Micro Econ Midterm
The marginal cost of a good or service is the _____. A.total cost of producing it B.opportunity cost of producing one more unit of it C.total cost of consuming it D.opportunity cost of consuming one more unit of it
B
The price of a wireless plan rises. What is the effect on the price and quantity of smartphones? The equilibrium quantity of smartphones _______ and the equilibrium price _______. A. decreases; rises B. decreases; falls C. increases; rises D. increases; falls
B
if the demand is unit elastic, ...
a 1% price cut increase the quantity sold by 1% and total revenue doesn't change
if the demand is elastic, ...
a 1% price cut increases the quantity sold by more than 1% and total revenue increases
if the demand is inelastic, ...
a 1% price cute increases the quantity sold by less than 1% and total revenue increases
if the cross elasticity is negative, it is a?
compliment
what is a pure command economy?
central authority allocates resources by executive decision -not common at all, doesn't happen
How does demand change?
changes with income levels (like tax rides) Normal goods: buy more as income increases inferior goods: buy less when income increases
what is the equation for income elasticity of demand? and what do the results tell us?
% of Q(d) / % of income positive and greater than 1 = income elastic positive and less than 1 = income inelastic negative = inferior good
The three main methods that governments use to cope with an external cost of production include all of the following EXCEPT A. price floors B. taxes C. cap and trade D. mandating clean technology
A
Production Possibilities frontier
the boundary between those combinations of goods and services that can be produced and those that cannot
what are the determinants of the market supply of a good?
expectations of future --> products cost --> technology --> price of related goods --> states of nature --> market size (# of firms)
what does elastic of supply measure?
the responsiveness of the Q(s) to a change in a price of a good when all other influences remain the same elastic supply > 1 : supply is elastic elastic supply < 1 : supply is inelastic
the cross elasticity of demand is a
measure of the responsiveness of the demand for a good to a change in the price of a substitute or compliment, other things remain the same % of Q(d) / % of price of substitute or compliment
how does one return to an efficient outcome?
regulation (requirements and quotas) incentives (taxes and subsidies)
What are two government policies?
regulation: set quota equal to the efficient amount incentives: set tax equal to the external marginal costs
compliments in production
positive price relationship -produce more when other price rises -make more cream when price of skim milk rises -make more skim milk when price of cream rises
what are substitutes?
positive price relationship, buy more when the other price rises, buy more coffees when price of tea rises, vice versa
The demand for leather bags is P = 350−33QD. The supply of leather bags is P = 150 + 55QS. What is the equilibrium price of a leather bag and what is the equilibrium quantity of leather bags?
$275 equilibrium price 25 bags per day
what is the equation for the elasticity of supply?
% change in quantity supplied / % change in price
what is the equation for elasticity of demand?
% change in quantity demanded / % change in price
what is the equation for the cross price elasticity of demand?
% change in quantity demanded for good A /% change of price for good B
what is the equation for total CS?
(MB-Payment) * Quantity
What is the equation for total PS?
(payment-MB) * Quantity
When the price of a loaf of garlic bread increases by 10 percent, the quantity of lasagna demanded decreases by 7 percent. Calculate the cross elasticity of demand for lasagna with respect to the price of a loaf of garlic bread. The cross elasticity of demand for lasagna with respect to the price of a loaf of garlic bread is ... garlic bread and lasagna what?
-0.7 complements
what are the market assumptions?
-all consumers are maximizing utility -full information (everyone in the market fully understands the info of what is being bought/sold) -open market free of barriers (monopoly), international borders -economic activities are limited to economic actors that take those actions (externality) -price value for everything -agents are rational
what are a few market based solutions?
-assign property rights -marketable permits -enable market to "internalize the externality"
what are the market failure?
-objectives beside profit/utility maximization -incomplete info -market barriers to enter -externalities (impact outside of market) -non-priced goods/services -irrational agents
Rain spoils the strawberry crop, the price of strawberries rises from $2 to $4 a box, and the quantity demanded decreases from 1,400 to 1,000 boxes a week. Calculate the price elasticity of demand over this price range. Describe the demand for strawberries. Over the price range of $2 to $4, the absolute value of the price elasticity of demand is
0.5 (inelastic)
With higher fuel costs, airlines raised their average fare from $0.75 to $1.25 per passenger mile and the number of passenger miles decreased from 2.5 million a day to 1.5 million a day. What is the price elasticity of demand for air travel over this range? Describe the demand for air travel. Over the price range of $0.75 to $1.25 per passenger mile, the absolute value of the price elasticity of demand is ...
