ECO-251 MICROECONOMICS Exam 1

If the price of coffee falls by 20% and the quantity supplied of coffee falls by 4%, then the elasticity of supply for coffee is

0.2

If the price of oil increases by 5% and over a period of several years and the quantity demanded falls by 3%, then the long-run elasticity of demand for oil is -

0.6

Some policymakers and environmental scientists would like to see the United States cut back on its use of oil in the long run. If the long-run elasticity of demand for oil in the United States is -0.5, estimate how much would the price of oil have to permanently rise in order to cut oil consumption by 50 percent?

100

A University of Minnesota concluded that turning all of American's corn into ethanol would meet [--]% of our gasoline demand.

12%

If the base of the consumer surplus triangle is 70 million barrels and the height is $40, then the value of consumer surplus is $_________million.

1400

Jules wants to purchase a Royale with cheese from Vincent. Vincent is willing to offer this tasty burger for $3. The most Jules is willing to pay for the tasty burger is $8 (after all, his girlfriend is a vegetarian, so he doesn't get many opportunities for tasty burgers). a. How large are the potential gains from trade if Jules and Vincent agree to make this trade? In other words, what is the sum of producer and consumer surplus if the trade happens? b. If the trade takes place at $4, how much producer surplus goes to Vincent? c. If the trade takes place at $4, how much consumer surplus goes to Jules? d. If the trade takes place at $7, how much producer surplus goes to Vincent? e. If the trade takes place at $7, how much consumer surplus goes to Jules?

5/1/4/4/1

If the price for a 50-inch plasma TV is $2,010 and Newhart is willing to pay $3,000, what is Newhart's consumer surplus? Do NOT type "$" in the box.

990

In recent years, there have been news reports that toys made in China are unsafe. When those news reports show up on CNN and Fox News, what happens to the equilibrium price and quantity of toys made in China?

Both decrease.

Which economic concept does the video clip illustrate? Choose the best answer. Adam Sandler was willing to pay $500 for the girl's service. The girl was willing to do it for $0 . After the negotiation was complete, the agreed upon price was $300 , Adam Sandler's consumer surplus was $200 , the girl's producer surplus is $300 , and their combined surplus is $200 , which is equal to ______

Consumer and producer surplus. 500 0 300 consumer surplus 200 producer surplus 300 surplus 500 Adam Sandler's willingness to pay - the girl's cost

In the market, any activity is a zero-sum game. False Bill Gates became rich by: producing what many consumers wanted. Baby Doc got rich by: taking resources from the citizens. According to philosopher David Kelly, Vanderbilt wasn't a robber and wasn't a baron. Vanderbilt and Rockefeller became rich by: offering better products at lower prices. Jeff Ellis had to innovate to entice his potential customers. What was his innovation? All of the above. According to economist Walter Williams, those areas where people are mostly motivated by greed are the areas where people are satisfied. Those areas where people are mostly motivated by caring are the areas of disasters.

False producing what many consumers wanted. taking resources from the citizens. wasn't wasn't offering better products at lower prices. All of the above. greed caring

If the price of cars falls, are carmakers likely to make more cars or fewer cars, according to the supply curve?

Fewer cars

If the price of glass dramatically increases, what are we likely to see a lot less of: Glass windows or glass bottles? Why?

Glass bottles because they have many substitutes.

Why are calls to give harsher penalties to drug dealers and kidnappers often met with warnings by economists?

Harsher penalties reduce the additional cost of committing more serious crimes such as murder.

When oil companies expect the price of oil to be higher next year, what happens to the supply of oil today?

It decreases.

What should happen to the "demand for speed" (measured by the average speed on highways) once airbags are included on cars?

It increases.

Suppose that Joe is willing to pay $50 for a good and there are two sellers: Alice with costs of $40 and Barbara with costs of $20. In a free market:

Joe will buy the good from Barbara.

According to the authors, which of the following is the most important part of the opportunity cost of attending college?

Lost opportunities to earn wages/salaries

On average, old cars pollute more than newer cars. Therefore, every few years, a politician proposes a "cash for clunkers" program: The government offers to buy up and destroy old, high-polluting cars. If a "cash for clunkers" program buys 1,000 old, high-polluting cars, is this the same as saying that there are 1,000 fewer old, high-polluting cars on the road?

No, the quantity of old cars supplied increases and the number of old cars on the road will decrease by less than 1,000.

In 1787, the British government had hired sea captains to ship convicted felons to Australia. Conditions on board the ships were monstrous; some even said the conditions were worse than on slave ships. Which of the following improved the conditions most? Paying for each prisoner that walked off the ship in Australia What economics lesson do we learn from this? Incentives matter.

Paying for each prisoner that walked off the ship in Australia Incentives matter.

Why is corn-based ethanol very costly?

Production of ethanol requires almost as much energy as the resulting ethanol produces.

Which of the two goods is more likely to be elastically supplied? Supply of apples over the next decade Which of the two goods is more likely to be elastically supplied? Supply of construction workers in Binghamton, NY Which of the two goods is more likely to be elastically supplied? Supply of breakfast cereal Which of the two goods is more likely to be elastically supplied? Supply of computers If a new process for manufacturing diamonds is created, will the supply curve for diamonds become more elastic or more inelastic? More elastic If pesticides and fertilizers are banned, will the supply curve for food become more elastic or more inelastic? More inelastic If a larger share of oil output is required to make plastic, will the supply curve for plastic become more elastic or more inelastic? More inelastic

Supply of apples over the next decade Supply of construction workers in Binghamton, NY Supply of breakfast cereal Supply of computers More elastic More inelastic More inelastic

What will happen to the market for automobiles if the price of steel rises and public transportation becomes cheaper and more comfortable?

The demand for automobiles will decrease. The supply of automobiles will decrease. The quantity of automobiles will decrease. The effects on the price of automobiles are not clear.

If the price of margarine decreases, what will happen to the market for butter?

The demand for butter will decrease.

Suppose that the demand for housing increases by the same amount in Manhattan and in Des Moines, Iowa. In which place will the price of housing increase more?

The housing price will increase more in Manhattan because the supply of housing is less elastic in Manhattan.

By the time the Berlin Wall crumbled, some East German car factories were destroying value.

The managers and workers didn't get paid based on the quality of the products.

Resveratrol, which is found in the plant Japanese knotweed (and is also a component of red wine), has recently been shown to increase life expectancy in worms and fish. What are your predictions about the price and quantity of Japanese knotweed grown?

The price and quantity will both increase.

According to John Stossel, even though it does not make economic sense to produce ethanol, why do politicians support ethanol production?

They get more votes.

From society's point of view, providing education in the marketplace may not work well. Why not? Choose all that apply.

What students want (e.g. getting degrees as fast and little effort as possible) may not be what society wants. It is difficult to measure student learning, which makes it difficult to pay the education providers based on their performance.

When is a pharmaceutical business more likely to hire highly educated, cutting-edge workers and use new, experimental research methods?

When the business expects the price to be high

When will people search harder for substitutes for oil: When the price of oil is high or When the price of oil is low?

When the price of oil is high

If the demand curve is inelastic, a fall in price causes a decrease in revenues, and if the demand curve is elastic, a fall in price causes an increase in revenues. If the demand curve is unit elastic, a fall in price causes no changes in revenues and a rise in price causes no changes in revenues.

a decrease an increase no changes no changes

Suppose that technological innovations reduce the costs of producing a good. According to the supply and demand model, it leads to:

a lower price and an increase in quantity.

In the old Soviet Union, factory managers who increased productivity in response to new incentives were often denounced because their increased performance proved that they had previously been lazy. This example shows that:

a mutually beneficial piece rate may not work when there is distrust.

