Microeconomics Quizzes 1-3

Why is entrepreneurial ability distinct from labor even though both are considered as a category of economic resource?

Because entreprenuerial ability is not directly engaged in production.

A tax can correct for a negative externality and a subsidy to producers can correct for a positive externality because the tax shifts the cost onto firms producing the product, which ______ output, while the subsidy ______ and ______ output.

Decreases; Increases supply; Increases

Why is money not considered to be a capital resource in economics?

Money is not considered a capital resource because money is not productive

Which of the following represent a normative economic statement?

The government ought to lower taxes so people have more money. Explanation: positive economic statements are factual. Normative economic statements are opinion oriented.

Demand curves slope downward because, other things held equal,

a decrease in a product's price raises MU per dollar and makes consumers wish to purchase more units.

An example of rent seeking is

a domestic industry group using resources to try to block imports.

Economic resources are the

natural, human, and manufactured inputs used to produce goods and services.

Janice really likes potatoes. At best any other goods are worth less than a dollar to her, potatoes cost $0.50 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30. a. How many pounds of potatoes will she purchase? b. What if she only had $2.00 to spend?

a. 3 pounds of potatoes b. 3 pounds of potatoes Explanation: The potatoes only ever cost $0.50/pound. However, Janice values the varying pounds at different prices ($1.50, $1.14, etc). Buying a pound of potatoes that she values at more than $0.50 is a good deal. However, once potatoes are worth less in value than $0.50, she won't want to purchase them. Therefore, she'll buy as many pounds as she can with her budget as long as they're worth more than the $0.50 they cost.

Rent seeking is

an appeal to the government for special benefits at the taxpayers' or someone else's expense.

Rent seeking is different from profit maximization because rent seeking

attempts to increase profit by influencing the political process.

Economists classify resources as

labor, land, real capital, and entrepreneurs.

Elected officials often accommodate rent-seeking behavior, particularly by firms, unions, and professional groups located in their home states, because these groups

support the elected officials with financial and nonfinancial resources.

Suppose that Omar's marginal utility for cups of coffee is constant at 3.5 utils per cup no matter how many cups he drinks. On the other hand, his marginal utility per doughnut is 11 for the first doughnut he eats, 10 for the second he eats, 9 for the third he eats, and so on (that is, declining by 1 util per additional doughnut). In addition, suppose that coffee costs $1 per cup, doughnuts cost $1 each, and Omar has a budget that he can spend only on doughnuts, coffee, or both. How big would that budget have to be before he would spend a dollar buying a first cup of coffee?

$9 Explanation: Omar wants his marginal utilities to be equal. At only 1 doughnut, his MU is 11, which is higher than the 3.5 MU that coffee offers. He will need to keep eating donuts until his MU is close to that of coffee. Doughnuts_MU 1_11 2_10 3_9 4_8 5_7 6_6 7_5 8_4 At 8 donuts, the MU is close to the 3.5 MU for coffee. He'll have to pay $8 for the donuts (8 x $1), and $1 for a single coffee. Therefore, the total budget is $9

Indicate whether a change in the value of each of the following determinants of demand leads to a movement along the demand curve or a shift in the demand curve.

- Change in market price: Movement along demand curve Explanation: A change in price doesn't change the curve; it just determines where on the curve the "point" is. - Change in income: Shift in demand curve Explanation: Because income is a determinant of demand, the curve will change (bigger or smaller) with changes in income. - Change in consumer expectations: Shift in demand curve Explanation: Consumer expectations are like tastes and preferences. Because that's a determinant of demand, changes in quality will make the curve bigger or smaller. - Change in the price of a related good: Shift in demand curve Explanation: Price of related goods is a determinant of demand. If a related product's price goes down, people will purchase less of the evaluated good, and vice versa. This will make the demand curve bigger or smaller. - Change in the price of an unrelated good: No change Explanation: If you're buying a mop and an orange, the price of one won't influence whether or not you buy the other. So, it won't move the point or change the curve. - Change in preferences for this good: Shift in demand curve Explanation: If people want to buy more or less of this product, the demand curve will get bigger or smaller. So, it's a change in the curve. *There's a graph with a couple of questions on this question too. If you understand the above info, you'll be able to answer it.*

Which of the following characteristics lead to a downward-sloping demand curve?

- Diminishing marginal utility - An increase in purchasing power as market price decreases Explanation: The explanation doesn't make sense to me... memorize it

What are the determinants of demand?

- Income - Price of related goods - Tastes and preferences - Number of consumers Explanation: These things are determined by consumers; thus, they determine demand. The other options (A good's own price, technology, and resources price) affect the producers, so they don't affect demand.

What are the major functions of the entrepreneur?

- Innovate - Take risks - Make decisions

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the following?

- The supply of cattle hides: Decrease Explanation: Cattle is the material. Because material decreased, supply decreased - Hide prices: Increase Explanation: Because there is a shortage of material, producers will charge more because hide is now a "rarer" good. - The supply of leather goods: Decrease Explanation: Because material decreased, supply decreased - The price of leather goods: Increase Explanation: Because there is a shortage of material, producers will charge more because hide is now a "rarer" good.

Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

4 hours Explanation: If Pham has 15 hours to work throughout the week, she'll allocate those hours starting with the highest paying jobs and working down until she's out of time. The best pay comes from the cafe, so she'll work all available 6 hours there. The next best is the garage, so she'll work all available 5 hours there. She still has 4 hours leftover, so she'll work those 4 hours at the bookstore. There's no reason for her to work any hours at the daycare paying less money.

Which statement is consistent with the law of demand?

A reduction in market price will lead to an increase in quantity demanded. Explanation: If producers are willing to sell a product for less money, they'll expect an increase in quantity purchased.

How is a market demand curve derived from individual demand curves?

Add up quantities demanded by all individual consumers for each price. Explanation: If you add up the quantities demanded by different people for a single price, you'll get that point on the chart. Do that for each price, and you'll have the curve.

On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good. *the table is too large to type here. View the question*

Column Qd: Each value is found by adding the Qd values from each individual in that row. Price_Qd $8_1 $7_3 $6_6 $5_9 $4_12 $3_15 $2_18 $1_21 Column Price: Each value is found by adding the price that the individual is willing to pay for the corresponding Qd. When Qd = 1, Individual 1 is willing to pay $6. Individual 2 is willing to pay $8. Individual 3 is willing to pay $7. So, the price is 6+8+7; $21. If the individual isn't willing to pay for a Qd, then the value is $0. Price_Qd $21_1 $18_2 $15_3 $12_4 $9_5 $6_6 $3_7 $1_8

Suppose that the total revenue received by a company selling basketballs is $840 when the price is set at $15 per basketball and $840 when the price is set at $10 per basketball. Without using the midpoint formula, identify whether demand is elastic, inelastic, or unit-elastic over this price range.

Demand is unit-elastic Explanation: When price goes up and revenue goes down, it's elastic. When price goes up and revenue goes up, it's inelastic. When price goes up or down, but revenue doesn't change, it's unit-elastic

Which of the following statements is true? -Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces total surplus. -Producing more or less than equilibrium results in negative profits, which is inefficient. -Producing more than equilibrium leaves unrealized producer and consumer surplus, and producing less than equilibrium reduces producer surplus. -Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium increases consumer and producer surplus.

Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces total surplus.

If a university passed a rule stating that university students must live in university dormitories, what effect would this have on the price elasticity of demand for dorm space? What effect would this have on room rates?

The price elasticity of demand would be more inelastic, and room rates would increase. Explanation: If students don't have a choice to live somewhere else, then the university is like a monopoly. The price is not influenced by consumer choice anymore, so it is inelastic, and room rates will go up.

Which of the following represents a positive economic statement?

The unemployment rate is 4.8 percent. Explanation: positive economic statements are factual. Normative economic statements are opinion oriented.

