EC 2123 final study guide, end of chapter problems
END OF CHAPTER PROBLEMS CH 6 Suppose the Canadian government has decided to place an excise tax of $20$20 per tire on producers of automobile tires. Excise taxes are also called sales or commodity taxes. Previously, there was no excise tax on automobile tires. As a result of the excise tax, producers of tires, such as Bridgestone and Michelin, are going to alter their tire prices. What is the price consumers pay for a tire post tax? Round to the nearest 10.
$100
END OF CHAPTER PROBLEMS CH 6 Suppose the Canadian government has decided to place an excise tax of $20$20 per tire on producers of automobile tires. Excise taxes are also called sales or commodity taxes. Previously, there was no excise tax on automobile tires. As a result of the excise tax, producers of tires, such as Bridgestone and Michelin, are going to alter their tire prices. What is the price producers receive for a tire net of taxes? Round to the nearest 10.
$80
END OF CHAPTER PROBLEMS CH 1 Marah is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per cup. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. If Marah decides to open the lemonade stand, how much profit will she earn?
-5
END OF CHAPTER PROBLEMS CH 2 A team of analysts at Amazon is researching the viability of producing a smart watch. How might they estimate potential demand for their smart watch? Consider the four-step process that many companies follow to estimate the market demand curve for their product. Place the steps in order, with the first step in the highest position and the last step in the lowest position. -survey customers -scale up the quantity demanded by the survey respondents - add up the total quantity demanded by the customers at each price point - plot the demand curve
-survey customers - add up the total quantity demanded by the customers at each price point -scale up the quantity demanded by the survey respondents - plot the demand curve
END OF CHAPTER PROBLEMS CH 1 Ivan has inherited his mother's 1963 Chevrolet Corvette, which he values at $45,000. He decides that he might be willing to sell it, so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000 for one. How much economic surplus, if any, does Ivan gain from engaging in this exchange?
10000
END OF CHAPTER PROBLEMS CH 5 In 2017, Hurricane Irma had a significant, negative impact on the orange harvest in the state of Florida. The U.S. Department of Agriculture predicted that the quantity of oranges produced would be 21% lower than the previous year. If the price elasticity of demand for oranges is -1.5, what impact would Hurricane Irma have on the price of oranges?
14
END OF CHAPTER PROBLEMS CH 1 Ivan has inherited his mother's 1963 Chevrolet Corvette, which he values at $45,000. He decides that he might be willing to sell it, so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000 for one. How much economic surplus, if any, does Samantha gain from engaging in this exchange?
17000
END OF CHAPTER PROBLEMS CH 5 According to the U.S. Department of Energy, the average price of gasoline in the U.S. fell by 14% in 2015. The number of hybrid electric vehicles (HEV) sold in the U.S. fell by 36% in the same year. Calculate the cross-price elasticity of demand for HEVs and gasoline. a) Cross-price elasticity = b) Based on your answer in part a, gasoline and HEVs are COMPLEMENTS/SUBSTITUTES/UNRELATED
2.6, substitutes
END OF CHAPTER PROBLEMS CH 1 Ivan has inherited his mother's 1963 Chevrolet Corvette, which he values at $45,000. He decides that he might be willing to sell it, so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000 for one. How much total surplus, if any, is gained from this exchange?
27000
END OF CHAPTER PROBLEMS CH 1 Jia is considering whether to go out to dinner at a restaurant with her friend. The meal is expected to cost $40, Jia typically leaves a 20% tip, and an Uber will cost $5 each way. Jia values the restaurant meal at $25. Jia enjoys her friend's company and is willing to pay $30 just to spend an evening with her. If Jia does not go out to the restaurant, she will eat at home, using groceries that cost her $8. Calculate Jia's costs associated with going out to dinner with her friend.
58
END OF CHAPTER PROBLEMS CH 1 Jia is considering whether to go out to dinner at a restaurant with her friend. The meal is expected to cost $40, Jia typically leaves a 20% tip, and an Uber will cost $5 each way. Jia values the restaurant meal at $25. Jia enjoys her friend's company and is willing to pay $30 just to spend an evening with her. If Jia does not go out to the restaurant, she will eat at home, using groceries that cost her $8. Calculate Jia's benefits associated with going out to dinner with her friend.
63
END OF CHAPTER PROBLEMS CH 3 Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. Christine's profit maximizing price is....
7
END OF CHAPTER PROBLEMS CH 3 Edith is the owner and manager of a small coffee shop that employs three workers who use the shop's one coffee machine to make and serve coffee to paying customers. Business has begun to pick up; lines are getting longer every day in her shop. On a busy morning, she sees her baristas scrambling to take orders, get cups, fill coffee from the coffee machine, add cream and sugar, and serve customers in a timely manner. She figures if she hires three more baristas she'll be able to sell twice as much coffee. Adding more and more workers does not constantly increase production because of.... A) diminishing marginal product of labor. B) substitutes in production. C) different productivity levels between various laborers. D) diminishing marginal costs.
