Econ Questions

Frank is willing to pay $1,000 for the first class he takes this semester, $850 for the second, $700 for the third and $500 for the fourth. Using the information above for Frank, what is his consumer surplus?

$350

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. The sunk cost, once the movie set sank, was _______.

$70 million

If a country is importing $1 million worth of goods and exporting $800,000, then net exports are:

-200,000

How much (if any) does each of the following transactions raise GDP? The same individual goes to the woods, cuts down a tree, and uses the wood to build himself a garage that is worth $10,000. ______________

0

If one worker produces 15 cones of ice cream in an hour, two workers produce 25 ice cream cones, and three workers produce 30 ice cream cones in an hour, what is the marginal return of production of the second worker?

10

How much (if any) does each of the following transactions raise GDP? An individual pays a carpenter $10,000 to build a garage. ______________

10000

Suppose that a factory is producing two automobiles per hour. The total fixed cost is $20,000. The total variable cost is $10,000. The average cost is ______________.

15000

Given the previous two questions, suppose that we now increase production by one automobile per hour. If the cost of that additional automobile is $18,000, what is the new average?

16000

How much (if any) does each of the following transactions raise GDP? The Jones family sells its old house to the Reynolds family for $130,000. The Jones family then buys a newly constructed house from a builder for $175,000. ______________

175000

A company produces flashlights. If they hire one worker that worker will produce 10 flashlights in an hour, if they hire a second worker both workers will produce 16 flashlights in an hour, and if they hire a third worker they will all produce 18 flashlights. What is the marginal benefit of hiring the third worker?

2

Frank is willing to pay $1,000 for the first class he takes this semester, $850 for the second, $700 for the third and $500 for the fourth. If the price of a class is $750, how many classes will he take?

2

Unemployment rates remained high for many years after the Great Recession. What was the first year where rates dropped below what they were in 2008?

2015

How much (if any) does each of the following transactions raise GDP? The same individual purchases $3,000 worth of materials and builds himself a garage, which is worth $10,000. ______________

3000

At which pf the following levels of inflation should the country be concerned?

5%

A company produces reuseable water bottles. If they hire one worker that worker will produce 10 water bottles in an hour, if they hire a second worker both workers will produce 16 total water bottles in an hour, and if they hire a third worker they will all produce 18 total water bottles. What is the marginal benefit of hiring the second worker?

6

What was the peak yearly unemployment rate around the Great Recession:

9.6%

Which of the following statements about the effects of rent control is true?

A maximum price will cause a shortage of a good to be produced only it the maximum price is below the equilibrium price.

How would you use the concept of opportunity cost in deciding whether you should go to a movie this weekend?

A movie is $10.00 and two hours of time. The $10.00 could go toward lunch or a Sunday paper and a book; but perhaps the more important part of the cost is the two hours of time. If it is sunny out, the two hours could be spent frolicking, getting yard work done, etc. If rainy or cold, the options are considerably decreased, perhaps to the point of asking to choose between two hours of study and two hours of movie, both of which can be done inside. But if it is sunny, why should I spend two hours cooped up in a dark room with 100 strangers? So, if rainy, a movie; if sunny, a lunch.

It is claimed that price floors and price ceilings both reduce the actual quantity exchanged in a market. Use a diagram or diagrams to support this conclusion, and explain the common sense behind it.

A price floor holds the price above equilibrium if effective. Thus, as price is forced to rise, the quantity demanded falls. The quantity demanded is the amount traded since buyers are not willing to buy any more at that price. A price ceiling holds the price below the equilibrium price if effective. Thus, as the price ceiling lowers the price, suppliers reduce the amount supplied to the market. The quantity supplied is the amount traded since suppliers are not willing to supply more.

When parents say, "My child is very intelligent, but he just doesn't try. My child would rather play video games than study." The child is _______.

Allocatively efficient, but not technically efficient

If the benefits (correctly defined) of a doing something are greater than the costs (correctly defined) of doing whatever it is, what should one do?

