ECON 201 Exam 2 Practice

___________ is/are often cited as a cause of market failure in the market for used cars. Private information Externalities Irrational behavior Market power

Private information

The efficiency problem that results from market power is that the market: has side effects. has too many producers. overproduces. underproduces.

underproduces.

(Figure: Demand Curve 3) Use the graph of a demand curve for jugs of laundry detergent to answer the question. What is the total consumer surplus if 50 jugs are sold at a price of $6? $14 $350 $700 $750

$350

Suppose there is one ticket left for tonight's performance of Hamilton on Broadway. The ticket costs $700. Sean is a community college student and has been saving his tips from his waiting job for months to see the show. He is willing to pay $705 for the ticket. Anca has seen Hamilton five times already but wants to see it again before heading to Europe for a month. She is willing to pay $1,250 for the ticket. __________ buying the ticket leads to a more economically efficient outcome. Neither Sean nor Anca Sean Sean and Anca both Anca

Anca

Ariana bought a new pair of shoes at Nordstrom. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these shoes!" This BEST illustrates the concept of: consumer surplus. producer surplus. total surplus. equilibrium.

consumer surplus.

When the forces of supply and demand lead to an inefficient outcome -economists call this a deadweight loss. -the economic surplus is maximized. -economists call this a market failure. -it is a signal that the government needs to take ownership of that market including all the resources involved.

-economists call this a market failure.

b. Considering your answers in part a, why do most people not grow their own food? Mainly because -many people feel that their comparative advantage lies in other activities, and they are willing to pay someone else to make and source food for them. -people are lazy and will almost always pay someone to do something for them, especially if it is unpleasant work. -food companies are good at marketing their products and get customers hooked by putting additives in their food. -most millennials still live at home with their parents, so they do not need to worry about food production and preparation.

-many people feel that their comparative advantage lies in other activities, and they are willing to pay someone else to make and source food for them.

Davis Florist has two employees, Anita and Jerome, and two tasks that need to be completed, floral arrangements and floral delivery. It takes Anita 30 minutes to finish one floral arrangement and 40 minutes to make a delivery. It takes Jerome 10 minutes to finish one floral arrangement and 30 minutes to make a delivery. Each worker works six hours per day. d. ________ (Jerome/Anita) has a comparative advantage in floral arrangements. ________ (Jerome/Anita) has a comparative advantage in deliveries.

Jerome, Anita

__________ (Positive/Normative) economics involves describing what is happening or predicting what will happen. ___________ (Positive/Normative) economics concerns what should occur and involves value judgments.

Positive, Normative

Which transaction fails to produce gains from trade for both buyers and sellers? -Callie turns down an extra shift at work to take care of household chores. -Neighbors Jordan and Chelsea are both working parents. They can hire a single babysitter to care for both of their toddlers for 75 percent of what they would collectively have to pay two separate babysitters. -Elijah decides that his family should eat more healthy meals, but they are very pressed for time. He decides to subscribe to a service that sends healthy pre-planned meals to his home three times a week. -Charlene's job requires her to work on an oil rig, and she must alternate two weeks on the rig and two weeks off. When she is on the rig, she rents out her apartment through Airbnb.

-Callie turns down an extra shift at work to take care of household chores.

Ramon and Sammy are working on a group homework assignment. The homework consists of a set of essay questions and a set of questions on graphing models. Ramon can finish an essay question in about 15 minutes and a graphing question in about 30 minutes. Sammy can finish an essay question in about 20 minutes and a graphing question in about 35 minutes. Assume that Ramon and Sammy produce the same quality answers. e. If the two want to specialize in working on their homework, who should do the essay questions and who should do the graphing questions? -Sammy should do all of the questions. -Ramon should do the graphing questions, and Sammy should do the essay questions. -Ramon should do the essay questions, and Sammy should do the graphing questions. -Ramon should do all of the questions.

-Ramon should do the essay questions, and Sammy should do the graphing questions.

A recent post being shared on Facebook suggests that consumers boycott self‑service checkout lines because they destroy jobs and are not very convenient to use. Consider this post from the perspective of economic analysis. Which response best illustrates economic reasoning? -You should avoid self‑service checkout lines if some people are harmed by the popularity of self‑service lines. -You should use self‑service checkout lines if they increase your economic surplus. -You should avoid self‑service checkout lines because they create unemployment which is very harmful to the economy. -Self‑serve checkout lines are beneficial to consumers because they represent a technological breakthrough, and all technological breakthroughs benefit the economy.

-You should use self‑service checkout lines if they increase your economic surplus.

