ECON 201 Quiz 1

what is explicit costs?

outlay of money (for college: tuition, course materials, housing, etc)

prices and quantity dont change unless there is an _________

outside force

payoff = _________ - _________

payoff = benefit - cost

take an action if payoff is ________

positive

using economics, we can ______________ the price of quantities in the future

predict

a shift in demand changes both equilibrium _____________ and ___________

price & quantity

supply and demand is an economic model or theory that explains the _________________________________

price and quantity/services of goods transacted in a market

what happens to equilibrium price and quantity when supply shifts left and demand shifts left?

price change is indeterminate, quantity decreases

what happens to equilibrium price and quantity when supply shifts right and demand shifts right?

price change is indeterminate, quantity increases

what happens to equilibrium price and quantity when supply shifts right and demand shifts left?

price decreases, quantity change is indeterminate

10 sellers, each with a seller cost of $200. 20 buyers, each with a buyer value of $400. what is the competitive equilibrium price?

$400

what are the four elements of the market?

1) buyers/sellers 2) price demand 3) quantity supplied to market @ price 4) price & quantity don't change (stable)

what are the three main factors that affect demand?

1) change in price of substitute goods 2) change in price of complement goods 3) changes in income

what three factors affect supply?

1) environmental conditions 2) cost of inputs 3) technological advances

what are the two kinds of price controls?

1) price floors 2) price ceilings

what two forms can an excise tax come in?

1) tax on buyers 2) tax on sellers

10 suppliers, each with a seller cost of $200. how much will be supplied if price is $250?

10

20 buyers, each with a buyer value of $400. how much will be demanded if price is $250?

20

what is the consumer surplus equation?

C.S. = (buyer value - price) (number of buyers in the market)

what is the producer surplus equation?

P.S. = (price - seller cost) (number of buyers in the market)

can we increase profit by arranging a transaction between a buyer and seller who did not trade?

no

can we increase profit by preventing trade?

no

the demand for a good is given by the function q=200-2p, where q is the demand for the good when the price is p. the supply of the good is given by the function q=10p- 400, where q is the supply of the good when the price is p. what is consumer surplus for this good in a competitive equilibrium? a. $2,500 b. $1,000 c. $3,500 d. $2,000 e. $3,000

a

what is equilibrium?

a state in which economic variables will not change without external influences

what is an excise tax?

a tax which is a fixed dollar amount for every unit sold

can we increase total surplus if we substitute someone who did not trade for someone who did?

no

total surplus is determined ___________ by who trades and who does not

only

when supply shifts, moving along the demand curve, price and quantity change in the _______________

opposite direction

assuming that the market is perfectly competitive, we can assume that ____________________ and ________________________

all goods are exactly and same & that no single participant has the power to influence prices

last week, gabriella purchased a ticket to a concert. the price of the ticket was $10, and the concert is tonight. just as gabriella is about to leave for the concert, her sister calls offering her a babysitting job for the evening. her sister would pay gabriella $50 to babysit, but her sister has many other friends who she can call on if gabriella decides to go to the concert. it is too late in the evening for gabriella to find someone to whom she could give or sell the concert ticket. what is gabriella's opportunity cost of attending the concert? a. $10 b. $50 c. $60 d. $0

b

ledgerwood has 10 accountants. each is willing to complete as many as five tax returns for someone else if he or she receives a fee of at least $100. the demand for the services of a tax accountant is given by the function, q = 200 - p, where q is the number of taxpayers demanding the services of a tax accountant when tax accountants charge a fee of p. in a competitive equilibrium in the market for tax accountants, what is the surplus each accountant? a. $0 b. $50 c. $100 d. $250 e. $500

b

suppose the inverse-demand function for waffles is given by p=10-q, and the inverse supply function is given by p=q. suppose now that the government imposes a price ceiling for waffles equal to $2, meaning that the maximum price that can be charged for waffles is $2. what would the outcome of the price ceiling be in the market for waffles? a. this will cause a surplus of 6 waffles b. this will cause a shortage of 6 waffles c. this will cause a surplus of 4 waffles d. this will cause a shortage of 4 waffles e. the price ceiling will not cause a surplus or shortage

b

over the next twenty years, the number of americans between the ages of 80 and 100 is expected to rise substantially. how will this increase affect the market for nursing homes, a common residence for older americans? a. the supply curve of nursing homes will shift to the right b. the supply curve of nursing homes will shift to the left c. the demand curve for nursing homes will shift to the right d. the demand curve for nursing homes will shift to the left

