MACRO

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

$ 75

dead weight loss

1/2(quantity margin) x (price margin)

At a price of $10, how many units will be sold?

200

If a minimum wage of $11.50 an hour is mandated, what is the quantity of labor demanded?

570,000

What is the difference between an "increase in supply" and an "increase in quantity supplied"?

An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

An inferior good

What area represents the dead weight loss after the imposition of the price floor?

C + D

Shortage means the same thing as scarcity

FALSE

A successful marketing campaign will increase the demand for Red Bull. This will __________ the equilibrium price and _________ the equilibrium quantity of Red Bull.

Increase; Increase

Assume that the graphs in this figure represent the demand and supply curves for almonds. Which panel best describes what happens in this market when there is an increase in the productivity of almond harvesters?

Panel A

Assume that the graphs in this figure represent the demand and supply curves for women's clothing. Which panel best describes what happens in this market when the wages of seamstresses rise?

Panel B

Assume that the graphs in this figure represent the demand and supply curves for used clothing, an inferior good. Which panel describes what happens in this market as a result of a decrease in income?

Panel C

Assume that the graphs in this figure represent the demand and supply curves for Fruitopia, a soft drink. Which panel describes what happens in the market for Fruitopia when the price of Snapple, a substitute product, decreases?

Panel D

Demand

Represents the willingness and ability to consume at all prices

Rent control is an example of the price ceiling

TRUE

If the price of automobiles was to increase, then

The demand for gasoline would decrease

Select the phrase that correctly completes the following statement. "A positive change in technology caused an increase in the supply of flat-screen televisions. As a result ________."

The price of flat-screen televisions decreased and the quantity demanded of flat-screen televisions increased

A change in all of the following variables will change the market demand for a product EXCEPT

The price of the product

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

consumer surplus

consumer surplus

difference between the highest price consumers are willing to pay and the actual price graphically the area below the demand curve and above the price

Economic Surplus

is EQUAL to the sum of consumer surplus and producer surplus

If a minimum wage of $11.50 is mandated there will be a

surplus of 40,000 units of labor

Economic Growth

the ability of the economy to increase the production of goods and service

Which of the following statements is true?

An increase in demand causes a change in equilibrium price; the change in price does not cause a further change in demand or supply.

Which of the following is the correct way to describe equilibrium in a market?

At equilibrium, quantity demanded equals quantity supplied

What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?

B

The total amount of consumer surplus in a market is equal to the area below the demand curve

FALSE

Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied.

FLASE

The minimum wage is an example of a price ceiling

FALSE

What is the value of producer surplus after the imposition of the ceiling?

$40,000

If a minimum wage of $11.50 an hour is mandated, what is the quantity of labor supplied?

610,000

Allocative Efficiency

where production is consistent with consumer preferences: the marginal benefit of production is equal to it's marginal cost.

What is the value of the portion of producer surplus transferred to consumers as a result of the rent ceiling?

$100,000

With rent control, the quantity supplied is 200 apartments. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get per month?

$2,000

What is the value of consumer surplus after the imposition of the ceiling?

$230,000

What area represents consumer surplus after the imposition of the price floor?

A

What area represents the dead weight loss after the imposition of the ceiling?

C + E

What is the area that represents the portion of producer surplus transferred to consumers as a result of the rent ceiling?

D

What is the area that represents the producer surplus after the imposition of the ceiling?

F

Economists refer to a market where buying and selling take place at prices that violate government price regulations as

a black market

Which of the following will shift the demand curve for a good?

a decrease in the price of a complementary good

price ceiling

a price ceiling is a maximum that the price charged for a commodity cannot legally exceed

Which term refers to a legally established minimum price that firms may charge?

a price floor

price floor

a price floor is a legal minimum below which the price charged for a commodity is not permitted to fall

The sum of consumer surplus and producer surplus is called economic surplus

TRUE

What is the value of the dead weight loss after the imposition of the ceiling?

$50,000

Demand determinants

1) Income 2)Prices of related goods 3) Tastes and preferences 4) Population & demographics 5) Expectations

Supply determinants

1) input prices 2) technology 3) prices of substitutes in production 4) # of firms in market 5) Expectations

If the demand for a product increases and the supply of the same product increases, the equilibrium price will increase

FALSE

Market equilibrium occurs where supply equals demand

FALSE

in October 2005, the U.S. Fish and Wildlife Services banned the importation of beluga caviar, the most prized caviars, from the Caspian Sea. What happened in the market for caviar in the U.S.?

The supply curve shifted to the left

Factors of production

1) land 2) labor 3) capital 4)entrepreneurial activity

Marginal cost is the additional cost to a firm of producing one more unit of a good or service.