Assuming Hugo follows the Rational Rule for Buyers, why did Hugo only purchase 10 scarves when they were on sale? Shouldn't he have purchased more since they were such a good deal compared to what he was willing to pay? At a price of $12, Huge determined that -buying an eleventh scarf gave him less than $8 in consumer surplus. -the price exceeded his marginal cost. -buying an eleventh scarf gave him less than $12 in benefit. -buying an eleventh scarf gave him more than $12 in benefit.

-buying an eleventh scarf gave him less than $12 in benefit.

Some people enjoy gardening and will grow their own vegetables, fruits, and herbs in their own backyard or in a leased plot. Many people agree that fresh fruits and vegetables taste better and, in some cases, are relatively cheap to grow. a. What are some reasons that not everyone grows their own vegetable garden? Select all that apply. Some people -do not have time to tend to garden chores like weeding, watering, fertilizing, etc. -do not have the space or the willingness or means to rent space to grow a garden. -would rather spend time engaging in other hobbies. -prefer to go to the grocery store and find everything they need in one spot.

-do not have time to tend to garden chores like weeding, watering, fertilizing, etc. -do not have the space or the willingness or means to rent space to grow a garden. -would rather spend time engaging in other hobbies. -prefer to go to the grocery store and find everything they need in one spot.

There are dozens of laptop manufacturers around the world. According to the idea of efficient production, -government regulation will ensure that every firm produces at the lowest marginal cost. -there should only be one laptop manufacturer, making laptops at the lowest marginal cost. -each firm independently decides how many laptops to produce, and the marginal cost of the last unit produced will be the same for all firms. -a competitive market will drive most manufacturers out of business, leaving just a few firms to produce at the lowest possible cost.

-each firm independently decides how many laptops to produce, and the marginal cost of the last unit produced will be the same for all firms.

Suppose that Verania and Josimar are roommates that need to complete some household chores. Vacuuming and washing dishes need to be done. They know from the last time they did these chores that it takes Verania 2 hours to vacuum and 1 hour to wash dishes. It takes Josimar 3 hours to vacuum and 2 hours to wash dishes. Josimar says it does not matter which task each of them performs because Verania is faster at both tasks. Josimar's reasoning -is correct. Because Verania is faster at both tasks, there is no benefit in each volunteer specializing in one task or the other. -is wrong. Because Verania has an absolute advantage in both tasks, she should perform both tasks herself. -is wrong. Because Verania has a comparative advantage in washing dishes, she should wash dishes, and Josimar should vacuum. -is wrong. Because Josimar has a comparative advantage in washing dishes, he should wash dishes, and Verania should vacuum.

-is wrong. Because Verania has a comparative advantage in washing dishes, she should wash dishes, and Josimar should vacuum.

Davis Florist has two employees, Anita and Jerome, and two tasks that need to be completed, floral arrangements and floral delivery. It takes Anita 30 minutes to finish one floral arrangement and 40 minutes to make a delivery. It takes Jerome 10 minutes to finish one floral arrangement and 30 minutes to make a delivery. Each worker works six hours per day. c. Jerome's opportunity cost of making one floral arrangement is _______ deliveries. Jerome's opportunity cost of making one delivery is ________ floral arrangements.

0.33, 3

Olivia and Yixing are volunteering at a cat rescue shelter. The shelter supervisor asks them to clean out kennels and haul bags of cat food from the donation area into storage. It takes Olivia 6 minutes to clean out a kennel and 6 minutes to move a bag of food. It takes Yixing 10 minutes to clean out a kennel and 12 minutes to move a bag of food. For the following questions, round each answer to the nearest tenth. b. Olivia's opportunity cost of cleaning a kennel: _________ bags of food moved. c. Olivia's opportunity cost of moving one bag of food: _________ kennels cleaned.

1, 1

Classify each statement as reflecting either positive or normative analysis -Medicine is a necessary expense and therefore should be exempt from sales tax laws -Tariffs on imports increase the prices Americans pay for foreign made goods -Sales tax is often higher on goods considered to be luxury goods, such as expensive watches and yachts -The government should impose tariffs on imports to protect American jobs -Sales tax should be higher on restaurant meals than on groceries because eating out is a luxury -Sales tax on cigarettes reduces the amount of cigarettes sold in a year

Positive: -Sales tax is often higher on goods considered to be luxury goods, such as expensive watches and yachts -Sales tax on cigarettes reduces the amount of cigarettes sold in a year -Tariffs on imports increase the prices Americans pay for foreign made goods Normative: -Medicine is a necessary expense and therefore should be exempt from sales tax laws -The government should impose tariffs on imports to protect American jobs -Sales tax should be higher on restaurant meals than on groceries because eating out is a luxury

When goods are allocated in a way that creates the largest economic surplus: output is evenly allocated across firms. production is minimized. efficient allocation has been achieved. the marginal benefit of the last unit bought is the maximum marginal benefit.

efficient allocation has been achieved.

