Micro Econ Midterm

Alex, Kara, and Jules are the only three people in a community. Alex is willing to pay $40 for the third unit of a public good; Kara is willing to pay $25. If the marginal cost of producing the third unit is $100, what is the minimum amount that Jules must be willing to pay for it to be efficient for government to produce the third unit? Multiple Choice $100 $35 $65 The amount cannot be determined with the information provided.

$35

Alex was willing to pay $50 for the new World Cup soccer ball. When he received it as a gift, he was willing to sell it, but for no less than $80. According to behavioral economists, Multiple Choice Alex's behavior is consistent with the endowment effect. Alex's behavior is irrational because of inconsistent anchoring. Alex should sell the ball if he's offered any amount over $50. Alex's behavior is irrational because his frame has changed.

Alex's behavior is consistent with the endowment effect.

(Consider This) Which of the following statements about the so-called "hedonic treadmill" is not true? Multiple Choice It is the reason why people across a wide spectrum of incomes are found to be equally happy. A one-shot increase in income will, in the long run, not affect people's sense of satisfaction. An increase in consumption level will give a permanent increase in happiness. It is a consequence of the fact that our brains are wired to notice changes rather than states.

An increase in consumption level will give a permanent increase in happiness.

Which of the following will cause an outward parallel shift of the budget line? A. An increase in the prices of both goods B. A decrease in the prices of one of the goods C.A decrease in money income D. An increase in money income

An increase in money income

The circular flow model illustrates Multiple Choice A. how money is crested by the banking system. B. the importance of having a central plan for the economy. C. the interdependence of businesses and consumers. D. how capital and other resources ase created.

C. the interdependence of businesses and consumers.

(Last Word) The post hoc fallacy is the error of

Concluding that just because one event precedes another, the first firm must have caused the second.

Which of the following is true of an economy that operates entirely through central planning? Multiple Cholce A. The system adepts eesily to technological change, becouse there is a heathy entrepreneuriel spirit. B. There is relarive ease in manching resource allocation to consumer demand by the centrel planners. C. Central planners receive merket informetion and coordinate economic ectivity through the price mechanism. D. An individuel's success in business is based on political savvy rather than economic profitability

D. An individuel's success in business is based on political savvy rather than economic profitability

On the basis of the information, it can be said that Multiple Choice A. a coincidence of wants exists between Texas and Washington. B. a coincidence of wants exists between Michigan and Washington. C. a coincidence of wants exists between Michigan and Texas. D. no coincidence of wants exists between any two states.

D. no coincidence of wants exists between any two states.

The two basic markets shown by the simple circular flow model are Multiple Cholce A. competitive ond regulated. B. capital goods and consumer goods. C. household and business. D. product and resource.

D. product and resource.

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are Do and So, equilibrium price and quantity will be Multiple Choice E and B, respectively. G and B, respectively. F and C, respectively. F and A. respectively.

F and C, respectively.

Select the graph above that best shows the change in the market for gasoline, when the price of oil, which is used to produce gasoline, increases because of reduced production by major oil-producing nations. Multiple Choice Graph C Graph D Graph B Graph A

Graph D

Suppose that Dairy Barn Foods produces a regular sour cream with 10 grams of fat per serving and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving). According to prospect theory, how should Dairy Barn promote its "low fat" sour cream? Multiple Choice It should make no mention of fat content, either in absolute terms or relative to its regular sour cream. It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream. It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising. It should advertise that the "low fat" sour cream has only 5 grams of fat per serving.

It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream.

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers? Multiple Choice Stores try to make frequently purchased items quicker and easier for consumers to access. Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands. Those are the shelving locations that minimize costs. Many of these are small items that people will buy on an impulse.

Many of these are small items that people will buy on an impulse.

What do neoclassical economics and behavioral economics believe about giving people options? Multiple Choice Both believe that people are better off with fewer options, allowing them to spend more time calculating the benefits and costs of each available option. Both believe that people make better decisions when they are given a greater set of options. Behavioral economics focuses on providing more options; neoclassical economics focuses on helping people make more rational decisions with the options available. Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.

Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.

Neville buys a rare book for $100, the most he was willing to pay for the book. When presented with the opportunity to sell the book, behavioral economics would predict that Multiple Choice Neville would be willing to sell the book for less than $100 because of anchoring. Neville would have to receive more than $100 because of the endowment effect. any of these are possible outcomes. Neville would be fine selling the book for $100 because of the status quo bias.

Neville would have to receive more than $100 because of the endowment effect.

The graph above represents a competitive market for a product where the government now has introduced a price floor of C. Which area in the graph represents the producers' sales revenue after the imposition of the price floor? Multiple Choice OCEJ OBGK OCF

OCEJ

Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is

Pc/Pd

Which is most likely to be observed in a community where legal ceilings are imposed on residential rents? Multiple Choice Those whose needs for housing are most urgent will be able to obtain the space they want. People moving into the community will have difficulty locating residential space to rent. Poor people will be able to find adequate housing. Homeowners will reduce their own use of housing space, making more available to others.

People moving into the community will have difficulty locating residential space to rent.

Rafael receives an unexpected gift of $1,000, but then also receives an unexpected bill of $400. According to prospect theory, Multiple Choice Rafael will have a net utility loss. the net effect on utility is uncertain because of mental accounting. Rafael will have no net utility gain because the utility gain from the gift will be fully offset by the disutility from the bill. Rafael will have a net utility gain because he is $600 better off.

Rafael will have no net utility gain because the utility gain from the gift will be fully offset by the disutility from the bill.

Rafael receives an unexpected gift of $1,000, but then also receives an unexpected bill of $400. According to prospect theory, Multiple Choice Rafael will have no net utility gain because the utility gain from the gift will be fully offset by the disutility from the bill. the net effect on utility is uncertain because of mental accounting. Rafael will have a net utility gain because he is $600 better off. Rafael will have a net utility loss.

Rafael will have no net utility gain because the utility gain from the gift will be fully offset by the disutility from the bill.

Taran buys a jacket for $50 while traveling. Upon his return, Varjak, an acquaintance, comments how much they like the jacket and offers to buy it. What would we expect Taran to do, based on the endowment effect? Multiple Choice Refuse to sell the jacket because the perceived loss is too high. Sell the jacket to Varjak for $50. Sell the jacket to Varjak, but only if offered some amount sufficiently above what Taran paid for it. Sell the jacket to Varjak for less than $50 because of their relationship.

Sell the jacket to Varjak, but only if offered some amount sufficiently above what Taran paid for it.

Economic models do not reflect the full complexity of reality, but instead are based on

Simplifications

Talia learns that they will receive a $200,000 salary next year. According to prospect theory, Multiple Choice Talia will be happy with that amount regardless of what they have made in the past. Talia will be unhappy if they learn that co-workers with similar roles and experience will be making $250,000 next year. Talia should invest that money into assets with the greatest prospective returns. Talia will only be happy with that salary if their cost of living has not increased.

Talia will be unhappy if they learn that co-workers with similar roles and experience will be making $250,000 next year.

Which statement is true about supply? Multiple Choice Supply refers to the amount of inventory that sellers have in their warehouses. There is an inverse relationship between price and quantity supplied. As price decreases, producers are willing to put more of the good on the market for sale. To entice producers to offer more of a good on the market for sale, the price must rise.

To entice producers to offer more of a good on the market for sale, the price must rise.

The phrase "other things equal" means that

a number of relevant variables are assumed to be constant

Which of the following would not shift the demand curve for beef? Multiple Choice a change in the incomes of beef consumers an effective advertising campaign by pork producers a widely publicized study that indicates beef consumption increases one's cholesterol a reduction in the price of cattle feed

a reduction in the price of cattle feed

Refer to the table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $9, Multiple Choice a surplus of 20 units would occur. a shortage of 20 units would occur. the market would clear. demand would change from columns (3) and (2) to columns (3) and (1).

a surplus of 20 units would occur.