A
END OF CHAPTER PROBLEMS CH 3 Edith is the owner and manager of a small coffee shop that employs three workers who use the shop's one coffee machine to make and serve coffee to paying customers. Business has begun to pick up; lines are getting longer every day in her shop. On a busy morning, she sees her baristas scrambling to take orders, get cups, fill coffee from the coffee machine, add cream and sugar, and serve customers in a timely manner. She figures if she hires three more baristas she'll be able to sell twice as much coffee. Do you think she's likely to be right? Why or why not? A) No, more workers will just create more chaos behind the counter as the additional workers still have to wait to fill from the coffee machine. B) Yes, more workers will increase the supply and make more coffee available for sale. C) Yes, hiring more workers will mean more customers can be served. D) No, the current workers just need better training to work more efficiently.
A
END OF CHAPTER PROBLEMS CH 4 In each of the following scenarios, the market is initially in equilibrium. Determine the impact each event would have on the given market. A heatwave in Las Vegas causes tourists to cancel their hotel room reservations and vacation elsewhere. Will the heatwave result in a shortage or surplus of Las Vegas hotel rooms at the previous price? Will the price of hotel rooms rise or fall? A) surplus, fall B) shortage, fall C) shortage, rise D) surplus, rise
A
END OF CHAPTER PROBLEMS CH 4 In each of the following scenarios, the market is initially in equilibrium. Determine the impact each event would have on the given market. New advances in recycling technology reduce the cost of producing paper made from recycled material. Which of the following will occur in the market for paper made from recycled material? A) supply will increase B) demand will increase C) supply will decrease D) demand will decrease
A
END OF CHAPTER PROBLEMS CH 4 In each of the following scenarios, the market is initially in equilibrium. Determine the impact each event would have on the given market. New advances in recycling technology reduce the cost of producing paper made from recycled material. Will the advancement in recycling technology result in a shortage or surplus of paper made from recycled material at the previous price? Will the price of paper made from recycled material rise or fall? A) surplus, fall B) shortage, fall C) shortage, rise D) surplus, rise
A
END OF CHAPTER PROBLEMS CH 5 In 2015, Netflix increased its monthly price for new subscribers by $1. In response, one individual tweeted the following: "So tired of being a college student. Can't wait until I have a stable job and won't have to give up Netflix cause they raised their price by $1". What does this statement indicate about the income elasticity of demand for Netflix? A) Netflix is a normal good. B) Netflix is a perfectly inelastic good. C) Netflix is an inferior good. D) Netflix violates the law of demand.
A
END OF CHAPTER PROBLEMS CH 6 A binding price floor is: A) always above the equilibrium price. B) always below the equilibrium price. C) always at the equilibrium price. D) the maximum price that a seller can charge in a market.
A
END OF CHAPTER PROBLEMS CH 6 A binding price floor leads to: A) a surplus. B) a low price. C) a shortage. D) an equilibrium.
A
END OF CHAPTER PROBLEMS CH 2 Consider your current uses of tap water. Think about some of the ways that you use water that are beyond what is necessary to sustain life. If the price of tap water triples, what are some likely changes that you will make to your consumption of tap water? A) turn water off while brushing your teeth B) decrease the length of your showers C) increase the length of your showers D) leave water running while brushing your teeth
A and B
END OF CHAPTER PROBLEMS CH 4 Which of the following statements are true? (one or more answers) A) Markets are forums in which parties exchange goods and services at a "price," where the latter can be flexibly construed. B) Your current economics course, the next election, and the dating scene can all be seen as markets. C) Markets by definition involve the exchange of money for goods and services.
A and B
END OF CHAPTER PROBLEMS CH 6 Which of the following are price floors? A) an agricultural price support B) a minimum unit price on alcohol C) price controls on staples, e.g., bread D) rent control
A and B
END OF CHAPTER PROBLEMS CH 6 Which of the following are price ceilings? A) rent control B) the minimum wage C) price controls on prescription drugs D) an agricultural price support
A and C
END OF CHAPTER PROBLEMS CH 1 Consider your decision to read this textbook on economics. Identify which of the four core principles of economics is most relevant for each aspects of that decision. "Reading this textbook will help establish a solid foundation for understanding concepts you will learn in more advanced economics courses." This statement is related to the _________ principle. A) Interdependence B) Opportunity cost C) Cost-benefit D) Marginal
A) Interdependence
END OF CHAPTER PROBLEMS CH 1 Khaled is a preschool teacher working at a public school, but he is considering quitting his job to start a daycare facility of his own. Indicate which of the four types of interdependency is most relevant to each factor in Khaled's decision. Use the market for daycare facilities as Khaled's market of interest. If Khaled opens his own facility, he will be responsible for taxes, insurance, licensing, and facility upkeep, among other things. However, as a teacher Khaled will only need to keep up his teaching license. In addition, Khaled will not be able to take a long vacation in the summer if he runs a daycare center. This scenario is an example of dependencies______ A) Through time B) between each of your individual choices C) between people or businesses in the same market D) Between markets
A) Through time
END OF CHAPTER PROBLEMS CH 1 Consider each decision in the context of the four core principles of economics. Lee watches a beautiful sunset from the back porch of his house. The four core principles of economics... A) apply because Lee could have been doing something else. B) do not apply because no money is involved. C) do not apply because no decision is being made. D) apply because Janet is also watching the sunset.