Which of the following types of market failure can lead to the type of deadweight loss depicted in the interactive graph? market power positive (good) externalities negative (bad) externalities taxes and quotas

market power positive (good) externalities taxes and quotas

A study by University of Minnesota economist, Joel Waldfogel, estimated the difference in the actual monetary value of gifts received and how much the recipients would have been willing to pay to buy them on their own. The study suggested that the average recipient's valuation was approximately 90% of the actual purchase price. a. In 2017, it was estimated that the average amount spent on winter holiday gifts in the United States was $906. Based on the estimate from the Waldfogel study, how much of this would be deadweight loss?

$90.6

Ramon and Sammy are working on a group homework assignment. The homework consists of a set of essay questions and a set of questions on graphing models. Ramon can finish an essay question in about 15 minutes and a graphing question in about 30 minutes. Sammy can finish an essay question in about 20 minutes and a graphing question in about 35 minutes. Assume that Ramon and Sammy produce the same quality answers. Calculate Ramon and Sammy's opportunity cost of each task. Please round each answer to the nearest tenth. a. Ramon's opportunity cost of completing an essay question: ________ graphing questions b. Ramon's opportunity cost of completing a graphing question: _________ essay questions

0.5, 2

Ramon and Sammy are working on a group homework assignment. The homework consists of a set of essay questions and a set of questions on graphing models. Ramon can finish an essay question in about 15 minutes and a graphing question in about 30 minutes. Sammy can finish an essay question in about 20 minutes and a graphing question in about 35 minutes. Assume that Ramon and Sammy produce the same quality answers. Calculate Ramon and Sammy's opportunity cost of each task. Please round each answer to the nearest tenth. c. Sammy's opportunity cost of completing an essay question: _________ graphing questions d. Sammy's opportunity cost of completing a graphing question: __________ essay questions

0.57, 1.75

Which statement is normative? Scientists should not make normative statements. Too much sun will damage your skin. As cell phone prices fall, people generally buy more of them. Insurance rates drop when you turn 25.

Scientists should not make normative statements.

When the price of the last unit sold equals its marginal cost, a seller will: earn consumer surplus on every unit sold. earn consumer surplus. earn producer surplus on all units sold except the last one. not earn any producer surplus overall.

earn producer surplus on all units sold except the last one.

According to separate analyses by the Organization for Economic Cooperation and Development (OECD) and the World Population Review, respectively, the United States ranks fifth among OECD countries in productivity, and twenty-seventh in social mobility. While one observer might commend the United States in terms of _____, that is, economic _____, another might criticize it in terms of _____, that is, its relative _____. outcome; efficiency; process; inequality of opportunity process; efficiency; outcome; inequality of opportunity outcome; inequality of opportunity; process; efficiency process; efficiency; outcome; inequality of opportunity

outcome; efficiency; process; inequality of opportunity

The efficient quantity prevails in a market when: a good is sold at its lowest average cost. total benefit equals marginal cost. the market yields the largest possible economic surplus. cost exceeds benefit by the largest margin.

the market yields the largest possible economic surplus.

When economic efficiency increases, the _____, and the benefits _____ be spread across all people. total gains may or may not exceed costs; will total gains may or may not exceed costs; may or may not total gains exceed the costs; will total gains exceed the costs; may or may not

total gains exceed the costs; may or may not

(Figure: Equilibrium in the Market for Mechanical Pencils) Consider the figure Equilibrium in the Market for Mechanical Pencils. At the equilibrium price, the producer surplus is equal to area: ADI. EHF. AIF. DIF.

DIF.

Now suppose the manager at Macy's had 100 scarves in inventory. She decided to put the scarves on sale for $10, but an employee accidentally listed the sales price as $12. To the manager's surprise, the store sold all 100 scarves at the $12 sales price. How much producer surplus did Macy's receive from the hundredth scarf sold?

$2

A study by University of Minnesota economist, Joel Waldfogel, estimated the difference in the actual monetary value of gifts received and how much the recipients would have been willing to pay to buy them on their own. The study suggested that the average recipient's valuation was approximately 90% of the actual purchase price. b. In 2017, approximately 250 million people in the United States were above the age of 18. Assuming that each individual purchased $906 worth of gifts, what was the total deadweight loss associated with gift-giving in the United States?