Currently, at a price of $0.50 each, 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $0.50 to $1 is unit-elastic (Es = 1). In the long run, a price increase from $0.50 to $1 has an elasticity of supply of 1.50. (Hint: Apply the midpoints approach to the elasticity of supply.) a. How many popsicles will be sold each day in the short run if the price rises to $1 each? b. How many popsicles will be sold per day in the long run if the price rises to $1 each?

These questions use the following formula: Es= ((Q2−Q1)/((Q2+Q1)/2))) / ((P2−P1)/((P2+P1)/2))) Where (Q1, P1) is an ordered pair, and (Q2, P2) is another. Q = Quantity P = Price a. 200 b. 300 I have no idea how to do this. I haven't taken algebra in 4 years, and I keep coming up with a different answer after using the equation. My advice? MEMORIZE THIS ANSWER

Lorena likes to play golf. The number of times per year that she plays depends on both the price of playing a round of golf as well as Lorena's income and the cost of other types of entertainment—in particular, how much it costs to go see a movie instead of playing golf. The three demand schedules in the table below show how many rounds of golf per year Lorena will demand at each price under three different scenarios. In scenario D1, Lorena's income is $60,000 per year and movies cost $11 each. In scenario D2, Lorena's income is also $60,000 per year, but the price of seeing a movie rises to $13. And in scenario D3, Lorena's income goes up to $80,000 per year, while movies cost $13. Scenario_D1_D2_D3 Income_$60,000_$60,000_$80,000 $ of movie ticket_$11_$13_$13 $ of Golf_Quantity Demanded $60_15_10_15 $45_25_15_30 $30_40_20_50 *go to the original question because this table sucks* a. Using the data under D1 and D2, calculate the cross elasticity of Lorena's demand for golf at all three prices. (To do this, apply the midpoints approach to the cross elasticity of demand.) At $60, cross elasticity At $45, cross elasticity At $30, cross elasticity Is the cross elasticity the same at all three prices? Are movies and golf substitute goods, complementary goods, or independent goods? b. Using the data under D2 and D3, calculate the income elasticity of Lorena's demand for golf at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) At $60, income elasticity of demand At $45, income elasticity of demand At $30, income elasticity of demand Is the income elasticity the same at all three prices? Is golf an inferior good?

This question uses the following formula: E= ((Q2−Q1)/((Q2+Q1)/2))) / ((P2−P1)/((P2+P1)/2))) Where (Q1, P1) is an ordered pair, and (Q2, P2) is another. Q = Quantity P = Price a1. -2.4 Because we're measuring the CROSS elasticity, we'll be looking at the quantities of golf demanded, and the price of movie tickets. Q1 = 15; Q2 = 10, P1 = $11; P2 = $13 Ec = ((10-15)/((10+15)/2))) / ((13-11)/((13+11)/2))) Ec = (-5 / 12.5) / (2 / 12) Ec = -0.4/.166666 = -2.40 (the instructions say to include the negative sign, so I don't know why it's not absolute value) a2: -3.0 Q1 = 25; Q2 = 15, P1 = $11; P2 = $13 Ec = ((15-25)/((15+25)/2))) / ((13-11)/((13+11)/2))) Ec = (-10 / 20) / (2 / 12) Ec = -3.0 a3: -4.0 Q1 = 40; Q2 = 20, P1 = $11; P2 = $13 Ec = ((20-40)/((20+40)/2))) / ((13-11)/((13+11)/2))) Ec = (-20 / 30) / (2 / 12) Ec = -4.0 a4. No (2.4 =/= 3.0 =/= 4.0 so they're not the same) a5. Complementary goods Explanation: Because the cross elasticities are negative, the products are complements b1. 1.4 Because we're measuring the INCOME elasticity of golf, we'll be looking at the quantities of golf demanded, and Lorena's income. Q1 = 10; Q2 = 15, P1 = $60,000; P2 = $80,000 Ec = ((15-10)/((15+10)/2))) / ((80,000-60,000)/((80,000+60,000)/2))) Ec = (5 / 12.5) / (20,000 / 70,000) Ec = .4/.2857 = 1.4 b2. 2.33 Q1 = 15; Q2 = 30, P1 = $60,000; P2 = $80,000 Ec = ((30-15)/((30+15)/2))) / ((80,000-60,000)/((80,000+60,000)/2))) Ec = (15 / 22.5) / (20,000 / 70,000) Ec = 2.33 b3. 3.0 Q1 = 20; Q2 = 50, P1 = $60,000; P2 = $80,000 Ec = ((50-20)/((50+20)/2))) / ((80,000-60,000)/((80,000+60,000)/2))) Ec = (30 / 35) / (20,000 / 70,000) Ec = 3.0 b4. No (1.4 =/= 2.33 =/= 3.0 they're not the same) b5. No, it is a normal good Explanation: When income elasticity is positive, then the good is normal. When it's negative, then it's inferior.

Refer to the table below. If the six people listed in the table are the only producers in the market and the equilibrium price is $12, how much producer surplus will the market generate? Person_Minimum Acceptable Price_Actual Price Carlos_$2_$12 Courtney$4_$12 Chuck$6_$12 Cindy_$8_$12 Craig$10_$12 Chad_$12_$12 Total producer surplus =

Total producer surplus = $30 Explanation: Chad is the only person not producing surplus, because his minimum price is equal to the actual price. To find surplus, add the differences between each person's minimum price and the actual price. Carlos: $12 - $2 = 10 Courtney: 12 - 4 = 8 Chuck: 12 - 6 = 6 Cindy: 12 - 8 = 4 Craig: 12 - 10 = 2 10 + 8 + 6 + 4 + 2 = $30

Consider a specific example of the special-interest effect and the collective-action problem. In 2012, it was estimated that the total value of all corn production subsidies in the United States was about $3 billion. The population of the United States was approximately 300 million people that year. a. On average, how much did corn subsidies cost per person in the United States in 2012? (Hint: A billion is a 1 followed by nine zeros. A million is a 1 followed by six zeros.) b. If each person in the United States is only willing to spend $0.50 to support efforts to overturn the corn subsidy, and if antisubsidy advocates can only raise funds from 10 percent of the population, how much money will they be able to raise for their lobbying efforts? c. If the recipients of corn subsidies donate just one percent of the total amount that they receive in subsidies, how much could they raise to support lobbying efforts to continue the corn subsidy? d. By how many dollars does the amount raised by the recipients of the corn subsidy exceed the amount raised by the opponents of the corn subsidy?

a. $10 Explanation: Divide the total subsidies ($3 billion) by the total population (300 million) b. $15,000,000 Explanation: Only 10% of the population will donate money to the fund, so multiple the total population (300 million) by 10% (0.1) to equal 30,000,000. Then, multiply this number by $0.50 to get the total $15,000,000 c. $30,000,000 Explanation: If only 1% of the money received is donated, then the total is (3,000,000,000 * .01) 30,000,000 d. $15,000,000 Explanation: The amount of the subsidies donated is $30,000,000. The amount raised by antisubsidy groups is $15,000,000. The population outraised the groups by (30,000,000-15,000,000) $15,000,000

Let's put dollar amounts on the flows in the circular flow diagram below. *go to the question to see the flow chart* a. Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $60 billion in wages, $10 billion in rent, and $20 billion in interest, how much are households paid for providing entrepreneurial ability? b. If households spend $55 billion on goods and $45 billion on services, how much in revenues do businesses receive in the product market?

a. $10 billion Explanation: Businesses are buying $100b worth of resources from households. $60b of this is wages, $10b is rent, and $20b is interest. $100b - $60b - $10b - $20b = $10b, which is equal to the amount paid for entrepreneurial ability. b. $100 billion Explanation: If hoseholds spend $55b on goods and $45b on services, the total of both expenditures is being paid to the product market. So, the product market is receiving $100b ($45b + $55b)