c

in the farmers' apple market, buyers can buy just one bushel of apples and sellers can sell just one bushel of apples. ten buyers have a buyer value of $25 for a bushel of apples, and five buyers have a buyer value of $15 for a bushel of apples. five sellers have a seller cost of $10 for a bushel of apples, and ten sellers have a seller cost of $20 for a bushel of apples. what is the competitive equilibrium price of a bushel of apples in the farmers' apple market? a. $25 b. $15 c. $10 d. $20

d

farmers in north potato can grow either soybeans or wheat. an acre of land yields 100 tons of soybeans and 200 tons of wheat. farmers in south potato can also grow soybeans and wheat. in south potato, an acre of land yields 300 tons of soybeans and 400 tons of wheat. which of the following statements is true about the advantages farmers possess in each region? a. farmers in north potato have an absolute advantage in neither wheat nor soybeans, but they have a comparative advantage in soybeans b. farmers in south potato have an absolute and comparative advantage in both wheat and soybeans c. farmers in south potato have an absolute advantage in both wheat and soybeans, but farmers in north potato have a comparative advantage in wheat d. farmers in north potato have an absolute and comparative advantage in wheat e. farmers in south Potato have an absolute advantage in soybeans, but a comparative advantage in wheat

c

in a market with 58 consumers, each of whom will buy at most one unit of a good, the distribution of buyer values is as follows: 15 have buyer values of $40, 15 consumers have buyer values of $30, 13 consumers have buyer values of $20, and 15 consumers have buyer values of $10. if the price of this good is $29, how many units of the good will be demanded? a. 58 b. 43 c. 30 d. 15 e. 0

c

landowners in the st. michelle valley can either grow grapes or raise cattle. in the east end of the valley, an acre of land planted in grapes yields 40 tons of grapes per year. if the same acre is used to raise cattle instead of growing grapes, it yields 30 tons of beef per year. in the west end of the valley, the yields from an acre are 20 tons of grapes or 10 tons of beef. in both ends of the valley, the cost per acre of growing grapes is the same as the cost per acre of raising beef. every landowner chooses to use his or her land to maximize the profit from that land. this profit depends on the price of grapes and the price of beef. what prices would cause each landowner to specialize in his or her comparative advantage? a. the price of grapes is $150 per ton, and the price of beef is $100 per ton b. the price of grapes is $100 per ton, and the price of beef is also $100 per ton c. the price of grapes is $100 per ton, and the price of beef is $150 per ton d. the price of grapes is $100 per ton, and the price of beef is $300 per ton e. the price of grapes is $300 per ton, and the price of beef is $100 per ton

c

last month you signed up for a raft trip on the colorado river run by arizona river runners (arr). the price of the arr trip is $1,000. when you signed up, you paid $200 to arr. you must pay arr the remaining $800 before you take the raft trip. if you do not take the raft trip, arr will keep your initial payment of $200. arr will not return that payment to you. as you are beginning to prepare for your raft trip, a friend calls to propose a weekend in san francisco. unfortunately, the only weekend your friend can go to san francisco is the same time as your arr raft trip. you can't both take the arr raft trip and spend a weekend in san francisco with your friend. It's one or the other. the weekend in san francisco would cost you $200, but you would have been willing to pay as much as $500 for a weekend in san francisco with your friend. after your friend's call, what is the opportunity cost of the arr raft trip? a. $1,000 b. $800 c. $1,100 d. $500 e. $200

c

what is total surplus?

consumer surplus + producer surplus

what does cpf stand for?

consumption possibilities frontier

in economics, ______ is opportunity cost

cost

what do economists study?

costs and benefits

at the beginning of this year's baseball season, khalil bought a ticket for the giants' final regular season game. he paid $25 for the ticket. it is now the day before that game, and the giants are tied with the padres for first place in the national league west. khalil knows he can sell his ticket today for $100. what is khalil's opportunity cost of attending the giants' final regular season game? a. zero b. $25 c. $75 d. $100 e. $125

d

in the market for used biology textbooks, buyers buy one textbook at most, and sellers have just one textbook to sell. ten buyers are willing to pay as much as $50 for a used textbook, ten buyers are willing to pay as much as $40 for a used textbook, and ten buyers are willing to pay as much as $30 for a used textbook. five sellers are willing to sell for $15 or more, ten sellers are willing to sell for $25 or more, and ten sellers are willing to sell for $35 or more. what is the highest total surplus (consumer surplus plus producer surplus) you could achieve by arranging trades between buyers and sellers? a. $100 b. $200 c. $300 d. $400 e. $500

d

when a tax of $30 is levied on sellers for each unit of a good they sell, the competitive equilibrium price that buyers pay for the good is $70. if the tax of $30 per unit were levied on buyers instead of sellers, what price would sellers of the good receive in a competitive equilibrium? a. $70 b. $30 c. $100 d. $40 e. $50

d

how do you calculate opportunity cost of a good?