1 (unit elastic demand)
The demand for leather bags is P = 250−3QD. The supply of leather bags is P = 150 + 2QS. What is the equilibrium price of a leather bag and what is the equilibrium quantity of leather bags?
190 equilibrium price 20 bags
When the price of air travel increases by 3 percent and the price of a train ride remains unchanged, the quantity of train rides demanded increases by 9 percent. Calculate the cross elasticity of demand of train rides with respect to air travel. The cross elasticity of demand of train rides with respect to air travel is ...
3
When income increases by 2 percent and all prices remain the same, the quantity of smartphones demanded increases by 8 percent. Calculate the income elasticity of demand of smartphones. The income elasticity of demand of smartphones is
4
A decrease in the supply of ramen noodles brings a______ of ramen noodles at the original price and a______ in their price. A. shortage, rise B. shortage; fall C. surplus; rise D. surplus; fall
A
A good or service or a resource is excludable if A. it is possible to prevent someone from enjoying its benefits. B. its use by one person decreases the quantity available for someone else. C. it is not possible to prevent someone from enjoying its benefits. D. its use by one person does not decrease the quantity available for someone else.
A
An external benefit is a benefit that ________. A. accrues to someone other than the buyer of a good B. experiences increasing marginal returns C. is greatest at the equilibrium point D. always equals external cost
A
Harry produces 4 balloon rides and 10 boat rides an hour. Harry could notcould not produce more balloon rides without producing fewer boat rides. Harry is ______ his production possibilities frontier. A. producing on B.moving along C.producing inside D.producing outside
A
In the following statements, who is a free rider? A. Ted does not pay taxes but uses roads and highways. B. The U.S. government has announced a 21 percent defense spending increase. C. Andy is reading a book named "Mission to Mars." D. Nick buys groceries from Safeway because it's closer to his home.
A
Resource use is allocatively efficient when marginal benefit is A.equal to marginal cost. B.less than marginal cost. C.greater than marginal cost. D.at its maximum value.
A
Ski trips and ski jackets are complements. The cross elasticity of demand for ski trips with respect to the price of a ski jacket is _______. A. negative B. positive C. zero D. positive, negative, or zero
A
Tax incidence is the division of the burden of tax between _____. A. buyers and sellers B. sellers and the government C. workers and employers D. buyers, sellers and the government
A
The demand curve is P = 800−88QD. The supply curve is P = 500 + 4QS. At market equilibrium, the equilibrium quantity is _______. A. 25 B. 0.04 C. 4 D. 600
A
The government can aid in reducing pollution by using marketable permits, which means that A. each polluter is assigned a pollution limit and is given tradable permits that allow this amount of pollution. B. emission charges are established by the government. C. polluters are taxed on the amount of pollution they discharge. D. only some producers pollute and the others go out of business.
A
When Mohesha receives an increase in her pay check from $1,800 a month to $2,200 a month, she increases the quantity of hot chocolate that she buys from 19 cups a month to 21 cups a month. Mohesha's demand for hot chocolate is income ______. For Mohesha, hot chocolate is ______ good. A. inelastic; a normal B. elastic; a normal C. inelastic; an inferior D. elastic; an inferior
A
Which of the following statements describes an elastic demand? A. Mary's quantity demanded of milk decreased by 8 percent when the price of milk rose by 5 percent. B. A fall in Ralph's income by 5 percent changes his demand for chocolates by 1 percent. C. Tom's demand for apples does not change when the price of bananas rises. D. I can't afford as many books because my income has fallen.
A
Which of the following describes a market that is inefficient because it violates the assumption that there is a price value for everything? A. Many people who get the flu regret not spending the time and money to get a flu shot. B. After Hurricane Katrina knocked out power for millions of residents, the price of portable generators went up. C. The opening of an Amazon office in New York City is expected to raise apartment rental rates, making them unaffordable for many residents. D. After Christmas, many stores offer sale prices on unsold merchandise.