Refer to the production possibilities curve. At the onset of the Second World War, the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point

c to point b

The shift of the budget line from ab to cd in the figure could have been caused by which of the following. a. decrease in the prices of M and N by unequal proportions. b. proportional increases in the prices of both M and N c. an increase in money income. d. a decrease in money income.

c. an increase in money income.

A public good Multiple Choice can never be provided by a nongovernmental organization. costs essentially nothing to produce and is thus provided by the government at a zero price. can't be provided to one person without making it available to others as well. generally results in substantial negative externalities.

can't be provided to one person without making it available to others as well.

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a neoclassical economist would expect Susie to Multiple Choice eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future. carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat. give away most of her sugary treats in an effort to resist temptation. determine her fair share of the sugary treats available, and only eat those.

carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.

Refer to the market graph shown above. A black market where the price is $2.00 could result from a price Multiple Choice ceiling set at $2.50. ceiling set at $1.50. floor set at $2.00. floor set at $1.50.

ceiling set at $1.50.

"Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfil the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the Multiple Choice incentive problem under central planning. resource overcommitment problem under communism. coordination problem under central planning. self-sufficiency dilemma under communism.

coordination problem under central planning.

According to the concept of the "invisible hand," if Susie opens and operates a profitable childcare center, then Multiple Choice a. the profit Susle earns indicotes that she is overcharging for her services. b. this demonstrates that consumer sovereignty is not present in this market. c. govemment should regulate the business to ensure qualty. d. she has served society's interests by providing a desired good or service.

d. she has served society's interests by providing a desired good or service.

Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that Multiple Choice there is no way to determine what has happened to supply and demand with this information. the supply of and demand for clothing have grown by the same proportion. the supply of clothing has grown faster than the demand for clothing. demand for clothing has grown faster than the supply of clothing.

demand for clothing has grown faster than the supply of clothing.

Economists point out that the political process Multiple Choice is less prone to failure than is the marketplace. differs from the marketplace in that voters and congressional representatives often face limited and bundled choices. is a much fairer way to allocate society's scarce resources than is the impersonal marketplace, which is dominated by high-income consumers. always involves logrolling, which is inefficient.

differs from the marketplace in that voters and congressional representatives often face limited and bundled choices.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. If Xis an inferior good, a decrease in income will Multiple Choice decrease D, decrease P, and decrease Q. decrease D, decrease P, and increase Q. increase S, decrease P, and increase Q. increase D, increase P, and increase Q.

increase D, increase P, and increase Q.

Running shoes and staplers are Multiple Choice substitute goods. independent goods. Inferior goods. complementary goods.

independent goods.

A point outside (to the right of) the production possibilities curve of a nation:

is not attainable for this section

If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the near future, then this would cause a Multiple Choice movement up along the current supply curve of corn. movement down along the current supply curve of corn. leftward shift in the current supply of corn. rightward shift in the current supply of corn.

leftward shift in the current supply of corn.

"Pork-barrel" legislation that contains funding for hundreds of earmarks throughout numerous states often reflects Multiple Choice the paradox of voting. adverse selection. the benefits-received principle. logrolling.

logrolling.

Scientists studying human behavior have found that people tend to Multiple Choice always make rational decisions. make only random errors in their decisions. make systematic errors in their decisions. always make decisions that are not rational.

make systematic errors in their decisions.

An "increase in the quantity supplied" suggests a Multiple Choice movement down along the supply curve. leftward shift of the supply curve. rightward shift of the supply curve. movement up along the supply curve.

movement up along the supply curve.

The two main characteristics of a public good are Multiple Choice nonrivalry and large negative externalities. nonrivalry and nonexcludability. production at constant marginal cost and rising demand. nonexcludability and production at rising marginal cost.

nonrivalry and nonexcludability.

