Ronda: I agree that some government programs can be inefficient. However, I believe they are necessary to help the less fortunate. This disagreement between Megan and Ronda is most likely due to:

differences in values

Suppose that Italy and Germany both produce oil and olives. Italy's opportunity cost of producing a crate of olives is 4 barrels of oil while Germany's opportunity cost of producing a crate of olives is 10 barrels of oil. By comparing the opportunity cost of producing olives in the two countries, you can tell that ____________ has a comparative advantage in producing olives and ____________ has a comparative advantage in producing oil.

italy; Germany

In a perfectly competitive market, there are ____________ buyers and sellers, in which all producers sell ____________ goods and services. Due to these two characteristics, both buyers and sellers in perfectly competitive markets are price ____________.

many; identical; takers

Determine whether each of the following topics would be more likely to be studied in microeconomics or macroeconomics.

the effect of the government budget deficits on the rate of inflation

Suppose Japan produces only cars and trucks. The resources that are used in the production of these two goods are not specialized, i.e., the same set of resources is just as useful in producing both cars and trucks. The shape of Japan's production possibilities frontier (PPF) should reflect the fact that as Japan produces more trucks and fewer cards, the opportunity cost of producing each additional truck

remains constant

Since air pollution creates a negative externality,

social welfare will be enhanced when some, but not all air pollution is eliminated.

Cell phones and landline telephones are considered to be ____________.

substitutes

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

the Coase theorem.

Which of the following best describes consumer surplus?

the difference between a buyer's willingness to pay and the price the buyer actually pays.

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

​increases the value of other properties in the neighborhood