Micro Test 1 Chegg

Roland produces nails at a cost of $200 per ton.If he sells the nails for $500 per ton, his producer surplus is

$300 per ton.

Josh is lost in the Nevada desert. He determinesthat he would be willing to pay $50 for a quart of cold Gatorade. He happensupon a lone grocery store / gas station, buys a quart of cold Gatorade, and realizesa consumer surplus of $45.00. What did he pay for the Gatorade?

$5.00

Tradable pollution permits

(i) and (ii) only.

According to the Coase theorem, private solutionsto externalities can occur when

(i) and (iv) only

Suppose than an increase in the price of carrots from $1.20 to $1.40 per pound raises the amount of carrots that carrot farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method which of the following is the price elasticity of supply?

1.86

On the production possibilities graph shown below,the opportunity cost to the economy of getting the additional gutters by moving from point A to point B is

10 buns

In the production possibilities graph shown below, what is the opportunity cost to society of the movement from point C to point A?

500 bananas

On the production possibilities graph shown, which point represents the maximum possible production of CDs for this economy?

A

Which of the following is the most correctstatement about tax burdens?

A tax burden falls most heavily on the side of the market that is inelastic.

On the production possibilities graph shown, which point or points are efficient?

A,B, and D

Whenever we talk of demand curves or movement along the demand curve,

All non-price determinants of demand are assumed to be constant

Buyers generally buy more of a good when,

All of the above

Rationing mechanisms that develop under price ceilings

All of the above

Technological Advancement

All of the above

Which of the following falls within the study of economics?

All of the above

Bill owns three acres of beautiful wooded land. When Bill decides to move away to be closer to his grandchildren, he donates the three acres of land to the state with the understanding that the land will be used as a state park that anyone may use without paying any fees. This state park

All of the above are correct.

When the absence of property rights causes amarket failure, the government can potentially solve the problem

All of the above are correct.

Positive Statements

Are descriptive. They make a claim about how the world is.

On the production possibilities graph shown, which point represents the maximum possible production of pizzas for this economy?

B

When a supply curve is relatively flat, then

Both (a) and (d) are correct.

What is true about the burden of a tax imposed onsellers of popcorn?

Buyers and sellers share the burden of thetax.

On the production possibilities graph shown, which point or points are inefficient?

E

Policies such as rent control, minimum wage laws, tariffs and import quotas persist in spite of the fact that economists are nearly united in their opposition to these policies. Which of the following is the best explanation for this situation?

Economist have not yet convinced or educated the public to the fact that the policies are undesirable

Neither public goods nor common resources are

Excludable but only common resources are Rival in consumption

In his 1776 book The Wealth of Nations, Adam Smith made the most famous observation in all of economics:

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes and an efficient use of scarce resources.

Market demand or the market demand curve for a particular good or service

Is the Sum of all the individual demands of demand curves for a particular good or service

Suppose that the demand for French breadincreases. What will happen to producer surplus in the market for French bread?

It increases.

Upon what does a country's standard of living depend?

Its ability to produce goods and services that people are willing and able to pay for

Suppose that John receives a pay increase. We would expect

John's demand for inferior to decrease

A worker in India can earn $10 per day making cotton cloth on a hand loom. A worker in the United States can earn $100 per day making cotton cloth with a mechanical loom. What accounts for the differences in wages?

Labor is more productive making cotton cloth with a mechanical loom than with a hand loom

Other things equal, when the price of a good falls, the quantity supplied of the good also falls. This is

Law of Supply

Free markets ration goods with

Price

In which of the following examples are property rights not well established

Private fishing companies rush to harvest whales in the ocean and corporations and households dump trash into open waterways and oceans

If Susan works an additional hour to help pay her college expenses,

She gives up an hour that she could have spent studying, exercising or doing something else of value

Normative Statements

Statements about what ought to be

________ suggests that under the right conditionsthe private market can be effective in dealing with externalities.

The Coase Theorem

Which of the following is not an advantage ofroad tolls as a way to reduce traffic?

The administrative costs of collecting the tolls are zero, especially for local country roads.

The only determinant of quantity demanded or quantity supplied is

The price of the good itself

A toll collected from each car traveling duringrush hour on a congested road is an effective correction to the Tragedy of theCommons for all of the following reasons except

The toll provides an incentive for commuters to drive more fuel-efficient cars.

A market economy rewards people according to

Their ability to produce things that other people are willing and able to pay for

Workers with high skills and much experience are not affected by the minimum wage because

Their equilibrium wages are well above the minimum wage.

When the price of a good or service changes

There is a movement along a given demand curve

Consider the following problems: Overcrowdedpublic highways, overfishing in the ocean, polluted air, and thenear-extinction of some wild animals. What do these problems have in common?

They are all the result of a failure to establish clear property rights over something of value.

Which is the best statement about the way economists study the economy?

They devise theories regarding human behavior, collect data, then analyze the data.