Always do it

If population increases in a city with effective rent controls (and nothing else changes), which of the following describes what will happen in the market for rental housing?

An increase in demand, but no change in quantity supplied.

Since 1950, the labor force participation rate of women with young children has been increasing dramatically. In accordance with this trend, one would predict that there has been _______________.

An increase in the demand for child care services

Indicate which of the following will cause a movement along a demand curve. Which will shift the demand curve to the left? Which will shift the demand curve to the right? Will demand increase or decrease?

An increase in the price of a good only changes the quantity demanded of a good (which is represented by a movement along the existing demand curve). An increase in income means that buyers are able to buy more goods, resulting in an increase in demand for normal goods. If two goods are substitutes for one and other, buyers will purchase the cheaper option (all else equal). Therefore, a decrease in the price of a substitute good, leads to a decrease in demand. If buyers expect their income to fall in the future, they tend to save more money in the present, causing a decrease in demand. If buyers expect prices to increase in the near future, demand will increase in the present to take advantage of lower prices now.

Use the concepts of opportunity cost and marginal utility to explain how rational consumers compare marginal costs and marginal benefits when deciding how much of a good to purchase.

As a consumer compares the marginal utility per dollar spent on a good with the marginal utility per dollar spent on an alternative purchase (the opportunity cost), the marginal benefit is the additional utility that will be gained and the marginal cost is the amount of utility given up. If the amount gained is greater than what is given up, the consumer should change consumption of both goods.

Which definition is the best one for GDP?

B The sum of all final goods and services produced in a country in a given year.

What was the average annual increase in real GDP from the Great Recession to 2016?

Between 1.6 and 2.6%

Which of the following is most likely a scarce good?

Clean air in a town with many polluting automobiles

A government may impose a price ceiling if which of the following is true?

Consumers can persuade legislators that lower prices are needed

Explain why the concept of scarcity is important to the study of economics.

Consumers have unlimited wants. However, there are not enough resources on this planet to fulfill every want of every person. This is scarcity - the economic situation in which our resources fail to satisfy all our wants. Therefore, scarcity means making rational decisions as to where we should allocate resources in order to produce efficiently and satisfy as many consumer wants as possible. Rational decisions always involve a choice of one product or service over another.

Tonight I can either (1) go out to dinner and a movie, or (2) cook dinner for some friends, or (3) eat a hamburger at the baseball game. I prefer to do (1), then (2), and finally (3) if I can only do one. If these are my best choices and the dollar cost of each is the same, what would be the opportunity cost of my going out to dinner and a movie?

Cooking dinner for some friends

Assume that tastes change so that tennis is no longer as desirable to play as it is now. What would happen to the market for tennis balls?

Demand decreases, the equilibrium quantity is smaller, and the price is lower.

If the country enters a period of prosperity, resulting in consumer incomes increasing by 4% and the income elasticity of a good is 0.8, what will happen to the demand for that good as a result?

Demand will increase by 3.2%

Increasing marginal cost is a direct result of __________.

Diminishing marginal returns

If (1) the cost of manufacturing computers decreases and (2) at the same time the quality improves, making computers more useful for households, which of the following is most likely to happen?

Equilibrium price may increase or decrease; equilibrium quantity will increase

Okra was $13.00 per bushel in 2015, and 1.5 million bushels were sold. Okra was $14.00 per bushel in 2016, and 2.0 million bushels were sold. "If in both cases the okra market was in equilibrium, this must be an example of an exception to the law of demand."

False

If I have to drop out of college, it will cost me all of the tuition I have paid and the income I could have earned during those years while I was in college. True or false.

False. I did pay these costs, but they are sunk and thus not relevant to the decision

When Jane's income doubles, she increases her consumption. For all normal goods that Jane consumes, what is true?

Her marginal utility per dollar will decrease

You are running a small business and are thinking about ways to increase your profits. Assume you are facing an elastic demand. Would you raise or lower your prices?

I do not know because I cannot tell how much costs would change in relationship to revenues.