1. The invention of a better birth control might not reduce the number of unwanted pregnancies because... 2. Energy-efficient cars might not reduce our consumption of gasoline because... 3. Low-tar cigarettes may not lead to a lower incident of lung cancer because... 4. A seat belt law might not reduce the number of car-accident deaths because...

a. there could be more sex without using other forms of birth control. b. people would be driving more. c. people would be smoking more. d. people would be driving less carefully.

In the last several decades, productivity has increased in computer chips even faster than in farming. But as the price of computer chips has fallen, the quantity of computer chips demanded has increased even more. Computer chips are now not just in computers but in phones, televisions, automobiles, and toys. As a result, revenues for the computer chip industry have increased and made computing a larger share of the American economy. What type of demand curve does this suggest?

an elastic demand curve

If income increases and the demand for good X shifts as shown in the figure below, then is good X a normal or inferior good?

an inferior good

A headline in the New York Times read: "Study Finds Enrollment Is Up at Colleges Despite Recession." Economists would:

change "Despite" to "Because of" as what people have to give up by going to college decreases during a recession.

Saudi Arabia, the world's largest oil producer, produces about 10 million barrels of oil per day. Surprisingly, the United States is not far behind, producing nearly 9 million barrels per day. But there is one big difference between Saudi oil and U.S. oil. U.S. oil:

costs more to produce.

When Michigan repealed its mandatory minimum laws

crime rates dropped and the state saved money

Now let's tie all of the previous three questions into one simple sentence: "In a free market, as engineers and scientists discover new ways to makes cars safer, the number of dangerous cars sold will tend to ____________."

decrease

On average, old cars pollute more than newer cars. Therefore, every few years, a politician proposes a "cash for clunkers" program: The government offers to buy up and destroy old, high-polluting cars. If a "cash for clunkers" program buys 1,000 old, high-polluting cars, the number of old, high-polluting cars on the road will:

decrease by less than 1,000.

In the right panel of Figure 5.3 on page 73, when the price rises from $40 to $50, revenues ________. Therefore, demand at point a is ________

decrease; elastic

In the 1990s, doctors warned that too much fat could lead to heart attacks and the demand for beef decreased . The 2001 publication of Dr. Atkins' New Diet Revolution, a book promising weight loss on a high-protein, low-carb diet, increased the demand for beef.

demand for/decreased/increased/demand for

If a snowstorm was forecast for the next day, the demand for snow shovels would increase. This is a change in ________. This shift in the demand curve would affect the price; this would cause a change in ________.

demand; quantity supplied

When the price of gasoline rises, many people blame the greed of oil companies. It logically:

doesn't make sense because if it did, a lower price would be due to less greed.

Many people blame "greedy" Wall Street for the financial meltdown that occurred in 2008. Many people blame "greedy" insurance companies for many problems in the healthcare market. It logically:

doesn't make sense because if it did, we wouldn't be able to explain why other markets don't have similar problems

Piece rates are common in agricultural work because it's easy to measure, for example, the number of apples picked and this is close to what the employer wants. In the early days of computing, IBM paid its programmers per line of code. IBM programmers produced lots of low-quality code. IBM's incentive scheme did not work because what IBM paid for (more lines of code) was different from what IBM wanted (more high-quality code), which was mainly due to the fact that it is difficult to measure the quality of code.

easy/close to/low-quality/different from/difficult

Henry Ford famously mass-produced cars at the beginning of the twentieth century, starting Ford Motor Company. He made millions because mass production made cars cheap to make, and he passed some of the savings to the consumer in the form of a low price. Cars became a common sight in the United States thereafter. Given these facts, the demand for cars must have been elastic .

elastic

If the toothpick industry doubles in size, it can __________ pushing up the price of wood. If the housing industry doubles in size, it can __________ pushing up the price of wood.

expand without; only expand by

In the week before Hurricane Katrina hit New Orleans, sales of flashlights increased by 700 percent and battery sales increased by 250 percent. This example shows that ____________ affect(s) the demand for a good or service and therefore its price in the market.

expectations about the future

When the unemployment rate increases, the opportunity cost of college _____ and so ______ people attend college.

falls; more

For each of the following pairs of goods/services, determine which demand is likely to be LESS elastic. Demand for: corn or food Demand for pop: at O'Hare Airport or at Crystal Lake Walmart Demand for: chewing gum or automobiles Demand for: Root Beer or water Demand for gasoline over: a 2-hour period or a 6-month period Demand for: Dell computers or computers Demand for: insulin or Aspirin Demand for haircuts of: adults or children Demand for movie tickets for: the general public or students

food/at O'Hare Airport/chewing gum/water/a 2-hour period computers insulin adults the general public

According to Greg Newburn, prosecutors like mandatory minimums to:

further their own political agendas by appearing tough on crime .

If the price of glass dramatically increases, we are likely to see a lot LESS of _____ because glass bottles have ____substitutes.

glass bottles/more

A firm that doesn't pay for the pollution that it emits into the air has too ________ an incentive to emit pollution. Fishermen sometimes have too ________ an incentive to catch fish, thereby driving the stock of fish into collapse.

great/strong

Given the demand for illegal drugs is inelastic, prohibition increases the cost of selling drugs, which raises the price, and at a higher price, revenues from drug selling are greater even if the quantity sold is somewhat smaller . Nobel Prize-winning economist Gary Becker suggests making illegal drugs legal and taxing them , which, in theory, has the same effect on the market with reduced gangs, guns, and corruption while the government receive(s) more money.

greater smaller making illegal drugs legal and taxing them the government

In 1975, economist Sam Peltzman published a study of the effects of recent safety regulations for automobiles. According to the study, increased safety standards for automobiles:

had no measurable effect on passenger fatalities and pedestrian fatalities in automobile accidents increased.

You get what you pay for. But when what you pay for is not exactly what you want, it might lead to a problem. In the example of Enron and the other scandals of the 1990s and first decade of the 2000s, what you pay for is _________________ and what you really want is ___________________.

higher stock prices/a more profitable firm

When Lawrence Garrison says mandatory minimums encourage snitch culture, he means that the current laws:

incentivize other suspects to lie to curry favor with prosecutors and receive lower sentences.

If soccer becomes popular among youth, the demand for soccer shoes will increase . If consumer incomes fall, the demand for wine (which is assumed to be a normal good) will decrease . If consumer incomes rise, the demand for hamburgers (which is assumed to be an inferior good) will decrease . If the number of bicycle paths is decreased, the demand for bicycles will increase . If the price of cheese spread rises, the demand for peanut butter will decrease . If storms destroy many coffee trees in the world, the demand for tea will decrease . If the price of Apple computers rises, the demand for Windows-based computers will decrease . If the price of automobiles falls, the demand for gasoline will increase . If the price of petroleum falls, the demand for natural gas will decrease . If everyone thinks that the price of gasoline will fall next week, the demand for gasoline today will decrease . If pharmaceutical companies expect the prices of their new drugs to be high, their demand for highly educated workers will increase . If airbags are installed on cars, the demand for speed will increase .

increase/decrease/decrease/decrease/increase/increase/increase/increase/decrease/decrease/increase/increase

It's usually difficult to increase the supply of raw materials like oil, coal, and gold without increasing costs— remember from Chapter 3 that the higher the price, the deeper the mine—so the supply of raw materials tends to be inelastic . The supply of manufactured goods is usually more elastic than that of raw materials since production can often be increased at the same cost per unit by building more factories.

inelastic more elastic than

Although it doesn't always seem this way, Americans want to consume only so much more food even if the price falls by a lot, which means the demand for food is inelastic . Given this elasticity of demand for food, a supply increase caused by productivity improvements in agriculture will reduce farm revenues.

inelastic reduce

Immigration is a fact of life in the United States. This will lead to a big boost in the labor supply. When the labor supply increases, a fall in wage will be large if the demand for labor is:

inelastic.