TRUE

What is the area that represents producer surplus after the imposition of the price floor?

B + E

If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase.

FALSE

Assume that the graphs in this figure represent the demand and supply curves for rice. What happens in this market if buyers expect the price of rice to fall?

Panel D

If the price is $10

There would be a shortage of 600 units

Production Possibilites Frontier (PPF)

1) two good, fixed -factor model 2) maximum output combinations are located along the frontier and are preferred =Technical efficency 3)Economic agents only have access to current, existing factors of production 4)Technology is fixed

What is the area that represents consumer surplus after the imposition of the ceiling?

A + B + D

Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced.

A decrease in supply

If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter

A normal good

If the current market price is $10, the market will achieve equilibrium by

A price increase, increasing the quantity supplied and decreasing the quantity demanded

Marginal benefit is equal to the ______ benefit to a consumer receives from consuming one more unit of good or service.

Additional

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.

The figure above shows the supply and demand curves for two markets: the market for original Picasso paintings and the market for designer jeans. Which graph most likely represents which market?

Graph B Represents the market for original Picasso paintings and Graph A represents the market for designer jeans.

During the recession of 2007-2009, despite falling income levels, McDonald's experienced increased sales. The increase in demand for Big Mac's despite in income indicates that Big Mac's are considered

Inferior goods

Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets. Which panel best describes what happens in this market if there is a substantial increase in price of bicycles?

Panel D

Assume that the graphs in this figure represent the demand and supply curves for potatoes and that steak and potatoes are complements. What panel describes what happens in this market when the price of steak rises?

Panel D

Which of the following is NOT a result of government price controls?

Price controls benefit poor consumers but harm producers and wealthy consumers

With rent control, the quantity supplied is Q1. Supposed apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get?

R1

Olive oil producers want to sell more olive oil at a higher price, which of the following events would have this effect?

Research finds that consumption of olive oil reduces the risk of heart disease

As the number of firms in a market decreases, the supply curve will shift to the left and the equilibrium price will rise

TRUE

Consumer surplus is the difference between the highest price someone is willing to pay for a product and the price he actually pays for the product

TRUE

Dead weight loss refers to the reduction in economic surplus resulting from a market not being in competitive equilibrium

TRUE

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized

TRUE

If the demand curve for a product shifts to the left and the supply curve for the product shifts to the left, the equilibrium quantity will decrease

TRUE

Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots?

The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right.

Technological advances have resulted in lower prices for digital cameras. What is the impact of this on the market for traditional (non-digital) cameras?

The demand curve for traditional cameras shifts to the left.

Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else constant, how would this affect the market for blu-ray players (a complement to LCD televisions)?

The demand for blu-ray players would increase and the equilibrium price of blu-ray players would increase

The following appeared in a Florida newspaper a week after a hurricane hit the state. "Floridians are relieved that the storm produced no fatalities but homeowners face weeks, if not months, of rebuilding. Matters are made worse by the soaring prices of plywood and other building materials that always follow in a hurricane's path. Complaints of profiteering and price gouging have not deterred firms from raising their prices by over 100 percent." Which of the following offers the best explanation for the price increases referred to in the article?

The hurricane caused an increase in the demand for building materials.

The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services. How does this affect the digital photo printing market?

The supply curve for digital photo printing services shifts to the right

The figure above represents the market for canvas tote bags. Assume that the market price is $35. Which of the following statement is true?

There is a surplus that will cause the price to decrease; quantity demanded will then increase and quantity supplied will decrease until the price equals $25

What is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)?

W*=$10.50; Q*=590,000

Shortage

a shortage is an excess of quantity demanded over quantity supplied. When there is a shortage, buyers cannot purchase the quantities they desire at the current price.

Scarcity

a situation in which unlimited wants exceed the limited resources available to full-fill those wants

The area _______ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

above; below

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase?

an increase in consumer income

producer surplus

difference between the lowest price affirm is willing to accept and the actual price obtained graphically the area above supply and below price

which is most important factor of production? and why?

entrepreneurial activity is the factor that brings all other factors together. puts everything else into motion.

Economic surplus is maximized in a competitive market when

marginal benefit EQUALS marginal cost

In order to be binding, a price ceiling

must lie BELOW the free market equilibrium price

Quantity demanded

number of the units a good that consumers are willing and can afford to buy

Marginal cost is

the additional cost to a firm of producing one more unit of a good or service

The Internet has created a new category in the book selling market, namely, the "barely used" book. How does the availability of barely used books affect the market for new books?

the demand curve for new books shifts to the left.

Dead weight loss refers to

the reduction in economic surplus resulting from not being in competitive equilibrium

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which

the sum of consumer surplus and producer surplus is at a maximum