Last October, the highest-paying passenger on United Flight 815 from Chicago to Los Angeles paid $1,248.51. The lowest-paying passenger on the same flight paid $87.21. Can we say anything about the likely elasticities of demand of the two customers? Use the concepts of marginal analysis and opportunity cost to explain why it might make sense for United Airlines to charge some lucky soul so little.

If United Airlines is considering passengers with differing elasticities, they would want to raise fares for those with inelastic demand and lower fares for those with elastic demand. The first person's demand is relatively inelastic, while the latter's is probably much more elastic. It makes sense to charge so little for seats that would not otherwise be sold. If the flight will take place regardless of the last few seats, the opportunity cost is quite low. As long as the fare covers the small additional cost of carrying one more passenger, profits will increase.

Use rational decision-making to explain how one might choose between points B and C in EOC 2.03. Suppose that you know that we value additional convertibles three times as much as we do sedans. 2.03

If society values convertibles three times as much as sedans, than we should move toward point C away from point B. For example, to produce approximately 2,000 more convertibles, we must give up almost 4,000 sedans. But if each one of those convertibles is three times as valuable to us, the gain in satisfaction is greater than the loss in satisfaction from giving up sedans. Thus in moving from point "B" to point "C", we will have improved our well-being.

Assume you spend all of your income on two goods: peanuts and chips. Also assume that you are consuming the combination of peanuts and chips that maximize your utility. Which of the following statements is true?

If the price of peanuts is equal to the price of chips, then the marginal utilities must also be equal.

A recent Wall Street Journal headline read, "Hot Job Market May Melt Teen's Plans for College." The article describes falling unemployment rates for teenagers and a "negative side-effect: Fewer kids may choose to attend college." Use the concept of opportunity cost to explain why.

If the probability of getting a job is greater, than the opportunity cost of the amount of income that one could earn if he or she did not go to college is greater. Thus, with a greater opportunity cost, some teenagers will be less likely to go to college. In fact, some colleges experience significant fluctuations in enrollment as unemployment rates change.

In your own words, explain why a firm may face diminishing marginal returns to labor as the amount of labor used increases.

If we increase one of the inputs into a production process and hold the others constant, we will eventually reach the point of diminishing marginal returns. One explanation might be that each additional worker does not have sufficient tools to use and may have to wait or arrange production in order to share the available tools. Think of data entry clerks working with a given number of computers. As the number of workers increases, total production per hour increases. As we add workers, each additional worker may add an increasing amount to production as workers cooperate and specialize. But eventually, given the fixed number of computers, workers will have to wait for their time on the machines and may not be able to spend their time as effectively as they can when each worker has their own computer. The additions to total production are the marginal returns to the additional workers. At first there may be increasing returns due to specialization and possible cooperation. But eventually, there will be diminishing marginal returns.

If a consumer is currently maximizing her satisfaction, what will happen to the marginal utility of a good when its price increases? The marginal utility will __________.

Increase, because the consumer will decrease her consumption of the good.

Tesla is building a car battery factory in Nevada to drastically increase their production capacity from where it is now. Since the factory has not opened, Tesla is __________.

Increasing its production possibility frontier

Which of the following is true of an economic model?

Makes simplifying assumptions to provide a simpler version of a complex problem so that it may be studied and understood

An economic model makes it easier to understand complex economic problems by doing which of the following?

Making simplifying assumptions

If a man spends approximately 45% of his income on air travel and his sister only spends about 2% of her income on air travel (and that is the only difference), would the man's demand for air travel be less or more elastic than his sister's?

More elastic

If the economy is producing at a point inside the production possibilities frontier, which of the following must be true?

More of both goods can be produced

Assume that the price in a market is currently below the equilibrium price. Explain exactly why that situation will change by putting the steps in the correct order.

Normal supply and demand implies that as price falls below equilibrium the quantity demanded increases and the quantity supplied decreases. Because the quantities demanded and supplied are equal at equilibrium, there must therefore now be a shortage. A shortage means that some buyers are willing and able to pay more to get the good and that sellers can raise their prices and still sell all they are willing to supply. Prices begin to rise as a result. As prices rise, quantities demanded decrease and the quantities supplied increase. This process continues as long as there is a shortage. The shortage gets smaller and is eventually eliminated. A new equilibrium quantity is reached where the quantity demanded equals the quantity supplied. At that point the price stops rising, because there are no longer any pressures to cause increases.

