Micro midterm 1

2. If action A makes you better off and me worse off, before action A is undertaken the allocation is A) There is not enough information to tell whether the allocation is efficient before A is undertaken. B) Efficient C) Inefficient

There is not enough information to tell whether the allocation is efficient before A is undertaken.

13. Jeanette is willing to pay $100 for the first pair of shoes, $80 for the second pair, $55 for the third, and $30 for the fourth. If each pair costs $50, Jeanette will buy ______ pairs of shoes and her total consumer surplus from the shoes is ______. A) 3; $85 B) 4; $85 C) 3; $235 D) 3; $150

A) 3; $85

31. Which of the following options best defines and captures what an economist means by constraints. A) Constraints limit us; they limit what we can and cannot do B) Constraints affect one's love life C) Constraints are things that are out of our control D) Not having enough money is everyone's constraint

A) Constraints limit us; they limit what we can and cannot do

35. Which one is NOT characteristic of market equilibrium? A) It is always efficient as well as equitable. B) Given the price, neither consumers nor producers want to change their behavior. C) The quantity demanded is equal to the quantity supplied. D) There is no motivation for price to change.

A) It is always efficient as well as equitable.

14. The United States has which type of economic system? A) Mixed Economy B) Command and Control Economy C) Market Economy D) None of the above

A) Mixed Economy

47. I have a debit card with $20 left in the account, and, for some reason, the $20 will disappear from the account by tomorrow morning if it is not spent today. My first choice is to hit the bars tonight and spend the $20 on drinks. My second choice is to stay home, veg and buy nothing. Is the opportunity cost of my going out tonight necessarily $20 or more? A) No B) Yes

A) No

33. All else equal, if the price of chocolate bars in Boulder increased_______ A) The amount of chocolate bars supplied in Boulder would most likely increase. B) The amount of chocolate bars supplied in Boulder would most likely decrease. C) It must have been due to an increase in the price of inputs. D) None of the above.

A) The amount of chocolate bars supplied in Boulder would most likely increase.

Aspen, if wood-burning fireplaces and stoves are unregulated there will be too much smoke from an efficiency point of view: Aspen is a box canyon and the smoke has nowhere to go. The city government is considering requiring permits for wood-burning devices. Which of the following narratives is, in Edward's view, both correct and most informative? A) This is an example where a binding quota, achieved by requiring but limiting the number of permits, can increase efficiency (achieves the efficient number of wood-burning devices) rather than causing inefficiency. B) When equilibrium is achieved in the market for permits those with the highest WTP for permits will hold all of the permits. C) The city government can correct the inefficiency by requiring a permit/medallion for each wood-burning device. D) Without government intervention the market is failing.

A) This is an example where a binding quota, achieved by requiring but limiting the number of permits, can increase efficiency (achieves the efficient number of wood-burning devices) rather than causing inefficiency.

19. Is the following statement true or false? "General Electric (GE) is a large centrally planned economy."

A) True

20. The market for corn is currently in equilibrium. Which of the following is most likely to increase the equilibrium price of corn? A) increasing production of corn-based ethanol B) decreasing household incomes and corn is a normal good C) a subsidy given by the government to growers of corn D) a bountiful harvest

A) increasing production of corn-based ethanol

49. A minimum price set above the equilibrium price is a: A) price floor. B) demand price. C) price ceiling. D) supply price.

A) price floor.

45. A shift to the left of a supply curve (price on the vertical axis) could be caused by A) An increase in the number of buyers B) An increase in the cost of an input C) A technological improvement D) An increase in the number of sellers

B) An increase in the cost of an input

36. Binding quotas on the amount of a good that can be produced necessarily cause inefficiency. A) True B) False

B) False As our wood-burning stove example demonstrates. In chapter 5 the binding quota example caused inefficiency. But a binding quota can also be used to correct a market failure.

30. Is the following statement correct or incorrect? "George consumes less of good A than does Fred, so Fred likes good A more than George does." A) True B) False

B) False Maybe Fred consumes more simply because he is wealthier.

26. In a two commodity world, specialization in production can always lead to an increase in the production of at least one of the commodities, with no decrease in the production of the other commodity. A) True B) False

B) False There is nothing to be gained from specialization if no one as a comparative advantage.

28. Which statement is false? A) A good's marginal value curve traces out WTP for each additional unit of that good. B) If an individual buys a house, his WTP for the house equals the price. C) The inverse demand curve (price on the vertical axis) is the marginal value curve for each unit of the commodity. D) If an individual has a negative WTP for one more unit of a commodity, consumption of the unit will make the individual worse off.

B) If an individual buys a house, his WTP for the house equals the price.