A
Which of the following is an example of a black market transaction? Annie rents an apartment _____. A. in a rent-controlled city by paying $1,000 for an extra set of keys B. at the equilibrium rent C. at the rent ceiling after many months of search D. in a rent-controlled city at the rent ceiling
A
Which of the following is the opportunity cost of attending a ball game? A. The things you would have bought with what you spent on the ticket and bus fare getting to the game plus the things you would alternatively have done with your time. B. Only the things you would alternatively have done with your time if you had been working. C. Only the ticket price and bus fare. D. Only the things you would alternatively have done with your time.
A
Which of the following statements is about a normal good, which is about an inferior good, which is about both, and which is about neither? I With incomes falling in the recession, people are buying more chicken. II People are buying more beef now that incomes have increased. III People are buying more chicken because the price of chicken has fallen. IV With higher incomes people are switching from chicken to beef. A. I is inferior, II is normal, III is neither, and IV is both B. IV is inferior, III is normal, II is neither, and I is both C. III is inferior, II is normal, IV is neither, and I is both D. II is inferior, I is normal, III is neither, and IV is both
A
Production efficiency
A situation in which goods and services are produced at the lowest possible cost.
A 2 percent fall in the price of chocolate sauce increases the quantity of chocolate sauce demanded by 10 percent and increases the quantity of ice cream demanded by 12 percent. Calculate the price elasticity of demand for chocolate sauce and the cross elasticity of demand for ice cream with respect to the price of chocolate sauce. A. The absolute value of the price elasticity of demand for chocolate sauce is ... B. The cross elasticity of demand for ice cream with respect to the price of chocolate sauce is ...
A. 5 B. -6
what are concepts that could affect the production possibilities frontier?
Attainability, efficiency, tradeoffs
A good or service or a resource is nonrival if A. it is not possible to prevent someone from enjoying its benefits. B. its use by one person does not decrease the quantity available for someone else. C. its use by one person decreases the quantity available for someone else. D. it is possible to prevent someone from enjoying its benefits.
B
A paper mill dumping its waste chemicals into a river is an example of a ______ externality. Building a light display on your front yard in December. Building a light display on your front yard in December is an example of a ______ externality. A. negative consumption; positive production B. negative production; positive consumption C. positive consumption; negative production D. positive production; negative consumption
B
Economic growth can be represented by A.a movement down the production possibilities frontier (PPF). B.an outward shift of the production possibilities frontier (PPF). C.a movement up the production possibilities frontier (PPF). D.an inward shift of the production possibilities frontier (PPF).
B
Free riders are not a problem in the market for a private good because A. the free rider will not get caught. B. non−payers can be excluded from consuming the good. C. the good is a rival good. D. the good can be produced only at a positive marginal cost.
B
The factors that influence the elasticity of supply are _______. A. the proportion of income spent on the good and the time frame for the supply decision B. resource substitution possibilities and the time frame for the supply decision C. the cross elasticity of demand and the price elasticity of demand D. the proportion of income spent on the good and resource substitution possibilities
B
The y-axis intercept of the demand curve is 25 and the slope is -2. The equation of the demand curve is _______. A. P = 2−25QD B. P = 25−2QD C. P = 25 + 2QD D. QD =25-2P
B
When Nicole's income increases by 3 percent, her demand for tickets to professional baseball games increases by 6 percent. Nicole's demand for tickets is income ______. For Nicole, baseball tickets are ______ good. A. inelastic; an inferior B. elastic; a normal C. inelastic; a normal D. elastic; an inferior
B
When a timber mill makes logs from trees it also produces sawdust, which is used to make plywood. b. Explain how a rise in the price of sawdust influences the supply of plywood. A rise in the price of sawdust _______. A. increases the quantity of plywood supplied B. decreases the supply of plywood C. increases the supply of plywood D. decreases the quantity of plywood supplied
B
When external benefits are present A. competitive markets are efficient. B. competitive markets are inefficient. C. property rights have already been established. D. a tax is required to eliminate the inefficiency.
B
When you smoke in a restaurant, you are creating a _______. A. positive production externality B. negative consumption externality C. negative production externality D. positive consumption externality
B
Which of the following is an example of a positive externality? A. A lower inflation rate would benefit most consumers. B. Compulsory flu shots for all students prevents the spread of illness in the general public. C. Promoting generic drugs would benefit people. D. Singapore has adopted a comprehensive savings plan for all workers known as the Central Provident Fund.