Suppose your parents inherit your grandparents' house. They decide to move into the house and sell your current house. They did so because the house was free. Good decision?

Not a good decision, based on the assumption that it is free. It is not free.

Why are the admission prices to Disneyland often discounted, but the price of concessions and souvenirs never discounted?

Once someone enters Disneyland, there are no substitutes available for concessions or souvenirs - if you want to eat or buy a memento, you must buy from Disney. That is, once you are in the park, the elasticity of demand for other purchases is very small.

Compare the following two situations. In the first, gasoline prices alone rise from $2.50 per gallon to $4.00 per gallon. In the second, prices of most goods and services - including gasoline prices -- increase by 4 percent. Which of those situations represents inflation in an economy?

Only the second situation

How will an improvement in technology change total product, average product, marginal product, total cost, average cost, and marginal cost in the short run?

Output will increase at each combination of inputs. Total product increases. Average product also increases. Marginal product would also normally increase. Total cost at each level of output decreases as more is produced with each input. As average product and marginal product increase, average cost and marginal cost must fall.

Which answer best describe the annual growth rates during the Great Recession?

Real GDP growth rates dipped below 0.

If the unemployment rate in the United States is 4% (or around full employment), what is likely happening to real GDP?

Real GDP is growing at expected rates.

Of the measures discussed in this chapter, which is the best measure of the average individual's well-being.

Real GDP per capita

What would be the initial change in the market for beer if a city suddenly restricted the number of bar licenses they permitted? (Note: A bar requires a licenses to operate.)

Supply would decrease and there would be a shortage

A pizza parlor can make 100 pizzas in an evening. They make 40 pepperoni pizzas and 60 extra cheese pizzas. 100 people order pizza, but 50 people would like a pepperoni pizza and 50 would like an extra cheese pizza. This pizza parlor is what?

Technically efficient, but not allocatively efficient nor economically efficient

The U.S. government is evaluating a project to build a new lighthouse in South Carolina. The cost will be $5 million. The estimated value of all the benefits (including nonmonetary benefits) of the lighthouse is $8 million. Describe how you would use the concept of opportunity cost to determine whether the lighthouse should be built?

The benefits should be compared to the opportunity cost. The opportunity cost is the value of the best forgone alternative. The opportunity cost in this example is the value of the benefits to be gained by spending the $5 million on the next most desirable project. If those benefits are greater than $8 million, then the other project makes sense and it should be done before the lighthouse. If they are less than $8 million, then the lighthouse makes sense.

Who is likely to be in favor of a price ceiling on a good?

The consumers of the good who can still purchase it after the ceiling is imposed

Why are college textbooks so expensive when other books that cost the same to produce have a lower price?

The elasticity of demand for college textbooks is very inelastic because they are required.

Explain in your own words why average product can increase even when the marginal product decreases, as long as marginal product is still above the average product.

The fact that marginal product increases or decreases as the amount of labor increases does not affect whether the average product increases or decreases. Average product will always increase if the marginal product is larger than the average. Average product will decrease if the marginal product is less than the average. A marginal product that is greater than the current average means that more product is being added by the additional worker than the average worker was producing. Thus, the average will increase.

Inflation measure is ______________, while deflation measure is ______________.

The increase in price of a typical bundle of goods / the decrease in price of a typical bundle of goods.

As a larger number of students are assigned to groups to work on a project, which of the following is true?

The less each additional student will contribute to the project

Explain why an effective minimum wage law that is not changed over time may eventually become ineffective as demand for workers increases.

The minimum wage law is effective when it holds wages above what they would otherwise be. As demand increases, the quantity demanded at the minimum wage will increase. If demand increases enough, the surplus will be eliminated and the equilibrium wage will rise above the minimum level. The market wage will rise to the equilibrium, making the minimum wage law ineffective.

