Microeconomics 103

The figure shows the market for avocados. If the seller changes the price per avocado from $1.50 to $1.75, the change in total revenue is:

$12,750

Which of the following would change market demand curves without shifting individual demand curves?

The number of buyers

Market failure occurs when market forces lead to:

an inefficient outcome.

In the long run, a company can remain profitable only if:

barriers to entry are present.

The term "gains from trade" means the

benefits that come from reallocating resources, goods, and services to better uses.

According to the figure, if there is international trade in this market, and the world price of televisions is $500:

domestic consumers will import 30,000 units.

If income rises by 20% and the quantity demanded of an item falls by 20%, the income elasticity of demand for this item is:

-1.

The price of product A is cut by 30%. As a result, the quantity demanded of product B rises by 40%. The cross-price elasticity of demand between product A and product B is _____, and they are _____.

-1.33; complements

The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____.

0.4; inelastic

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

0.5

The price of milk at the local grocery store is cut by 15%, and the quantity of milk demanded increases by 10% in response. What is the absolute value of the price elasticity of demand for milk?

0.67

Factors that shift the individual and market demand curve

1. Income. 2. Preferences. 3. Prices of related goods. 4. Expectations. 5. Congestion and network effects.

What causes economic growth?

1. an increase in factors of production 2. better technology

Suppose your marginal benefit of your first cup of coffee is $4, of your second is $3, and of your third is $2. If the price of coffee is $3, how many cups of coffee will you buy?

2 cups

The table lists the minutes that it will take four persons to wash a car and to sort and fold a load of laundry. Use the data to answer the question.

2.4 loads of laundry will not be sorted and folded.

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs?

2.7

Suppose you and your 99 classmates all have identical marginal benefits for coffee: the marginal benefit of the first cup is $4, of the second is $3, and of the third is $2. If the price of coffee is $3, what is the quantity demanded in the market?

200 cups

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

2; substitutes

According to the figure, if there is international trade in this market, and the world price of engines is $1,000, domestic consumers will purchase _____ units from domestic producers and _____ units from foreign producers.

400; 0

A quota of 25 units is placed on the market that is shown in the figure. The equilibrium quantity sold in the market before the implementation of the quota was _____ units.

50

In the graph of the soft drink market shown here, the original equilibrium price is $2.50 per bottle. A tax is then placed on the sellers of soft drinks. The incidence of the tax on the buyer is ____ % and the incidence of the tax on the seller is _____ %.

50, 50

Which of the following lists only factors that would cause a decrease in the demand for a good?

A decrease in popularity of a good; a rise in income (if the good is an inferior good); a fall in the price of a substitute good.

Price Ceiling

A maximum price that sellers can charge.

Price Floor

A minimum price that sellers can charge.

Binding price ceiling

A price ceiling that prevents the market from reaching the market equilibrium price.

Binding price floor

A price floor that prevents the market from reaching the equilibrium price.

Which of the following would decrease the quantity demanded (move along the demand curve)?

An increase in the current price

If Brazil imposes a tariff on imported American oranges, who would benefit the most?

Brazilian orange growers and the Brazilian government.

If the United States and China entered into a free trade agreement, abolishing all tariffs and quotas, who would benefit and who would lose in the United States?

Consumers of Chinese imports would win; American workers competing against Chinese goods would lose.

The cross-price elasticity of demand measures how responsive the:

Demand for one good is to a change in the price of another good.

Diminishing marginal benefit

Each additional item yields a smaller marginal benefit than the previous item.

When the absolute value of the price elasticity of demand is greater than 1, demand is:

Elastic

Use the graph for the watermelon market to answer the question.

Five watermelons

Producers of hand-made leather wallets have made manufacturing changes that have improved quality but reduced efficiency. Which graph shows this change in the market?

Graph C

Tropicana produces both orange juice and lemonade. What will happen to the supply of Tropicana orange juice when the price of lemonade rises in the market and the price of orange juice stays the same?

Graph C

Dell and Apple are competitors in the computer market. Which graph illustrates the effect of a rise in the price of Dell computers on the demand for Apple computers?

Graph D

When the absolute value of the price elasticity of demand is less than 1, demand is:

Inelastic

If demand is _____, a higher price yields _____ total revenue.

Inelastic; higher

While in quarantine, many people started to bake which increased the demand for flour. How did this change in preferences effect demand for flour?

It caused the demand curve to shift right

Theory of Comparative Advantage

It makes sense to produce the things you're especially good at producing... and buy everything else from others

Pedro attends a university that provides antivirus software to all students, faculty, and staff for their personal computers as well as all university-owned computers. Why would the university pay for the protection of the personal computers of students, faculty, and staff?

It reduces the number of viruses on university-owned computers by reducing the probability that viruses will spread through files transferred from personal computers to university-owned computers and systems.

Why does the demand curve slope downwards?

It slopes downward due to the law of demand.

The table provides data on how long it takes Maia and Juanita to mow the lawn and weed the flower beds.

Maia because she has a lower opportunity cost.

Mary loves avocados and must consume avocados every week, regardless of the price. Which of the following must be true?

Mary has an inelastic demand for avocados.

A company is the only one producing its type of product. The company's owner is able to set price at the most profitable level. This company is in what type of market?

Monopoly

Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes:

More elastic

When the absolute value of the price elasticity of demand is infinite, demand is:

Perfectly elastic

The price elasticity of demand for a good with a vertical demand curve is:

Perfectly inelastic

If an item is a necessity rather than a luxury, its demand curve will be:

Relatively steep

Taking the absolute value of the income elasticity of demand is incorrect because it would:

Remove the ability to tell whether the product is an inferior good or a normal good.