4. Which of these two statements is correct? A) The opportunity cost of activity A is always expressed by units of activity A B) The opportunity cost of activity A in terms of activity B is the inverse of the opportunity cost of activity B in terms of activity A. A) Only A B) Only B C) Both A and B D) Neither A nor B

B) Only B

16. Which is the best definition of a market failure? A) The unregulated market equilibrium is inefficient B) Production and consumption of some goods have direct negative effects on other producers and consumers C) Prices are too high D) Government intervention in the market place is causing inefficiency B)

B) Production and consumption of some goods have direct negative effects on other producers and consumers

I have $20 in my pocket and it will still be there in the morning if I do not spend it tonight. My first choice is to go out tonight and spend the $20 on drinks. I know if I go out drinking I will not get in a fist fight with my roommate. I know I will fight him if I stay home. My second choice is to stay home, spend the $20 on pizza and some music downloads, and fight my roommate. Note that I do not like getting in fights with my roommate. Given all this, the opportunity cost of my going out, measured in dollars, is less than $20 A) False B) True It is $20 plus the fight, which is a negative. This was in the notes and we went over it in class

B) True It is $20 plus the fight, which is a negative. This was in the notes and we went over it in class

42. Peanut butter and jelly are complements. If there is a decrease in the price of jelly, producer surplus in the peanut butter market: A) will decrease or stay the same. B) may change, but it is impossible to tell if it will increase or decrease. C) will increase or stay the same. D) will not change.

C) will increase or stay the same.

39. In many parts of the United States when Wal-Mart opens a new store, some smaller retailers go out of business. One of the reasons for this development could be that: A) consumers in those areas receive no consumer surplus from Wal-Mart. B) consumers in those areas receive a larger consumer surplus from shopping at Wal-Mart than from the smaller stores. C) smaller stores increase prices to compete. D) Wal-Mart practices unfair pricing methods that reduce consumer surplus over time.

B) consumers in those areas receive a larger consumer surplus from shopping at Wal-Mart than from the smaller stores.

22. Black markets may develop with price controls because: A) individuals cannot profit by illegal exchanges. B) individuals can profit by illegal exchanges. C) quantity demanded equals quantity supplied at the mandated price. D) price controls increase efficiency.

B) individuals can profit by illegal exchanges.

44. Both Fred and George can buy as many Cuban cigars as they want at $5 a cigar. George buys 8/day, Fred, 3/day. George's consumer's surplus from cigar consumption A) is smaller than Fred's consumer's surplus from cigar consumption. B) might be smaller than Fred's consumer's surplus from cigar consumption. C) equals Fred's because they both pay $5/cigar. D) is larger than Fred's consumer's surplus from cigar consumption.

B) might be smaller than Fred's consumer's surplus from cigar consumption.

29. Imagine that the government has a fixed budget and can do only two things: provide units of health care or kill terrorists. For the level of health-care it is currently providing, the budget is exhausted, so no funds are left to hunt down and kill terrorists. Given all this, the government is efficiently allocating its budget between health care and killing terrorists. A) True B) False

BOTH

48. Justin and Aiden sell lemonade on the corner. It costs them 10 cents to make each cup. On a certain day, they sell 40 cups, all at the same price. Their producer surplus that day is $20. They sold each cup for _______. A) 40 cents B) 50 cents C) 60 cents D) 30 cents

C) 60 cents

9. George purchased a large chocolate shake from Dairy Queen. Now that he is two thirds finished, he is starting to feel full. George thinks to himself, "Should I take one more sip, or stop now?" This is an example of _______. A) Opportunity Cost B) Specialization C) A Marginal Decision D) None of the above

C) A Marginal Decision

24. In an attempt to reduce shooting deaths, some cities have offered money to people who turn in illegal guns. This program is an example of the government using ________ to influence behavior. A) Law B) the gains from trade C) Incentives D) marginal analysis

C) Incentives

15. Which is the correct statement regarding the demand curve (price on the vertical axis)? A) A horizontal demand curve represents inelastic demand. B) It is always downward sloping. C) It represents the relationship between price and quantity demanded. D) Quantity demanded is always a decreasing function of price. 16. Which

C) It represents the relationship between price and quantity demanded.

27. Joe was given a free ski-pass to Vail Mountain. If Joe lived in Vail he would have gone skiing 25 times during the season. However, since Joe lives in Boulder(approximately 100 miles away) he only went skiing 10 times. This illustrates a situation where _____. A) The supply of skiing is downward sloping B) Joe's demand for ski days as a function of distance is upward sloping C) Joe's demand for ski days as a function of distance is downward sloping D) None of the above

C) Joe's demand for ski days as a function of distance is downward sloping

34. If they spend all night writing computer programs, Laurence can write 10 programs while Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 while Carrie Anne can make 4. We know that: A) Laurence's opportunity cost of writing programs and of making sunglasses is less than that of Carrie Anne. B) Carrie Anne's opportunity cost of writing programs is less than that of Laurence. C) Laurence's opportunity cost of writing programs is less than that of Carrie Anne. D) Carrie Anne's opportunity cost of writing programs and of making sunglasses is less than that of Laurence.

C) Laurence's opportunity cost of writing programs is less than that of Carrie Anne.