China has one of the largest real GDPs in the world. What does that measure not consider when determining the well-being of its citizens?

The number of people in the country

Which of the following best describes how the unemployment rate is calculated?

The number of people looking for a job divided by the number of people who either have a job or are looking for a job.

If the unemployment rate decreases, which of the following is true?

The number of people looking for work decreased and the number of people with jobs increased by even more. The number of people employed increased but the number of people looking for work stayed the same. The number of people unemployed stayed the same but the labor force increased.

Over the past year, major American automotive companies have switched some of their production from smaller, more fuel efficient cars to trucks and SUVs. Pick the best response as to why they switched production.

The price of trucks and SUVs increased, so marginal cost of continuing to produce smaller cars was too great.

Write a paragraph explaining the meaning of the production possibilities frontier in terms of efficiencies, if it represents the entire economy. Think of two kinds of generic goods - consumer goods and new capital (factories, machines, tools) goods. 2.05

The production possibilities frontier represents all possible combinations of consumer goods and capital goods that an economy can produce if it is using all of its available resources and its best available technology. It cannot produce more of both goods. If the economy is producing a combination of goods on the frontier, it must be using all of its resources and be technically efficient. However, it may or may not be allocatively efficient.

Why is the purchase of a share of stock not included in GDP?

The purchase of a share of stock does not correspond to the production of a good or service.

An increase in an inelastic demand will cause (a greater or lesser or same) change in the equilibrium quantity than the same increase in an elastic demand.

a greater

Were inflation levels leading up to and into the first full year of the Great Recession below or above the typically targeted rate of around 2%?

above

If the price of a good falls and, because of the income effect, consumption of the good also decreases, we know that the good is ______.

an inferior good

Which points represent a production level that could be economically efficient?

any point on the line

Which point represents a level of production in the economy that is not possible?

anything above the line

Which point represents an economy that is not utilizing all of its resources for production?

anything under the curve

Which of the following goods would be the most likely to be subject to a government-imposed tax?

bottles of alcohol, such as whiskey and gin

In the recent past, the government has attempted to stimulate the economy by sending tax refunds to individual people so that they will buy more products. What component of GDP is the government attempting to increase?

consumption

When the price of a good increases, consumer surplus ________.

decreases

The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost.

decreasing;increasing

The suppliers of ____________are more likely to have a tax imposed on their production.

gasoline

There have been recent talks about increasing spending on highways and roads. What component of GDP would that affect?

government spending(G)

An increase in the prices of inputs will cause the equilibrium price to ______________ and the equilibrium quantity to ______________.

increase; decrease

An increase in an effective maximum legal price will do what to prices and quantities actually sold in a market? Prices will __________ and the quantities actually sold will ___________.

increase; increase

If the income elasticity of a good is 0.8, what do we know about the good?

it is a normal good

The price elasticity of demand will be _________________ if demand is elastic.

more than one

Assume that as your income increases, your consumption of burgers decreases. We can assume that your income elasticity of demand for burgers is what?

negative

Will a change in fixed costs change marginal cost?

no

Will a change in fixed costs change total variable cost?

no

An example of price controls given in your text concerns minimum wage increases. On a supply and demand diagram (with wages on the vertical axis and number of workers on the horizontal), would minimum wage be considered a price ceiling or a price floor?

price floor

The Bureau of Labor Statistics (BLS) reports unemployment rate numbers each month. Their preliminary reports for February of 2017 said that over 200,000 jobs had been added and the unemployment rate had dropped to 4.7%. What does this report signal about the economy?

the economy is improving

Which of the following is likely to have the largest elasticity of supply?

the producer of vanilla ice cream

When price decreases, quantity increases. Price elasticity of demand measures how much ___________.

the quantity increased when price decreases

Marginal cost is the slope of _______.

the total cost curve

Does GDP include the purchase of a haircut?

yes

Will a change in fixed costs change average cost?

yes

Will a change in fixed costs change total fixed cost?

yes