In economics, the adage, "There is no such thing as a free lunch," means:

To get something we like, we usually have to give up another thing we like

Which is the most accurate statement about trade?

Trade can make every nation or person involved better off

Which of the following is not correct

Trade is based on absolute advantage

Which of the following quotations illustrates the Tragedy of the Commons?

What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others.

In economics, the cost of something is

What you give up to get it

An overcrowded beach is an example of

a Tragedy of the Commons.

A tax on the buyers of popcorn will

a and b.

A perfectly vertical supply curve signifies that

a change in price will have no effect on quantity supplied

A market is

a group of demanders and suppliers of a particular good or service

Assume that the demand for salt is relativelyinelastic and that the demand for orange juice is relatively elastic. Theelasticity of supply is exactly the same for both goods. Imposing a tax on saltwill cause ________ total deadweight loss than imposing the same percentage taxon orange juice.

a lesser

In general, in economics elasticity is

a measure of much buyers and sellers respond to changes in market conditions, such as prices

the minimum wage is an example of

a price floor

Because elephants roam freely in many countriesin Africa, each individual African elephant poacher has

a strong incentive to kill as many elephants as he can find.

Economists tend to see ticket scalping as

a way of increasing the allocative efficiency of ticket distribution.

Adam Smith

all of the above

In a market economy,

all of the above

Price acts as

all of the above

trade can benefit society as a whole because it allows

all of the above

In most free markets,

all of the above are correct

Ceteris Paribus is the Latin phrase that literally means

all other things be equal

A binding price floor causes

an excess supply

A supply curve slopes upward because

an increase in price gives producers incentive to supply a larger quantity

When demand is price elastic in the current price range,

an increase in price would decrease total revenue because the reduction in quantity demanded is so great that it more than offsets the increase in price

If a good is a "normal good" then an increase in income will result in

an increase in the demand for a good

Suppose that scientists find evidence that proves a correlation between eating chocolate pudding and hair growth. It appears that the consumption of chocolate pudding increases hair growth in men who are balding. All else equal, we would not expect to see

an increase in the demand for chocolate pudding

If a decrease in income increases the demand for a good, then

an inferior good

Adam Smith (author of?)

an inquiry into the nature and causes of the wealth of nations (1776)

A perfectly elastic demand curve implies that

any rise in price above that represented by the demand curve will result in no output demanded

In free markets, landlords try to keep their buildings clean and safe because

appealing and desirable apartments command higher prices and may earn landlords higher profits.

David Ricardo

argued in favor of Britain following a free-trade policy by abolishing trade barriers with Europe

Producer surplus is

both b and c

When a tax is levied on a good

both buyers and sellers are economically worse off.

In a free market, what determines how much of a good will be sold and the price at which it is sold?

both producers-suppliers and consumer-demanders together

If a tax is imposed on a market with inelasticdemand and elastic supply,

buyers will bear most of the burden of the tax.

In the long run, the quantity supplied ,

can respond substantially to a change in price

The commercial value of ivory is a threat to theelephant, but the commercial value of beef is a guardian of the cow. This isbecause

cows are private goods, while elephants tend to roam freely without owners.

Suppose that you own a business that makes and sells jewelry boxes. A business consultant tells you that she has determined that you face an elastic demand for your jewelry boxes. If you want to increase your total revenue, assuming all other forces remain unchanged, you should

decrease the price of your jewelry boxes.

Internalizing a negative production externalitywill cause an industry to _________ the quantity it supplies to the market and________ the price of the good produced

decrease, increase

People who provide you with goods and services in a market economy

do so out of self interest because they get something in return

In the production possibilities graph shown below, the movement of the frontier from A to B can best be described as

economic growth

Economist generally support

free international trade (c)

Hikers frequently claim that livestock grazing inWilderness Recreation Areas reduces the satisfaction of their recreationalhiking experience. An explanation would be that

grazing cattle excrete negative externalities on the trail that make hiking less pleasant.

When externalities exist, buyers and sellers

have an incentive to neglect the external effects of their actions, and the market equilibrium is inefficient.

The price elasticity of supply measures

how much the quantity supplied of a good responds to changes in price of that good

If a good is a necessity, the price elasticity of demand for the good would tend to be

if the quantity demanded changes only slightly when the price of the good changes substantially.

Demand is said to be elastic

if the quantity demanded responds substantially to changes in the price of the good

Price elasticity of demand for a good would tend to be more price sensitive, or elastic,

inelastic

Suppose that the price of product X is reduced from $1.45 to $1.25 and, as a result, the quantity of X demanded increases from 2000 to 2200. The demand for X in the given price range

inelastic (midpoint method)

When the government prevents prices from adjusting naturally to supply and demand,

it impedes the invisible hand's ability to coordinate the millions of households and firms that make up the economy, adversely affecting the allocation of scarce resources

If the use of a common resource is not regulated,

it will be overused.