Consider a corrupt provincial government in which each housing inspector examines two newly built structures each week. All the builders in the province are unethical and want to increase their profits by using substandard construction materials, but they can't do that unless they can bribe a housing inspector into approving a substandard building. a. If bribes cost $1,000 each, how much will a housing inspector make each year in bribes? (Assume that each inspector works 52 weeks a year and gets bribed for every house he inspects.) b. There is a provincial construction supervisor who gets to hire all of the housing inspectors. He himself is corrupt and expects his housing inspectors to share their bribes with him. Suppose that 20 inspectors work for him and that each passes along half the bribes collected from builders. How much will the construction supervisor collect each year? c. Corrupt officials may have an incentive to reduce the provision of government services to help line their own pockets. Suppose that the provincial construction supervisor decides to cut the total number of housing inspectors from 20 to 10 in order to decrease the supply of new housing permits. This decrease in the supply of permits raises the equilibrium bribe from $1,000 to $2,500. How much per year will the construction supervisor now receive if he is still getting half of all the bribes collected by the 10 inspectors? Will he personally be happy with the reduction in government services? d. What if reducing the number of inspectors from 20 to 10 only increased the equilibrium bribe from $1,000 to $1,500? In this case, how much per year would the construction supervisor collect from his 10 inspectors? In this case, will the construction supervisor be happy with the reduction in government services?

a. $104,000 Explanation: If each bribe is $1,000, and the inspectors look at 2 houses per week, then ($1,000 x 52 x 2) = $104,000 b. $1,040,000 Explanation: If 20 inspectors will pay the supervisor half of their bribes, then the supervisor will make (20 x 104,000 x 0.5) $1,040,000 in one year. c. $1,300,000 Explanation: If there are now only 10 inspectors who make $2,500 per job, they will earn (2500 x 52 x 2) $260,000 each year. If the supervisor gets half of that from all 10, then they will earn (10 x 260,000 x 0.5) $1,300,000 each year. c1. Yes (they are making even more money from the cut in inspectors) d. $780,000 Explanation: If each bribe is now only $1,500, then inspectors will make (1500 x 52 x 2) $156,000 each year. The supervisor will get half of this from all 10 inspectors, so they will earn (156000 x 10 x 0.5) $780,000 each year. d1. No (Now the supervisor is making less than they were before the government intervention)

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below. Apartment Rent___Apartments Demanded___Apartments Supplied $3,000___12,500___17,500 2,500___15,000___15,000 2,000___17,500___12,500 1,500___20,000___10,000 1,000___22,500___7,500 a. What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied? Market equilibrium rental price is: Market equilibrium quantity is: b. If the local government can enforce a rent-control law that sets the maximum monthly rent at $2,000, will there be a surplus or a shortage? Of how many units? How many units will actually be rented each month? c. Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $3,000 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many units? How many units will actually be rented each month?

a. $2,500 a1. 15,000 Explanation: Equilibrium is when quantity supplied = quantity demanded. On the graph, when rent is $2,500, the amount of apartments demanded is equal to the amount of apartments supplied. b. Shortage b1. 5,000 b2. 12,500 Explanation: Producers won't supply more apartments if they aren't getting paid what they need. According to the table, if rent is capped at $2,000, then only 12,500 apartments will be supplied. However, at $2,000, 17,500 apartments are demanded. This means that there will be a shortage of 5,000 (17,500 - 12,500) apartments. c. Surplus c1. 5,000 c1. 12,500 Explanation: Consumers won't rent more apartments if they aren't able to pay for them. According to the table, if rent minimum is $3,000, then only 12,500 apartments will be rented by the consumers. However, 17,500 apartments are supplied by producers. This means that there will be a surplus of 5,000 (17,500 - 12,500) apartments.

Given the following diagrams: Q1 = 12 bags. Q2 = 7 bags. Q3 = 19 bags. The market equilibrium price is $46 per bag. The price at point a is $70 per bag. The price at point c is $10 per bag. The price at point d is $56 per bag. The price at point e is $31 per bag. The price at point f is $67 per bag. The price at point g is $32 per bag. Apply the formula for the area of a triangle (Area = ½ × Base × Height) to answer the following questions. a. What is the dollar value of the total surplus (producer surplus plus consumer surplus) when the allocatively efficient output level Q1 is being produced? How large is the dollar value of the consumer surplus at the output level Q1 ? b.What is the dollar value of the deadweight loss when output level Q2 is being produced? What is the total surplus when output level Q2 is being produced? c.What is the dollar value of the deadweight loss when output level Q3 is produced? What is the dollar value of the total surplus when output level Q3 is produced?

a. $360 The total surplus of Q1 is found within triangle abc. The base is a ($70) to c ($10), and the height is the x value of b, or Q1 (12 bags). The total length of the base is 60 (70-10). Multiply that by the height of the triangle (12), and divide the total by 2. (60 x 12) / 2 = 360 a1. $144 The consumer surplus for Q1 is found within the triangle formed by point a, point b, and the y intercept of the equilibrium. The problem says equilibrium = 46, so the third is point (0, 46). The base is point a ($70) to the equilibrium intercept ($46). The height is Q1 (12). The total base is 24 (70-46). (24 x 12) / 2 = 144 b. $62.50 The deadweight loss for Q2 is found is found within triangle dbe. The base is d ($56) to e ($31). The height of the triangle is Q2 (7) to Q1 (12). The total base is 25 (56-31), and the total height is 5 (12-7). (25 x 5) / 2 = 62.5 b1. $297.50 The total surplus of Q2 is found by subtracting the deadweight loss from the total surplus. 360 - 62.5 = 297.5 c. $122.50 The deadweight loss for Q3 is found within triangle bfg. The base is f (67) to g (32). The height is Q1 (12) to Q3 (19). The total base is 35 (67-32) and the total height is 7 (19-12). (35 x 7) / 2 = 122.5 c1. $237.50 The total surplus for Q3 is found by subtracting the deadweight loss from the total surplus. 360 - 122.5 = 237.5

The table below shows two demand schedules for a given style of men's shoe—that is, how many pairs per month will be demanded at various prices at a men's clothing store in Seattle called Stromnord. Price_D1QuantityDemanded_D2QuantityDemanded $85_53_13 $80_60_15 $75_68_18 $70_77_22 $65_87_27 a. If demand is D1, what is the lowest price that Stromnord can charge so that it will not run out of this model of shoe in the month of July? What if demand is D2? b. If the price of shoes is set at $85 for both July and August and demand will be D2 in July and D1 in August, how many pairs of shoes should Stromnord order if it wants to end the month of August with exactly zero pairs of shoes in its inventory? What if the price is set at $65 for both months?

a. $75 Explanation: Stromnord is planning on selling 70 pairs of shoes in July, and won't receive anymore until August 1. That means that they can't sell the shoes at a price that consumers will demand more product. Looking at the table, $70 demands 77 pairs, so the store wouldn't have enough shoes. At $75, consumers demand only 68 pairs, so the store can last until August. a1. $65 Explanation: If demand is the D2 column, there is no price listed that sells enough shoes to sell the store out in July. Therefore, they can sell the shoes at the cheapest price; $65 b. 0 Explanation: If Stromnord sells their shoes for $85 within the demand schedule D2 in July, they will sell 13 pairs. If they sell shoes for $85 within the D1 demand schedule in August, they will sell 53 pairs. Total, they will sell 66 pairs over both months. Because the store already has 70 pairs in stock, they do not need to order anymore of the shoes to be able to last through August. b1. 44 Explanation: If Stromnord sells their shoes for $65 within the demand schedule D2 in July, they will sell 27 pairs. If they sell shoes for $65 within the D1 demand schedule in August, they will sell 87 pairs. Total, they will sell 114 pairs over both months. The store only has 70 pairs in stock, so they will need to order 44 (114 - 70) more pairs to last through August.

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 6 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. a. What is the firm's total revenue? b. What is its total cost? c. Calculate the amount of economic profit or loss. d. Will it continue to produce banana bread? e. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?

a. $800 Explanation: Total revenue is how much total money the firm can make; it does not include expenditures. Therefore, 400 loaves x $2 = $800 b. $800 Explanation: Total cost is all of the total costs combined; it does not figure in revenue. This is solved by (6 labor x $40)+(7 land x $60)+(2 capital x $60)+(1 ent. ability x $20) c. $0 Explanation: This is where you subtract costs from revenue. $800 - $800 = 0 d. Yes Explanation: If the firm is earning positive, including zero, economic profit, it will continue to produce banana bread. e. No Change Explanation: Profit would inspire other companies to get into bread baking. Loss of profit would inspire other companies to stop bread baking. A $0 earning won't have any effect.

