ECON 201 exam 2
17.C. Which of the following statements regarding normative/positive analysis of the minimum wage is true
-Positive analysis, as represented by the results of this study, contribute to the debate on economic policy but in many cases, such as the minimum wage, it cannot resolve the debate. -Supporters of increasing the minimum wage may consider its trade-off to be acceptable, while opponents of increasing the minimum wage may consider its trade-off to be a bad one. -The result of this study reinforces the trade-off involved with the minimum wage: Some workers gain, while other workers lose.
8.A. Economic efficiency
-is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. -is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum
8.B. Economists define economic efficiency in this way
-to help policymakers understand the negative consequences of price ceilings. -to help policymakers understand the negative consequences of price floors. -to help policymakers understand the negative consequences of taxes. -to illustrate the benefits of a competitive market equilibrium.
10. According to a news story, in early 2019, sales of beef and pork in Venezuela had declined by 60 percent since 2012, and sales of chicken had declined by 74 percent. The government had imposed price ceilings on beef, pork, and chicken. Source: Juan Forer, "Hyperinflation Shatters Venezuelan Manufacturing," Wall Street Journal, March 5, 2019. With prices kept low by price controls, shouldn't consumers in Venezuela have been buying more beef, pork, and chicken, (meat) notless?
A price ceiling set below the equilibrium price will cause consumers to increase their quantity demanded, but the quantity of meat farmers supply decreases. Consumers can only buy the quantity of meat farmers offer for sale, so the quantity of meat they consume declines.
2.C. Briefly discuss what might account for this result and why it differs from the answer you gave to part (a). (Hint: Why was the finding of increased sales of physical books particularly strong for less popular books?)
As more books become available as free downloads, readers of these books recommend them to otherreaders, causing an increase in the demand for both the print and the digital versions of the book, particularly among readers who prefer to read a physical book.
4. From 1979 to 2015, China had a policy that allowed couples to have only one child. (Since 2016, couples have been allowed to have two children.) The one-child policy caused a change in the demographics of China. Between 1980 and 2017, the share of the population aged 14 and under decreased from 36 percent to 18 percent. And, as parents attempted to ensure that the lone child was a son, the number of male children relative to female children increased. Sources: World Bank, World Development Indicators, February 2019; and Steven Lee Myers, Jin Wu, and Claire Fu, "China's Looming Crisis: A Shrinking Population," New York Times, January 21, 2019. How has the one-child policy changed the relative demand for goods and services in China?
It has undoubtedly shifted away from goods and services appealing to youthful buyers, particularly youthful female buyers.
7.A. Consider the following two uses of the word "demand" in news articles: i. An article in the Wall Street Journal noted that an "increase in the price of oil quickly reduces demand for oil." ii. A different article in the Wall Street Journal noted: "Electric cars are poised to reduce U.S. gasoline demand by5% over the next two decades...." Sources: Josh Zumbrun, "Oil's Plunge Could Help Send Its Price Back Up," Wall Street Journal, February 22, 2015; and Lynn Cook and Alison Sider, "U.S. Gasoline Demand Is Likely to Slide," Wall Street Journal, June 20, 2016. Do you agree with how the first Wall Street Journal article uses the word "demand"?
No, a change in the price of oil affects the quantity of oil demanded, not the demand for oil.
8. In late 2018, malnutrition was widespread in Venezuela. Writing in an opinion column in the New York Times, Javier Corrales argued, "The government is making the crisis worse by...imposing more price controls." Source: Javier Corrales, "The Venezuelan Crisis Is Part of Maduro's Plan," New York Times, September 25, 2018. Shouldn't price controls help reduce malnutrition by lowering the price of food so more people can afford it?
No. Imposing a price control below the equilibrium price in a market causes the quantity of the good available to consumers to fall because sellers will supply a smaller quantity, thereby causing some consumers to go without food that they would have been able to buy in the absence of the price control.
17.A. Ekaterina Jardim, Jacob Vigdor, and colleagues at the University of Washington concluded that when Seattle raised its minimum wage, the effect was to lower "the amount paid to workers in low-wage jobs by an average of$74 per month per job in 2016." Source: Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, and Hilary Wething, "Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle," National Bureau of Economic Research Working Paper 23532, revised May 2018. a. Shouldn't an increase in the minimum wage raise, rather than lower, the amount paid to low-wage workers?
