Microeconomics Ch 6 - 10

Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1-pergallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers. A) $0.25; $0.75 B) $0.50; $0.50 C) $0; $1.00 D) $0.75; $0.25

$0.75; $0.25

Andreas is a political consultant with his own firm. He travels the country and provides campaign advice for political candidates. Last year he earned $250,000 in revenue for his services. He pays one employee $50,000 to manage the small office back home and pays $25,000 on rent and utilities for that office. Andreas owns computing and office equipment that depreciated by $5,000 last year. His accountant tells him that if he were to sell all of the equipment, he could put that money in the bank and earn $3,000 in interest next year. Bill also has received an offer to teach political science at a college at a salary of $100,000. Bill's accounting profit is equal to ________ and his economic profit is equal to ________. A) $175,000; $67,000 B) $170,000; $67,000 C) $200,000; $72,000 D) $170,000; $70,000 E) None of the above.

$170,000; $67,000

After earning your BA, you have to decide whether to accept the offer of a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but in order to pay the remaining $22,000 per year, you would have to cash in savings bonds that your grandparents have given you that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA is: A) $67,500. B) $77,000. C) $99,000. D) $77,500.

$67,500

Suppose a local hardware store has explicit costs of $2 million per year and implicit costs of $44,000 per year. If the store earned an economic profit of $50,000 last year, this means that the store's accounting profit equaled: A) $94,000. B) $6,000. C) $2,050,000. D) $2,044,000.

$94,000

Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is: A) 1. B) greater than 1. C) 0. D) less than 1 but greater than 0.

A. 0.

An attorney supplies 40 hours of work per week when her fee is $100 per hour, but supplies 60 hours of work per week when her fee rises to $120 per hour. Using the midpoint formula, her elasticity of supply is equal to ________. A) 1 B) 0.8 C) 0.45 D) 2.2

A. 2.2

A hotel has a capacity of 100 rooms in the short run. Which of the following statements best describes the short-run elasticity of supply for rooms at this hotel? A) The supply is elastic at quantities above 100 rooms but inelastic at quantities below 100 rooms. B) The elasticity of supply is equal to 1 in the short run but infinitely elastic in the long run. C) The elasticity of supply is zero in the short run because the short-run supply curve is vertical. D) The supply is infinitely elastic in the short run but perfectly inelastic in the long run.

A. The elasticity of supply is zero in the short run because the short-run supply curve is vertical.

Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is: A) price elastic. B) price inelastic. C) price unit-elastic. D) perfectly price inelastic.

A. price inelastic.

If the price of chocolate-covered peanuts decreases from $1.10 to $0.95 and the quantity demanded increases from 190 bags to 215 bags, then the price elasticity of demand (using the midpoint method) is: A) 1.25. B) 0.5. C) 0.8. D) 2.

B. 0.8.

If the estimated price elasticity of demand for foreign travel is 4: A) a 2% decrease in the price of foreign travel will increase quantity demanded by 8%. B) the demand for foreign travel is inelastic. C) a 1% increase in the price of foreign travel will increase quantity demanded by 4%. D) a 2% increase in the price of foreign travel will increase quantity demanded by 8%.

B. a 2% decrease in the price of foreign travel will increase quantity demanded by 8%

If the United States removed all excise taxes on cigarettes, which of the following would NOT occur? A) a decrease in producer surplus B) an increase in producer surplus C) an increase in consumer surplus D) an increase in total surplus

B. an increase in producer surplus

Ian is such a big Braves fan that his benefit of seeing a Braves' game is $200. He pays $100 for a ticket to see one of their playoff games. Unfortunately, he left the ticket in his jeans when he laundered them and the ticket is destroyed. According to marginal analysis, Ian should: A) not go to the game. B) buy another ticket for $100 and attend the game. C) buy another ticket and attend the game only if he can buy the ticket for less than $100. D) watch the game on TV.

B. buy another ticket for $100 and attend the game.

If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered: A) inferior goods. B) luxury goods. C) substitute goods. D) complementary goods.

B. complementary goods.

Mexico is relatively labor-abundant when compared with the United States. Therefore, Mexico has a comparative advantage in _____ compared with the United States. A) all goods B) goods that are labor-intensive in production C) goods that are capital-intensive in production D) goods that are land-intensive in production

B. goods that are labor-intensive in production

It is very difficult for Julia to find inexpensive and available inputs for her business. Because of this, we predict that Julia's price elasticity of supply is: A) elastic. B) perfectly elastic. C) unit-elastic. D) inelastic.

B. inelastic.

The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is _____ in New Hampshire. A) perfectly price elastic B) price inelastic C) price unit-elastic. D) price elastic

B. price elastic

The university president believes that increasing student tuition by 5% will increase revenues. If the president is correct that revenues will increase, then the tuition increase will _____ the number of students enrolling by _____. A) reduce; exactly 5% B) reduce; more than 5% C) reduce; less than 5% D) increase; 5%

B. reduce; less than 5%

There is one gas station in a small rural town. The owner of the station claims that he will sell the same quantity of gas no matter how high or low the price. If he is correct in this assertion, the demand curve for gas at his station must be _____, with a price elasticity of _____. A) vertical; zero B) vertical; infinity C) horizontal; zero D) horizontal; infinity

B. vertical; zero

The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged? A) Total revenue will remain unchanged. B) Total revenue will fall. C) Total revenue will rise. D) Not enough information is given to answer the question.