Danny "Dimes" Donahue is a neighborhood's 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $2.5 each, he sells 250. At a price of $2 each, he sells 300. a. What is the elasticity of demand? b. Is demand elastic or inelastic over this price range? c. If demand had the same elasticity for a price decline from $2 to $1.5 as it does for the decline from $2.5 to $2, would cutting the price from $2 to $1.5 increase or decrease Danny's total revenue?

a. .82 Explanation: This question uses the following formula: Es= ((Q2−Q1)/((Q2+Q1)/2))) / ((P2−P1)/((P2+P1)/2))) Where (Q1, P1) is an ordered pair, and (Q2, P2) is another. Q = Quantity P = Price We are solving for Es Es = ((300-250)/((300+250)/2))) / ((2-2.5)/((2+2.50)/2))) Es = (50/275) / (-.5/2.25) Es = .1818 / -.2222 Es = .82 (+/- 0.1) *Take the absolute value of the answer. even though .1818/-2.222 is negative, the answer is the absolute value (no negative sign.) b. Inelastic Explanation: Demand is elastic when price and revenue are inversely related; price goes up, revenue goes down. When the price is $2.50, revenue is ($2.50 x 250) $625. When the price is $2, revenue is ($2 x 300) $600. Therefore, revenue goes down when price goes down, so it is not elastic. c. Decrease Explanation: Because the demand is inelastic, decreasing the price will decrease the revenue.

Investigate how demand elastiticities are affected by increases in demand using the midpoint formula to calculate the demand elasticities. *you need to go to the question and view the graphs* a. The elasticity of demand for D1 between points a and b is 1.80. Given the shift in demand, the elasticity between points a' and b' in Figure a = b. The elasticity of demand for D2 between points c and d is 0.56. Given the shift in demand, the elasticity between points c' and d' in Figure b = *go to the question and view the next graph* c. The elasticity of demand for D3 between points e and f is 1.00. Given the shift in demand, the elasticity between points e' and f' in Figure c = d. In terms of the midpoint formula, what explains the change in elasticities? If we compare the elasticities in this problem to those found in the original demand curves, an increase in quantity at every price ______ the elasticity The percentage change in quantity is ______ given the higher quantity purchased at every price.

a. 1.3 By looking at the graph, we can determine the points to be a' (20, 2) and b' (50, 1) So, Q1 = 20, Q2 = 50, P1 = 2, P2 = 1 Es = (((50-20)/((50+20)/2))) / (((1-2)/((1+2)/2))) Es = (30 / 35) / (-1 / 1.5) Es = .8571 / -.6666 = -1.28, rounded to the 1st decimal place, and given the absolute value: 1.3 b. .33 By looking at the graph, we can determine the points to be c' (20, 4) and d' (30, 1) So, Q1 = 20, Q2 = 30, P1 = 4, P2 = 1 Es = (((30-20)/((30+20)/2))) / (((1-4)/((1+4)/2))) Es = (10 / 25) / (-3 / 2.5) Es = .4 / -1.2 = -.3333, rounded to the 2nd decimal place, and given the absolute value: .33 c. .67 By looking at the graph, we can determine the points to be e' (20, 3) and f' (40, 1) So, Q1 = 20, Q2 = 40, P1 = 3, P2 = 1 Es = (((40-20)/((40+20)/2))) / (((1-3)/((1+3)/2))) Es = (20 / 30) / (-2 / 2) Es = .6666 / -1 = -.6666, rounded to the 2nd decimal place, and given the absolute value: .67 d. Reduces Explanation: If we compare the elasticities, we can see that an increase in quantity at every price (shift the demand schedule to the right) reduces the elasticity. d1. Smaller Explanation: ?

For each item, decide if it describes a moral hazard problem or an adverse selection problem.

a. A person with a terminal illness buys several life insurance policies through the mail: Adverse selection b. A person drives carelessly because she has automobile insurance: Moral hazard c. A person who intends to torch his warehouse takes out a large fire insurance policy: Adverse selection d. A professional athlete who has a guaranteed contract fails to stay in shape during the off season: Moral hazard e. A woman who anticipates having a large family takes a job with a firm that offers exceptional childcare benefits: Adverse selection Adverse selection: When someone has more information about their beneficial circumstance than the person offering them a contract; using that to their advantage Moral hazard: When someone changes their behavior after a contract has been signed

John likes Coca-Cola. After consuming one Coke, John has a total utility of 10 utils. After two Cokes, he has a total utility of 25 utils. After three Cokes, he has a total utility of 50 utils. a. Complete the table below to show John's marginal utility for each Coke. Coke_Marginal Utility First Coke_x Second Coke_x Third Coke_x b. Does John show diminishing marginal utility for Coke, or does he show increasing marginal utility for Coke? c. Suppose that John has $6 in his pocket. If Cokes cost $2 each and John is willing to spend the money to purchase the first can of Coke, would he spend the money to purchase the second can of Coke, too? d. What about the third can? e. If John's marginal utility for Coke keeps on increasing no matter how many Cokes he drinks, would it be fair to say that he is addicted to Coke?

a. Coke_Marginal Utility First Coke_10 Second Coke_15 Third Coke_25 Explanation: The marginal utility is the difference between the total utility of that repetition and the total utility of the repetition before it. For 1 coke, there is no previous total utility, so the marginal utility is 10. For 2 cokes, the total utility is 25. The difference between 10 and 25 is 15. For 3 cokes, the total utility is 50. The difference between 25 and 50 is 25. b. Increasing marginal utility Explanation: For each coke he drinks, John's marginal utility increases by a greater amount. 10 < 15 < 25 c. Yes Explanation: Because John's utility increases with each coke, he'll spend all of the money that he has to buy more. d. Yes Explanation: Because John's utility increases with each coke, rather than plateauing or decreasing, it's safe to say that he is addicted.

a. On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine the collective demand schedule on the assumption that the good is a public good. *the table is too large to type here. View the question* b. Use the public demand schedule above and the following supply schedule to ascertain the optimal quantity of this public good. Price_Quantity Supplied $50_10 $48_8 $46_6 $44_4 $42_2 $40_0 Optimal Quantity =

a. Column Price is found by adding the price that the individual is willing to pay for the corresponding Qd. When Qd = 1, Individual 1 is willing to pay $16. Individual 2 is willing to pay $16. Individual 3 is willing to pay $16. So, the price is 16+16+16; $48. Price_Qd $48_1 $42_2 $36_3 $30_4 $24_5 $18_6 $12_7 $6_8 b. 2 The optimal quantity can be found by finding the price where the willingness to pay equals the price required by the firm to supply that last unit. By comparing the two tables, we see that when Qd = 2, the prices are the same ($42) In this case, the optimal quantity is 2 units.