A) apply because Lee could have been doing something else.
END OF CHAPTER PROBLEMS CH 1 Consider each decision in the context of the four core principles of economics. Gilberto is deciding whether to vote in the next election. The four core principles of economics... A) apply to this decision because Gilberto should consider the costs and benefits associated with voting. B) apply to this decision because Gilberto's vote is a marginal vote that could determine the outcome of the election. C) do not apply to this decision because voting behavior is studied in political science. D) do not apply to this decision because there is no cost involved in voting.
A) apply to this decision because Gilberto should consider the costs and benefits associated with voting.
END OF CHAPTER PROBLEMS CH 3 Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. The most likely reason that the price is the same is that... A) consumers view gasoline from different gas stations as perfect substitutes. B) drivers need gas and are willing to pay whatever price a gas station charges. C) gas stations always make a profit, so they can charge any price they want. D) government regulation requires both gas stations to charge the same price.
A) consumers view gasoline from different gas stations as perfect substitutes.
END OF CHAPTER PROBLEMS CH 3 Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. When Akari weighs the money she will earn from working overtime against what she gives up to work the extra hours, she is applying the ______________ principle A) cost benefit B) Interdependence C) opportunity cost D) Marginal
A) cost benefit
END OF CHAPTER PROBLEMS CH 3 Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. When Niko compares the cost of a new truck and driver to the benefit of increasing the package center's daily deliveries, she is applying the ______________ principle A) cost benefit B) Interdependence C) opportunity cost D) Marginal
A) cost benefit
END OF CHAPTER PROBLEMS CH 2 You just took an Uber from home to campus for the first time and were willing to pay $13 for the trip. It was so much easier than driving yourself that you are willing to pay $21 for the same trip tomorrow. Determine if you have violated the law of demand based on your choices, and why or why not that is the case. Your decisions A) do not violate the law of demand because your preference for the product changed after you experienced the good. B) do not violate the law of demand because the law of demand states that quantity demanded increases as price increases. C) do violate the law of demand because you have chosen to buy the same amount of the product at two different prices. D) do violate the law of demand because the law of demand states that quantity demanded decreases as price increases.
A) do not violate the law of demand because your preference for the product changed after you experienced the good.
END OF CHAPTER PROBLEMS CH 1 Jia is considering whether to go out to dinner at a restaurant with her friend. The meal is expected to cost $40, Jia typically leaves a 20% tip, and an Uber will cost $5 each way. Jia values the restaurant meal at $25. Jia enjoys her friend's company and is willing to pay $30 just to spend an evening with her. If Jia does not go out to the restaurant, she will eat at home, using groceries that cost her $8. Based on Jias costs and benefits associated, Jia should A) go out to dinner B) eat at home
A) go out to dinner
END OF CHAPTER PROBLEMS CH 1 During the economic downturn of 2008-2009, the unemployment rate increased to nearly 10%. At the same time, the price of college tuition and the number of college enrollees increased. Which statement best explains why more people enrolled in college during this time period even as the price of tuition increased? A) if the next best option was unemployment, many individuals may have preferred to enroll in college and gain new skills in hopes of increasing their future employment prospects. B) of the bandwagon effect. When something becomes popular or trendy, ever more people are willing to pay high prices for it. C) if the next best option was unemployment, many individuals may have preferred to enroll in college and live off of student loans while waiting for the job market to improve. D) of the social pressure people feel to go to college. Universities exploited this and increased the price of tuition without losing many students.
A) if the next best option was unemployment, many individuals may have preferred to enroll in college and gain new skills in hopes of increasing their future employment prospects.
END OF CHAPTER PROBLEMS CH 1 During the economic downturn of 2008-2009, the unemployment rate increased to nearly 10%. At the same time, the price of college tuition and the number of college enrollees increased. The core principle that best explains this is the A) opportunity cost principle B) Marginal principle C) cost-benefit principle
A) opportunity cost principle
END OF CHAPTER PROBLEMS CH 1 Your friend remarks that longer movies are a better deal than shorter movies because the ticket price is the same in both cases. Therefore, the longer movie provides more benefit for the same cost as a shorter movie. Which of the following is the best argument against your friend's claim that longer movies provide more benefit than shorter movies? Based on the.... A) opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives. B) cost‑benefit principle, the benefits of a longer movie exceed the costs when compared to a shorter movie. C) marginal principle, you should only continue to watch an additional movie if it is shorter than the first movie. D) interdependence principle, longer movies are affected by the market for shorter movies.
A) opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives.
END OF CHAPTER PROBLEMS CH 1 Marah is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per cup. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. Based on this information, Marah ________ open the lemonade stand A) should B) shouldn't
A) should
END OF CHAPTER PROBLEMS CH 6 Which of the following are quantity regulations? A) taxi quotas B) zoning laws C) rent control D) health insurance mandates
A, B, and D
END OF CHAPTER PROBLEMS CH 3 "The market supply for natural gas is the sum of all prices that natural gas producers are willing and able to sell at for every quantity." What is the flaw in this statement? A) It should state that market supply is the quantity of natural gas that producers are willing and able to sell at one specific price. B) It should state that market supply is the sum of the quantities of natural gas that producers are willing and able to sell at every price. C) There is no flaw in this statement. D) It should state that market supply is the price of natural gas that one firm is willing and able to provide a specified quantity of its product at.
B
END OF CHAPTER PROBLEMS CH 3 Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. If Christine sets her price at $8, her profits will A) increase B) decrease C) remain the same
B
END OF CHAPTER PROBLEMS CH 3 Christine is the general manager of a local automated car wash. The market she operates in is perfectly competitive. All of her competitors in the area charge $7 per car wash, which is also her marginal cost per wash. If Christine sets her price to $5, her profits will A) increase B) decrease C) remain the same
B
END OF CHAPTER PROBLEMS CH 5 An article in Forbes noted that the Intercounty Connector toll road that connects two counties in Maryland was not generating as much toll revenue as predicted. At that time, the toll rate was $8 for a passenger car making a round trip from end to end on the tollway during rush hour. What additional information would you need to know in order to determine if the toll should be increased or decreased? A) The income elasticity of drivers using the tollway B) The price elasticity of demand C) The number of vehicles using the tollway per day D) The price elasticity of supply
B
END OF CHAPTER PROBLEMS CH 5 Which of these items is most likely to have perfectly inelastic price elasticity of demand? A) oranges B) a lifesaving medical treatment C) a cup of coffee D) your economics textbook
B
END OF CHAPTER PROBLEMS CH 5 You are a pricing manager at a generic pharmaceutical distributor. The CEO of the company calls a meeting of all the managers and states that it is critical to increase revenue soon or you may have to start laying off employees. You know that the price elasticity of demand for your leading generic drug is 1.5 and you sell it for three times what it costs. As the pricing manager, you should A) suggest increasing the price on the leading generic drug to increase revenue. B) suggest decreasing the price on the leading generic drug to increase revenue. C) argue that the numbers must be off because the company is charging three times the cost of the leading generic drug and therefore must be making a profit. D) suggest laying off employees because elasticity of the leading generic drug is unit elastic, so there is no way to increase revenue by changing price.
B
END OF CHAPTER PROBLEMS CH 6 The _________ of an excise tax depends on the _______ of the taxed good's supply and demand curves A) frequency, income elasticity B) incidence, price elasticity C) incidence, income elasticity D) frequency, price elasticity
B
END OF CHAPTER PROBLEMS CH 7 When the forces of supply and demand lead to an inefficient outcome A) economists call this a deadweight loss. B) economists call this a market failure. C) the economic surplus is maximized. D) it is a signal that the government needs to take ownership of that market including all the resources involved.
B
END OF CHAPTER PROBLEMS CH 7 is/are often cited as a cause of market failure in the market for used cars. A) externalities B) private information C) market power D) irrational behavior
B
END OF CHAPTER PROBLEMS CH 2 A team of analysts at Amazon is researching the viability of producing a smart watch. How might they estimate potential demand for their smart watch? Select two factors that the analysts want to keep in mind to create the most accurate demand estimates. A) information about climate change B) existing competition in the market C) consumer demographic information D) cost of inputs to production
B and C
END OF CHAPTER PROBLEMS CH 2 Consider the following statement: "An increase in the cost of oil will cause the price of a plane ticket to increase. This increase in price will cause a decrease in demand for airline travel and a leftward shift in the demand curve." What is the flaw of this reasoning? A) The cost of oil affects supply and not demand so prices of tickets will remain the same. B) An increase in the price of a ticket will not cause a decrease in demand, but rather a decrease in quantity demanded. C) A decrease in demand will shift the curve rightward, not leftward. D) The increase in the cost of oil will cause a decrease in the price of a plane ticket.