opportunity cost= (quantity of good b given up)/(quantity of good a produced)

ski lift tickets are more expensive on weekends than during the weekday and there are more skiers on the weekend. what curve is different between weekends and weekdays?

demand

if the price of a good or service increases, buyers tend to ______________

demand less

distribution of demander values determine _____________

demand schedules

different exchanges _________ increase surplus

do not

much of the lumber used in constructing houses and other buildings in the united states comes from logging in the national forests. to protect the habitat of endangered species, the united states forest service has issued new regulations about logging in the national forests. the regulations do not change the cost of logging an acre of forestland, but they do reduce the amount of timber from each acre. assuming the laws of supply and demand hold, how would you expect those regulations to affect the price of lumber and the quantity of lumber sold? a. price will not change, but less lumber will be sold b. price will increase, and more lumber will be sold c. price will decrease, and more lumber will be sold d. price will not change, but more lumber will be sold e. price will increase, and less lumber will be sold

e

suppose the inverse-demand function for waffles is given by p=10-q, and the inverse supply function is given by p=q. suppose the government imposes a price floor for waffles equal to $2, meaning that the minimum price that can be charged for waffles is $2. what would the outcome of the price floor be in the market for waffles? a. this will cause a surplus of 6 waffles b. this will cause a shortage of 6 waffles c. this will cause a surplus of 4 waffles d. this will cause a shortage of 4 waffles e. the price floor will not cause a surplus or shortage

e

suppose the inverse-demand function for waffles is given by p=10-q, and the inverse supply function is given by p=q. the pancake lobby has been extremely effective this year, and has convinced the government to impose a $2 per-unit tax on waffles, to be paid by buyers. what is the total amount paid by buyers, and how much do sellers receive in this market? a. buyers pay $5; sellers receive $5 b. buyers pay $4; sellers receive $4 c. buyers pay $4; sellers receive $6 d. buyers pay $6; sellers receive $6 e. buyers pay $6; sellers receive $4

e

a competitive equilibrium price is defined to be a price at which buyers and sellers make equal profits a. true b. false

false

market competition leads to ______________

economic efficiency

what is public interest?

economic efficiency

a competitive equilibrium is ___________

efficient

amanda has a job at dutch bros, making $10 an hour. she can work as many hours as she wants. the price of a ticket to see bryce vine in san diego is $100. it would take her 6 hours to drive to san diego and return. the concert lasts for 2 hours. the gas for her trip would cost her $20. what is amandas opportunity cost of attending that concert?

explicit cost is $120 ($100 for the ticket + $20 for gas) while the implicit cost is eight hours of her time. since she makes $10 an hour for the eight hours she is missing out on making $80. amanda should go to the concert is she is willing to pay $200 ($120 + $80)

shannon has a job at a chex mix factory, making $20 an hour. she can work as many hours as she wants. shannon also makes homemade cheese that she sells at a local farmers market. cheese making is her passion. the ingredients for her cheese cost $6 a block. it takes shannon one hour to make a block of cheese. what is the opportunity cost of one of her blocks of cheese?

explicit cost is $6 while the implicit cost is one hour of her time. since she makes $20 an hour at the chex mix factory, $6 + $20 = $26 meaning that shannon should make her cheese if she can sell her blocks for $26 or more (opportunity cost = $26)

for a consumer, the opportunity cost of purchasing a good includes the value of the time he or she must spend to acquire the good, but it does not include the money he or she must pay for the good a. true b. false

false

for the outcome of trade to be efficient, buyers with the highest buyer value must buy from sellers with the lowest seller cost a. true b. false

false

in a competitive equilibrium, buyers are better off if a per-unit tax is levied on sellers than they would be if a tax of the same amount were levied on buyers a. true b. false

false

the supply curve for labor obeys the law of supply and the demand curve for labor obeys the law of demand. if a minimum wage is set below the equilibrium wage (i.e., the price of labor), there will be more unemployment than if there were no minimum wage a. true b. false

false

what is a substitute good?

goods that can be used in place of each other

what is a complement good?

goods that we like to consumer together

what is a price control?

government-imposed restriction on the price at which buyers and sellers can trade a good

what is demand schedule?

how much is demanded at every price

what is supply schedule?

how much supplied at every price

what is economics?