B
Which of the following is the BEST example of a public good? A. a house B. fourth of July fireworks C. the Internet D. fish in the ocean
B
Which of the following items is nonexcludable and nonrival? A. eBay's auction service B. national defense C. fish in the ocean D. a baseball bat
B
A firm does research and development which can also be applied in the manufacturing processes of other firms. What kind of externality results? The resulting externality is an example of a _______. A. negative consumption externality B. positive consumption externality C. positive production externality D. negative production externality
C
After Hurricane Katrina devastated parts of Mississippi and New Orleans in 2005, we can be sure that the production possibilities frontier for that area temporarily A.shifted outward, away from the origin. B.became steeper. C.shifted inward, toward the origin. D.became flatter.
C
An increase in the demand for tank tops brings a ______ in the price of a tank top and ______ in the quantity of tank tops supplied. A. fall; increase B. fall; decrease C. rise; increase D. rise; decrease
C
An individual transferable quota (ITQ), which is a _____ limit that is assigned to an individual who _____ to transfer (sell) the quota to someone else. A. consumption; is then free B. production; does not have the right C. production; is then free D. consumption; does not have the right
C
For a good to be nonrival, then A. a person is willing to pay any price to ensure that the product is available. B. a person cannot be prevented from consuming that good even if he or she did not pay for it. C. one person's consumption of that good does not decrease another person's consumption of that good. D. a person is not willing to pay for the good because even without paying for it, the person can consume the good anyway.
C
Game consoles and games are complements. If the price of a game console decreases, how does the demand for games change? If the price of a game console decreases, the demand for games will _______. A. decrease, and the demand curve for games will shift leftward B. not change, but there will be a movement along the demand curve for games C. increase, and the demand curve for games will shift rightward D. increase or decrease, but the demand for game consoles will not change
C
Gloria's Gas Station wants to increase the quantity of gasoline that it sells by 20 percent. The price elasticity of demand for gasoline sold by Gloria's Gas Station is -0.8. What is the percentage price cut that will achieve the firm's objective? A. 20% B. 30% C. 25% D. 40%
C
John receives a marginal benefit of $80 from one missile. Nick receives a marginal benefit of $50 from one missile. Christina receives a marginal benefit of $65 from one missile. John, Nick, and Christina are the only people in the economy. What is the economy's marginal social benefit from one missile? A. $80 B. $50 C. $195 D. $65
C
Market failure is a situation in which the market _____ . A. price fluctuates B. delivers an unfair outcome C. delivers an inefficient outcome D. breaks down so that nothing gets produced
C
One way to overcome the problem of the commons is to A. take away property rights so that no one owns the resource. B. leave the market alone because the market will reach an equilibrium in which the efficient amount of the resource is used. C. assign property rights so that someone owns the resource. D. None of the above answers is correct.
C
The elasticity of demand for chocolate chip cookies is 0.6 and the elasticity of supply for these cookies is 1.9. If a tax is imposed on purchases of chocolate chip cookies, then the A. tax would be equally shared by the consumers and the producers. B. consumers would pay the entire tax because their demand is less elastic than the producers' supply. C. consumers would pay more of the tax. D. producers would pay more of the tax.
C
The marginal benefit of a good or service is the _____. A.highest valued alternative that must be given up to get the good or service B.sum of the gain and loss that arises from consuming the good or service C.benefit received from consuming one more unit of it. D.cost of consuming the good or service
C
The tragedy of commons is the A. fact that common resources are nonrival. B. absence of incentives for people to pay for what they consume. C. incentives to overuse a common resource. D. incentives to underuse a common resource.
C
There are two industries that emit sulfur dioxide. The government decides to issue marketable permits. If Harry's industry has a higher marginal cost of reducing sulfur dioxide than does Joe's industry, ________. A. Harry's industry will sell marketable permits to Joe's industry B. Harry's industry and Joe's industry will emit the same quantity of sulfur dioxide C. Joe's industry will sell marketable permits to Harry's industry D. marketable permits will not make the amount of pollution efficient
C
Which of the following describes a market that is inefficient because it violates the assumption that there is an open market free of entry barriers? A. Restaurants at the beach often refuse to allow customers to enter without shoes. B. Several small, local hardware stores went out of business after a Home Depot opened in town. C. Taxi cabs are required to display one of a limited number of medallions in order to operate in New York City. D. the university of Pittsburgh does not accept any applicants without a high school diploma
C
Which of the following best describes a subsidy? A. Banks make low-interest loans to farmers. B. The government puts a tax of $100 per ton on wheat imports. C. Farmers pay the government $100 per ton of wheat produced. D. The government pays farmers $100 per ton of wheat produced.