You are given data on four products — toothpaste, shampoo, soap, and laundry detergent. The absolute value of the price elasticity of demand for toothpaste is 4. The absolute value of the price elasticity of demand for shampoo is 0.2. The absolute value of the price elasticity of demand for soap is 0.5. The absolute value of the price elasticity of demand for laundry detergent is 2. Which product has the most inelastic demand?

Shampoo

Which of the following is an example of a price ceiling?

The FDA limits the price of a new high-blood pressure drug to $100 per pill

A new study discovers the health benefits of eating fish regularly. At the same time, some consumers decide to become vegetarians. What is the effect of these events on the equilibrium price and quantity in the fish market?

The change in both the equilibrium price and quantity is ambiguous.

Refer to the figure which shows the market for electrical components. Which of the following statements is correct?

The economic burden of this tax is greater on the buyer.

Congestion Effect

The effect that occurs when a good becomes less valuable because other people use it.

Network Effect

The effect that occurs when a good becomes more useful because other people use it.

If the United States were to export more of its supply of natural gas, what would happen to the price of natural gas in the United States?

The price of natural gas would rise in the United States.

Law of demand

The quantity demanded is higher when the price is lower -- holding other things constant.

Which of the following is an example of a negative externality?

When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors.

The individual demand curve follows the law of demand. This means which one of the following?

When the price of the good falls, its quantity demanded rises.

Which of the following is an example of a quota?

Which of the following is a quota?

Suppose Japan and South Korea can both produce the same amount of cars per worker, but Japan can produce more satellite dishes per worker. Does South Korea have a comparative advantage in either good?

Yes, South Korea would have a comparative advantage in producing cars.

If a Canadian lumber company can produce more plywood per worker than an American lumber company, should the United States export plywood?

Yes, if the United States' opportunity cost of producing plywood is lower than that of Canada.

Which of the following is a government subsidy?

Zach lives in the Bronx and goes to Baruch College in Manhattan. New York City gives him a free MetroCard every month for him to get from his home to his classes.

A tax designed to induce people to take account of the negative externalities that they cause is referred to as _____ tax.

a corrective

In the graph, the movement from point E to point F represents

a decrease in quantity supplied.

Efficient production occurs when:

a given level of output is produced at the lowest possible cost.

The graph depicts the market for furniture made from sustainable, man-made forests. The government wants to encourage buyers to buy such furniture and imposes a price ceiling of $250. What occurs as a result of the price ceiling?

a shortage of 400,000 pieces of furniture.

A negative externality is:

a side effect of an activity when the side effect harms bystanders.

In an oligopolistic market, the impact on a seller of the _____ is greater than in other types of market structures.

actions of other market sellers

The deadweight loss in an inefficient market is calculated by first identifying the:

actual quantity produced and sold.

Efficient outcomes in markets are NOT dependent on:

advanced technology.

A characteristic of monopolistic competition that is not present in any other market structure is that there

are many sellers and each produces its own version of the product.

A characteristic of perfect competition that is not present in any other market structure is that there

are many sellers that produce identical products.

A Korean-made washing machine purchased by a Chinese citizen is an example of a Korean _____, and a Chinese-made washing machine purchased by a Korean citizen is an example of a Korean _____.

export; import

Markets allocate goods to those with the:

highest marginal benefit.

An individual has a comparative advantage in producing a good or service if

his or her opportunity cost of producing the good or service is lower than for other people

Refer to the graph. Suppose that a binding price ceiling of $25 is removed. The actual number of items sold in this market will:

increase from 40 to 50.

When you get hired for a well-paying job, you will most likely view older used cars as

inferior goods.

Suppose the percentage change in newspapers demanded for any price change is infinite. The absolute value of the elasticity of demand for newspapers is _____, and demand is _____.

infinity; perfectly inelastic

A country has a comparative advantage in producing a good or service if

its opportunity cost of producing the good or service is lower than for other countries

The most efficient outcome in a set of options is the one with the:

largest economic surplus.

The figure shows four different supply curves for four products: A, B, C and D. Which one of the supply curves probably belongs to a seller who has a large stock of product available for sale?

product D.

Graphically, the equilibrium quantity can be identified as the:

quantity corresponding to the intersection of the demand and supply curves.

An equilibrium price is a price where the

quantity supplied equals the quantity demanded.

If a firm produces a product that has easily available variable inputs, its supply curve will be:

relatively flat.

The law of demand refers to

the inverse relationship between price and quantity demanded.

Economic surplus measures the value of a decision's:

total benefits minus its total costs.

All three major music streaming services: Spotify, Apple Music, and Pandora charge $9.99 a month for ad free streaming. A startup enters the market with a comparably sized music library and features. It announces that it will charge a monthly subscription fee of $19.99.

The startup's subscription fee is too high compared to its competitors. Consumers are likely to subscribe to another streaming service instead of the startup which will cause the startup to lower its price.

Why are supply curves typically upward-sloping?

They slope upward because higher prices lead individual businesses to supply a larger quantity and more businesses are willing to supply goods and services.

Economic surplus

total benefits minus the total costs flowing from a decision

Two products have a cross-price elasticity of demand of 1.5. Based on this value of cross-price elasticity, which of the following products are they most likely to be?

two competing brands of soft drinks

When market power is a significant force in a product market, the market tends to _____ compared to a market where there is no market power.

underproduce

The percent change in insulin demanded for any price change is zero. The demand curve for insulin is _____, and the price elasticity of demand is _____.

vertical; perfectly inelastic

Opportunity Cost

what must be given up in order to get a good