how societies use scare resources to produce valuable commodities

equilibrium is when price and quantity meet __________

in the middle/make a compromise

when demand increases, equilibrium price and quantity both __________

increase

a tax on buyers causes the demand curve to shift _______ since buyers are less inclined to buy a good when there is a tax

left

what is a price ceiling?

legally-mandated maximum price (ex: maximum allowed rent for apartments)

what is a price floor?

legally-mandated minimum price (ex: minimum price of hiring workers for an hour)

what is the invisible hand?

market competition/guides everyone

competitive equilibrium ____________ total surplus

maximizes

changes in quantity demanded =

movement along demand curve

changes in quantity supplied =

movement along supply curve

what is implicit costs?

not an outlay of money/the value of resources used in their best alternative (for college: forgone wages from not working full-time)

coal plants burn coal to produce electricity. a by-product of this process is so2 emissions, which cause acid rain. suppose a new law requires coal plants to use scrubbers (which are not free) - the scrubbers reduce the so2 emissions that result from burning coal. as a result of the new law, what happens to equilibrium price and quantity of electricity?

price increases, quantity decreases

suppose slo imposes a bike helmet law (a law mandating that bicyclists in SLO wear a helmet). as a result of the new law, what happens to equilibrium price and quantity in the bike helmet market?

price increases, quantity increases

the price of computer memory and microprocessors (which are both inside your computer) has decreased and at the same time their performance has increased. the increased performance allows new computers to do more tasks like streaming movies and playing more sophisticated games. show the effect of these changes in the market for personal computers.

price indeterminate, quantity increases

sellers sell when ____________

price is greater than cost

economics is a tool set/framework to address _________

problems and certain ways of thinking

when demand shifts, moving along the supply curve, price and quantity change in the _____________

same direction

a competitive market will automatically have people acting in _______________

self-interest/looking out for themselves

change in demand =

shifts in demand curve

change in supply =

shifts in supply curve

what does a production possibilities frontier (ppf) show?

shows all possibilities of production of an individual, firm, or country in a fixed period of time

what is efficiency?

situation in which it is impossible to make one person better off without making another worse off

strawberries are more expensive and fewer are sold in january than in july. what curve is different between january and july?

supply

if the price of a good or service increases, sellers are willing to _________

supply more of it

distribution of supplier costs determine _______________

supply schedules

how do we calculate tax revenue?

tax revenue = (per-unit tax) (quantity sold with the tax)

what is market fundamentals?

the buyers and sellers that make up the marketplace

what is deadweight loss?

the loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity

what is opportunity cost?

the most desirable alternative given up as the result of a decision (the next best option)

what does it mean when a price ceiling is "binding"?

the price ceiling is set below the equilibrium price and the quantity demanded exceeds the quantity supplied

what does it mean when a price floor is "binding"?

the price floor is set above the equilibrium price and the quantity supplied exceeds the quantity demanded

what is consumer surplus?

the total surplus gained by buyers

what is producer surplus?

the total surplus gained by sellers

what is the ultimate goal of economics?

to improve living conditions of people in everyday lives

if the laws of supply and demand hold in the market for a good, an increase in the price of a substitute for that good will increase its price a. true b. false

true

in a competitive equilibrium, every buyer who buys at least one unit of the good pays the same price for the good a. true b. false

true

in a competitive equilibrium, no rearrangement of trades can make any one trader better off without making at least one other trader worse off a. true b. false

true

true or false: a competitive equilibrium will generate the maximum possible total surplus

true

true or false: he tax incidence is the same whether the tax is physically paid by buyers or sellers

true

true or false: in a comptivite equilibrium, the buyer value of every demander who didnt buy is less than or equal to the seller cost of every supplier who didnt sell

true

true or false: when both supply and demand shift, we will only be able to identify the direction of the change for either price or quantity, not for both

true

true or false: you cant decrease trades and increase surplus

true

true or false: you should always try to maximize your payoff

true

buyers buy when _______

value is greater than cost

what is cost?

what you give up to get something

what is absolute advantage (aa)?

when a producer can make more of a good than another producer who also makes the same good

what is an inferior good?

when income increases, demand for inferior goods decrease

what is a normal good?

when income increases, demand for normal goods increase

what is comparative advantage (ca)?

when the producer with the lower opportunity cost of production in a good has the comparative advantage in the production of that good

where is the equilibrium?

where the new demand curve intersects the supply curve

someone bought a laptop for $1,000 and can resell it for $1,200. should they sell the laptop? if so, what is the payoff?

yes. positive payoff ($1,200 - $1,000 = $200)