tests EC 201
Use the watermelon market graph below to answer the question. What is the value of the total surplus at the quantity of watermelons with economic efficiency?
$12.50
Refer to the figure below. With a $2-per-unit subsidy, the price received by sellers is ________ and the price paid by consumers is ________.
$4; $2
Refer to the figure below. Assume a subsidy of $2 per unit is applied. What is the total cost of the subsidy for taxpayers?
$800
How are people affected when economic efficiency increases?
Overall gains exceed any change in costs, but some people may be worse off.
Refer to the figure below which shows the market for timber. Which of the following statements is correct?
The economic burden of this tax is greater on the seller.
Assume the price of macadamia nuts falls and think about why might this have happened. Three out of the four statements below give valid reasons for the price drop. Pick the scenario that would NOT explain the decrease in price. In other words, which statement would not cause the equilibrium price of macadamia nuts to fall?
The price of almonds is rising.
JoJo's company data is in the graph below. JoJo would earn a a positive economic profit at what quantities?
at any output between three and 14.
Creating _____ to _____ is key to a company's ability to earn economic profits in the long run.
barriers to entry; reduce new competition
Good M has an income elasticity of demand of -0.7. Which of the following items might good M be?
generic-brand toothpaste
The figure below shows four different demand curves for four different products: A, B, C and D. Which of the products has a perfectly inelastic demand curve?
product A
If the price of jet fuel rises, the
supply of airline flights decreases.
The Rational Rule for Employers implies that they keep hiring until
the wage equals the marginal revenue product of the last worker hired.
In the diagram below, sellers receive _____ without the tax and _____ with the tax.
$4; $3
The cost of your favorite coffee is $5 per cup at the coffee shop. The marginal cost of each cup you drink is _____. The first cup of coffee you drink gives you a marginal benefit of $8. The marginal benefit from the second cup is $6, $4 from the third, $2 from the fourth, and $0 from the fifth. You should drink _____ cups of coffee.
$5, 2
Which of the following is caused by a subsidy for sellers of a particular item? (i) a leftward shift of the supply curve (ii) an increase in quantity sold(iii) a decrease in the consumer price
(ii) and (iii)
The price of cheddar cheese increases from $2.50 per pound and is now $3.50 per pound. In response to this price change, the quantity demanded for cheddar cheese falls by 50%. What is the the price elasticity of demand for cheddar cheese using the midpoint formula?
-1.51
The price of product A is cut by 50%. As a result, the quantity demanded of product B rises by 50%. The cross-price elasticity of demand between product A and product B is _____, and they are _____.
-1; complements
In the graph of the soft drink market shown here, the original equilibrium price is $2.50 per bottle. A tax is then placed on the sellers of soft drinks. The amount of the tax is $ _____.
1.00
Delilah's income rises by 8%. She decides to increase the number of movie tickets she purchases by 20%. Her income elasticity of demand for movie tickets is ______ which means movie tickets are ______ for Delilah.
2.5, normal good
In the graph shown, the original equilibrium price of boots is $50. Assume a $6 tax is placed on boots. As a result of the tax, the quantity of boots traded in the market changed from _____ units to _____ units.
50, 45
Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the toilet paper market. If market forces prevail, this market will produce and sell _____ units of output at a price of _____ per unit.
6; $6
What price and output should the firm in the following example choose according to the Rational Rule for Sellers if MC = $4?
output = four (4) ; price = $5.00 Correct
The graph above shows the marginal social benefit and demand curves in the market for a good with a _______. We know this because ___________.
positive externality; the external benefit is greater than $0.
The table provides data on the number of minutes it takes for Bruno and Sasha to change a tire and iron a dress shirt. Use the data to answer the question. The table provides data on the number of minutes it takes for Bruno and Sasha to change a tire and iron a dress shirt. Use the data to answer the question.
Bruno because he has a lower opportunity cost
Bae is willing to pay up to $160 for a particular pair of boots. The price of the boots is $120. The marginal cost of producing the boots is $70. Which of the following is TRUE regarding the economic surplus associated with her purchase of the boots?