D
Which of the following statements about the market for chicken describes a change in the quantity demanded and which describes a change in demand? I People are buying less chicken because the price of beef has fallen. II People are buying less chicken because the price of chicken has increased. III People are buying more chicken because the price of chicken has fallen. IV The cost of chicken feed has increased. A. I, II, and III are changes in demand and IV is a change in the quantity demanded. B. I, II, and III are changes in the quantity demanded and IV is a change in demand. C. I is a change in demand and II and III are changes in the quantity demanded. D. I is a change in the quantity demanded and II and III are changes in demand.
C
Which of the following statements is an example of elasticity of supply? A. A 20 percent discount at all Old Navy stores is drawing large crowds. B. The quality of fruits sold by Safeway is getting better. C. A 10 percent fall in the price of turkey with no other change decreases quantity supplied by 12 percent. D. Farmers increase their supply of potatoes when the price of onions rises.
C
Which of the following statements is true about taxes? A. Government revenue from a tax is always greater than the loss of producer surplus and consumer surplus. B. Taxes always create more deadweight loss than do price ceilings and price floors. C. Taxes decrease both consumer surplus and producer surplus while creating a deadweight loss. D. Both answers A and C are correct.
C
Why does the government provide public education? The government provides public education because education _______. A. is a common resource B. is a public good C. brings benefits that spill over to others D. has enormous external costs
C
Why is a tax inefficient? A tax is inefficient because _______. A. the burden of the tax is not always split equally between buyers and sellers B. with a tax, the market produces more than the equilibrium quantity C. the marginal social benefit from the last unit sold exceeds the marginal social cost of the last unit produced and a deadweight loss is created D. it decreases consumer surplus but increases producer surplus
C
With the new way to tap maple trees, farmers could produce 10 times as much maple syrup per acre. Will the new method change the supply of maple syrup or the quantity supplied of maple syrup, other things remaining the same? Explain. When farmers use the new method of tapping maple trees other things remaining the same, _______. A. the supply of maple syrup decreases because farmers can produce more maple syrup with fewer resources B. the quantity of maple syrup supplied increases because the price of maple syrup rises C. the supply of maple syrup increases because farmers can produce more maple syrup per acre from their current trees Your answer is correct. D. the quantity of maple syrup supplied decreases because the price of maple syrup falls
C
If, as Maria's income increases, her demand for fitness club memberships increases, then for Maria, fitness club memberships are _______. A. an inferior good B. a complement C. a normal good D. a substitute
C
what is the consumer surplus equation?
CS= MB - payment (1/2)(B)(H)
A 8 percent rise in the price of orange juice decreases the quantity of orange juice demanded by 12 percent and increases the quantity of apple juice demanded by 20 percent. Calculate the price elasticity of demand for orange juice and the cross elasticity of demand for apple juice with respect to the price of orange juice. The price elasticity of demand for orange juice is ___ , and the cross elasticity of demand for apple juice with respect to the price of orange juice is ___. A. -0.67; -0.40 B. -1.5; -2.5 C. -0.67; 0.40 D. -1.5; 2.5
D
A good or service or a resource is nonexcludable if A. its use by one person decreases the quantity available for someone else. B. it is possible to prevent someone from enjoying its benefits. C. its use by one person does not decrease the quantity available for someone else. D. it is not possible to prevent someone from benefiting from it.