Egypt and Syria attacked Israel in 1973 in an effort to regain the Sinai Peninsula and the Golan Heights, which Israel had captured in 1967. In an effort to punish Western countries that had supported Israel, a number of Arab exporting nations cut oil production. The ________ increase in price from a ________ decline in supply demonstrated how much the world depended on oil.

large; small

Suppliers can respond to an increase in the price of bicycles fairly quickly by running currently existing factories at higher capacity. Given more time, however, suppliers can increase output at lower cost by building new factories. Therefore, the supply of bicycles is:

less elastic in the short run than in the long run.

If a larger share of oil was used to make plastic, the supply of plastic would be more elastic. The elasticity of supply of nurses over a period of several years is less elastic than the supply of nurses over the next month.

less/more

In equilibrium, every seller has ________ costs than every non-seller. Also, every buyer has a ________ willingness to pay for the good than every non-buyer.

lower/higher

Who is likely to have a LESS elastic supply, manufacturers operating with lots of idle machines or manufacturers operating at full capacity? manufacturers operating at full capacity A fisherman must sell all of his daily catch before it spoils for whatever price he is offered. Once the fish are caught, what is the fisherman's elasticity of supply for fresh fish? Choose the best answer. Perfectly inelastic

manufacturers operating at full capacity Perfectly inelastic

Suppliers who expect that prices will decrease in the future have an incentive to sell ______ today. Thus, the expectation of a future price decrease shifts today's supply curve to the ______.

more; right

In a free market, between buyers and sellers, there are:

no unexploited gains from trade and no wasteful trades.

If the supply of used guns is perfectly elastic, a gun buyback program will increase the number of guns in circulation tremendously . Imagine that instead of guns, the Washington police decided to buy back shoes. The shoe buyback is unlikely to cause people to go shoeless.

not change the number of guns in circulation unlikely to cause

Prosecutors often seek to avoid lengthy trials. Instead, they encourage defendants to take plea bargains by:

offering lighter sentences than the mandatory minimums judges would have to impose .

Robert is cruising down Interstate-80 toward Des Moines, Iowa. Robert wants to get to his destination quickly and safely and he doesn't want to get a speeding ticket. The speed limit is 70 mph but he figures the risk of a ticket is low if he travels just a little bit faster, so Robert sets the cruise control to 72 mph. Robert and his thumb illustrate what economists mean by thinking on the margin .

on the margin

Picasso won't be painting any more Guernicas no matter how high the price of his paintings rises so the supply of newly created, genuine Picasso paintings is:

perfectly inelastic

It's an important tradition in the Santos family that they eat the same meal at their favorite restaurant every Sunday. By contrast, the Chen family spends exactly $50 for their Sunday meal at whatever restaurant sounds best. For a reasonable price range, the Santos family's demand for the Sunday meal is perfectly inelastic . The Chen family's demand for their Sunday meal is unit elastic .

perfectly inelastic unit elastic

If the price of automobiles in the market falls, the quantity supplied of automobiles will increase . A technological innovation reduces the costs of producing high-quality steel. The supply of steel will increase . When oil companies expect the price of oil to be lower next year, the supply of oil today increase . Taxes usually decrease the supply of a good.

quantity supplied/decrease/increase/increase/decrease

A harsher penalty for drug dealing will reduce the marginal (additional) cost of killing police officers. A harsher penalty for kidnapping will reduce the marginal (additional) cost of killing the kidnapped.

reduce/reduce

When the crime rate falls in the area around a factory, wages at that factory are likely to:

rise because the employer can pay higher wages. fall because the employer can pay lower wages and still find employees.

What would you predict would happen to college enrollment during a recession? The price of tuition, books, and room and board doesn't fall during a recession, but the unemployment rate falls so it's harder to get a high-paying job. That means you lose less by attending college when the unemployment rate is high; in opportunity costs terms, it costs less to go to college, which implies more college enrollment.

rises/less/less/more

Sellers want higher prices and buyers want lower prices. Sellers compete with other sellers . Buyers compete with other buyers . Therefore, if the market is competitive and the price of a good that you want is high, you should "blame" buyers .

sellers buyers buyers

(You can't find the direct answer to this question in the chapter. But, there is a hint. You need to read between the lines.) A $10 tax on oil producers:

shifts the supply curve for oil up by $10.

If the price is below the equilibrium level, it creates a shortage and the price starts to rise . If the price is above the equilibrium level, it creates a surplus and the price starts to fall . Answer

shortage/rise/surplus/fall

If the price of a one-bedroom apartment in Washington, DC, is currently $1,000 per month, but the supply and demand curves look as in Question 3 of Thinking and Problem Solving on page 62, then there is a ________ of apartments. We would expect the price to ______.

shortage; rise

In 2008, the price of wheat tripled, and many people all around the world bought less bread. But neither of the authors of the textbook cut back much on his consumption of bread. The price of bread is too small a portion of their budgets, so their demand for bread is elastic . A larger share of a person's budget devoted to housing makes the demand for housing more elastic.

small inelastic larger more

According to the elasticity rule, if two linear demand (or supply) curves run through a common point, then at any given quantity, the curve that is ________ is ______ elastic.

steeper; less flatter; more

Natural gas is a ________ oil in some uses such as heating. Suppose that the price of natural gas goes up. The demand curve for oil shifts _____________. Ground beef and hamburger buns are ___________. Suppose the price of beef goes up. The demand curve for hamburger buns shifts _________ .

substitute for/up and to the right/complements/down and to the left

Think about two products, "safe cars" (a heavy car such as a BMW 530xi with infrared night vision, four-wheel antilock brakes, and electronic stability control), and "dangerous cars" (a lightweight car such as _____ [name removed for legal reasons, but you can fill in as you wish]). These two products are:

substitutes.

Use Figure 4.2 on page 49 to answer the questions. When the price of oil is $50 per barrel, there is a surplus of 35 MBD. When the price of oil is $15 per barrel, there is a shortage of 30 MBD.

surplus/68/shortage/71

When price is above the equilibrium price, a surplus results and competition will push the price down . When price is below the equilibrium price, a shortage results and competition will push the price up .

surplus/down/shortage/up

Mandatory minimum sentences:

take away the ability of judges to decide what punishment fits the crime.

If shareholders believed that, on average, the costs of cheating exceeded the benefits of encouraging harder work, they would offer their CEOs fewer stock options and other strong incentives. The fact that most of these incentives have stayed in place, albeit with more monitoring of potentially bad behavior, indicates that, on average,

the costs of cheating have been lower than the benefits of encouraging harder work.

Jon is on eBay, bidding for a first edition of the influential Frank Miller graphic novel Batman: The Dark Knight Returns. In this market, Jon is competing with _______________. Now, Jon is in Japan, trying to get a job as a full-time translator; he wants to translate English TV shows into Japanese and vice versa. He notices that the wage for translators is very low. Who is the "competition" that is pushing the wage down? The competition comes from _______________.

the other bidders; the other translators

The auto-glass installer Safelite Glass Corporation switched from an hourly wage system to a piece rate in 1994. Safelite was able to handle the quality control issue by linking every job with a worker so that if a quality problem arose, the worker who was responsible for that windshield installation had to fix it on his or her own time. Productivity quickly improved by an astonishing 44% because:

the same workers worked harder with lower absenteeism and fewer sick days it attracts more productive workers.