B) An increase in the price of a ticket will not cause a decrease in demand, but rather a decrease in quantity demanded.
END OF CHAPTER PROBLEMS CH 1 Consider the following statement: "Economists always put things into monetary terms; as a result, economics can most appropriately be called the study of money." Is this statement true or false? A) False, even though economists use money as a form of measurement, economics is better described as the study of financial markets. B) False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making. C) True, financial markets are the primary focus of economics. D) False, even though economists use monetary terms often, economics is better described as a governmental approach to improving market outcomes.
B) False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making.
END OF CHAPTER PROBLEMS CH 3 Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. If Akari decides to work the extra hours because she does not think any overtime will be offered in the near future, she is applying the ______________ principle A) cost benefit B) Interdependence C) opportunity cost D) Marginal
B) Interdependence
END OF CHAPTER PROBLEMS CH 3 Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. If Niko decides to pay for additional trucks and drivers because she expects the coming season to be extremely busy, she is applying the ______________ principle A) cost benefit B) Interdependence C) opportunity cost D) Marginal
B) Interdependence
END OF CHAPTER PROBLEMS CH 1 Consider your decision to read this textbook on economics. Identify which of the four core principles of economics is most relevant for each aspect of that decision. "The time you will spend reading this textbook can also be used to study for your chemistry exam." This statement is related to the ________ principle.
B) Opportunity cost
END OF CHAPTER PROBLEMS CH 1 Consider each decision in the context of the four core principles of economics. Lilia is deciding whether to major in economics or philosophy. The four core principles of economics.... A) do not apply because both programs cost the same and take the same amount of time to complete. B) apply because Lilia should choose the major that provides the greatest economic surplus. C) do not apply because Lilia may change her major later. D) apply because economics majors earn higher salaries.
B) apply because Lilia should choose the major that provides the greatest economic surplus.
END OF CHAPTER PROBLEMS CH 4 In what ways does seeking a marriage partner resemble a market? (one or more answers) A) The impulse to marry is deeply rooted in emotion. B) There is a "price," namely, the commitment one makes to love, support, and spend time with the prospective partner. C) Marriage is usually solidified with a legal contract. D) There is a demand-side and a supply-side: prospective partners both demand and supply time, effort, certain capabilities, and emotional commitment.
B, C, and D
END OF CHAPTER PROBLEMS CH 4 Identify markets in which you act as a buyer/demander and markets in which you act as a seller/supplier. -you purchase coffee in a coffee shop. -you consider which politician to vote for in an upcoming election -you seek employment in the industry for which you have trained -you've written a book and several publishers are interested in purchasing the rights to publish your work - You're considering which job applicant to hire at your company.
BUYER/DEMANDER -you purchase coffee in a coffee shop. - You're considering which job applicant to hire at your company. SELLER/SUPPLIER -you consider which politician to vote for in an upcoming election -you seek employment in the industry for which you have trained -you've written a book and several publishers are interested in purchasing the rights to publish your work
END OF CHAPTER PROBLEMS CH 4 In each of the following scenarios, the market is initially in equilibrium. Determine the impact each event would have on the given market. Suppose General Electric, one of the largest suppliers of light bulbs, decides to discontinue its production of light bulbs. Which of the following will occur in the market for light bulbs? A) supply will increase B) demand will increase C) supply will decrease D) demand will decrease
C
END OF CHAPTER PROBLEMS CH 4 In each of the following scenarios, the market is initially in equilibrium. Determine the impact each event would have on the given market. Suppose General Electric, one of the largest suppliers of light bulbs, decides to discontinue its production of light bulbs. Will General Electric's exit from the light bulb market result in a shortage or surplus of light bulbs at the previous price? Will the price of light bulbs rise or fall? A) surplus, fall B) shortage, fall C) shortage, rise D) surplus, rise
C
END OF CHAPTER PROBLEMS CH 4 You are the coordinator of a nonprofit that distributes donated items to three local homeless shelters and want to figure out a way of distributing the donated items to the shelters that need it the most. Which of the following would most likely achieve your goal? A) Send all the donations to the shelter that has the least. B) Ask shelters to submit their requests, and decide what to send where based on their answers. C) Divide the donations evenly among the three shelters. D) Offer each shelter a virtual "budget" and have them bid on different items.
C
END OF CHAPTER PROBLEMS CH 4 You purchased a ticket to the musical Hamilton through a verified reseller for $457.00. When your ticket arrives, you see that the face value printed on it is $259.00. Which of the following is correct? A) The rate in the secondary market is below the equilibrium price because it falls below the face value. B) The face value is above the equilibrium price because the rate in the secondary market is below the face value. C) The face value is below the equilibrium price because the rate in the secondary market exceeds the face value. D) The rate in the secondary market is above the equilibrium price because it exceeds the face value.