D
Consumer surplus is the _____ from a good or service, in excess of the _____, summed over the quantity consumed. A. marginal benefit; maximum value for it B. utility; maximum willingness to pay for it C. marginal benefit; cost D. marginal benefit; price paid for it
D
For a common resource, the marginal private benefit of the resource is ________ the marginal social benefit. A. equal to B. less than C. not comparable to D. greater than
D
Harry produces 7 balloon rides and 9 boat rides an hour. Harry could notcould not produce more balloon rides without producing fewer boat rides. Harry is ______ his production possibilities frontier. A. moving along B.producing outside C.producing inside D. producing on
D
If as the price of wheat bran decreases, the quantity of bread that firms plan to sell decreases, then wheat bran and bread are _______. A. normal goods B. inferior goods C. substitutes in production D. complements in production
D
If the consumption of a good or service by one person does not decrease the consumption by another person, the good or service is A. nonexcludable. B. free. C. pure. D. nonrival.
D
Producer surplus is the _____ a good or service, in excess of the _____ of producing it, summed over the quantity produced. A. total revenue from; total cost B. marginal benefit from; variable cost C. price of; fixed cost D. price of; marginal cost
D
The U.S. government released the Fourth National Climate Assessment Report on November 23, 2018. One of the report's findings is that greenhouse gases from industrial production are a leading cause of climate change, which is expected to cause billions of dollars in lost productive activity and property destruction in coming years. Given this information, how does economic theory characterize climate change? A. A variable cost of industrial production that contributes to a negative consumption externality. B. A fixed cost of industrial production that is part of achieving an efficient market equilibrium. C. An external marginal cost of production that contributes to a positive production externality. D. An external marginal cost of production that contributes to a negative production externality.
D
The pollution created when coal is burned by utilities to generate electricity is an example of ________. A. a cost paid by the utilities B. a welfare cost C. a marginal benefit to coal producers D. an external cost
D
The supply of apples in the short run will be ______ than the supply in the long run and ______ than the supply today. A. less elastic; less elastic B. more elastic; less elastic C. more elastic; more elastic D. less elastic; more elastic
D
The supply of oil is more elastic than the demand for oil. If oil is taxed $10 per barrel, how will the tax be divided between the buyers and sellers? A. The sellers and buyers will split the tax evenly. B. The sellers will pay the entire tax. C. The sellers will pay more of the tax than the buyers. D. The buyers will pay more of the tax than the sellers.
D
The free-rider problem can arise when consumption of a good is A. excludable B. nonrival but excludable C. rival D. non-excludable
D
What is marginal external benefit? Marginal external benefit is the benefit from an additional unit of a good or service that _______. A. the producer of that good or service receives B. the entire society receives C. the consumer of that good or service enjoys D. people other than its consumer enjoy
D
When a timber mill makes logs from trees it also produces sawdust, which is used to make plywood. a. Explain how a rise in the price of sawdust influences the supply of logs. A rise in the price of sawdust _________. A. decreases the quantity of logs supplied B. increases the quantity of logs supplied C. decreases the supply of logs D. increases the supply of logs
D
When the price of a gallon of gasoline falls by 2 percent, Tony increases the quantity he buys by 5 percent. Tony's expenditure on gasoline _______. A. remains the same B. increases, decreases, or remains the same depending on how much driving he plans to do that week C. decreases D. increases
D
When the price of tomatoes rises from $3 per pound to $4 per pound, the quantity of tomatoes sold decreases from 15 pounds to 10 pounds. Total revenue _____, and using the total revenue test, we can determine that the demand for tomatoes is _____ . A. decreases by $5; inelastic B. initially is $45; unit elastic C. equals quantity sold divided by price; elastic D. decreases from $45 to $40; elastic
D
Which of the following assumptions is NOT required for a market to operate efficiently? A. Sellers must be maximizing profit. B. Consumers must be maximizing utility. C. Both the sellers and the buyers must have full information about the product. D. The price of the product must be fair to all potential buyers.
D
Which of the following items is an example of a public good? A. a car B. fish in the Atlantic ocean C. cable television D. the legal system
D
Which of the following items is an example of an excludable and rival good or resource? A. street lighting B. Golden Gate Bridge C. the Brazilian rainforest D. a DVD
D
Which of the following statements describes a change in the quantity supplied and which describes a change in supply? I Farms are selling less chicken because the price of turkey has increased. II Farms are selling less chicken because the price of chicken has fallen. III Farms are selling more chicken because the price of chicken has risen. IV Farms are selling more chicken because the cost of chicken feed has fallen. A. I, II, and III are changes in the quantity supplied and IV is a change in supply B. I, II, and III are changes in supply and IV is a change in the quantity supplied. C. I is a change in the quantity supplied and II, III, and IV are changes in supply. D. I and IV are changes in supply and II and III are changes in the quantity supplied.