Since market incentives are ___________ for flu shots, the free market for flu shots ________ align self-interest with the social interest.

too weak/does not

Vernon Smith began his experiments thinking that they would prove the supply and demand model was ________. His experiments proved that the supply and demand model was ________.

wrong; right

Let's think about the demand for LED TVs below. What is the total consumer surplus at a price of $800 per TV where 1,200 TVs were demanded? Do NOT type "$" in the box.

2,520,000

Demand curves can be read in two ways. Read "horizontally," we can see from Figure 3.2 on page 29 that at a price of $20 per barrel, demanders are willing and able to buy _____ million barrels of oil per day. Read "vertically," we can see that the maximum price that demanders are willing to pay for 25 million barrels of oil a day is $ ____ per barrel.

25/20

What is the quantity demanded when the price is $20? How much are the buyers willing to pay for the 10th unit of the product? When the price changes from $60 to $40, the ________ increases from 20 units to 30 units. Suppose the market price is $40. Calculate the dollar amount of total consumer surplus earned in this market. Suppose the market price is $20. Calculate the dollar amount of total consumer surplus earned in this market. How much does total consumer surplus increase when the price falls from $40 to $20?

40/$80/quantity demanded/$900/$1600/$700

If the price of oil is $45 per barrel and Saudi Arabia can produce oil at $2 per barrel, then we say that Saudi Arabia earns a producer surplus of $______per barrel. Similarly, if the price of oil is $45 per barrel and Nigeria can produce at $______ a barrel, Nigeria earns a producer surplus of $39 per barrel.

43/6

Suppose a war in the Middle East cuts off the supply of oil to the United States. What will happen to the market for oil in the U.S.? In the following chain of events, choose the one(s) that is (are) INCORRECT.

3. The demand for oil decreases. 4. The price of oil falls. 5. The demand for oil increases.

The numbers might be different from the ones from the slides. Suppose the elasticity of demand is = - 3. When the price rises by 1%, the quantity demanded falls by: When the price rises by 3%, the quantity demanded falls by: Suppose the elasticity of demand is - 0.4. When the price falls by 1%, the quantity demanded increases by: When the price falls by 12%, the quantity demanded increases by:

3/9/0.4/4.8

As with demand curves, supply curves can be read in two ways. Read "horizontally," Figure 3.8 on page 35 shows that at a price of $20 per barrel suppliers are willing to sell ____ million barrels of oil per day. Read "vertically," the supply curve tells us that to produce 30 million barrels of oil a day, suppliers must be paid at least $____per barrel.

30/20

Your roommate just bought an iPod for $200. She would have been willing to pay $500 for a machine that could store and replay that much music. How much consumer surplus does your roommate enjoy from the iPod? Do NOT type "$" in the box.

300

What is the sum of consumer and producer surplus at equilibrium? $ What is the value of unexploited gains from trade at Q = 1? $ What is the sum of consumer and producer surplus at Q = 1? $ What is the value of wasted resources at Q = 6? $ What is the sum of consumer and producer surplus at Q = 6? $

32/18/14/8/24

Michael is an economist. He loves being an economist so much that he would do it for a living even if he only earned $30,000 per year. Instead, he earns $80,000 per year. (Note: This is the average salary of new economists with a Ph.D. degree.) How much producer surplus does Michael enjoy? Do NOT type "$" in the box.

50,000

What is the quantity supplied when the price is $10? 400 What is the cost of producing and selling the 200th unit of the good? In other words, what is the minimum price the seller has to receive to sell the 200th unit? $4 When the price changes from $8 to $4, the quantity supplied decreases from 400 units to 200 units. Suppose the market price is $6. Calculate the dollar amount of total producer surplus earned in this market. $900 Suppose the market price is $2. Calculate the dollar amount of total producer surplus earned in this market. $100 How much does total producer surplus increase when the price rises from $2 to $6? $800

500/$4/quantity supplied/$900/$100/$800

Use Figure 4.3 on page 50 to answer the questions. Buyers would be willing to pay $ 57 for the 24th unit and, at minumum, sellers are willing to sell the 24th unit for $ 15 . Buyers would be willing to pay $ 15 for the 95th unit and, at minumum, sellers are willing to sell the 95th unit for $ 50 . At the quantity of 24 MBD, trade at any price between $15 and $57 can make both buyers and sellers better off. There will be unexploited gains from trade at any quantity less than 65 MBD. There will be wasted resources at any quantity more than 65 MBD.

57/15/15/50/any price between $15 and $57/unexploited gains from trade at any quantity less than/wasted resources at any quantity more than

If a consumer, say, the president of the United States, is willing to pay $100 per barrel to fuel his jet plane but the price of oil is only $30 per barrel, then the president earns a consumer surplus of $ ___ per barrel. If Joe is willing to pay $ __ and the price of oil is $30 per barrel, then Joe earns a consumer surplus of $10 per barrel.

70/40

For which of the following products would you expect the largest increase in price for the same increase in demand? A first edition of Adam Smith's The Wealth of Nations The supply of a good is more elastic when: it is easy to produce more at the same cost. In the world of fashion, the power to imitate a trendy look is the power to make money. Stores like H&M and Forever 21 focus on imitating fashions wherever possible: As soon as they see that a new look is coming along, something people are willing to pay a high price for, they start cranking out that look. Do these imitation-centered stores make the supply of clothing more elastic or more inelastic? More elastic

A first edition of Adam Smith's The Wealth of Nations it is easy to produce more at the same cost. More elastic

In 2002, the Atkins diet, which emphasized eating more meat and fewer grains, became very popular. What do you suppose that did to the price and quantity of bread? Both increased.

Both decreased

What would happen to the equilibrium quantity and price of sugar if a new study was published that emphasized negative health effects of consuming sugar?

Both would fall.

The next three questions are based on the John Stossel video, "Unintended Consequences". According to the video, what is (are) the unintended consequence(s) of wearing a bike helmet? Choose all that apply.

Cars tend to come closer to you because the drivers are less afraid of seriously harming you. Because it is more expensive and cumbersome to wear a helmet, the number of cyclists falls and people exercise less, which may lead to health issues. You tend to be less careful riding a bike because you feel safer.

As a result of easier measurement of output, performance pay (piece rates, commissions, bonuses, and other rewards tied directly to output) is becoming more common in the U.S. economy and this is one important reason why the inequality of earnings has __________.

Increased

Why might newspaper recycling be very costly? Choose all that apply.

De-inked fiber from old newsprint produces sludge which is costly to dispose of. There will be less incentive to plant trees to produce paper. The recyclers might use higher-polluting energy such as coal.

Which of the following two goods is more likely to be inelastically demanded? Demand for fruit Which of the following two goods is more likely to be inelastically demanded? Demand for beef next month Which of the following two goods is more likely to be inelastically demanded? Demand for gasoline in the entire city Which of the following two goods is more likely to be inelastically demanded? Demand for insulin After a public information campaign highlighting that bacteria and other organisms cause and spread disease, will the demand curve for soap be more elastic or more inelastic? More inelastic After the invention of nuclear power plants, will the demand curve for coal power plants be more elastic or more inelastic? More elastic After more employers allow employees to telecommute, will the demand curve for cars be more elastic or more inelastic? More elastic After an economic boom, will the demand curve for TVs be more elastic or more inelastic? More inelastic During the Middle Ages, the African city of Taghaza quarried salt in 200-pound blocks to be sent to the salt market in Timbuktu, in present-day Mali. Travelers report that Taghazans used salt instead of wood to construct buildings. Compared with other towns without big salt mines, was the demand for wood more elastic or more inelastic in Taghaza? More elastic

Demand for fruit Demand for beef next month Demand for gasoline in the entire city Demand for insulin More inelastic More elastic More elastic More inelastic More elastic

Use the following table of the elasticities of demand to answer the following questions. Adult Females Adult Males Children Cleanings - 0.79 - 0.14 - 1.34 Fillings - 0.58 - 0.73 - 0.95 Extractions - 0.21 - 1.51 - 0.97 Examinations - 0.56 - 0.03 - 0.59 If all three groups were provided with company paid dental insurance (i.e., a decrease in the price of dental care), for which service(s) would expenditure unambiguously fall? If only children were provided with dental insurance, for which service would expenditure change the least? If only children were provided with dental insurance, for which service would quantity demanded change the least? If only adult males were provided with dental insurance, for which service would expenditure change the least? If only adult males were provided with dental insurance, for which service(s) would expenditure rise? If only adult females were provided with dental insurance, for which service would expenditure fall the most?