C
END OF CHAPTER PROBLEMS CH 6 Suppose you are planning a summer vacation and book a hotel room online for $149 a night. However, when you get to the reservation screen, you are informed that you will be charged an additional $30 a night in various taxes that you have to pay to the hotel. Ultimately, who pays the majority of the economic burden of the tax is dependent upon A) the marginal tax rate. B) the cost-benefit principle. C) the relative supply and demand elasticities. D) the marginal principle.
C
END OF CHAPTER PROBLEMS CH 1 Consider your decision to read this textbook on economics. Identify which of the four core principles of economics is most relevant for each aspects of that decision. "Reading this textbook will require time and effort, but doing so will help you improve your grade in this course." This statement is related to the _________ principle. A) Interdependence B) Opportunity cost C) Cost-benefit D) Marginal
C) Cost-benefit
END OF CHAPTER PROBLEMS CH 1 Khaled is a preschool teacher working at a public school, but he is considering quitting his job to start a daycare facility of his own. Indicate which of the four types of interdependency is most relevant to each factor in Khaled's decision. Use the market for daycare facilities as Khaled's market of interest. Khaled knows there are few daycare facilities in the area, but many families looking for daycare. This scenario is an example of dependencies _________ A) Through time B) between each of your individual choices C) between people or businesses in the same market D) Between markets
C) between people or businesses in the same market
END OF CHAPTER PROBLEMS CH 1 Ivan has inherited his mother's 1963 Chevrolet Corvette, which he values at $45,000. He decides that he might be willing to sell it, so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000 for one. _______ willing to voluntarily engage in this exchange. A) only Ivan B) only Samantha C) both Ivan and Samantha D) neither
C) both Ivan and Samantha
END OF CHAPTER PROBLEMS CH 3 Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. If Akari decides to work overtime because her next best alternative is watching TV at home, she is applying the ______________ principle A) cost benefit B) Interdependence C) opportunity cost D) Marginal
C) opportunity cost
END OF CHAPTER PROBLEMS CH 3 Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. If Niko decides that paying for a new software upgrade is a better alternative than paying for additional trucks and drivers, she is applying the ______________ principle A) cost benefit B) Interdependence C) opportunity cost D) Marginal
C) opportunity cost
END OF CHAPTER PROBLEMS CH 4 In each of the following scenarios, the market is initially in equilibrium. Determine the impact each event would have on the given market. A heatwave in Las Vegas causes tourists to cancel their hotel room reservations and vacation elsewhere. Which of the following will occur in the market for Las Vegas hotel rooms? A) supply will increase B) demand will increase C) supply will decrease D) demand will decrease
D
END OF CHAPTER PROBLEMS CH 7 Government intervention is one possible solution for market failure. What is one possible reason why a government-controlled used car market may not provide an efficient outcome? A) There is no remedy for market failure in this market. B) Consumers do not buy products from government-controlled markets. C) The government does not have the resources to control the used car market. D) Government actors may have their own incentives that might not align with market efficiency.
D
END OF CHAPTER PROBLEMS CH 1 Khaled is a preschool teacher working at a public school, but he is considering quitting his job to start a daycare facility of his own. Indicate which of the four types of interdependency is most relevant to each factor in Khaled's decision. Use the market for daycare facilities as Khaled's market of interest. An increase in graduation rates for teachers saturates the market for preschool teachers. This decreases the wages of teachers. This scenario is an example of dependencies_______ A) Through time B) between each of your individual choices C) between people or businesses in the same market D) Between markets
D) Between markets
END OF CHAPTER PROBLEMS CH 1 Consider your decision to read this textbook on economics. Identify which of the four core principles of economics is most relevant for each aspects of that decision. "Each page that you read and each practice problem that you complete will help you increase your understanding of the material." This statement is related to the ________ principle A) Interdependence B) Opportunity cost C) Cost-benefit D) Marginal
D) Marginal
END OF CHAPTER PROBLEMS CH 3 Akari's boss has offered to pay her for up to 5 hours of overtime today. Akari has already been working for 10 hours and is deciding whether to work more hours. When Akari considers whether she should work one more hour, she is applying the ______________ principle A) cost benefit B) Interdependence C) opportunity cost D) Marginal
D) Marginal
END OF CHAPTER PROBLEMS CH 3 Niko, a local UPS manager, is trying to decide whether she should pay for additional trucks and drivers. When Niko considers whether she should pay for one more truck and driver, she is applying the ______________ principle A) cost benefit B) Interdependence C) opportunity cost D) Marginal
D) Marginal
END OF CHAPTER PROBLEMS CH 1 Consider each decision in the context of the four core principles of economics. Brendon and Jessica are deciding whether to purchase a second vehicle. The four core principles of economics.... A) apply because Brendon and Jessica want a second vehicle. B) do not apply because Brendon and Jessica do not need a second vehicle. C) do not apply because there is good public transportation where Brendon and Jessica live. D) apply because Brendon and Jessica will have to give up something else to purchase the second vehicle.