Consumer surplus is $40, and producer surplus is $50.
Which of the following is NOT a characteristic of perfectly competitive markets?
Each seller sets its own price.
What is the difference between accounting profit and economic profit?
Economic profit considers implicit opportunity costs and accounting profit doesn't
Which of the following statements is TRUE according to economic theory? I. National defense is a public good.II. For every 100 people that use a public good, approximately 500 people are prevented from using it.III. If the government did not pay for a national defense, it would not exist.
I and III only
Which of the following statements is TRUE? I. A $0.50 tax on each unit sold raises the price of the good by $0.50. II. The outcome of a" tax on sellers" is equivalent to the outcome of a "tax on buyers." III. A tax is analyzed by shifting the supply curve and the demand curve up by the amount of the tax.
II only
Which of the following is a positive economic statement?
If the government raises taxes, people will have less income available for purchases and saving.
Why would the owner of the following company decide NOT to produce and sell the fourth unit, even though it adds less to costs than the price he could get for it?
It would add no additional revenue even though it sells for $150.
According to diminishing marginal utility, which of the following people would gain the highest marginal benefit from an extra $100 of income?
Julia, a single mother of three young children with an annual household income of $18,000
Salaries for physical therapists rise more than salaries for athletic trainers. What will happen in the labor market for athletic trainers?
Labor supply will decrease, resulting in higher wages and fewer hours of employment for the trainers
As the quantity sold rises, how does marginal revenue compare to price for a company with market power?
Marginal revenue falls further and further below price.
How do people's beliefs about the distribution of wealth in the United States compare to the actual distribution of wealth in the country?
People believe the distribution of wealth is more equal than it actually is.
Patents restrict competing firms from copying new technologies and are therefore a barrier to entry. What would happen in the renewable energy markets if patents were no longer awarded?
Research into new energy technologies would fall, and new companies would enter renewable energy sectors which they can imitate.
If the mayor of your town stated, "Price ceilings are good for consumer welfare." How would her economic advisor respond?
That is not always true. It is possible that a price ceiling could hurt consumers (as a group) because the lower price will result in fewer items supplied.
The figure shows the market for avocados. Which of the following is correct about this market between points A and B?
The demand curve is inelastic, and thus the seller gains revenue by raising price from $1.50 to $1.75.
Evaluate both statements: 1. A price ceiling is a minimum price that can be legally charged. 2. For a price ceiling to change behavior in the market, it must be below the market price.
The first statement is FALSE, the second statement is TRUE
Sal opened a successful bakery two years ago. All of the other businesses on the block are retail stores that sell clothes. Those businesses have complained that the garbage bins in back of the bakery are attracting mice, rats, and stray cats, and that they are spending more and more on exterminators. In economic terms, what is happening?
The other businesses on the block are dealing with an externality because Sal considers only his marginal private costs as he makes decisions.
Doughnuts and muffins are complements-in-production. What would happen to the supply curve for doughnuts and the supply curve for muffins if the price of doughnuts rises?
The supply curve for doughnuts does not change and the supply curve for muffins INCREASES., The supply curve of doughnuts does not change and the supply curve of muffins DECREASES.
What conditions must be met for Coase's private bargaining to be effective in resolving an externality?
Transaction costs must be low, and property rights must be clear.
According to the textbook, which of the following is NOT a common criticism of the focus on economic efficiency as a measure of welfare?
Using monetary values for measurements ignores feelings and perceptions.
_____ is a stock variable that is more unequal across households than income, which is a flow variable.
Wealth
What is the difference between a positive externality and a negative externality?
Whether the welfare of bystanders rises or falls.
Walmart has a large aisle that displays many different types of shampoos with different prices. This observation indicates that the shampoo market is _______.
a monopolistically competitive market.
The graph depicts the market for furniture made from sustainable, man-made bamboo. The government wants to encourage buyers to buy such furniture and uses a price ceiling to lower the price to $250. What occurs as a result of the price ceiling?
a shortage of 400,000 pieces of furniture.