Fillings and Examinations Extractions Examinations Fillings Extractions Extractions

If a fashionable clothing store raises its prices by 25%, what does that suggest about the store's estimate of the elasticity of demand for its products?

It is inelastic.

Imagine that a technological innovation reduces the costs of producing high-quality steel. What happens to the supply curve for steel?

It shifts down and to the right.

The questions might be slightly different from the ones from the slides. Consider public policy aimed at smoking. Studies indicate that the elasticity of demand for cigarettes is about - 0.4. What will happen to the tax revenue from cigarettes if the government increases the tax on cigarettes? If MCC lowers the tuition, under what condition, will the revenue from tuition increase? A municipal transit system is losing money. An economic consultant suggests that the transit system would have more revenue if it lowered its fares. If the consultant is right, what can you say about the demand for public transport? In a study of the New York Transit Authority, an economist discovers that the elasticity of demand for subway is - 0.15. On the basis of this information, would a rise in the subway fare increase or decrease the Transit Authority's revenues from subway? D. Chapman, T. Tyrell, and T. Mount estimated that the long-run elasticity of demand for electricity by all U.S. residential consumers is - 1.2. What would happen to the total expenditure by the consumers in the long run if the price of electricity were reduced? Explain the following NPR article: "You've all heard a lot about this year's devastating drought (Links to an external site.) in the Midwest, right?... On average, corn growers actually will rake in a record amount of cash from their harvest this year." In 1976, a frost in Brazil killed over 500 million coffee trees and damaged many more. A civil war in Angola, a major supplier of coffee, cut back its production. An earthquake in Guatemala disrupted the flow of coffee. But these producers reported an increase in export revenue. Why? . The president of a leading producer of tantalum says that an increase in the price of tantalum would have no effect on the total amount spent on tantalum. If this is true, what can you say about the price elasticity of demand for tantalum? Explain. Suppose consumers spend $15 a month on CDs, regardless of whether the price they pay goes up or down. What can you say about the consumers' demand for CDs?

It will increase The demand for MCC education is elastic. The demand for MCC education is elastic. It would increase. It would increase. The demand for corn was inelastic. The demand for coffee was inelastic. The demand for tantalum is unit-elastic. The demand for CDs is unit-elastic.

The elasticity of demand for eggs has been estimated to be 0.1. If the price of eggs increases by 10%, what will happen to the total revenue of egg producers or in other words the total spending on eggs?

It will increase.

Assuming that the demand for illegal drugs is inelastic, what will happen to the total revenue of the illegal drug industry as a whole if the government arrests drug dealers and confiscates illegal drugs? As a result of the answer above, what will happen to the market for illegal drugs? What is the economic explanation of why drug dealers/buyers tend to resort to illegal means of conflict resolution such as violence? Illegal drugs tend to be more potent. Why? The quality illegal drugs tends to be worse. Why? Suppose there is a high demand for a good or service that is "undesirable" such as drugs or prostitution. What type of people will gain most if it is made illegal? What incentives does prohibiting a certain action (e.g., selling drugs or prostitution) create when the demand for the action is very high?

It will increase. The supply of drugs will increase. The marginal cost of committing another crime is lower for them. All of the above. All of the above. Those who are good at violating the laws (e.g., violence, deception, etc.) Both of the above.

Assume that butter and margarine are substitutes. What will happen to the demand curve for butter if the price of margarine increases?

It will shift up and to the right.

Cars and gasoline are complements. What will happen to the demand curve for gasoline if the price of cars decreases?

It will shift up and to the right.

What would happen to the average grade if everyone got the class average regardless of his/her individual performance?

It would fall because the benefit of studying harder decreases.

Vioxx users were outraged when in September 2004 Merck withdrew the arthritis drug from the market after a study showed that it could cause strokes and heart attacks. Vioxx had been on the market for five years and had been used by millions of people. Patients were angry at Merck and at the Food and Drug Administration (FDA). Many people demanded more testing and safer pharmaceuticals. Economists worried that approved pharmaceuticals could become too safe. How is it possible to be too safe?

More testing means that some good drugs are delayed. Some people suffer because they can't use them sooner. More testing means higher costs of developing new drugs and fewer new drugs become available. Some people suffer because they never get to use useful drugs.

If the air we breathe in free?

No, we use resources to make sure that the air is breathable. In other words, the goods and services we buy are more expensive because of it.

Public prisons might use their slack budget constraints to offer high-quality rehabilitation programs, or they might instead offer prison guards above-market wages. Which is more likely? (Though not required, you should be able to explain why.)

Offering prison guards above-market wages

Sometimes, piece rates don't work so well. Why might the following incentive mechanism turn out to be more trouble than they're worth? An industrial materials company pays welders by the number of welds per hour. Of course, the company only pays for necessary welds.

Quality is likely to be low. It's not easy to judge a quality weld after the fact. Quality matters All of the above.

When supply falls, what happens to quantity demanded in equilibrium? . If oil executives read in the newspaper that massive new oil supplies have been discovered under the Pacific Ocean but will likely only be useful in 10 years, what is likely to happen to the supply of oil today? If oil executives read in the newspaper that new solar-power technologies have been discovered but will likely only become useful in 10 years, what is the likely equilibrium impact on the price and quantity of oil today? If we learn today about promising future energy sources, today's price of energy will _______ and today's quantity of energy will __________.

Quantity demanded decreases. The supply of oil will increase today. The price of oil will fall, the quantity of oil will increase. fall, increase

According to the authors, which of the following is not part of the opportunity cost of attending college?

Room and board

Why are salespeople so much more likely than other kinds of workers to be paid on a "piece rate" (i.e., on commission)?

Sales are close to what a manager wants. Sales are easy to observe. It's very easy for a salesperson not to work hard. All of the above.

Markets usually align your self-interest with the social interest. Explain how they do it by describing the incentives and the behaviors of both sellers and buyers.

Social interest would be not eating meat since the meat industry doesn't care how their animals are cared for. People notice the brutality towards helpless animals. With the incentive would be making lots of money from products that taste like meat without it being actual meat. Sellers want to put as much as they can into their own pockets. If sellers notice that the Impossible burger is selling well, without that burger being actual meat. That's a great incentive to produce one like it and less expensive. Self interest would be not eating animals and social interest would push products that don't contain meat.

According to the video, what is (are) the unintended consequence(s) of requiring child safety caps on medication? Choose all that apply.

Some parents, feeling safer with safety caps, leave medication where their kids can get it. Some people, especially older ones, have a harder time opening the caps that they leave them open.

What are the costs of the FDA being more careful approving drugs? Choose all that apply.

Some people may never be able to try new drugs. Some people may have to wait longer to try new drugs. Some people may have to pay higher prices for new drugs.