D) apply because Brendon and Jessica will have to give up something else to purchase the second vehicle.
END OF CHAPTER PROBLEMS CH 3 Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. If one station increases its price, A) it will be fined by the government. B) it will make a higher profit. C) it will sell more gasoline. D) it will lose customers to the cheaper station across the street.
D) it will lose customers to the cheaper station across the street.
END OF CHAPTER PROBLEMS CH 1 Marah is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per cup. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. The $10 spent on the sign represents a _________ cost. A) necessary B) lost C) labor D) sunk
D) sunk
END OF CHAPTER PROBLEMS CH 1 In 2016, the top-selling pharmaceutical drug in the world was AbbVie's Humira, which is used for the treatment of several common, chronic conditions. The majority of its profits are derived from the treatment of the most common diseases, but AbbVie also develops drugs for rare conditions. Why might AbbVie develop drugs for rare diseases instead of investing all of its resources toward drugs for common diseases? A) the opportunity‑cost principle may encourage AbbVie to produce drugs for rare conditions because the full benefits outweigh the costs. The company must be maximizing its total economic surplus. B) the interdependence principle may be guiding AbbVie to develop and produce drugs for rare conditions. Common chronic and rare conditions are often experienced by the same people, so AbbVie can easily produce drugs for both. C) framing effects may be enticing AbbVie to develop and produce drugs for rare conditions. Since these drugs are more expensive, AbbVie will make a large profit. D) the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs.
D) the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs.
END OF CHAPTER PROBLEMS CH 5 Place the items in the appropriate box based on whether the price elasticity of demand is more likely to be elastic or inelastic. -electricity -gasoline -movie tickets -insulin for a diabetic -pizza -water
ELASTIC -movie tickets -pizza INELASTIC -electricity -gasoline -insulin for a diabetic -water
END OF CHAPTER PROBLEMS CH 3 Boeing is a producer of wide‑body aircraft. The manufacturing plant used to produce aircraft is a fixed/variable cost for Boeing. The cost of the manufacturing plant should/should not be included in the opportunity cost of producing an additional aircraft.
Fixed, should not
END OF CHAPTER PROBLEMS CH 7 POSITIVE/NORMATIVE economics involves describing what is happening or predicting what will happen. POSITIVE/NORMATIVE economics concerns what should occur and involves value judgments.
Positive, Normative
END OF CHAPTER PROBLEMS CH 3 Although most people do not manage a business, nearly everyone acts as a seller in some context of their daily lives. Classify each scenario based on whether the individual acts as a seller. -Dodger starts a dog-walking business -Melanie sends in her application to Arizona State University -Angie sells her used guitar on Craigslist. -John lists his house for sale -Brendon asks his friends to help him move. -Vanessa is hired as a pilot for American Airlines. -Jessica throws a birthday party for her sister
SELLER -Dodger starts a dog-walking business -Angie sells her used guitar on Craigslist. -John lists his house for sale -Vanessa is hired as a pilot for American Airlines. -Jessica throws a birthday party for her sister NOT A SELLER -Brendon asks his friends to help him move. -Melanie sends in her application to Arizona State University
END OF CHAPTER PROBLEMS CH 2 When Sony released the PlayStation 4, it was reported that Sony was taking a loss of $60 on every PS4. However, Sony expected to make this up with sales of PS+ subscriptions and increased royalties from video games. Use the interdependence principle to help explain this strategy. The PS+ subscriptions allow PS4 owners to play their games online, receive new games monthly to download at no charge, and receive additional special discounts on other items. Therefore, the PS4 and PS+ subscriptions are substitutes/complements in consumption. Decreasing the price of the PS4 will increase/ decrease the demand for PS+ subscriptions. Sony expects that revenue from recurring PS+ subscriptions will be larger than the loss in revenue from PS4 sales.
complements, increase
END OF CHAPTER PROBLEMS CH 5 If the price of a good falls and this causes the quantity demanded of another good to increase, then the items are considered to be COMPLEMENTS/SUBSTITUTES and the cross-price elasticity is NEGATIVE/POSITIVE.
complements, negative
END OF CHAPTER PROBLEMS CH 3 Maria is an industrial engineer at a Nissan plant. Indicate how Maria should change her production plans in response to each change in market conditions. An engine supplier decreases the price it charges Nissan by 50%. As a result, Nissan's cost of production will increase/decrease, and Nissan should increase/decrease its supply.
