ECO 2023 Midterm Exam 1

(Figure: Understanding Surplus and Efficiency) In the graph, efficiency in this market is achieved at a price of

$10

(Figure: Determining Surplus and Loss) In the graph, how much is deadweight loss at a price of $12?

$70

If price increases by 100% and quantity demanded decreases by 50%, then the price elasticity of demand is equal to

0.5

Rational behavior requires thinking at the margin. Which example represents this type of thinking?

All of these examples: -deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery -deciding whether a second burger is worth the extra $2 -deciding whether the overtime pay is worth working on your day off

Which of these is NOT an example of market failure?

Competition leads firms to provide products at the lowest possible price.

Suppose the demand for gasoline is rising. Which statement describes a possible cause?

Consumers expect prices to rise in the near future.

(Figure: Predicting Demand Shifts 2) What would cause a shift from D1 to D2?

a new study that shows that honey reduces the risk of cancer

In the study of economics, the goals of efficiency and equity are often

in conflict with one another

Home heating gas tends to have _____ demand because _____.

inelastic; people do not have time to adjust their consumption patterns

In which period can firms decide to leave an industry?

long run

People use _____ to determine how many hours to work, and businesses use _____ to determine how much of their product they are willing to supply to the market.

marginal analysis; marginal analysis

The economics of uranium mining would be studied in

microeconomics

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a

model

In general, the flatter the supply curve is, the

more elastic is supply

A market exists when

people exchange money for goods and services

Because of scarcity

people face tradeoffs in nearly every choice they make.

(Figure: Interpreting Elasticity of Supply) How would you describe supply as shown in the graph?

perfectly elastic

When goods are produced at the lowest possible cost, an economy is said to have achieved

production efficiency

Other factors held constant, as the price of an iPad rises, the

quantity demanded of iPads falls.

Suppose the equilibrium price of carrots is $1. The price floor instituted by the government is $1.50. Based on this information, which scenario would you expect to take place in the market?

there would be a surplus of carrots

The primary determinant of the elasticity of supply is

time

If a firm sells a product that has a perfectly inelastic demand curve, then if price doubles, it can be expected that

total revenue will double.

A gas station owner in a large city learned in his microeconomics class that buyers are relatively unresponsive to changes in the price of gasoline. If that assumption is correct, when he increases the price of gas at his station

total revenue will increase.

Which item is most likely an inferior good?

a city bus ticket

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $68, how much is producer surplus?

$4

Jonathan purchased coffee for $5 at Jennifer's coffee shop, although he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of

$4 and a producer surplus of $2.

If a product's price rises by 6% and its quantity demanded falls by 8%, then its elasticity is equal to

1.33.

(Figure: Individual and Market Demand Curves) According to the graph, the market quantity demanded at $20 is

10 units

Which type of payment would NOT be considered a market transaction?

payment made to a victim of a natural disaster

The price of gold increases by 200%. If the price elasticity of demand for gold is 0.4, what will happen in the market?

Gold sales will decrease by 80%.

Which situation(s) may require government intervention? I. A local business has made a profit in each of the last 10 years. II. Students are having difficulty deciding whether to go the beach or to go hiking for their class trip. III. A manufacturing firm on a river is dumping production runoff into the water.

III. only

If a store sells a good that has a unitary elastic demand, what would be the net result on their total revenue from an increase in price?

There would be no change in total revenue.

Which statement is TRUE about specialization and exchange between two individuals?

They generally benefit the poorer individual as well as the richer individual.

Paying a salesperson more for increased sales is an example of

an incentive

(Figure: Interpreting Supply Shifts 2) A shift to the right of the supply curve could be caused by a(n)

improvement in production technology.

Supply and demand analysis is used

both microeconomics and macroeconomics.

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $65

consumer surplus is greater than producer surplus.

If the price of a product falls by 15% and the quantity supplied falls by 25%, the supply of the product is

elastic

(Figure: Supply and Demand for Shoes) If the price of shoes is $60, then the market

experiences a surplus of shoes.

Economists wish to eliminate external benefits because they prevent the market from operating efficiently.

false

Alvaro pays $40 in tax on a $120 item. Nurul pays $80 in tax on a $240 item. We can conclude that this is a _____ tax.

flat

The opportunity costs of attending college do NOT include

food expenditures

Which of these is NOT correct? Price floors and price ceilings

help a market balance the interests of sellers and buyers.

Which of these circumstances would NOT affect the supply of new automobiles?

higher interest rates for new car financing

Which statement is a key idea in economic thinking?

incentives matter

Scarcity

is faced by all individuals and societies

When quantity demanded in a market equals quantity supplied, then the

market is in equilibrium.

Supply is defined as the _____ over a particular time period at various prices, holding all other relevant factors constant.

maximum amount of a product that sellers are willing and able to provide for sale

A good example of a government-imposed price floor is

minimum wage

When the government chooses to use resources to build tourist centers, the selected resources are no longer available to build highways. This BEST illustrates the concept of

opportunity cost

Laws that prohibit price gouging are often politically

popular, but result in shortages.

A tax in which the percentage of income tax rises as income falls is known as a _____ tax.

regressive

Suppose the demand for toxic waste disposal is very elastic. The government imposes an excise tax on waste disposal. The deadweight loss associated with the production of toxic waste disposal will be

relatively large.

Economics is BEST defined as the study of how

resources are apportioned to satisfy human wants

If demand is extremely elastic, it is likely that _____ will bear most of the burden of a tax and that the deadweight loss will be relatively _____.

sellers; large

If the cross elasticity of demand for good A with respect to good B is 2.3, then good A is a(n)

substitute for good B.

Consumer surplus is defined as the difference between _____ and the market price.

the demand curve

(Figure: Interpreting a Market Graph) The graph represents

the law of supply

Producer surplus is defined as the difference between

the market price and the supply curve.

At any price below the equilibrium price:

the quantity demanded exceeds the quantity supplied in the market.

Flu vaccination shots provide external benefits. Thus

too few flu vaccination shots are given.

The measure of society's benefits due to a market transaction is called

total surplus

Macroeconomics is concerned with issues such as

unemployment