C. Total revenue will rise.

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should: A) lower prices in each state. B) raise prices in each state. C) leave prices unchanged in South Carolina and raise prices in Alabama. D) lower prices in South Carolina and raise prices in Alabama.

C. lower prices in South Carolina and raise prices in Alabama.

The university hopes to raise more revenue by increasing parking fees. This plan will work only if: A) the price effect is larger than the quantity effect. B) the price effect is smaller than the quantity effect. C) the price effect and quantity effect are the same. D) there is no price or quantity effect.

C. the price effect is larger than the quantity effect.

Which factor is important in determining the price elasticity of supply? A) the time the producer has to adjust inputs and outputs B) the number of close substitutes C) the intensity of the need of consumers D) the number of alternative uses of the good

C. the time the producer has to adjust inputs and outputs

If a good has a price-inelastic demand, then which of the following is NOT likely to be characteristic of this good? A) It is a necessity and is relatively small proportion of the household budget. B) It has many substitutes. C) Consumers spend a small percentage of their income on it. D) Consumers do not have much time to adjust to market changes

D. It has many substitutes.

The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil. A) less than B) greater than C) equal to D) not comparable to

D. greater than

If the income elasticity for hybrid cars is positive: A) there are many substitutes for hybrid cars. B) there are few substitutes for hybrid cars. C) hybrid cars are a normal good. D) hybrid cars are an inferior good.

D. hybrid cars are a normal good.

To minimize deadweight loss, markets where demand is relatively _____ and supply is relatively _____ should be taxed. A) elastic; inelastic B) elastic; elastic C) inelastic; elastic D) inelastic; inelastic

D. inelastic; inelastic

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when your income increases from $19,000 to $21,000 a year, other things equal, then, for you, shoes are considered a(n): A) normal good. B) inferior good. C) complementary good. D) substitute good.

D. normal good.

Whenever ________, the decision maker should do ________ of the activity. A) MB < MC; the same amount B) MB < MC; more C) MB > MC; more D) MB > MC; none

MB > MC; more

Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax? A) Yacht builders will pay more. B) Yacht buyers will pay more. C) Yacht builders and buyers will pay equally. D) It's impossible to tell without additional information.

Yacht builders will pay more.

A tax on imports of foreign goods is called: A) a tariff. B) an import quota. C) a subsidy. D) an export restriction.

a tariff

If Japan levies tariffs on U.S. goods entering Japan, this will tend to: A) benefit both Japanese and U.S. producers. B) damage U.S. producers and benefit Japanese producers. C) benefit U.S. producers and damage Japanese producers. D) damage both Japanese and U.S. producers.

damage U.S. producers and benefit Japanese producers

Since the United States imports a large quantity of textiles from Asia, the overall wages of U.S. textile workers has _____, while the price of textiles in the United States has _____. A) decreased; decreased B) increased; decreased C) decreased; increased D) increased; not changed

decreased; decreased

An excise tax causes inefficiency if the number of transactions in a market is reduced as a result of the tax. Because the tax discourages mutually beneficial transactions, there is a(n) _____ from a tax. A) quota rent B) deadweight loss C) increased consumer surplus D) increased producer surplus

inelastic; inelastic

If the executives of the U.S. silicon chip industry lobby Congress for protection from imports on the grounds that theirs is a new industry that needs time to develop technological efficiency, they are using the _____ argument. A) environmental standards B) national security C) cheap foreign labor D) infant industry

infant industry

Chile has a comparative advantage over the United States in copper. Which of the following is a source of this comparative advantage? A) mild temperatures B) high tariffs on copper from other nations C) no opportunity cost associated with copper production D) large deposits of copper ore

large deposits of copper ore

If a country has the comparative advantage in producing cloth, in the market for cloth the autarky price would be _____ the world price and the country would _____ cloth. A) less than; import B) greater than; export C) less than; export D) the same as; export E) greater than; import

less than; export

In 2002, the steel industry argued that higher tariffs on steel were necessary to help fight the war on terrorism. This is an example of the _____ argument. A) infant industry B) national security C) job creation D) predatory pricing

national security

If a country has the comparative advantage in producing wooden furniture, then with free trade: A) the country will import wooden furniture. B) producer surplus in the market for wooden furniture will increase. C) consumer surplus in the market for wooden furniture will increase. D) the domestic quantity supplied will be less than the domestic quantity demanded.

producer surplus in the market for wooden furniture will increase.

If a country imposes a tariff on imported shoes, we expect the domestic price of shoes to _____, domestic consumption to _____, and domestic production to _____. A) fall; fall; fall B) fall; rise; fall C) rise; fall; rise D) rise; rise; fall

rise; fall; rise

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the supply curve is upward-sloping: A) the price of sweaters will increase by $10. B) consumers of sweaters will bear the entire burden of the tax. C) the price of sweaters will decrease by $10. D) the price of sweaters will increase by less than $10.

the price of sweaters will increase by less than $10

Mexico produces lettuce but can also import it. If Mexico imports some lettuce: A) Mexico has a comparative advantage in lettuce production. B) the world price is lower than the domestic price. C) the price in Mexico will rise to equal the world price. D) the domestic quantity supplied will increase.

the world price is lower than the domestic price.