decrease, increase
END OF CHAPTER PROBLEMS CH 5 The EpiPen is a lifesaving device used by individuals with severe allergies. The U.S. manufacturer of the EpiPen raised its price by nearly 25% per year for nearly a decade. For each 25% increase in the price, the quantity demanded would INCREASE/DECREASE by MORE THAN/EXACTLY/LESS THAN 25%
decrease, less than
END OF CHAPTER PROBLEMS CH 2 Consider your current uses of tap water. Think about some of the ways that you use water that are beyond what is necessary to sustain life. In general, the consumption of tap water does/doesn't obey the law of demand
does
END OF CHAPTER PROBLEMS CH 5 Consumers now have easy access to internet shopping because of smartphones. Technology has caused demand to become more INELASTIC/ELASTIC for goods you can purchase at stores like Barnes and Noble and Best Buy. This is because the cost of getting price information from other retailers is now LOWER/HIGHER. To stay competitive, Best Buy uses a strategy called PRICE MATCHING/PRICE SETTING where they offer to sell items at competitor prices.
elastic, lower, price matching
END OF CHAPTER PROBLEMS CH 7 At the equilibrium quantity, marginal benefit is GREATER THAN/LESS THAN/EQUAL TO marginal cost.
equal to
END OF CHAPTER PROBLEMS CH 6 A quota will impact the market if the maximum quantity it allows FALL SHORT OF/EXCEEDS the equilibrium quantity.
falls short of
END OF CHAPTER PROBLEMS CH 3 Maria is an industrial engineer at a Nissan plant. Indicate how Maria should change her production plans in response to each change in market conditions. Workers unionize and demand a 12% across-the-board raise. As a result, the cost of production will increase/decrease, and Nissan should increase/decrease.
increase, decrease
END OF CHAPTER PROBLEMS CH 5 Europe has eight different companies selling devices similar to the EpiPen. If these devices were available for use in the U.S. market, you would expect price elasticity of demand to become MORE/LESS inelastic. This would also lead Mylan to charge a HIGHER/LOWER price
less, lower
END OF CHAPTER PROBLEMS CH 7 Consuming MORE/LESS means that some mutually beneficial exchanges do not take place, and producing MORE/LESS means that some goods go unsold.
less, more
END OF CHAPTER PROBLEMS CH 2 Determine whether each good is a normal good or an inferior good for the average consumer. aFor most consumers, the newest iPhone is __________ good. b. For most consumers, a 10-year-old used car is _______ good. c. For most consumers, dental services are ________ good.
normal, inferior, normal
END OF CHAPTER PROBLEMS CH 4 The average price of gasoline is $3.25 per gallon in your town. At a price of $0.50 per gallon, there will be a SURPLUS/SHORTAGE/EQUILIBRIUM as the amount of gasoline people are willing and able to buy IS LESS THAN/EXCEEDS/IS EQUAL TO the amount of gasoline gas stations are willing and able to sell.
shortage, exceeds
END OF CHAPTER PROBLEMS CH 6 Price ceilings create SHORTAGES/SURPLUS if they are set ABOVE/BELOW the equilibrium price.
shortages, below
END OF CHAPTER PROBLEMS CH 5 You may have observed that items such as different brands of aspirin, tomato sauce, or gasoline are typically priced the same as each other. This is particularly true when consumers can find these goods in close proximity to each other. For example, prices are often the same at gas stations that are on opposite sides of the street. Prices are also generally the same for products next to each other on the same grocery store shelf. The aforementioned examples are goods that are likely to be COMPLEMENTS/SUBSTITUTES, You would expect the value of the cross-price elasticity to be SMALL/LARGE/INSIGNIFICANT because the opportunity cost of getting information on price is low.
substitutes, large
END OF CHAPTER PROBLEMS CH 5 If the price of a good falls and this causes the quantity demanded of another good to fall, then the items are considered to be COMPLEMENTS/SUBSTITUTES and the cross-price elasticity is NEGATIVE/POSITIVE.
substitutes, positive
END OF CHAPTER PROBLEMS CH 4 At a price of $6.00 per gallon, there will be a SURPLUS/SHORTAGE/EQUILIBRIUM as the amount of gasoline people are willing and able to buy IS LESS THAN/EXCEEDS/IS EQUAL TO the amount of gasoline gas stations are willing and able to sell.
surplus, is less than
END OF CHAPTER PROBLEMS CH 6 Price floors create SHORTAGES/SURPLUSES if they are set ABOVE/BELOW the equilibrium price.
surpluses, above
END OF CHAPTER PROBLEMS CH 3 Boeing is a producer of wide‑body aircraft. The cost of the seats that are installed in each aircraft is a fixed/variable cost for Boeing. The cost of the seats should/should not be included in the opportunity cost of producing an additional aircraft.
variable, should
END OF CHAPTER PROBLEMS CH 3 Boeing is a producer of wide‑body aircraft. The labor used to produce the aircraft is a fixed/variable cost for Boeing. Labor costs should/should not be included in the opportunity cost of producing an additional aircraft.
variable, should
