Microeconomics

Production Possibilities for Picnicland Hotdogs - Burgers 1800 - 0 1350 - 450 900 - 750 450 - 975 0 - 1125 The opportunity cost to Picnicland of increasing the production of hotdogs from 450 to 900 is

225 burgers.

A price ceiling is

Poss: a legal maximum on the price at which a good can be sold.

In a free, competitive market, what is the rationing mechanism?

Poss: price

When a binding price ceiling is imposed on a market,

Poss: price no longer serves as a rationing device.

In principle, we can

confirm or refute positive statements by examining evidence.

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume.

In general, elasticity is a measure of

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

If the price elasticity of supply for wheat is less than 1, then the supply of wheat is

inelastic.

Low rates of inflation are generally associated with

low rates of growth of the quantity of money.

A rational decision maker takes an action only if the

marginal benefit is greater than the marginal cost.

Suppose the point (Q = 3,400, P = $20) is the midpoint on a certain downward-sloping, linear demand curve. Then

the maximum value of total revenue is $68,000.

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that

Poss: if Wheatland were to allow trade, it would import corn.

Before the tariff is imposed, this country

Poss: imports 400 roses.

If the cost of producing sofas decreases, then consumer surplus in the sofa market will

Poss: increase.

When trade in coffee is allowed, producer surplus in Guatemala

Poss: increases by the area B + D + G

When the tariff is imposed, domestic consumers

Poss: lose by $450.

Consumer surplus

Poss: measures the benefit buyers receive from participating in a market.

Table 6-2 Price Quantity Demanded Quantity Supplied $0 375 0 $5 300 50 $10 225 100 $15 150 150 $20 75 200 $25 0 250 Refer to Table 6-2. A price ceiling set at $20 will

Poss: not be binding.

Table 6-2 Price Quantity Demanded Quantity Supplied $0 375 0 $5 300 50 $10 225 100 $15 150 150 $20 75 200 $25 0 250 Refer to Table 6-2. A price floor set at $5 will

Poss: not be binding.

If a nonbinding price ceiling is imposed on a market, then the

Poss: quantity sold in the market will stay the same.

A tax imposed on the sellers of a good will

Poss: raise the price buyers pay and lower the effective price sellers receive.

Consumer surplus

Poss: the amount a consumer is willing to pay minus the amount the consumer actually pays.

When a country allows trade and becomes an importer of a good

Poss: the gains of the winners exceed the losses of the losers

An example of a price floor is

Poss: the minimum wage.

With trade and without a tariff,

Poss: there is a shortage of 400 roses in this market

The study of how the allocation of resources affects economic well-being is called

Poss: welfare economics.

In a market, the marginal buyer is the buyer

Poss: who would be the first to leave the market if the price were any higher.

Suppose Jamaica has an absolute advantage over other countries in producing sugar, but other countries have a comparative advantage over Jamaica in producing sugar. If trade in sugar is allowed, Jamaica

Poss: will import sugar

The maximum price that a buyer will pay for a good is called

Poss: willingness to pay.

Consider the market for gasoline. Buyers

Poss: would lobby for a price ceiling, whereas sellers would lobby for a price floor.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

Poss: zero.

Patterns of trade among nations are primarily determined by

Poss:comparative advantage.

Which of the following events would cause a movement upward and to the left along the demand curve for olives?

The number of people who purchase olives decreases.

For any country, if the world price of copper is higher than the domestic price of copper without trade, that country should

Poss: export copper, since that country has a comparative advantage in copper

Which of the following is correct? A tax burden

Poss: falls more heavily on the side of the market that is more elastic.

An effective minimum wage is a price ____ that ____ the quantity of low-skilled labor demanded.

Poss: floor; decreases

When a tariff is imposed in the market, domestic producers

Poss: gain $150 of producer surplus.

The phenomenon of scarcity stems from the fact that

resources are limited.

Holding the non-price determinants of supply constant, a change in price would

result in a movement along a stationary supply curve.

An increase in quantity demanded

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

Resources are

scarce for households but scarce for economics.

The two basic reasons why economists often appear to give conflicting advice to policymakers are differences in

scientific judgments and values.

When quantity demanded increases at every possible price, the demand curve has

shifted to the right.

Efficiency means that

society is getting the maximum benefits from its scarce resources.

Given the market for illegal drugs, when the government is successful in reducing the flow of drugs into the United States,

supply decreases, demand is unaffected, and price increases.