Behavioral economists believe that people Multiple Choice do not care about fairness, especially if it impairs their ability to get what they want. often succumb to temptation. make errors in decision making because of problems such as bad information, but such errors are random and generally not repeated by the same individual. assess current and future options equally well.

often succumb to temptation

Prospect theory is based on all of the following premises, except Multiple Choice people rationally calculate prospective gains and losses of a decision independent of context. people experience diminishing marginal utility for gains and diminishing marginal disutility for losses. people judge gains and losses relative to the status quo. people feel losses more intensely than equivalent gains.

people rationally calculate prospective gains and losses of a decision independent of context.

Refer to the provided supply-and-demand graph. S1and D1represent the current market supply and demand, respectively. S2 and D2 represent the socially optimal supply and demand. One way that the government could shift supply to its socially optimal level is to Multiple Choice tax the sellers. subsidize the buyers. provide the product.

provide the product.

Refer to the table. In relation to column (3), a change from column (1) to column (2) would mostly likely be caused by Multiple Choice consumers expecting that prices will be higher in the future. govemment subsidizing production of the good. on increase in input prices. reduced consumer tastes for the good

reduced consumer tastes for the good

The term "quantity demanded" Multiple Choice means the same thing as demand. refers to the entire series of prices and quantities that comprise the demand schedule. refers to the amount of a product that will be purchased at some specific price. refers to a situation in which the income and substitution effects do not apply.

refers to the amount of a product that will be purchased at some specific price.

Economists call the pursuit of extra profit or income by influencing government policies, Multiple Choice adverse selection. the benefits-received principle. rent-seeking behavior. the paradox of voting.

rent-seeking behavior.

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that Multiple Choice government should tax the producers of holiday lighting. the display creates negative externalities. resources are currently underallocated to the provision of holiday lighting in Anytown. resources are currently overallocated to the provision of holiday lighting in Anytown.

resources are currently underallocated to the provision of holiday lighting in Anytown.

Refer to the diagram. A decrease in supply is depicted by a Multiple Choice shift from S2 to S1 shit from Sy to 52 move from point y to point x. move from point x 10 point w.

shift from S2 to S1

The economies of North Korea and Cuba are Multiple Choice different in that Cuba has a command system, while North Korea has a merket system. different in that North Korea has a command system, while Cuba has a market system. similar in that they are both basically market systems. similar in that they are both basically command systems.

similar in that they are both basically command systems.

People's tendency to prefer the "default" option over other options is known in prospect theory as Multiple Choice the mental accounting effect. the anchoring effect. status quo bias. confirmation bias.

status quo bias

Behavioral economists suggest that brand loyalty, which can be a source of monopoly power for the producer, may be explained by consumers' tendency to have the Multiple Choice mental accounting effect. status quo bias. confirmation bias. anchoring effect.

status quo bias.

Refer to the figure above, which shows three supply curves for com. Which of the following would cause the supply of corn to shift from S1 to S2? Multiple Choice a decrease in consumer incomes, assuming com is a normal good a change in consumer tastes away from cornbread the development of a more effective insecticide against corn rootworm

the development of a more effective insecticide against corn rootworm

Economist John List has found that people who regularly buy goods for resale are less likely to be impacted by Multiple Choice anchoring. mental accounting. the availability heuristic. the endowment effect.

the endowment effect.

(Consider This) Kara was earning $40,000 per year. When her income rose to $60,000 per year, she enjoyed the higher level of consumption for a while, but eventually she was no more happy than when she earned $40,000 (assume prices didn't change over this time period). Economist Richard Easterlin described this as Multiple Choice irrational economic behavior. the hedonic treadmill. anchoring. the endowment effect.

the hedonic treadmill.

Graphically, the market demand curve is Multiple Choice steeper than any individual demand curve that is part of it. the vertical sum of individual demand curves. the horizontal sum of individual demand curves. greater than the sum of the individual demand curves.

the horizontal sum of individual demand curves.