D
Why is a common resource overused? A common resource is overused because _______. A. the marginal social benefit from using a common resource increases as more of the resource is used B. producers know that eventually the government will impose production quotas C. the marginal cost of using a common resource remains constant D. producers consider their own private cost but not the cost they impose on others
D
What is Producer surplus?
Payment of good plus the MC of a good
With production externalities, ...
SMC = PMC + EMC MC = Producer's supply --> PMC = sum of MC for all producers --> EMC = cost external to producers cost --> SMC = PMC + EMC
substitutes in production
Negative price relationship -produce less when other price rises -make fewer sweaters when the price of scarves rise -make fewer scarves when the price of sweaters rise
range of normal/inferior goods and elastic/inelastic
Normal goods: positive (>0) normal and income elastic: > +1 normal and income inelastic: >0 and <+1 inferior goods: negative (<0)
Scarcity
Our inability to get everything we want is
The price at which sellers are not willing to supply a good is $200 per unit. As the quantity supplied of the good increases by one unit, the minimum price at which someone is willing to sell that unit increases by $8. What is the equation of this supply curve?
P = 200 + 8QS
A demand curve passes through the point (0,250) and has slope equal to -25. The equation of the demand curve is _______.
P = 250 -25QD
The supply curve passes through the point (0,350) and has slope equal to 20. The equation of the supply curve is _______.
P = 350 + 20 QS
The y-axis intercept of the supply curve is 40 and the slope of the supply curve is 9. The equation of the supply curve is _______.
P = 9QS + 40
%Q(d) = %P
P(e)=1 unit elastic demand
The price at which no one is willing to buy a good is $80 per unit. As the quantity demanded of the good increases by one unit, the maximum price that someone is willing to pay for that unit decreases by $4. What is the equation for this demand curve?
P= 80-4QD
what is the producer surplus equation?
PS = Payment - MC (1/2)(B)(H)
Price elasticity and revenue
Price quantity sold = total revenue
what are the four types of externalities?
Production externalities Positive (decrease MC) Negative (increase MC) Consumption externalities Positive (increase MB) Negative (increase MC)
what are the characteristics of private goods?
Rival and Excludable -rival: consumption or use by one person decreases the consumption available for others -excludable: consumption or use can be prevented or blocked
Why do price change?
Role of prices -price as regulator -the invisible hand -allocation of resources Market equilibrium -MB=MC -Quantity P = Quantity S
when is the market efficient?
SMB = PMB + 0 SMB = PMB +EMB
what happens with no consumption externalities?
Social Marginal Benefit (SMB) = market demand with some consumption externalities SMB = Private MB + External MB smoking = negative EMB education =positive EMB
what are a few examples of non-excludable goods?
Street lamps, roads, river water
If no production externalities, social marginal cost equals?
Sum of Supplier's MC MC = Producer's supply --> Private Marginal Cost = sum of MC for all producers --> SMC = Market Supply
What is market clearing (equilibrium)
Supply does not demand -quantity supplied = quantity demanded -marginal benefit = marginal cost -price paid = price received
Marginal Benefit
The benefit that arises from an increase in an activity
Marginal Cost
The opportunity cost of an increase in an activity
what is mixed economy?
a combo of market forces and central authority allocates resources -the economy majority of countries utilize
what is a good?
a product or service that is valued by society Production: goods (cars, poison gas, AK47) and services (Teaching, tour guide)
When Alex's income increased from $3,000 to $5,000, he increased his consumption of bagels from 4 to 8 a month and decreased his consumption of donuts from 16 to 10 a month. Calculate Alex's income elasticity of demand for bagels and donuts. A. Alex's income elasticity of demand for bagels is ______ B. Alex's income elasticity of demand for donuts is _______
a. 1.33 b. -0.92
How do you get an opportunity cost?
accounting cost + implicit cost
tradeoff
an exchange—giving up one thing to get something else.
how do you find the slope of the elasticity curve?
average of price/average of quantity
what are a few examples of excludable goods?
bottled water, lamps, toll roads
how does allocative efficiency work/relate to the PPF?