When a supply curve is relatively flat,

supply is relatively elastic.

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

supply is said to be inelastic.

A rational decision maker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

In most societies, resources are allocated by

the combined actions of millions of households and firms.

The primary determinant of a country's standard of living is

the country's ability to produce goods and services.

Today's demand curve for gasoline could shift in response to a change in

the expected future price of gasoline.

Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if

the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.

Assume that Maya and Miguel can switch between producing mixers and producing toasters at a constant rate. Hours Needed to Make 1--Amount Produced in 60 Hours -------Mixer--Toaster-------------Mixer--Toaster Maya---6--------3------------------10-------20 Miguel-10--------5------------------6--------12 We could use the information in the table to draw a production possibilities frontier for Maya and a second production possibilities frontier for Miguel. If we were to do this, measuring toasters along the horizontal axis, then

the slope of Maya's production possibilities frontier would be -0.5 and the slope of Miguel's production possibilities frontier would be -0.5.

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

they choose not to trade with one another.

If the supply of a product increases, then we would expect equilibrium price

to decrease and equilibrium quantity to increase

The balance between efficiency and equality is an illustration of

trade-offs.

In economics, the cost of something is

what you give up to get it.

Consider frank's decision to go to college. If he goes to college, he will spend $20,000 on tuition, $10,000 on room and board, and $1,500 on books. If he does not go to college, he will earn $15,000 working in a store and spend $7,000 on room and board. Determine Frank's cost of going to college.

$39, 500 10,000 - 7,000 = 3,000 20,000+1,500+15,000+3,000=39,500

Price Total Revenue $5 $70 $6 $78 $7 $84 $8 $88 $9 $90 $10 $90 As price rises from $5 to $6, the price elasticity of demand using the midpoint method is approximately

0.41

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

1.60, and supply is elastic.

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise?

Both the equilibrium price and quantity would decrease.

In the early 1980s, U.S. economic policy was directed toward reducing inflation. What would you have expected to observe during this short period of time?

Inflation fell and unemployment fell.

When a country has a comparative advantage in producing a certain good,

None of the above is correct.

Which of the following concepts cannot be illustrated by the production possibilities frontier?

equality

What would happen to the equilibrium price and quantity of lattés if the cost of producing steamed milk, which is used to make lattés, rises?

The equilibrium price would increase, and the equilibrium quantity would decrease.

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs.. Given this, we know that

Traci has an absolute advantage in chairs.

Which is the most accurate statement about trade?

Trade can make every nation better off.

A supply curve slopes upward because

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

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates

the ticket price is below the equilibrium price

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

People respond to incentives.

The amount of revenue collected by the government from the tariff is

Poss: $600

A binding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.

Poss: (i) and (iii) only

With trade, total surplus in the Guatemalan coffee market amounts to ___________?

Poss: 1890

The amount of deadweight loss caused by the tariff equals $________

Poss: 600

In the absence of trade, total surplus in Guatemala is represented by the area

Poss: A + B + C + D + F.

When the price falls from P1 to P2, which area represents the increase in consumer surplus to new buyers entering the market?

Poss: ABC

Consumer surplus is

Poss: All of the above are correct.

When a tax is placed on the sellers of a product, the

Poss: All of the above are correct.

Which of the following tools and concepts is useful in the analysis of international trade?

Poss: All of the above are correct.

When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers?

Poss: BCGD

Buyer Willingness To Pay Calvin $150.00 Sam $135.00 Andrew $120.00 Lori $100.00 If the price of the product is $110, then who would be willing to purchase the product?

Poss: Calvin, Sam, and Andrew

According to the circular-flow diagram, if Jessica is the owner of a landscaping business and he just received $50 for mowing Mrs. Anna's lawn,

Poss: Jessica acts as a firm who interacted in the markets for goods and services with Mrs. Anna.

Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests

Poss: Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee

Buyer Willingness To Pay Calvin $150.00 Sam $135.00 Andrew $120.00 Lori $100.00 If the market price is $105,

Poss: Sam's consumer surplus is $30 and total consumer surplus is $90.

With which of the Ten Principles of Economics is the study of international trade most closely connected?

Poss: Trade can make everyone better off.

Which of the following arguments for trade restrictions is often advanced?