Suppose that there are 1 million federal workers at the lowest level of the federal bureaucracy and that above them there are multiple layers of supervisors and supervisors-of-supervisors. Assume that each higher level is one-tenth the size of the one below it because the government is using a 10:1 ratio of supervisees to supervisors. That is, for every 10 workers at the bottom, there is 1 supervisor; for every 10 of those supervisors, there is 1 supervisor-of-supervisors; for every one of those supervisors-of-supervisors, there is a supervisor-of-supervisors-of-supervisors; and so on, all the way up the bureaucratic pyramid to the president. a.How many supervisors will there be in each supervisory layer of the federal bureaucracy? Start with the layer of supervisors directly above the 1 million workers at the bottom. b. How many supervisors are there in total at all levels of the federal bureaucratic pyramid, including the president? c. If you count the 1 million workers at the bottom as the first layer of the federal bureaucracy, how many total layers are there, including the president? d. How many federal employees are there in total at all layers, including the president? e. What fraction of all federal employees are supervisory, including the president?

a. First Level of Democracy: 100,000 2nd: 10,000 3rd: 1,000 4th: 100 5th: 10 President: 1 Explanation: If the rate of supervisees to supervisors is 10:1, then each level will decline by 10%. We start at the level above 1 million, so 1 million x .1 = 100,000. b. 111,111 Explanation: Add up all of the levels of supervisors, starting at the first level (above 1 million), and go all the way to president. 100,000 + 10,000 + 1,000 + 100 + 10 + 1 = 111,111 c. 7 layers Explanation: There are 6 levels above the 1 million employees, so that final layer added will equal 7. d. 1,111,111 Explanation: By adding the final layer of 1 million employees to the number of supervisors total, we get 1,000,000 + 111,111 to equal 1,111,111 e. 10% Explanation: A ratio of 10: is 10%, or 0.1

Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each. a. Complete the table below (gray shaded cells) showing the alternative combinations of the two products that are available. Goods_A_B_C_D_E_F Candy bars_0_4_8_12_16_20 Bags of peanuts_x_x_x_x_x_x b. Use the data in the table to plot a budget line in the graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? What is the opportunity cost of one more bag of peanuts? Do these opportunity costs rise, fall, or remain constant as additional units are purchased? c. Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to buy? d. Suppose that you had won $30 on your ticket, not $15. Is the slope of a new budget line flatter, steeper, or the same as in the diagram above? Has the number of available combinations increased or decreased?

a. Goods_A_B_C_D_E_F Candy bars_0_4_8_12_16_20 Bags of peanuts_10_8_6_4_2_0 Explanation: You have $15 to spend. 1 candy bar = $.75, and 1 bag of peanuts = $1.50. If you buy 0 candy bars, then you can buy 10 peanuts ($15 / $1.50). If you buy 4 candy bars, then you have $12 ($15 - (4 x $.75)) left to spend on peanuts, and you can buy 8 ($12 / $1.5) peanuts. So on and so on. b. Plot the points provided from the table onto the graph. Candy bars are the x value, and peanuts are the y value. Your points will be (0, 10); (4, 8); (8, 6); (12, 4); (16, 2); (20, 0) c. -0.5 Explanation: Each bag of peanuts is worth two candy bars ($.75 x 2 = $1.50). So, when candy bars increase by 2, peanuts decrease by one. Slope is the change in y/change in x. The change in y is -1 peanuts, and the change in x is +2 candy bars. So, the slope is -0.5 d. The same Explanation: Winning $30 only increases your budget, not the price of the candy bars. So the slope will still be -0.5 to account for one peanut = 2 candy bars d1. Increased Explanation: With more money, you can buy more combinations of snacks. For example, you can buy 20 bags of peanuts with $30 ($30 / $1.50), which is a new combination

a. In the graph below, identify the areas of consumer surplus and producer surplus. b. If the supply curve shifts outward (to the right), consumer surplus will ______ and price will ______

a. Graph: Create a triangle for "CS" with point 1 at the intersection of "demand" and the y-axis, point 2 at the intersection of the horizontal dotted line and the "y-axis," and point 3 at the intersection of "Supply" and "Demand."Create a second triangle for "PS" with point 1 at the intersection of the horizontal dotted line and the "y-axis," point 2 at the intersection of "Supply" and "Demand," and point 3 at the intersection of "Supply" and the y-axis. b. Increase; Decrease

Will the equilibrium price of orange juice increase or decrease in each of the following situations? a. A medical study reporting that orange juice reduces cancer is released at the same time that a freak storm destroys half of the orange crop in Florida: b. The prices of all beverages except orange juice fall by half while unexpectedly perfect weather in Florida results in an orange crop that is 20 percent larger than normal:

a. Increase Explanation: The equilibrium is when supply = demand. If people expect more from their orange juice (that it reduces cancer risk), they'll demand more. Therefore, producers can sell it for a higher price, and increase the equilibrium. b. Decrease Explanation: When prices of other related products (other orange juices) falls, then people will expect to pay less for this orange juice. Because of the good weather, there was a bountiful harvest, meaning that there are tons of oranges to sell. These both reduce the price paid, and lowers the equilibrium

Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. a. On the diagram below, draw budget lines for trading with Friday and for trading with Kwame. (Put coconuts on the vertical axis.) b. What is the slope of the budget line from trading with Friday (coconuts for fish)? c. What is the slope of the budget line from trading with Kwame (coconuts for fish)? d. Which budget line features a larger set of attainable combinations of coconuts and fish? e. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame?

a. On the graph, you are plotting the points of the slopes provided in the story question. You only plot two points, so plot the axis intercepts for each line. You start with 20 coconuts, so each line will start at point (0, 20). Friday is willing to trade 2 fish for one coconut. So, if you traded all 20 coconuts, you would have 40 fish. This is the other endpoint for Friday's line (40, 0). Kwame is willing to trade 3 fish for one coconut. If you trade all 20 coconuts, you will have 60 fish. This is the other endpoint for Kwame's line (60, 0) b. -0.5 Explanation: slope is determined by change in y/change in x. For Friday, the change from one point to the next is -1 coconut (y) and +2 fish (x). Therefore, the slope is -1/2, or -0.5. c. -0.3 Explanation: For Friday, the change from one point to the next is -1 coconut (y) and +3 fish (x). Therefore, the slope is -1/3, or -0.3. d. The budget line from trading with Kwame Explanation: Because Kwame's line extends further to the right, it has more combinations than Friday's. e. Kwame Explanation: You will obviously want to trade your goods with the person who will give you the most of what you want. Kwame will offer 1 fish more than Friday, so you will trade with Kwame.

Suppose that with a budget of $180, Deborah spends $108 on sushi and $72 on bagels when sushi costs $2 per piece and bagels cost $2 per bagel. But then, the price of bagels falls to $1 per bagel. a. How many pieces of sushi and how many bagels did Deborah consume before the price change? b. At the new prices, how much money would it have cost Deborah to buy those same quantities (the ones that she consumed before the price change)? c. Given that it used to take Deborah's entire $180 to buy those quantities, how big is the income effect caused by the reduction in the price of bagels?

a. Pieces of Sushi: 54 ($108 / $2 per roll) Bagels: 36 ($72 / $2 per bagel) b. $144 ($2 x 54 sushi rolls) + ($1 x 36 bagels) = $144 c. $36 Original cost ($180) - New cost ($144) = $36

On average, households in China save 40 percent of their annual income each year, whereas households in the United States save less than 5 percent. Production possibilities are growing at roughly 9 percent annually in China and 3.5 percent in the United States. Use graphical analysis of "present goods" versus "future goods" to explain the differences in growth rates. **LOOK AT THE GRAPHS TO UNDERSTAND** a. Which point, A or B, best represents the combination of present and future goods in the United States? b. Which production possibilities curve best represents future growth in the United States? c. Which point, A or B, best represents the combination of present and future goods in China? d. Which production possibilities curve best represents future growth in China?

a. Point A Explanation: This graph shows the US's data. Because the US spends more on present goods than future goods, the point on the curve (A) that shows more present goods than future goods is the better combination. b. PPC 2 Explanation: Because the US doesn't invest in future goods, less capital is accumulating. So, the value of productions possibility curve will shift out slower. c. Point B Explanation: This graph shows China's data. China invests more in future goods than the US does, so whatever point shows a combination of more future goods to present goods than the US's graph will be the option. d. PPC 3 Explanation: Because China invests in the future, their capital will accumulate more than the US's. So, the value of productions possibility curve will shift outwards faster.

Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown in the table below. a. Fill in the table (gray-shaded cells) for the missing values. Price per Candy_Tex_Dex_Rex_Total Quantity Demanded $8_1_3_3_x $7_3_4_x_14 $6_x_5_11_21 $5_7_x_15_28 $4_9_7_19_x b. Which buyer demands the least at a price of $5? The most at a price of $7? c. Which buyer's quantity demanded increases the most when the price is lowered from $7 to $6? d. Which direction would the market demand curve shift if Tex withdrew from the market? What if Dex doubled his purchases at each possible price? e. Suppose that at a price of $6, the total quantity demanded increases from 21 to 31 . Is this a "change in the quantity demanded" or a "change in demand"?

a. Price per Candy_Tex_Dex_Rex_Total Quantity Demanded $8_1_3_3_*7* $7_3_4_*7*_14 $6_*5*_5_11_21 $5_7_*6*_15_28 $4_9_7_19_*35* Explanation: The total quantities demanded are found by simply adding the individual quantities demanded by Tex, Dex, and Rex together for a certain price. For example, at $8, 1 from Tex + 3 from Dex + 3 from Rez = 7 total. b. Dex Explanation: Rex only purchases 6 at $5, opposed to 7 or 15. b1. Rex Explanation: Rex purchases 7 at $7, more than 4 or 3 c. Rex Explanation: From $7 to $6, Tex demands 2 more, Dex demands 1 more, but Rex demands 4 more d. To the left Explanation: When there are less consumers in the market, the demand curve gets smaller, and moves to the left. d1. To the right Explanation: If any consumer increases their quantity demanded, it will make the curve bigger (move to the right) e. Change in demand Explanation: Since the price is fixed in the statement, this is a change in demand. A change in the quantity demanded results from a change in price.

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity increase or decrease, or are the answers indeterminate because they depend on the magnitudes of the shifts? a. Supply decreases and demand is constant. b. Demand decreases and supply is constant. c. Supply increases and demand is constant. d. Demand increases and supply increases. e. Demand increases and supply is constant f. Supply increases and demand decreases. g. Demand increases and supply decreases. h. Demand decreases and supply decreases.

a. Price: Increases - Quantity: Decreases Explanation: When supply goes down, it raises the price, because it's "rarer". If demand doesn't change, then the quantity produced will go down. b. Price: Decreases - Quantity: Decreases Explanation: A decrease in demand will result in less quantity being produced. If the supply stays the same, then producers will sell it cheaper. c. Price: Decreases - Quantity: Increases Explanation: If producers have more material to work with, then they can produce the good for less money, and charge less. If consumers' demand is constant, then quantity will increase so that they can buy more cheaper d. Price: Indeterminate - Quantity: Increases Explanation: If supply and demand both increase, then usually price would go up. However, the increase in supply would make the price go down; therefore, it's indeterminate. The increase in supply does create an increase in quantity, though. e. Price: Increases - Quantity: Increases Explanation: If supply stays the same, but demand increases, the producer will make more of the good, but charge more for it because they're coming closer to running out of supplies. f. Price: Decreases - Quantity: Indeterminate Explanation: If supply increases, and demand decreases, then the price will go down a lot. An increase in supply would normally increase quantity, but the decrease in demand would lower it. Therefore, quantity is indeterminate. g. Price: Increases - Quantity: Indeterminate Explanation: When demand goes up and supply decreases, producers will raise prices. When demand increases, usually producers try to produce more. However, with supply decreasing, the total quantity is indeterminate. h. Price: Indeterminate - Quantity: Decreases Explanation: Usually, a decrease in demand would lower prices. However, a decrease in supply would raise prices. Therefore, price is indeterminate. The reduction in supply and demand causes a reduction in quantity produced.

The figure below shows the supply curve for tennis balls, S1, for Drop Volley Tennis, a producer of tennis equipment. If production costs were to increase, the quantities supplied at each price would be as shown by the third column of the table ("S2 Quantity Supplied"). * go to the question to see the graph* a. Use the figure to fill in the quantity supplied given the supply curve S1 for each price in the table below (second column, gray-shaded cells). Price_S1_S2_Change in Quantity Supplied $3_x_4_x $2_x_2_x $1_x_0_x b. Use those data to draw supply curve S2 on the graph below. c. In the fourth column (gray-shaded cells) of the table in part a, enter the amount by which the quantity supplied at each price changes due to the increase in product costs. (Use positive numbers for increases and negative numbers for decreases.) d. Did the increase in production costs cause a "decrease in supply" or a "decrease in quantity supplied"?

a. Price_S1_S2_Change in Quantity Supplied $3_15_4_-11 $2_10_2_-8 $1_5_0_-5 Explanation: The values for column S1 Quantity Supplied come from the graph. By finding the point where price = $3, you see that Quantity = 15. At $2, quantity = 10. b. Plot the points found in the table, with x being "S2 Quantity Supplied," and y being Price. The new line should be at points (0, 1); (2, 2); (4, 3) c. Found in the table above Explanation: The Change in Quantity Supplied is the difference between the S1 values and the S2 values. The change between 15 and 4 is -11. The change between 10 and 2 is -8, etc. d. A decrease in supply Explanation: This is a decrease in supply because the schedule shifts left (less quantity supplied at every price).

Mylie's total utility from singing the same song over and over is as shown in the table below. Repetitions_Total Utility_Marginal Utility 1_80_x 2_120_x 3_150_x 4_170_x 5_130_x 6_70_x a. Use the data to calculate her marginal utility for each repetition. b. Once Mylie's total utility begins to decrease, does each additional singing of the song hurt more than the previous one or less than the previous one?

a. Repetitions_Total Utility_Marginal Utility 1_80_80 2_120_40 3_150_30 4_170_20 5_130_-40 6_70_-60 Explanation: The marginal utility is the difference between the total utility of that repetition and the total utility of the repetition before it. For 1 repetition, there is no previous total utility, so the marginal utility is 80. For 2 repetitions, the total utility is 120. The difference between 80 and 120 is 40. For 5 repetitions, the difference between 170 and 130 is -40. b. More than the previous one Explanation: From repetition 4 to 5, the decrease is 40. From 5 to 6, the decrease is 60. The decrease hurts more from the start of decline from one repetition to the next.

The table below contains information on three techniques for producing $15 worth of bar soap. Assume "$15.00 worth of bar soap" means the selling price of soap is $3.00 per bar and all three techniques produce 5 bars of soap ($15.00 = $3.00 per bar × 5 bars). So you know each technique produces 5 bars of soap. Units of Resource blank_blank_Technique 1_Technique 2_Technique 3 Resource_blank_Units:Cost_Units:Cost_UnitsCost: Labor_$2_4:$8_2:$4_1:$2 Land_$1_1:$1_3:$3_4:$4 Capital_$3_1:$3_1:$3_2:$6 Ent. ability_$3_1:$3_1:$3_1:$3 Total cost of $15 worth of bar soap_$15_$13_$15 *see the question because this graph sucks* a. What technique will you want to use if the price of a bar of soap falls to $2.75? What if the price of a bar of soap rises to $4.25? What if the price of a bar of soap rises to $5.25? b. How many bars of soap will you want to produce if the price of a bar of soap falls to $2.15? c. Suppose that the price of soap is again $3.00 per bar but that the cost of all four resources are now $1.1 per unit. Which is now the least-profitable technique? d. If the resource prices return to their original levels (the ones shown in the table), but a new technique is invented that can produce 3 bars of soap using 1 unit of each of the four resources, will firms prefer the new technique?

a. Technique 2 a1. Technique 2 a2. Technique 2 Explanation: If the price falls to $2.75, total revenue (price multiplied by units sold) equals $13.75 ($2.75 × 5). This does not change the total cost of each technique, so the firm will continue to use the lowest-cost technique, or technique 2. This is true for $4.75 and $5.25 as well. b. Zero: It is not profitable to produce bars of soap at this selling price Explanation: If the price of the soap is $2.15, then the total revenue will be $10.75 ($2.15 x 5). $10.75 is less than the cheapest technique, $13 technique 2. Therefore, they shouldn't produce, or they will lose money. c. Technique 3 Explanation: If each resource is the same price, then whichever technique uses the most total resources is the least-profitable. Technique 1 uses 7 resources (4 labor, 1 land, 1 capital, and 1 ent. ability), as does Technique 2. Technique 3 uses 8 resources, so it will be more expensive, and turn less profit. d. No Explanation: The total revenue from this new technique equals $3.00 (price per bar) multiplied by 3 (units sold and produced), or $9. The total cost of this technique equals the sum of the resource prices (in the table above) because this technique employs one unit of each input. Thus, total cost equals $9 ($2 (labor) + $1 (land) + $3 (capital) + $3 (ent. ability)). Using this new technique, economic profit is zero ($9 (revenue) - $9 (cost)), whereas technique 2 continues to generate $2 of economic profit ($15 (revenue) - $13 (cost)). Since economic profit is greater using technique 2, the firm will continue to employ this technique.