8. For low-skilled workers in the country of South Africa, supply for low-skilled workers is greater than demand. This could be caused by. A) More workers wanting to work at the equilibrium wage than the number of workers the firms want to hire at the minimum wage. B) The law that says only those with a high-school education can work. C) The minimum wage set above the equilibrium wage. D) Low-skilled workers being poor, so wanting to work more at the equilibrium wage.

C) The minimum wage set above the equilibrium wage.

21. Which of the following events would cause a movement upward and to the left along the demand curve for mangos? A) The price of peaches decreases, and peaches are a substitute for mangos. B) The number of buyers of mangos decreases. C) The price of mangos rises. D) Consumer income decreases, and mangos are a normal good.

C) The price of mangos rises.

40. Which of the following is the best definition of an economic system? A) The family B) Supply and demand C) The process a society uses to determine what will be produced and how it will be distributed D) The market which determines what will be produced and how it will be distributed

C) The process a society uses to determine what will be produced and how it will be distributed

32. A new government study conclusively proves that smoking cigarettes significantly increases sex drive. Which of the following is the most likely result. A) The demand curve for cigarettes shifts left B) The demand curve for cigarettes is unchanged C) The supply curve for cigarettes is unchanged D) None of the above

C) The supply curve for cigarettes is unchanged

3. An economy is said to have a comparative advantage in the production of a good if it can produce that good: A) outside its production possibilities curve. B) with more resources than another economy. C) at a lower opportunity cost than another economy. D) with a higher opportunity cost than another economy.

C) at a lower opportunity cost than another economy.

1.A severe drought in California destroys many red grapes. As a result of the drought, consumer's surplus from the consumption of grape products likely _________. A) decreases because the profits of grape producers decline B) is unaffected but producer surplus declines C) decreases because the price of grapes goes up D) increases because more expensive wine tastes better

C) decreases because the price of grapes goes up

46. If you decide to go to Cancun with your friends during spring break, you realize you cannot go to Paris with your sister in the summer. This statement best represents the economic concept of: A) "how much?" is a decision at the margin. B) there are gains from trade. C) the real cost of something is what you must give up to get it. D) people usually exploit opportunities to make themselves better off. 47.

C) the real cost of something is what you must give up to get it.

41. Which of these statements are correct? A) A variable can be endogenous in one model and exogenous in a different model. B)The variables whose levels you want to explain in your model are called endogenous. C) The variables you want to include in your model, but not explain, are called exogenous. A) Only A B) Only B C) Only C D) A, B, and C are all correct

D) A, B, and C are all correct

5. Assume that Brazil gives up 3 automobiles for each ton of coffee it produces, while Peru gives up 7 automobiles for each ton of coffee it produces. A) Brazil has a comparative advantage in automobile production and specialize in the production of automobiles. B) Brazil has a comparative advantage in automobile production and should specialize in coffee production C) Brazil has a comparative advantage in coffee production and should specialize in the production of automobiles D) Brazil has a comparative advantage in coffee production and should specialize in the production of coffee

D) Brazil has a comparative advantage in coffee production and should specialize in the production of coffee

23. The domestic car industry supports a government increase in the "import" tax on imported (foreign) cars. What is the likely effect of such a tax increase? A) The supply curve for domestic cars shifts to the left. B) The demand curve for domestic cars shifts to the left. C) The supply curve for domestic cars shifts to the right. D) The demand curve for domestic cars shifts to the right.

D) The demand curve for domestic cars shifts to the right.

37. Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If Harley-Davidson raises the price that it charges for its motorcycles, we can expect: A) a shift to the left in the supply curve of Hondas and higher prices for Hondas. B) a shift to the left in the demand curve for Hondas and lower prices for Hondas. C) a shift to the right in the supply curve of Hondas and lower prices for Hondas. D) a shift to the right in the demand curve for Hondas and higher prices for Hondas.

D) a shift to the right in the demand curve for Hondas and higher prices for Hondas.

11. Economists believe that resources should be used as efficiently as possible to: A) reduce inequity. B) maximize profits. C) eliminate scarcity. D) help achieve society's goals. Efficiency and equity are different things. Scarcity just is; it

D) help achieve society's goals. Efficiency and equity are different things. Scarcity just is; it is not something that can be eliminated. The goal is not to maximize profits.

7. The existence of government intervention in markets suggests: A) individual actions have no side effects. B) equilibrium will be achieved through this intervention. C) markets can efficiently manage the allocation of goods. D) markets may not always achieve efficiency.

D) markets may not always achieve efficiency.

25. When the government removes a binding price floor: A) an excess supply would develop. B) an excess demand would develop. C) quantity demanded would decrease and quantity supplied would increase. D) quantity demanded would increase and quantity supplied would decrease.

D) quantity demanded would increase and quantity supplied would decrease.

12. If disequilibrium exists in a market: A) it must be because the government has intervened in the market, resulting in the market's failure to reach equilibrium. B) it will continue unless there is government intervention. C) no individual would be better off doing something different. D) there are opportunities available to people to make themselves better off.

D) there are opportunities available to people to make themselves better off.