No. The decrease in the quantity of hours worked as a result of the wage increase had to have been relatively large to reduce the total amount workers in low-wage jobs received.
11.B. the actual division of the burden of a tax.
No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.
17.B. Does this result mean that no low-wage workers in Seattle benefited from the increase in the minimum wage?
No. Workers who continued to work the same or slightly fewer hours than they worked before the increase in the minimum wage are better off because their total income increased.
7.C. Because economic surplus is the ____ of the benefit to firms and the benefit to consumers, it is the best measure we have of the benefit to society from the production of a particular good or service. For this reason, it is appropriate to label economic surplus as ___ surplus.
Sum, Social
7.B. Do you agree with how the second Wall Street Journal article uses the word "demand"?
Yes, the article is correct in its use of the word "demand."
5.B.The article also explained that New York City experienced an increase in the number of tourists during 2018 and that during the year, the Met offered several exhibitions that received good reviews. Does this additional information help you answer the question in part (a)?
Yes, this additional information reinforces the increase in demand for visits to the Met in part (a).
12. According to an article in the Wall Street Journal in early 2019, the price of oil produced in the United States had increased by 25 percent since the beginning of the year. At the same time, U.S. oil production was at a record high. Source: Dan Molinsky, "Oil Prices Decline as U.S. Crude Production Hits Record," Wall Street Journal, February 21, 2019. a. Are these two facts alone, holding everything else constant, consistent with a movement along the supply curve for oil?
Yes. A higher price of oil causes an increase in the quantity of oil supplied, which we show by a movement upwards along the supply curve for oil.
18. A black market is
a market in which buying and selling take place at prices that violate government price regulations.
3. On a shopping trip, Sofia decided to buy a light blue coat that had a price tag of $79.95. When she brought the coat to the store's sales clerk, Sofia was told that the coat was on sale, and she would pay 20 percent less than the price on the tag. After the discount was applied, Sofia paid $63.96, $15.99 less than the original price. The value of Sofia's consumer surplus from this purchase is
at least $15.99 since this is the difference between the price Sofia is willing to pay for the coat and the actual price she pays, but she could have be willing to pay more than $79.95 for the coat.
2.B. The goal of the Google Books project is to produce a digital version of every book ever written. An academic paper by Abhishek Nagaraj of University of California, Berkeley and Imke Reimers of Northeastern University analyzed the effect of Google Books on the market for print, or physical, books. They concluded that for their sample of books, "Digitization...increased sales of physical editions by about 35%, especially for less popular works." Source: Abhishek Nagaraj and Imke Reimers, "Digitization and the Demand for Physical Works: Evidence from the Google Books Project," February 21, 2019. Does this paper indicate that digital books and print books are substitutes or complements? The findings of Nagaraj and Reimer show that digital and print copies of books are
complements because the decrease in the price of digital books to zero is causing an increase in the quantity demanded for print copies of the same book.
14. Economic surplus in a market is the sum of _____ surplus and _____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a _____ when the market is in _____.
consumer; producer; maximum; equilibrium
1.B. How does consumer surplus change as the equilibrium price of a good rises or falls? As the price of a good rises, consumer surplus ____, and as the price of a good falls, consumer surplus ____
decreases, increases
10. After World War II in 1945, the United States experienced a "baby boom" as birthrates rose and remained high through the early 1960s. In 2011, the first members of the baby boom generation became older than 65. What effect will this have on the market for doctors? As the first baby boomers become older than 65, the
demand curve for doctors will shift to the right.
2. It's possible to buy many books either as print, or physical, books or as digital books. A. If the price of digital books rises, what would you expect to happen to the demand for print books? If many book readers consider print books and digital books to be substitutes, then an increase in the price of digital books will
increase the demand for print books, shifting the demand curve for print books to the right.
2.B. How does producer surplus change as the equilibrium price of a good rises or falls? As the price of a good rises, producer surplus ____, and as the price of a good falls, producer surplus ____
increase, decreases
12.B. Is it possible that the supply curve for oil also shifted? Suppose you were told that managers at oil firms were convinced that oil prices in the future were going to be significantly lower than they are today. Would this fact help you answer the question? Given that managers at oil firms were convinced that oil prices in the future were going to be significantly lower than they are today,
it is likely that the supply curve for oil shifted to the right because firms will be more likely to increase the supply of oil today when prices are higher.