What will happen to the market for Budweiser if the price of Miller falls? What will happen to the market for tea if storms destroy 30% of coffee trees in the world? Assume coffee and tea are substitutes. What will happen to the market for bread if good weather leads to an increase in the amount of wheat harvested? . What will happen to the market for butter if good weather leads to an Increase in the amount of wheat harvested?

The demand for Budweiser will decrease. The price and quantity of tea will increase. The supply of bread will increase. The price and quantity of butter will increase.

When the price of olive oil goes up, what probably happens to the demand for corn oil? When the price of petroleum goes up, what probably happens to the demand for natural gas?

The demand for corn increases. The demand for natural gas increases.

What will happen to the market for peanut butter if the price of peanuts falls and the price of jelly fall

The demand for peanut butter will increase. The supply of peanut butter will increase. The quantity of peanut butter will increase. The effects on the price of peanut butter are not clear.

If a snowstorm was forecast for the next day, what would happen to the market for snow shovels that day? In the 1990s, the Atkins diet, which emphasized eating more meat and fewer grains, became very popular. What happened to the market for bread? Many clothing stores often have clearance sales at the end of each season. What is happening in the market for clothing at the end of each season? The fair-trade movement increases the demand for fair-trade certified coffee. How does this affect the market for non-certified coffee? A zoning law restricts construction of new homes and apartments. How does this affect the market for housing in the nearby places without zoning laws? 19th century paleontologists traveling to China used to pay peasants for each piece of dinosaur bone that they presented. What happened to the market for dinosaur bone pieces? In colonial India, the British government wanted to decrease the population of venomous cobra snakes, so they offered a reward for every dead snake. What happened to the market for dead cobra snakes?

The demand for snow shovels would increase. The demand for bread decreased. The demand for clothing is decreasing. The demand for non-certified coffee decreases. The demand for housing nearby increases. The demand for dinosaur bone pieces increased. The demand for dead cobra snakes increased.

What will happen to the market for textbooks if fewer students attend college and paper becomes cheaper?

The demand for textbooks will decrease. The supply of textbooks will increase. The price of textbooks will fall. The effects on the quantity of textbooks are not clear.

If everyone thinks that the price of tomatoes will go up next week, what is likely to happen to demand for tomatoes today? If everyone thinks that the price of gasoline will go up next week, what is likely to happen to the demand for gasoline today?

The demand for tomatoes today will increase. The demand for gasoline today will increase.

What would happen to the equilibrium quantity and price of sugar if strict immigration laws made many sugar cane harvesters leave the country?

The price would rise while the quantity would fall.

Consider the farmers talked about in the chapter who have land that is suitable for growing both wheat and soybeans. Suppose all farmers are currently farming wheat but the price of soybeans rises dramatically. Does the opportunity cost of producing wheat rise or fall? What happens to the supply curve for wheat?

The opportunity cost of producing wheat rises and the supply curve for wheat shifts up and to the left.

OPEC, the Organization of the Petroleum Exporting Countries, was formed in 1960. By the early 1970s, further nationalizations in the OPEC countries made it possible for OPEC countries to act together to reduce production of oil. Other things equal, what happened to the price and quantity of oil in the world as a result?

The price rose while the quantity decreased.

Flooding in Iowa destroys some of the corn and soybean crop. What will happen to the price and quantity for each of these crops?

The price will rise while the quantity will decrease.

Suppose that drug addicts pay for their addiction by stealing: So the higher the total revenue of the illegal drug industry, the higher the amount of theft. If a government crackdown on drug suppliers leads to a higher price of drugs, what will happen to the amount of stealing if the demand for drugs is elastic? The overall amount of stealing will decrease. Suppose that drug addicts pay for their addiction by stealing: So the higher the total revenue of the illegal drug industry, the higher the amount of theft. If a government crackdown on drug suppliers leads to a higher price of drugs, what will happen to the amount of stealing if the demand for drugs is inelastic? The overall amount of stealing will increase. Immigration is a fact of life in the United States. This will lead to a big boost in the labor supply. What field would you rather be in, assuming that the immigrant workers are coming to your field? A field where the demand for your kind of labor is elastic. We saw that a gun buyback program was unlikely to work in Washington, D.C. If the entire United States ran a gun buyback program, would that be better at eliminating guns or worse? Hint: Is the supply of guns at a national level more elastic or more inelastic? Better

The overall amount of stealing will decrease. The overall amount of stealing will increase. A field where the demand for your kind of labor is elastic. Better

19th century paleontologists traveling to China used to pay peasants for each piece of dinosaur bone that they presented. a. What happened as a result? b. Fill in the blank: The result of the previous question can be analyzed as a(n) __________ in response to a higher price of a piece of dinosaur bone.

The peasants found bones and smashed them into many pieces./increase in the quantity supplied

Jules wants to purchase a Burger Royale with cheese from Vincent. Vincent is willing to offer this tasty burger for $3. The most that Jules is willing to pay for the tasty burger is $8 (after all, his girlfriend is a vegetarian, so he doesn't get many opportunities for tasty burgers). How large are the potential gains from trade if Jules and Vincent agree to make this trade? In other words, what is the sum of producer and consumer surplus if the trade happens?

The potential gains from trade: $ 5 If the trade takes place at $4, how much producer surplus goes to Vincent? Producer surplus to Vincent: $ 1 If the trade takes place at $4, how much consumer surplus goes to Jules? Consumer surplus to Jules: $ 4 If the trade takes place at $7, how much producer surplus goes to Vincent? Producer surplus to Vincent: $ 4 If the trade takes place at $7, how much consumer surplus goes to Jules? Consumer surplus to Jules: $ 1

As late as 2000, there were just 6 million cars in all of China, but by 2010 more vehicles were bought in China than in the United States, almost 18 million in that one year alone. Total highway miles quadrupled between 2000 and 2010. As a result, other things equal, what happened to the price and quantity of oil in the world?

The price and quantity both increased.

What happened in Vernon Smith's lab? When demand increases, what happens to price and quantity in equilibrium? When supply increases, what happens to price and quantity in equilibrium? When supply decreases, what happens to price and quantity in equilibrium? When demand decreases, what happens to price and quantity in equilibrium? What's the best way to think about the rise in oil prices in the 1970s, when wars and oil embargoes wracked the Middle East? What's the best way to think about the rise in oil prices in the last 10 years, as China and India have become richer: Was it a rise in demand, a fall in demand, a rise in supply, or a fall in supply?

The price and quantity were close to equilibrium and gains from trade were close to the maximum. Price and quantity both increase. Price decreases and quantity increases. Price increases and quantity decreases. Price and quantity both decrease. A decrease in supply. An increase in demand.

With the increase in gasoline prices, demand has shifted away from large cars and SUVs, and toward hybrid cars such as the Prius. What do you predict will happen to the price and quantity of hybrids as the price of gasoline rises?

