Microeconmics

A bakery would be willing to supply 500 donuts per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 donuts. Using the midpoint method, the price elasticity of supply for donuts is about

1.63, and supply is elastic.

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that the opportunity cost of 1 chair is

1/5 table for Mike and 1/3 table for Sandy

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that the opportunity cost of 1 table is

5 chairs for Mike and 3 chairs for Sandy.

Kristi and Rebecca sell lemonade on the corner. It costs them 7 cents to make each cup. On a certain day, they sell 40 cups. Their producer surplus for that day amounts to $19.20. Kristi & Rebecca sold each cup for

55 cents.

Both Bill and Mary produce t-shirts and hats. If Bill's opportunity cost of 1 t-shirt is 4 hats and Mary's opportunity cost of 1 t-shirt is 3 hats, then

Mary has a comparative advantage in the production of t-shirts.

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

Price would fall, and the effect on quantity would be ambiguous.

Which of the following is not a function of prices in a market system?

Prices ensure an equal distribution of goods and services among consumers.

Which of the following statements is an example of a positive, as opposed to normative, statement?

Reducing emissions reduces days missed from school due to asthma.

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

TRUE

Evaluating normative statements involves values as well as facts.

TRUE

Positive statements are descriptive, while normative statements are prescriptive.

TRUE

Suppose you sell a kayak for $600, but you were willing to sell it for $450. The buyer was willing to pay $650. The total surplus is $200.

TRUE

Which of the following statements is correct?

Who actually pays a tax depends on the price elasticities of supply and demand.

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?

a decrease in the price of wool shirts and a decrease in the price of raw cotton

Elasticity is

a measure of how much buyers and sellers respond to changes in market conditions.

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes ceramic vases, but Regan is better at producing both goods. In this case, trade could

benefit both Jayson and Regan.

Based on the values in the table, the production possibilities frontier is

bowed outward indicating increasing opportunity costs.

The production possibilities frontier is a graph that shows the various combinations of output that an economy

can produce.

The incidence of a tax falls more heavily on

consumers than producers if demand is more inelastic than supply. producers than consumers if supply is more inelastic than demand. consumers than producers if supply is more elastic than demand.

A leftward shift of a supply curve is called a(n)

decrease in supply.

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

decreases, and producer surplus decreases.

A tax levied on the buyers of a good shifts the

demand curve downward (or to the left).

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

elastic and equal to 6.

An increase in the price of cheese crackers from $2.25 to $2.45 per box causes suppliers of cheese crackers to increase their quantity supplied from 125 boxes per minute to 145 boxes per minute. Using the midpoint method, supply is

elastic, and the price elasticity of supply is 1.74.

The law of demand states that, other things equal, when the price of a good

falls, the quantity demanded of the good rises.

In any economic system, scarce resources have to be allocated among competing uses. Market economies harness the forces of

supply and demand to allocate scarce resources.

The market for diamond rings is closely linked to the market for high-quality diamonds. If a large quantity of high-quality diamonds enters the market, then the

supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.

A improvement in production technology will shift the

supply curve to the right.

A tax levied on the sellers of a good shifts the

supply curve upward (or to the left).

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

supply of the product is more elastic than the demand for the product.

An alternative to rent-control laws that would not reduce the quantity of housing supplied is

the payment by government of a fraction of a poor family's rent.

Suppose Ashley needs a dog sitter so that she can travel to her sister's wedding. Ashley values dog sitting for the weekend at $200. Cami is willing to dog sit for Ashley so long as she receives at least $150. Ashley and Cami agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Ashley and Cami worse off by a total of

$10

Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two windows per hour or he can iron five shirts per hour. a. Susan has an absolute advantage over Paul in washing windows. b. Susan has a comparative advantage over Paul in washing windows. c. Paul has a comparative advantage over Susan in ironing shirts.

All of the above are correct.

If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins rises?

Both the equilibrium price and quantity would decrease.

What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income?

Consumer surplus may increase, decrease, or remain unchanged.

Which of the following products would be considered scarce? a. automobiles b. baseballs autographed by Babe Ruth c. pickles d. All of the above are correct.

D. All of the above are correct.

Which of the following would not result from all countries specializing according to the principle of comparative advantage?

Each country's production possibilities frontier would shift inward

"Other things equal, an increase in supply causes a decrease in price" is a normative statement, not a positive statement.

FALE

All else equal, a decrease in demand will cause an increase in producer surplus.

FALSE

If the government imposes a binding price floor in a market, then the consumer surplus in that market will increase.

FALSE

Suppose you buy an iPod for $100. If your consumer surplus is $30, your willingness to pay is $70.

FALSE

"Minimum wage laws result in unemployment" is a normative statement, while "the minimum wage should be higher" is a positive statement.

FASLE

If Korea is capable of producing either shoes or soccer balls or some combination of the two, then

Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls.

What would happen to the equilibrium price and quantity of lattés if the cost to produce steamed milk, which is used to make lattés, increased, and scientists discovered that lattés cause heart attacks?

The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous.

What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold?

The price change will be ambiguous.

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are many close substitutes for this good.

Trade between countries

allows each country to consume at a point outside its production possibilities frontier.

Which of the following might cause the supply curve for an inferior good to shift to the right?

an improvement in production technology that makes production of the good more profitable

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm A produces a monitor that Cassie buys but David does not, then the market outcome illustrates which of the following principles? (i) Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. (ii) Free markets allocate the demand for goods to the sellers who can produce them at the least cost.

ii

Equilibrium price must increase when demand

increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously.

When the supply of a good increases and the demand for the good remains unchanged, consumer surplus

increases.

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth

is more equal but less efficient for society.

A person can benefit from specialization and trade by obtaining a good at a price that is

lower than his or her opportunity cost of that good.

You know an economist has crossed the line from scientist to policy adviser when he or she

makes normative statements.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it:

maximizes the combined welfare of buyers and sellers.

Motor oil and gasoline are complements. If the price of motor oil decreases, consumer surplus in the gasoline market

may increase, decrease, or remain unchanged.

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price.

What must be given up to obtain an item is called

opportunity cost.

There is no shortage of scarce resources in a market economy because

prices adjust to eliminate shortages

A certain cowboy spends 10 hours per day mending fences and herding cattle. For the cowboy, a graph that shows his various possible mixes of output (fences mended per day and cattle herded per day) is called his

production possibilities frontier.

An increase in quantity demanded

results in a movement downward and to the right along a demand curve.

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?

slow replacement of old rental cars with newer ones

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

they choose not to trade with one another.

Who gets scarce resources in a market economy?

whoever is willing and able to pay the price

Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10, the cost of mowing the second lawn is $12, and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is

$30.

Assume for the United States that the opportunity cost of each airplane is 100 cars. Which of these pairs of points could be on the United States' production possibilities frontier?

(300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars)

Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes?

The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.