decreasing marginal benefit from consuming another cake increasing marginal cost from producing another cake
What are the determinants of the market demand for a good?
consumer preferences --> income (normal goods, inferior goods) --> price of related goods (substitutes, complements) --> market size --> expectations about the future
what are the characteristics of demand?
consumers, willingness to pay, maximize utility, constrained by a budget, marginal benefit, decrease in price (consumers willing to buy larger quantity)
what are a few examples of rival goods?
cookies, movie seats
p(e) is greater than 1?
elastic demand
what is a subsidy?
government uses its money to give back to marketplace
how does a 1% price change affect unit elasticity?
increase quantity by 1% (some TR)
how does a 1% price change affect inelasticity?
increase quantity by less than 1% (TR decreases)
how does a 1% price change affect elasticity?
increase quantity by more than 1% (TR increases)
what could change the location of the PPF?
increase time of production, the demand, more materials, increase efficiency, technology
If Isobel moves from point A to point C, her opportunity cost of a desk _______.
increases
P(e) is between 0 and 1?
inelastic demand
what is always true about the elasticity of supply?
it is always positive because supply slopes upward
Evolution of the economy
market efficiency government policy market failures market organization
what is a pure market economy?
market forces of supply and demand allocate resources through the price mechanism -not common at all, doesn't happen
what are compliments?
negative price relationship, buy less than other price rises, buy less sugar when price of coffee increases, vice versa
what are the characteristics of public goods?
non-rival and non-excludable non-rival: consumption or use by one person does not decrease consumption available for others non-excludable: consumption or use cannot be prevented or blocked
how are normal and real income different?
normal income does not change when a price decreases real income increases when a price decreases
what are the components of the economy?
opportunity cost elasticity supply and marginal cost demand and marginal benefit
range of elasticity of supply in absolute value
perfect inelasticity supply = 0 inelastic supply < 1 unit elastic supply = 1 elastic supply > 1 perfect elastic supply = infinity i.e. airline travel 5.82 meats 1.62 food 0.12
the demand for a good that has a perfect substitute?
perfectly elastic
Q(d) changes insanely with a small price change?
perfectly inelastic demand
Quantity demanded constant with price change?
perfectly inelastic demand
range of elasticity of demand in absolute terms
perfectly inelastic demand = 0 inelastic demand < 1 unit elastic demand = 1 elastic demand > 1 perfectly elastic demand = infinity I.e. furniture = -1.266 cars = -1.14 clothing = -0.64 food = -0.12
what are the characteristics of supply?
producers, willingness to supply, maximize profit, contained by cost, marginal cost, increase in price (producers willing to supply larger quantity)
Demand vs. quantity demanded
quantity: the entire relationship between price and quantity for a good, a set of prices/quantities that consumers are willing to buy quantity demanded: a specific amount at a specific price (i.e. 700 bags were bought at a price of $0.75
what are the characteristics of common resources?
rival and non-excludable
what is the difference between supply and quantity supplied?
supply: the entire relationship between price and quantity for a good; a set of prices/quantities that firms are willing to offer quantity supplied: a specific amount at a specific price (i.e. 700 bags were sold at price of $0.25)
what could change the shape of the PPF?
technology, equipment
Consumer surplus is ...
the difference between MB of consumption of consumers minus what they pay for the good. what is leftover is the surplus
If the income elasticity of demand is negative, ...
the good is an inferior good
Opportunity cost
the highest-valued alternative that must be given up to get it. - actual expenditure for a consumption good or resource
because a positive change in price brings a negative change in quantity demanded, ...
the price change is negative
if the demand curve is steep, ...
the quantity demanded of a good is not very responsible to a price change
if the demand curve is almost flat, ...
the quantity demanded of a good is very responsive to a price change
Accounting cost
things that you pay for (tuition, a car)
Implicit cost
things that you're giving up (wages when you could be working) -next best alternate use of resources
What if MSB does not equal MSC?
underproduction is when MSB > MSC overproduction is when MSC > MSB
when is the quantity efficient?
when Marginal cost equals Marginal benefit
when is demand elastic?
when the absolute value of the elasticity is greater than 1
when is demand inelastic?
when the absolute value of the elasticity is less than 1
what are a few examples of non rival goods?
wifi