Refer to the table below. Type of Production_A___B___C___D Automobiles_0__2__4___6 Forklifts___30__27__21___12 a. Suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities curve. b. Now assume that a technological advance occurs in producing automobiles but not in producing forklifts. Draw the new production possibilities curve. c. Now draw a production possibilities curve that reflects technological improvement in the production of both goods.

a. The graph is asking you to move one or both points given down or up on the x and y axes. Because forklifts have increased production ability, move the point on the x axis up (right) one point. Don't move the y axis point. b. Because only automobiles have increased production, move the point on the y axis up one. Don't move the x axis point c. Because production has increased for both products, move the points on each axis up one.

Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): Type of Production_A___B___C___D___E Automobiles_0__2__4__6__8 Forklifts______30_27_21_12__0 a. Show these data graphically. Upon what specific assumptions is this production possibilities curve based? b. If the economy is at point C, what is the (opportunity) cost of 2 more automobiles? What is the (opportunity) cost of 6 more forklifts? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length? c. If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of available resources? The economy is ______ its available resources. d. Is production at a point outside the production possibilities curve currently possible? Could a future advance in technology allow production beyond the current production possibilities curve? Could international trade allow a country to consume beyond its current production possibilities curve?

a. The graph is simply plotting the points provided in the table, assuming that automobiles are the x values, and forklifts are the y values. Therefore, points will be (30,0); (27,2); etc a1. Full employment, fixed supplies of resources, fixed technology, and two goods Don't know how to explain this one :/ b. 9 forklifts Explanation: Point C is referring to the coordinates provided by column C: 4 automobiles, 21 forklifts. When 2 more automobiles are added, then column D is produced. From column C to column D, there is a reduction of 9 forklifts (21 - 12) b1. 2 automobiles Explanation: When 6 more forklifts are added to column C, then column B is produced. From column C to column B, there is a reduction of 2 automobiles (4 - 2) b2. Increasing opportunity cost implies that we must give up some of one good to get an additional unit of a different good. Thus, the shape of the schedule captures the increasing opportunity cost concept. It's not linear because cost of automobiles does not equal cost of forklifts; it curves. c. underutilizing Explanation: If you plot the point (20,3), you'll see that it falls inside the curve. This means that the company is not producing as much as it could be. d. No Explanation: With the current assumptions (found in question a1., there's no way to produce outside of the curve limitations. d1. Yes Explanation: A technological advancement would allow for more production, and make the curve bigger. d2. Yes Explanation: International trade would increase access to materials, allowing for more production, and making the curve bigger.

The data below represent a demand schedule. Product Price_Quantity Demanded $6_0_ $5_1 $4_2 $3_3 $2_4 $1_5 $0_6 a. In the diagram below, draw a demand curve. b. Use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. Moving from $5 to $4, Ed = Moving from $4 to $3, Ed = Moving from $3 to $2, Ed = Moving from $2 to $1, Ed = c. What can you conclude about the relationship between the slope of the demand curve above and its elasticity? d. Explain in a nontechnical way why demand is elastic in the upper-left segment of the demand curve and inelastic in the lower-right segment.

a. The graph only allows for two points to plot. Plot them at the axis intercepts. According to the table, when price (y value) = $6, then demand (x value) = 0. When price = $0, then demand = 6. So, the two points will be (0, 6) and (6, 0) b1. 3.0 Q1 = 1; Q2 = 2; P1 = $5, P2 = $4 Ed = (((2-1)/((2+1/2))) / (((4-5)/((4+5)/2))) Ed = (1 / 1.5) / (-1 / 4.5) Ed = .6666/-.2222 = -3, with absolute value = 3.0 b2. 1.4 Q1 = 2; Q2 = 3; P1 = $4, P2 = $3 Ed = (((3-2)/((3+2/2))) / (((3-4)/((3+4)/2))) Ed = (1 / 2.5) / (-1 / 3.5) Ed = .4/-.2857 = -1.4, with absolute value = 1.4 b3. 0.71 (see above for how to do the math) b4. 0.33 (see above for how to do the math) c. The demand curve has a constant slope of *-1* and elasticity *decreases* as we move down the curve. Explanation: For each additional dollar of price, the demand on the graph moves right one, and down one. Thus, the linear slope is -1. The equations in part b show that elasticity decreases with each movement down the curve. d. -When the initial price is high and the initial quantity is low, the percentage change in quantity exceeds the percentage change in price, making demand elastic. - When the initial price is low and the initial quantity is high, the percentage change in quantity is less than the percentage change in price, making demand inelastic.

Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the table below. Bushels Demanded___Price___Bushels Supplied 85___$3.40___71 80___$3.70___73 75___$4.00___75 70___$4.30___77 65___$4.60___79 60___$4.90___81 Suppose that the government establishes a price ceiling of $3.70 for wheat. a. What might prompt the government to establish this price ceiling? b. In the diagram below, demonstrate this price ceiling of $3.70. c. Next, suppose that the government establishes a price floor of $4.60 for wheat. What will be the main effect of this price floor?

a. To control food prices Explanation: A price ceiling establishes the maximum price that a good can be sold for. This makes it so that a company can't try selling a good for more than it should. b. A horizontal line with a y-value of 3.7 Explanation: The price of the ceiling doesn't change, no matter the quantity. So, the graph will show a horizontal line running across the whole graph at 3.7. c. It will create a surplus. Explanation: When you look at the table, you can see that when the price is $4.60, there will be 65 bushels demanded by consumers, but 79 bushels supplied by producers. This means that consumers won't purchase all of the bushels produced, and there will be a surplus.

Suppose Natasha currently makes $40,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. a. Should she quit her current job to become an entrepreneur? b. If she does quit her current job, which opportunity would she pursue?

a. Yes b. The organic soap company Explanation: Natasha currently makes $40k per year. She thinks that she could earn $465k making soap, and pay $395k for the resources. Thus, she would make a $70k profit. She also thinks she could develop an internet company and earn $3.275m, and spend $3.25 to do it. In this, she would make a profit of $25k. Because she can make more than $40k per year making soap, she should quit her current job and make soap.

Given the following income elasticities of demand: Product__Income Elasticity Movies___+ 3.4 Dental services__+ 1.0 Clothing__+ 0.5 a. The values indicate that b. If the income elasticity coefficient is negative, it means that

a. a 1 percent increase in income will increase the quantity of movies demanded by 3.4 percent. Explanation: These coefficients reveal that a 1 percent increase in income will increase the quantity of movies demanded by 3.4 percent, of dental services by 1.0 percent, and of clothing by 0.5 percent. b. the good is inferior so that if income falls, the quantity demanded of the good will rise. Explanation: A negative coefficient indicates an inferior good—income and quantity demanded move in the opposite direction.

An apple grower's orchard provides nectar to a neighbor's bees, while the beekeeper's bees help the apple grower by pollinating his apple blossoms. Consider the figure below to answer the questions that follow. a. This situation of dual positive externalities might lead to an underallocation of resources to both apple growing and beekeeping because there are spillover b. This misallocation can be resolved via the means suggested by the Coase theorem because

a. benefits for both the apple growers and beekeepers. b. apple growers and beekeepers can benefit from the other, so they will negotiate an optimal solution.

Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80 cents, respectively. At present she is buying these products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. a. Mrs. Simpson should buy b. Mrs. Simpson

a. more milk and less bread. Explanation: Mrs. Simpson wants her marginal utilities to be equal. To see the difference, divide the marginal utilities by their respective prices *in cents*. The marginal utility of bread is 80, and its price is $1. It's marginal utility is 0.8 (80 utils / 100 cents) The marginal utility of milk is 0.875 (70 utils / 80 cents). To get them closer to equal, Mrs. Simpson should buy more milk to raise its marginal utility, and less bread to decrease its marginal utility. b. is not buying the utility-maximizing combination of bread and milk since the marginal utility per cent spent on bread is 0.80 and the marginal utility per cent spent on milk is 0.875.

In the circular flow model (the answer is has the answers to two multiple choice questions that both have this start ^^)

a. resource markets provide for the exchange of labor and product markets provide for the exchange of goods and services. Explanation: Resources are things that producers need to produce a product. This includes money, materials, and labor. So, resource markets provide labor to the producer. Products are things that consumers buy. So, the product markets provide goods and services to the consumers. b. businesses sell goods and buy labor; households buy goods and sell labor. Explanation: Resources are things that producers need to produce a product. This includes money, materials, and labor. So, businesses need to buy labor, then sell the products they make. Products are things that consumers buy. So, households sell their labor, then buy the products that producers make.

A "mathematically fair bet" is one in which a gambler bets, say, $100 for a 10 percent chance to win $1,000 ($100 = 0.10 × $1,000). a. Assuming diminishing marginal utility of dollars, this is not a fair bet in terms of utility because b. When the "house" takes a cut of each dollar bet, the bet is

a. the utility of the $100 used to make the bet is greater than the $900 that you might gain if you win the bet. Explanation: The marginal utility of money diminishes the more you have b. less fair, because the winnings are reduced. Explanation: The house taking a cut reduces the winnings even more, so it makes it less fair.

You are choosing between two goods, X and Y, and your marginal utility from each is as shown below. Units of X_MUx_Units of Y_MUy 1_10_1_8 2_8_2_7 3_6_3_6 4_4_4_5 5_3_5_4 6_2_6_3 a. If your income is $9.00 and the prices of X and Y are $2.00 and $1.00, respectively, what quantities of each will you purchase to maximize utility? x = y = b. What total utility will you realize? c. Assume that, other things remaining unchanged, the price of X falls to $1.00. What quantities of X and Y will you now purchase? x = y = d. Using the two prices and quantities for X, derive a demand schedule (a table showing prices and quantities demanded) for X.

a. x = 2 y = 5 b. 48 c: x = 4 y = 5 d: Price_Quantity Demanded $2_2 $1_4 I do not know how to explain these

Looking at the figures below, which show the costs and benefits to voters Adams, Benson, and Conrad of two different public goods that the government will produce if a majority of Adams, Benson, and Conrad support them. Suppose that Adams, Benson, and Conrad have decided to have one single vote at which the funding for both of those public goods will be decided simultaneously. *view the question to see the graphs* a. Given the $300 cost per person of each public good, what are Adams' net benefits for each public good individually? Net benefit of first public good: Net benefit of second public good: For the two combined? Will he want to vote yes or no on the proposal to fund both projects simultaneously? b. What are Conrad's net benefits for each public good individually? Net benefit of first public good: Net benefit of second public good: For the two combined? Will he want to vote yes or no on the proposal to fund both projects simultaneously? c. What are Benson's net benefits for each public good individually? Net benefit of first public good: Net benefit of second public good: For the two combined? Will he want to vote yes or no on the proposal to fund both projects simultaneously—or will he be indifferent? d. Who is the median voter here? Who will the two other voters be attempting to persuade?

a1. $400 Explanation: On the first graph, we see that Adams' total benefit is $400 ($700 - $300) a2. -$200 Explanation: On the second graph, we see that Adams' total benefit is -$200 ($100 - $300) a3. $200 (400 + (-200)) a4. Yes (he will benefit from this decision with +$200) b1. -$100 Explanation: On the first graph, we see that Conrad's total benefit is -$100 (200 - 300) b2. $50 Explanation: On the second graph, we see that Conrad's total benefit is $50 (350 - 300) b3. -$50 ((-100) + 50) b4. No (Conrad would lose $50 with this decision) c1. -$50 Explanation: On the first graph, we see that Benson's total benefit is -$50 (250 - 300) c2. $50 Explanation: On the second graph, we see that Benson's total benefit is $50 (350 - 300) c3. $0 ($50 + (-$50)) c4. Indifferent (Benson doesn't lose or gain anything, so he is indifferent) d. Benson (because Benson is indifferent, he is in the middle of Adams, who wants it, and Conrad who doesn't) d1. Benson

Self-interest helps achieve society's economic goals because

as consumers and producers exercise their freedom to act in their own self-interest, markets will produce the desired goods at the lowest possible cost. Explanation: Consumers will purchase goods that they want, so long as its within their budget. Because producers want to make a high profit, they'll price their goods as low as possible so that consumers can pay more overall. (capitalism is a scam, this ain't true in practice)

The theory of consumer behavior accounts for time

because time can be used to earn money.

Economists say competitive markets are efficient because

by producing up to the point where MB = MC, the maximum potential consumer surplus and producer surplus are generated Explanation: If benefit is higher than cost, there is a surplus. When cost is higher than benefit, then there is a different surplus. They need to be equal

What is produced is ultimately determined by

consumers, because if the goods offered are not what consumers want, consumers will not buy them. Explanation: If a consumer doesn't like the good, they won't purchase it. This results in loss of profit for the producer. So, producers will make goods that the consumers want.

When negative externalities exist in a market,

equilibrium output will be greater than the efficient output.

Because economic resources are used to produce goods and services, they are called

factors of production or inputs

In market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern because

in market economies, buyers of inputs know that sellers want to earn profits.

There is a wide variety of desired goods and services in a market system because

individual wants are diverse. Explanation: Not everyone wants the same thing, but producers want to make a profit off of everyone. So, they'll sell a wide variety of goods.

Research has found that an increase in the price of beer would reduce the amount of marijuana consumed. This research indicates that the cross elasticity of the two products is

negative, such that beer and marijuana are complements. Explanation: The cross elasticity of the two products is negative. The products appear to be complementary. As one drinks beer, one also smokes marijuana.

In the circular flow model there is a flow of

real goods and services and a flow of money. Explanation: One flow is the flow of real goods and services (including resource services) and the other flow is the flow of money (money income, consumption expenditures, revenue, production costs).

The government could correct the difference between the equilibrium output level and the efficient output level by

regulations that force firms to internalize external costs

An example of an external benefit is

safety provided by motion-detector lights.

Some large hardware stores such as Home Depot boast of carrying as many as 20,000 different products in each store. This volume of goods is the result of

the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to maximize profits. Explanation: Because producers want to maximize their PROFIT, they'll produce the products that consumers WANT. This results in a wide array of products, so long as they still turn profit.

A student will decide to attend class when

the marginal benefit of attending exceeds the marginal cost of attending. Explanation: If the student is benefited through knowledge and preparation more than they are through what they're sacrificing (sleep, free time), then they will go to class.

If you compute the price elasticity of demand using a quantity of tickets from 1 to 8 and using a quantity of tickets from 1,000 to 8,000, the value of the price elasticity of demand is

the same because the percentage change in quantity demanded will remain the same. Explanation: The percentage change in quantity demanded will remain the same regardless of whether the difference is between 1 unit and 8 units or 1,000 units and 8,000 units

Spillover costs and spillover benefits are also called negative and positive externalities because

the unintended spillover costs have a negative impact on third parties and the unintended spillover benefits have a positive impact on third parties.

Consider the following comment: "Want to make millions of dollars? Devise a product that saves Americans lots of time." This statement recognizes that

time can be used to earn money.

Consider the following statement: "The market system is a profit-and-loss system." This statement is

true, because producer decisions are motivated by the attempt to earn profits.