On hot summer days, electricity-generatingcapacity is sometimes stretched to the limit. At these times, electriccompanies may ask people to voluntarily cut back on their use of electricity.An economist would argue that

it would be more efficient if the electric company raised its rates for electricity at peak times.

An increase in the price of oranges would

lead to a movement up the supply curve for oranges

Economists use models in order to

learn how the economy works through the simplfying assumptions of the model

Taxes cause scarce resources to be allocateddifferently than those resources would be allocated by free markets. Taxesprovide incentives for consumers to consume ________ , and incentives forproducers to produce ________ than in free markets.

less; less

Positive externalities create a misallocation ofresources because

marginal social benefit exceeds marginal private cost at the level of output exchanged in private markets.

Negative externalities create a misallocation ofresources because

marginal social cost exceeds marginal private benefit at the level of output exchanged in private markets.

Economists use the concept of price elasticity of demand to

measure how much buyers respond to changes in the price of the good

Each of the following would be considered acommon resource except

national defense.

An externality exists when

one person's or group's actions affect the well-being of anotherperson or group.

The Ogallala aquifer is a large underground poolof fresh water under several western states in the United States. Any farmerwith land above the aquifer can at present pump water out of it. We mightexpect that

over time, the aquifer is likely to be overused.

The relationship between price and quantity supplied is:

positive or direct

The "invisible hand" directs economic activity through

prices and self-interest

If not internalized, a positive productionexternality will cause a market to

produce less than is socially desirable.

The benefit received by the sellers of a good ina market is measured by

producer surplus.

Markets do not ensure that the air we breathe isclean because

property rights are not well established for clean air.

Countries most often impose restrictions on freeforeign trade to

protect domestic producers.

Comparative advantage is based on

relative opportunity costs

Trade is based on

relative opportunity costs

If sellers respond substantially to changes in the price, then

sellers are considered to be relatively price sensitive and supply would be price elastic

If a tax is imposed on a market with elasticdemand and inelastic supply,

sellers will bear most of the burden of the tax.

A common theme among examples of market failureis

some item of value does not have an owner with the legal authority to control it or trade it in markets

If the quantity supplied responds only slightly to large changes in price, then

supply is said to be inelastic

The main reason for using the midpoint method to compute the coefficient of elasticity is

that it gives the same answer regardless of the direction of change in price and quantity

If wages in the U.S. are higher than in Mexico

the U.S. can still benefit from trade with Mexico

If Canada is better than the U.S. at producing beer, but the U.S. is better than Canada at producing hockey sticks

the U.S. should export and sell hockey sticks to Canada, and should buy imported Canadian beer

Consumer surplus is

the amount a consumer was willing to pay less the amount the consumer actually paid.

At the equilibrium price,

the amount sellers want to sell equals the amount buyers want to buy at that price

The loss in total surplus (economic welfare)resulting from a tax is called

the deadweight loss.

What will happen in the rice market if buyers are expecting higher prices in the near future?

the demand for rice will intensify

If the number of buyers in the market decreases,

the demand in the market will decrease

The term tax incidence refers to

the division of the tax burden between buyers and sellers.

Which of the following is a topic of study in microeconomics but not macroeconomics?

the impact of minimum-wage laws on employment in the fast food industry

A rational decision maker takes an action only if

the marginal benefit is greater than the marginal cost

Economists compute the price elasticity of demand as

the percentage change in the quantity demanded divided by the percentage change in price

Sometimes public policies have unintended and costly side effects on society because

the policies may alter private incentives in ways often overlooked by policy makers

In any market, total revenue is

the price of the good multiplied by the quantity of the good sold

Suppose that there is a binding price ceiling imposed on the market for peaches. At the ceiling price,

the quantity of peaches demanded will be greater than the quantity supplied

What would be the best statement about a theory based on assumptions which are not always true

the theory is nonethesless a good one if it helps us to better understand how the world works

When there is excess supply in a market,

there is a downward pressure on price

The downward-sloping demand curve reflects which of the following:

there is an inverse relationship between price and quantity demanded.

Scarcity exists when

there is less of a good or resource available than people wish to have.

What do rent control and communist central policy have in common?

they both directly control prices and adversely affect the allocation of resources

When government policy-makers set prices by legal decree,

they obscure the signals that normally guide the allocation of scarce resources to their highest and best uses.

Governments can grant private property rightsover resources that were previously viewed as public, such as fish orelephants. Why would governments want to do so?

to prevent overuse, underproduction, and achieve higher efficiency in resource use

A tax levied on the supplier of a product shifts the supply curve _________. A tax levied on the buyers of a product shifts the demand curve ___________.

upward or to the left; downward or to the left

Air pollution creates a negative externality. As such,

welfare will be enhanced when some, but not all, air pollution is eliminated.

The opportunity cost of an item is

what you give up to get that item

What is the law of demand?

when the price of a good falls, buyers respond by purchasing more, all else equal