The price and quantity will both increase

If the elasticity of demand for college textbooks is -0.1, and the price of textbooks increases by 20%, how much will the quantity demanded change, and in what direction? The quantity demanded decreases by 2%. If the elasticity of demand for spring break packages to Cancun is -5, and if you notice that this year in Cancun the quantity of packages demanded increased by 10%, then what happened to the price of Cancun vacation packages? The price fell by 2 percent. In your college town, real estate developers are building thousands of new student-friendly apartments close to campus. If you want to pay the lowest rent possible, should you hope that demand for apartments is elastic or inelastic? Inelastic In your college town, the local government decrees that thousands of apartments close to campus are uninhabitable and must be torn down next semester. If you want to pay the lowest rent possible, should you hope that demand for apartments is elastic or inelastic? Elastic The long-run elasticity of oil demand has been estimated at -0.5. If the price of oil rises by 10%, how much will the quantity of oil demanded fall? 5% The long-run elasticity of oil demand has been estimated at -0.5. Does a 10% rise in oil prices increase or decrease total revenues to the oil producers? Increase France has the largest long-run elasticity of oil demand (-0.6) of any of the large, rich countries, according to Cooper's estimates. Does this mean that France is better at responding to long-run price changes than other rich countries, or does it mean France is worse at responding? Better at responding The elasticity of demand is 0.2. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? Note: we present the elasticity in terms of its absolute value. Relatively steep; lower total revenue The elasticity of demand is 2.0. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? Note: we present the elasticity in terms of its absolute value. Relatively flat; raise total revenue The elasticity of demand is 1.1. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? Note: we present the elasticity in terms of its absolute value. Relatively flat; raise total revenue The elasticity of demand is 0.9. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? Note: we present the elasticity in terms of its absolute value. Relatively steep; lower total revenue

The quantity demanded decreases by 2%. The price fell by 2 percent. Inelastic Elastic 5% Increase Better at responding Relatively steep; lower total revenue Relatively flat; raise total revenue Relatively flat; raise total revenue Relatively steep; lower total revenue

Use Figure 4.3 on page 50 to answer the question. Which of the following correctly describes the situation in which suppliers are producing 95 MBD?

The suppliers are not willing to produce the 95 millionth barrel of oil because they would only get $15 for it while it would cost them $50 to produce it.

The following questions may not be identical to the ones from the slides. What will happen to the market for automobiles if the price of steel falls? The supply of automobiles will increase. What will happen to the market for automobiles if the wage of automobile workers rises? The supply of automobiles will decrease. What will happen to the market for automobiles if consumer incomes increase? The demand for automobiles will increase. What will happen to the market for automobiles if interest rates rise? The demand for automobiles will decrease. What will happen to the market for Blu-ray discs if the price of Blu-ray players falls? The demand for Blu-ray discs will increase. What will happen to the market for college education if the unemployment rate falls? The demand for college education will decrease. What will happen to the market for raisin bread if fungi wipe out a half of the grapes in California? The supply of raisin bread will decrease. What will happen to the market for garden gnomes if they regain widespread popularity? The demand for garden gnomes will increase. What will happen to the market for violins if the the cost of wood rises? The supply of violins will decrease.

The supply of automobiles will increase. The supply of automobiles will decrease. The demand for automobiles will increase. The demand for automobiles will decrease. The demand for Blu-ray discs will increase. The demand for college education will decrease. The supply of raisin bread will decrease. The demand for garden gnomes will increase. The supply of violins will decrease.

The industrial areas in northeast Washington, DC, were relatively dangerous in the 1980s. Over the last two decades, the area has become a safer place to work (although there are still seven times more violent crimes per person in these areas compared with another DC neighborhood, Georgetown). When an area becomes a safer place to work, what probably happens to the "supply of labor" in that area?

The supply of labor increases.

Why is the hourly wage for the typical radio or television announcer only $13 per hour, lower than almost any other job in the entertainment or broadcasting industry?

The supply of radio/television announcers is high

Every May, Chicago public school students take a standardized test. Depending on the scores, some schools could be closed, some teachers could be reassigned, or some principals could get fired. After this scheme was implemented, Brian Jacob and Steven Levitt started to look carefully at the test data and found some possible evidence of teacher cheating. What did they find?

There were students who got easy answers wrong and difficult answers right. There were groups of students who had exactly the same right and wrong answers. There were students who received high grades during a test year but low grades the year after. There were more of the above three after the penalty for low-performing schools went into effect. (All of the above)

Why do you think the novels by Dickens and Dostoyevsky tend to be very long? Given what you have learned in the chapter, you need to guess which is likely the right answer (or search through the chapter).

They were paid by the word (or chapter).

American Airlines' quarterly luxury magazine, Celebrated Living had interviews with Michael Jordan, Robert Redford, Clint Eastwood, Giorgio Armani, etc. a. What did they all single out as the ultimate luxury? Time b. What does it really mean from the economist's perspective? Since they earn so much money by working, if they don't work, they will be losing millions of dollars. They don't have time because they don't want to lose that much money.

Time/ Since they earn so much money by working, if they don't work, they will be losing millions of dollars. They don't have time because they don't want to lose that much money.

Will the economy as a whole lose anything if the government transfers money from one person to another? Choose all that apply.

Yes, one of them has less incentive to work because she receives less for the same amount of work. Yes, one of them has less incentive to work because he receives more without working. Yes, we use resources to redistribute income/wealth.

Much of the world's supply of palm oil (which is used in a variety of products including chocolate and soap) is grown in Indonesia on farms where rainforest once stood. To this day, farmers deforest the local jungle to plant more oil palms (Elaeis guineensis). Suppose an environmental group decided to combat this deforestation by buying local rainforest. Would this strategy be more successful than slave redemption programs?

Yes, the supply of rainforest is inelastic. Yes, it would encourage planting of more rainforest trees.

According to the video, what is (are) the unintended consequence(s) of keeping your house clean? Choose all that apply.

Your kids may become more vulnerable to allergies and asthma.

Who has a better incentive to work long hours in a laboratory researching new cures for diseases?

a scientist who earns a percentage of the profits from any new medicine she might invent.

If the price in a market is above the equilibrium price, this creates: When the price is above the equilibrium price, greed (in other words, self-interest) tends to: Jon is on eBay, bidding for a first edition of the influential Frank Miller graphic novel Batman: The Dark Knight Returns. In this market, who is Jon competing with? Now, Jon is in Japan, trying to get a job as a full-time translator; he wants to translate English TV shows into Japanese and vice versa. He notices that the wage for translators is very low. Who is the "competition" that is pushing the wage down?

a surplus/push the price down/The other bidders/Other translators

In each of the cases below, determine what will happen to the supply. The questions might slightly be different from the slides. If cold weather hurts the lettuce crop, the supply of lettuce will decrease . If lumber prices fall, the supply of new homes will increase . If the wages of steel workers rise, the supply of steel will decrease . If a new knitting machine is invented, the supply of sweaters will increase . If the price of corn falls, the supply of soybeans will increase . If the price of pig feed rises, the supply of bacon will decrease .

decrease/increase/decrease/increase/increase/decrease

When the United States signed the North American Free Trade Agreement (NAFTA), reducing barriers to trade among the United States, Mexico, and Canada, Canadian producers of lumber entered the U.S. market. As a result, the supply curve of lumber in the United States shifted:

down and to the right.

Suppose that a technological innovation in oil drilling such as sidewise drilling allows more oil to be produced at the same cost. The supply curve of oil ______. A rise in the wages of oil rig workers will shift the supply curve ______.

down and to the right/up and to the left

For most young people, working full time and going to school are substitutes. When the economy is experiencing a recession: The opportunity cost of going to college ___ and The demand for college education ____ .

falls/increases

Suppose that a farmer can use his land to grow either soybeans or wheat. When the price of wheat falls, the farmer's opportunity cost of growing soybeans ____________ and the supply curve of soybeans shifts ______________.

falls; down and to the right.

For most young people,working full time and going to school are substitutes: You tend to do one or the other. When it's tough to find a job, the opportunity cost of going to college ________ and the demand for college ________.

falls; increases

The statement, "You can't put a price tag on life!", is: The statement, "You can't put a price tag on the environment!" is:

false because the price is determined by how much the buyers and willing to pay for it and how much it costs to "produce" (e.g., save) it. . false because the price is determined by how much the buyers and willing to pay for a better environment and how much it costs to "produce" it. .