17.A. An article discusses the market for autographs by Mickey Mantle, the superstar centerfielder for the New York Yankees during the 1950s and 1960s: "At card shows, golf outings, charity dinners, Mr. Mantle signed his name over and over." One expert on sport autographs is quoted as saying: "He was a real good signer ... He is not rare." Yet the article quotes another expert as saying: "Mr. Mantle's autograph ranks No. 3 of most-popular autographs, behind Babe Ruth and Muhammad Ali." A baseball signed by Mantle is likely to sell for the relatively high price of $250 to $400. By contrast, baseballs signed by Whitey Ford, a teammate of Mantle's on the Yankees, typically sell for less than $150. Source: Beth DeCarbo, "Mantle Autographs Not Rare, but Collectors Don't Care," Wall Street Journal, August 4, 2008. Explain how the price of baseballs signed by Mantle could be higher than the price of baseballs signed by Ford. The supply curve for baseballs signed by Mantle should be an upward-sloping line that is to the ______ of the supply curve for baseballs signed by Ford.
right
17.B. In order for the price of baseballs signed by Mantle to be higher than the price of baseballs signed by Ford, the demand curve for baseballs signed by Mantle must be a downward-sloping line that is
significantly to the right of the demand curve for baseballs signed by Ford.
11.A. Tax incidence indicates
the actual division of the burden of a tax.
1.A. Consumer surplus is
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
2.A. Producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives.
1.A. The law of demand is the assertion that
the quantity demanded of a product is inversely related to its price.
9.A. Cities like San Francisco and New York that require a driver to buy a city-issued taxi medallion before the driver can legally operate a taxi are shifting the supply curve for taxis to the left relative to where it would be without the requirement for a medallion. Briefly explain why the supply curve for taxi rides shifts to the left. What is the effect on the market price of taxi rides from the medallionrequirement? The supply curve for taxi rides shifts to the left because
the quantity of taxis available is lower because the city issues only a limited number of medallions. The equilibrium price for taxi rides will increase.
7.B. Deadweight loss is
the reduction in economic surplus resulting from a market not being in competitive equilibrium.
1.B. An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More specifically,
the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline inconsumers' purchasing power.
7.A. Economic surplus is
the sum of consumer surplus and producer surplus.
9.B. According to a news report, in 2008, medallions in San Francisco were selling for $250,000. In late 2018, "the market for taxi medallions in San Francisco is now totally frozen. No one has bought or sold one in over two years." Source: Sam Harnett, "Cities Made Millions Selling Taxi Medallions, Now Drivers Are Paying the Price," npr.org, October 15, 2018. Why would taxi medallions have been worth $250,000 in 2008? Why was it apparently impossible to sell them at any price in 2018? In 2008,
the taxi business was very profitable in San Francisco, and given the small supply of the medallions, the equilibrium price skyrocketed. By 2018, the increased popularity of rideshare companies like Uber and Lyft made it possible for individuals to provide taxi service without purchasing a medallion.
7. A columnist writing for crainsnewyork.com observes that "the central conclusion of the vast majority of economic work on the subject is that rent regulation leads to a deterioration of housing stock." Source: Greg David, "How Rent-regulation Changes Will Hurt Housing Stock," crainsnewyork.com, April 12, 2019. What does the columnist mean by "deterioration of the housing stock"? Why might rent control lead to a deterioration of the housingstock? The "deterioration of the housing stock" means that
what the apartments' landlords offer for rent will become rundown and in need of repairs. Rent control reduces the frequency of turnover at a particular property, thereby reducing the landlord's incentive to properly maintain that property.
9. The distinction between a normal and an inferior good is
when income increases, demand for a normal good increases while demand for an inferior good falls.
5. According to an article on crainsnewyork.com, in 2018, the Metropolitan Museum of Art (the Met) in New York City had record attendance of 7.36 million, an increase of 5 percent over the previous year. During 2018, the Met had also increased the price of attendance. Source: Miriam Kreinin Sinclair, "Met Museum Attendance, Revenue up a Year After Imposing Fee," crainsnewyork.com, January 4, 2019. A. Can we conclude from this information that the demand curve for visiting the Met is upward sloping?
No, it is much more likely that during 2018 there was an increase in demand for visits to the Met.