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer Adidas soccer balls whose prices had remained the same. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls? Multiple Choice an increase in the demand for Nike soccer balls the income effect the income and substitution effects the price obstacle effect

the income and substitution effects

If there are external benefits associated with a good or service, Multiple Choice the market demand curve will underestimate the true demand curve. the market demand curve will be the vertical summation of the individual demand curves. consumers are paying for all these benefits. the market demand curve will overestimate the true demand curve.

the market demand curve will underestimate the true demand curve.

In a market where negative externalities exist, the equilibrium will not be efficient because Multiple Choice too many resources will be allocated toward producing the good. costs of production will, on average, be too high. firms will shut down until costs are reduced. too few resources will be allocated toward producing the good.

too many resources will be allocated toward producing the good.

Positive externalities lead to Multiple Choice overproduction and overallocation. underproduction and overallocation. overproduction and underallocation. underproduction and underallocation.

underproduction and underallocation.

The following graph is the production possibilities curve of a nation The total opportunity cost of 9 drill presses is

3 units of bread

Refer to the budget line shown in the diagram. Which of the following combinations of goods is unattainable for this consumer?

4 units of C and 6 units of D

(Last Word) Why do local governments compete and spend so much money to get corporations to relocate to their city? Multiple Choice The local governments know that the return on location subsidies is about 200 percent. Because they know from experience that corporations never go with their first choice but go where they receive the largest amount of money. The local governments know that 75 percent of corporate relocations depend on the money and tax breaks the corporation receives as its location subsidy. Because often the corporation brings with it high paying jobs and the spending of the new employees would greatly boost the economic prospects of established local businesses.

Because often the corporation brings with it high paying jobs and the spending of the new employees would greatly boost the economic prospects of established local businesses.

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a behavioral economist would expect Susie to Multiple Choice eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future. compute the caloric intake and calculate how many hours of exercise would be needed to burn off the calories from each treat. give away most of her sugary treats in an effort to resist temptation. carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.

eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future.

The market system is an economic system that Multiple Cholce produces more consumer goods then capital goods. produces more cepital goods than consumer goods. emphesizes the government's power to control markets and direct economic activity. gives private individuals the right to own resources used in production.

gives private individuals the right to own resources used in production.

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D1and S1. If there are substantial external benefits associated with the production of Z, then Multiple Choice consumers are paying too much for the good. a government subsidy for producers of Z would ensure that consumers are paying directly for all of the benefits they receive from Z. government can improve the allocation of resources by subsidizing consumers of Z.

government can improve the allocation of resources by subsidizing consumers of Z.

Attempts to pare down or eliminate bureaucracies in government Multiple Choice are necessary since the social problems that they were created to solve no longer exist. is not necessary because just like private firms, the government agency will go out of business if it is inefficient. have been successful in agriculture and health agencies but not education. have not been successful because bureaucrats and special-interest groups will team up to defeat them.

have not been successful because bureaucrats and special-interest groups will team up to defeat them.

Bucky and Satchel are offered identical jobs, each paying $80,000 per year. According to behavioral economics, Multiple Choice if Bucky's current income is $60,000 per year, and Satchel's is $70,000 per year, we would expect Bucky to receive twice as much additional utility from taking the job as Satchel would. they should feel equally good about the job offer. if the jobs will not change their income, they are more likely to switch jobs than remain with the status quo. how each will feel about the job offer will depend on their current positions and incomes.

how each will feel about the job offer will depend on their current positions and incomes.

Suppose that at prices of $1, $2, $3, $4, and $5 for product Z, the corresponding quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these prices? Multiple Choice an increase in the excise tax on product Z an increase in the prices of the resources used to make Z improved technology for producing Z increases in the incomes of the buyers of Z

improved technology for producing Z

The opportunity cost of providing public goods Multiple Choice only includes the cost of the labor used in the production of the public goods. is zero since the economy's resources are unlimited. includes the resources that are no longer available for the production of private goods. is incalculable since the government does not keep track of its spending.

includes the resources that are no longer available for the production of private goods.