What you pay for is often different from what you want and, as a result, an undesirable result occurs. In the Chicago public school example, a. "What you pay for" is: higher test scores. b. "What you want" is: more student learning.

higher test scores/more students learning

You get what you pay for. But when what you pay for is not exactly what you want, it might lead to a problem. In the teacher cheating example, what you pay for is _________________ and what you really want is ___________________.

higher test scores; more productive teachers and students

What's important to understand about Figure 3.9 on page 36 is that as the price of oil rises, it becomes profitable to produce oil using methods and from regions of the world with _________ costs of production. The higher the price of oil, the ________ the wells.

higher; deeper

In a free market, the supply of goods is bought by the buyers with the ________ willingness to pay and the supply of goods is sold by the sellers with the ________ costs.

highest; lowest

Think about two products, "safe cars" and "dangerous cars." If new research makes it easier to produce safe cars, the supply of safe cars will ________. The equilibrium price of safe cars will ______.

increase/fall

If oil executives read in the newspaper that massive new oil supplies have been discovered under the Pacific Ocean but will likely only be useful in 10 years, the supply of oil today is likely to _________ and the price of oil today is likely to ________.

increase; fall

If oil executives read in the newspaper that new solar-power technologies have been discovered but will likely only become useful in 10 years, the supply of oil today is likely to _________ and the price of oil today is likely to ________.

increase; fall

Let's take the idea from the previous question and use it to explain why businesses sometimes try to make their employees happy. If a business can make the job seem fun (by offering inexpensive pizza lunches) or at least safe (by nagging the city government to put police patrols around the factory), the supply of labor will ________. The equilibrium wage will ________ if a factory or office or laboratory becomes a great place where people "really want to work?"

increase; fall

When people enter the market to buy back slaves and increase the price of slaves, they increases the incentive to capture slaves. . Although the slave redemption program initially appeared to raise the prices of slaves, they soon began to fall, which is consistent with the economic principle that supply tends to become more elastic over time. It also indicates that the program is less effective over time.

increases the incentive to capture slaves. more less

A decrease in income ________ the demand for instant ramen noodles. A decrease in income _______ the demand for restaurant meals.

increases/decreases

In the United States, people buy bigger cars when their income _________ and big cars _________ the demand for oil.

increases/increase

Higher prices of oil in the 1970s:

induced many countries, such as the U.K., Norway, and Mexico, to produce more oil.

The supply of oil to the world is ________ because world production won't increase without a significant increase in the cost of production per barrel. It's very easy to ship more oil to Austin from other parts of the United States so the supply of oil to Austin is very ________.

inelastic; elastic

When the absolute value of the elasticity is less than 1, the demand is ________; if it is greater than 1, the demand is ________; and if it is exactly equal to 1, the demand is ________.

inelastic; elastic; unit elastic

When the price of Apple computers goes down, what probably happens to the demand for Windows-based computers?

it decreases

According to John Stossel, if ethanol were just better:

it would not make sense to use your tax money to subsidize it.

Should efficient private prisons replace inefficient public prisons? Three economists - Oliver Hart, Andrei Shleifer, and Robert Vishny (HSV) - say no. They assume that private prisons' incentives to cut costs would lead to lower quality of prisons. HSV assume that cutting quality is the way to cut cost. Is it true? Not necessarily because

low levels of inmate and guard violence reduce costs. respecting prisoner's civil rights can save on legal bills.

The additional cost from producing a little bit more is called marginal cost.

marginal

From the early twentieth century to the 1970s, the demand for oil increased steadily, but major discoveries and improved production techniques meant that the supply of oil increased at an even faster pace, leading to _______ in price.

modest decreases

Let's compare the demand for Orange Crush, a particular brand of orange soda, with the demand for orange soda. There are more good substitutes for Orange Crush. As a result, the demand for Orange Crush is more elastic because a small increase in the price of Orange Crush will result in a large decrease in the quantity demanded as people switch to the substitutes.

more more small large

Test scores of students called "learning disabled" are usually not counted when it comes to rewarding teachers and principals. As a result, some researchers found that, after the introduction of the reward-penailty scheme based on student test scores,

more students with bad grades are declared learning disabled.

Oil is _____ valuable for producing gasoline and jet fuel than it is for producing heating and rubber duckies. That is because there are ______ substitutes for oil in producing gasoline and jet fuel. When the price of oil rises, consumers will choose to use oil in its _____ valued uses. When the price of oil falls, consumers will also choose to use oil in its _____ valued use. Thus, a demand curve summarizes how millions of consumers choose to use oil given their preferences and the possibilities for substitution.

more/fewer/more/less

If you want to have more chickens in the world, you should eat more chickens. If you want more trees in the world, you should demand more trees.

more/more

The demand for oil tends to become ______ elastic over time because the ______ time people have to adjust to a price change, the better they can substitute one good for another.

more; more

Use Figure 4.8 on page 57 to answer the questions. By comparing Panels A and C, we can see that shifts in the supply curve create changes in quantity demanded . And by comparing Panels B and D, we can see that shifts in the demand curve create changes in the quantity supplied .

supply demanded demand supplied

For many years it was illegal to color margarine yellow (margarine is naturally white). In some states, margarine manufacturers were even required to color margarine pink! Who do you think supported these laws the hardest? (By the way, it is still illegal to sell colored margarine in Quebec.)

the dairy industry

Many clothing stores often have clearance sales at the end of each season. That is because:

the demand for clothing is lower at the end of each season.

Think about two products, "safe cars" and "dangerous cars." As a result of the change in the previous question:

the demand for dangerous cars will decrease.

In July 2007, a construction worker in the oil fields of southern Nigeria was kidnapped. On hearing the news, oil prices around the world jumped to record high levels because:

the demand for oil increased.

In the short, readable classic, Congress: The Electoral Connection, David Mayhew uses the basic ideas of incentives and information as a pair of lenses through which to view members of Congress. What he saw was quite simple: The urge for reelection drives everything. Thus, members are driven by self-interest to give the voters in their home district as much as possible. Of course, voters face the same problem in judging members of Congress that any manager faces when evaluating an employee: Some outputs are harder to measure than others, so voters focus on measurable outputs. With that in mind, what will voters be most likely to care about? Choose one from each pair. a. How many dollars come to the district for new hospitals and highways vs. how many dollars are spent on top-secret military research. b. How well the member behaved in private meetings with Chinese leaders vs. how the member sounded on Meet the Press. c. How well the member did in reforming the Justice Department vs. how well the member did at the Turkey Toss back in the district last Thanksgiving.

the former, the latter, the latter

In 1901, after drilling to a depth of 1,020 feet, mud started to bubble out of an oil well dug in Spindletop, Texas. Minutes later the drill bit exploded into the air and a fountain of oil leapt 150 feet into the sky. It took nine days to cap the well, and in the process a million barrels of oil were spilt. No one had ever seen so much oil. Within months the price of oil dropped from $2 per barrel to just 3 cents per barrel. This is because:

the supply of oil increased.

In Chapter 10, you'll see that we (the authors of the textbook) recently purchased permits to pollute the air with sulfur dioxide (SO2). We didn't use the permits: Instead, we threw them out. In other words, we bought permits for the same reason the government buys guns in gun buyback programs - to prevent what we bought from being used. As we discussed in the chapter, gun buyback programs have failed. Our plan to buy permits is more likely to get SO2 out of the air than the government's plan to get guns off the street because the government determines the number of permits issued, which means that:

the supply of permits is perfectly inelastic.

In the United States, we take it for granted that when we go to the supermarket, the shelves will be stocked with kiwi fruit from New Zealand, rice from India, and wine from Chile. Every day we rely on the work of millions of other people to provide us with food, clothing, and shelter. So many people work for our benefit because:

they gain by working for our benefit.