Poss: Trade restrictions are sometimes necessary for national security

The rules established under GATT are enforced by the

Poss: World Trade Organization

Which of the following observations would be consistent with the imposition of a binding price floor on a market? After the price floor becomes effective,

Poss: a smaller quantity of the good is bought and sold.

A demand curve reflects each of the following except the

Poss: ability of buyers to obtain the quantity they desire.

Table 6-2 Price Quantity Demanded Quantity Supplied $0 375 0 $5 300 50 $10 225 100 $15 150 150 $20 75 200 $25 0 250 Refer to Table 6-2. A price ceiling set at $5 will

Poss: be binding and will result in a shortage of 250 units.

When a tax is levied on sellers of tea,

Poss: both sellers and buyers of tea are made worse off.

When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country

Poss: cannot affect world prices by trading with other countries

Price ceilings and price floors that are binding

Poss: cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.

The imposition of a binding price floor on a market

Poss: causes quantity demanded to be less than quantity supplied.

When a country allows trade and becomes an exporter of a good,

Poss: consumer surplus decreases and producer surplus increases.

When a country allows trade and becomes an importer of a good,

Poss: consumer surplus decreases and producer surplus increases.

When trade in coffee is allowed, consumer surplus in Guatemala

Poss: decreases by the area B + D.

The imposition of a tariff on roses

Poss: decreases the number of roses imported by 200

The term "productivity"

refers to the quantity of goods and services produced from each unit of labor input.

When a tax is placed on the sellers of cell phones, the size of the cell phone market

Poss: decreases, but the price paid by buyers increases.

Tax incidence

Poss: depends on the elasticities of supply and demand.

When a country allows trade and becomes an exporter of a good,

Poss: domestic producers gain and domestic consumers lose

When a tax is imposed on the buyers of a good, the demand curve shifts

Poss: downward by the amount of the tax.

If the demand for a product decreases, then we would expect equilibrium price

and equilibrium quantity to both decrease

A competitive market is one in which there

are so many buyers and so many sellers that each has a negligible impact on the price of the product.

If textbooks and study guides are complements, then an increase in the price of textbooks will result in

fewer study guides being sold

Dr Yayi is an economics professor at Tamiu. Assume that he gets paid $100 an hour for teaching. He can also mow his lawn in 30 minutes. He can hire someone to mow his lawn who takes an hour. Of the following prices, which is the highest Dr Yayi would pay someone to mow his lawn?

$49

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day. Output Produced in One Day ---------Coolers--Radios Jamaica----12--------6 Norway----24-------3 Jamaica's opportunity cost of one cooler is

0.5 radios, and Norway's opportunity cost of one cooler is 0.125 radios.

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

1

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about

1.2, and X and Y are substitutes.

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about

1.29, and a decrease in price from $200 to $160 results in an increase in total revenue.

Suppose a gardener produces both tomatoes and squash in his garden. If he must give up 8 bushels of squash to get 5 bushels of tomatoes, then his opportunity cost of 1 bushel of tomatoes is

1.6 bushels of squash.

If the price elasticity of supply is 0.4, and a price increase led to a 5% increase in quantity supplied, then the price increase is about

12.5%.

The following table contains a supply schedule for a good. Price Quantity Supplied $10 100 $20 Q1 If the law of supply applies to this good, then Q1 could be

150

A candle manufacturer produces 4,000 units when the market price is $11 per unit and produces 6,000 units when the market price is $13 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.4.

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

2.5 percent decrease in the quantity demanded.

able 5-2 Price Quantity $250 0 $200 30 $150 70 $100 110 $50 150 $0 190 Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is

2.8

Assume that Andrea and Paul can switch between producing wheat and producing beef at a constant rate. Minutes Needed to Make 1 -------Bushel of Wheat--Pound of Beef Andrea-----30-----------------15 Paul---------15------------------5 Assume that Andrea and Paul each has 480 minutes available. If each person divides his time equally between the production of wheat and beef, then total production is

24 bushels of wheat and 64 pounds of beef.

The following table contains a demand schedule for a good. Price Quantity Demanded $30 A $50 300 If the law of demand applies to this good, then A could be

400

Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Labor Hours Needed to Make 1 --------Cooler--Radio Aruba----2--------5 Iceland---1--------4 Which of the following combinations of coolers and radios could Aruba produce in one 40-hour week?