The graph shows the market for teddy bears. When nine teddy bears are produced and sold the deadweight loss is represented by the_______.
area between the demand and supply curves between quantities of 5 and 9.
The Rational Rule for Society says that more of a good should be produced...
as long as its marginal social benefit is greater than or equal to the marginal social cost.
In 2016, Amazon began charging a 5.75% sales tax on products it sells in the District of Columbia. Holding all else constant, the effect of this tax would be to _____ in the District of Columbia.
decrease Amazon sales
Damon's wage falls. The substitution effect would cause him to _____ his work hours, and the income effect would cause him to _____ his work hours.
decrease; increase
Unlike price floors, subsidies _______.
do not create surpluses.
When goods are allocated in a way that creates the largest economic surplus ______.
efficient allocation has been achieved.
True, False or Uncertain? All else constant, if the equilibrium wage is $10 an hour and the government enacts a price floor by setting a minimum wage of $8, this will create a shortage of labor.
false
Use the graph to answer the question. The graph shows the marginal social benefit, demand, and supply curves in the mouth wash market. Market forces would yield a quantity of _____, whereas the socially optimal quantity is _____.
four; six
NC State t-shirts have always been popular at the campus bookstore. How would we model the change in the market for NC State t-shirts if every student received a one time cash gift of $100 from university trustees?
graph A
In 2018, Hurricane Michael hit Florida and destroyed some shrimp wholesale facilities. Which graph correctly depicts the effect of the hurricane on the equilibrium price and quantity in the shrimp market?
graph c
In the United States, peanut butter and jelly are considered complementary items. Which graph illustrates the impact of a DECREASE in the price of peanut butter on the jelly market?
graph d
Refer to the graph below. Suppose that a binding price floor of $35 is removed. The number of consumers who are able to purchase the product after this happens will _____.
increase from 25 to 50.
Nora, the manager of three hospital rehabilitation clinics, has the clinics adopt software that allows better tracking of supplies. This software adoption also allows therapists to spend less time gathering supplies for therapy sessions. On average, each therapist can meet with one more patient per day. The marginal revenue product of the therapists will _____, and the demand for therapists at the clinics will _____.
increase; increase
When someone can enjoy the benefits of a good without bearing the cost, the good:
is subject to the free-rider problem.
Monopolistic competition is a market characterized by _____.
many sellers that produce different versions of the same product.
Two ways to calculate economic surplus are _____ and _____.
marginal benefit minus marginal cost; consumer surplus plus producer surplus
A corrective tax designed to resolve a negative externality problem is typically set at an amount equal to the _____ cost.
marginal external
Demand is more elastic when you are shopping in Walmart than when you shop at a small convenience store because:
more competing products means greater elasticity
The opportunity cost principle states that the true cost of something is the
next best alternative you have to give up to get it.
Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are
normal goods
When a company has market power, it is _____ in its market.
not a price-taker
It is possible the get the same change in price and quantity sold using different market interventions, while creating different changes in welfare for producers and consumers. Which two market interventions could be used to illustrate this statement?
price floor and tax
The supply of a good tends to be more elastic if:
production can be expanded without causing a big increase in the price of its inputs.
You are given data on four products — toothpaste, shampoo, soap, and laundry detergent. The absolute value of the price elasticity of demand for toothpaste is 0.4. The absolute value of the price elasticity of demand for shampoo is 0.2. The absolute value of the price elasticity of demand for soap is 0.5. The absolute value of the price elasticity of demand for laundry detergent is 2. Which product has the most inelastic demand?
shampoo
The opportunity costs of a decision may include each of the following types of costs EXCEPT
sunk costs.
Use the data in Table: Pat's Pedicures to answer the question. If Pat uses the Rational Rule for Employers, how many nail technicians will she hire?
three
In the countryside of France, many villages have areas reserved for families to take their dairy cows and sheep to graze. All families were welcome to use this land without charge. This situation likely led to a(n):
tragedy of the commons.