5 coolers and 6 radios

Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Labor Hours Needed to Make 1 --------Cooler--Radio Aruba----2--------5 Iceland---1--------4 Assume that Aruba and Iceland each has 80 labor hours available. If each country divides its time equally between the production of coolers and radios, then total production is

60 coolers and 18 radios.

Assume that Andrea and Paul can switch between producing wheat and producing beef at a constant rate. Minutes Needed to Make 1 -------Bushel of Wheat--Pound of Beef Andrea-----30-----------------15 Paul---------15------------------5 Which of the following combinations of wheat and beef could Andrea produce in one 8-hour day?

7 bushels of wheat and 15 pounds of beef

Assume that Maya and Miguel can switch between producing mixers and producing toasters at a constant rate. ​Hours Needed to Make 1--Amount Produced in 60 Hours -------Mixer--Toaster-------------Mixer--Toaster Maya---6--------3------------------10-------20 Miguel-10--------5------------------6--------12 Assume that Maya and Miguel each has 60 hours available. If each person divides his/her time equally between the production of mixers and toasters, then total production is

8 mixers and 16 toasters.

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded

All of the above are correct.

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies.

All of the above are correct.

Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two windows per hour or he can iron five shirts per hour.

All of the above are correct.

When an economist evaluates a positive statement, he or she is primarily

All of the above are correct.

Which of the following statements about the price elasticity of demand is correct?

All of the above are correct.

Which of the following statements exemplifies a principle of individual decision making?

All of the above are correct.

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

All of the above are normative statements.

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes

Poss: decreases, and the consumer surplus in the market for red wine decreases.

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises?

Both the equilibrium price and quantity would increase.

If macaroni and cheese is an inferior good, then an increase in

a consumer's income will cause the demand curve for macaroni and cheese to shift to the left.

Inflation is defined as

an increase in the overall level of prices in the economy.

Which of the following is an important cause of inflation in an economy?

growth in the quantity of money in the economy.

Suppose you make jewelry. If the price of gold falls, then we would expect you to

be willing and able to produce more jewelry than before at each possible price.

There are very few, if any, good substitutes for motor oil. Therefore, the

demand for motor oil would tend to be inelastic.

In building economic models, economists often omit

details.

A movement downward and to the right along a demand curve is called a(n)

increase in quantity demanded.

If Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks would result in a(n)

increase in the demand for Kindles.

A decrease in the price of a good will

increase quantity demanded.

In the circular-flow diagram, which of the following items represents a payment for a factor of production?

interest

An economy's production of two goods is efficient if

it is impossible to produce more of one good without producing less of the other.

When a surplus exists in a market, sellers

lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated.

When a tax is placed on the sellers of a product, buyers pay

more, and sellers receive less than they did before the tax.

Guns and butter are used to represent the classic societal trade-off between spending on

national defense and consumer goods.

Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Labor Hours Needed to Make 1 --------Cooler--Radio Aruba----2--------5 Iceland---1--------4 Aruba should export

radios and import coolers.

If Max experiences a decrease in his income, then we would expect Max's demand for

normal goods to decrease.

If the quantity supplied is the same regardless of price, then supply is

perfectly inelastic.

How is the burden of a tax divided? (i) When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden. (ii) When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden. (iii) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden. (iv) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.

poss: (iv) only

A price floor is

poss: All of the above are correct.

If a tax is imposed on a market with inelastic supply and elastic demand, then

poss: sellers will bear most of the burden of the tax.

Suppose John and Wayne are the only two demanders of cowboy movies. Each month, John buys six cowboy movies when the price is $10 each, and he buys four cowboy movies when the price is $15 each. Each month, Wayne buys four cowboy movies when the price is $10 each, and he buys two cowboy movies when the price is $15 each. Which of the following points is on the market demand curve?

quantity demanded = 10; price = $10

Demand is said to be inelastic if the

quantity demanded changes proportionately less than price.

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day. Output Produced in One Day ---------Coolers--Radios Jamaica----12--------6 Norway----24-------3 Jamaica has a comparative advantage in the production of

radios and Norway has a comparative advantage in the production of coolers.

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day. Output Produced in One Day ---------Coolers--Radios Jamaica----12--------6 Norway----24-------3 Jamaica has an absolute advantage in the production of

radios and Norway has an absolute advantage in the production of coolers.

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day. Output Produced in One Day ---------Coolers--Radios Jamaica----12--------6 Norway----24-------3 Jamaica should specialize in the production of

radios and Norway should specialize in the production of coolers.