$23 billion

Hugo decides to buy his Christmas gifts on Black Friday. To simplify his life, he is giving his 10 closest friends scarves for Christmas and everyone else Christmas cards. Hugo is willing to pay up to $20 each for 10 scarves. When he arrives at Macy's at 5:00 A.M. on Black Friday, he discovers that scarves are on sale for $12 each. Hugo buys 10 scarves and uses the remaining $80 to buy himself some clothes. How much consumer surplus did Hugo receive from the tenth scarf he purchased?

$8

Government intervention is one possible solution for market failure. What is one possible reason why a government-controlled used car market may not provide an efficient outcome? -The government does not have the resources to control the used car market. -Consumers do not buy products from government-controlled markets. -Government actors may have their own incentives that might not align with market efficiency. -There is no remedy for market failure in this market.

-Government actors may have their own incentives that might not align with market efficiency.

Olivia and Yixing are volunteering at a cat rescue shelter. The shelter supervisor asks them to clean out kennels and haul bags of cat food from the donation area into storage. It takes Olivia 6 minutes to clean out a kennel and 6 minutes to move a bag of food. It takes Yixing 10 minutes to clean out a kennel and 12 minutes to move a bag of food. For the following questions, round each answer to the nearest tenth. f. Yixing says it does not matter which task each of them performs, because Olivia is faster at both tasks. Is she correct? -No, Yixing should clean out the kennels, and Olivia should move the food bags. -No, Olivia should clean out the kennels, and Yixing should move the food bags. -No, Yixing should do both tasks so that she can practice and become more efficient. -Yes, Olivia should do both tasks because she is faster at both.

-No, Yixing should clean out the kennels, and Olivia should move the food bags.

What is the significance of price in any assessment of economic surplus? -A change in price shifts the curves, and thus shifts economic surplus. -Price determines deadweight loss. -Price determines how the surplus is distributed between buyers and sellers. -Price determines total economic surplus.

-Price determines how the surplus is distributed between buyers and sellers.

What does this type of deadweight loss triangle reflect? -excess marginal costs and a lack of advantageous transactions -too many transactions executed and marginal benefits acquired -excess marginal costs and too many transactions -a lack of advantageous transactions implemented and marginal benefits acquired

-a lack of advantageous transactions implemented and marginal benefits acquired

Davis Florist has two employees, Anita and Jerome, and two tasks that need to be completed, floral arrangements and floral delivery. It takes Anita 30 minutes to finish one floral arrangement and 40 minutes to make a delivery. It takes Jerome 10 minutes to finish one floral arrangement and 30 minutes to make a delivery. Each worker works six hours per day. b. Anita's opportunity cost of making one floral arrangement is _______ deliveries. Anita's opportunity cost of making one delivery is ________ floral arrangements.

0.75, 1.33

Olivia and Yixing are volunteering at a cat rescue shelter. The shelter supervisor asks them to clean out kennels and haul bags of cat food from the donation area into storage. It takes Olivia 6 minutes to clean out a kennel and 6 minutes to move a bag of food. It takes Yixing 10 minutes to clean out a kennel and 12 minutes to move a bag of food. For the following questions, round each answer to the nearest tenth. d. Yixing's opportunity cost of cleaning a kennel: _________ bags of food moved. e. Yixing's opportunity cost of moving one bag of food: __________ kennels cleaned.

0.83, 1.2

Davis Florist has two employees, Anita and Jerome, and two tasks that need to be completed, floral arrangements and floral delivery. It takes Anita 30 minutes to finish one floral arrangement and 40 minutes to make a delivery. It takes Jerome 10 minutes to finish one floral arrangement and 30 minutes to make a delivery. Each worker works six hours per day. a. ________ (Jerome/Anita) has an absolute advantage in floral arrangements. __________ (Jerome/Anita) has an absolute advantage in deliveries.

Jerome, Jerome

Olivia and Yixing are volunteering at a cat rescue shelter. The shelter supervisor asks them to clean out kennels and haul bags of cat food from the donation area into storage. It takes Olivia 6 minutes to clean out a kennel and 6 minutes to move a bag of food. It takes Yixing 10 minutes to clean out a kennel and 12 minutes to move a bag of food. For the following questions, round each answer to the nearest tenth. a. __________ (Yixing/Olivia) has an absolute advantage in completing both tasks.

Olivia

In 2017, Ecuador's biggest export was crude (unprocessed) petroleum, 63% of which it exported to the United States, and Ecuador's biggest import was refined (processed) petroleum, of which 70% was imported from the United States. What does this tell you about the countries' comparative advantages in extracting petroleum and refining petroleum? This information suggests that _______ (the United States/Ecuador) has a comparative advantage in refining petroleum, and ________ (the United States/Ecuador) must have a comparative advantage in extracting petroleum.

The United States, Ecuador

Which statement makes use of positive analysis? Policymakers should aim for a 4% inflation rate. High economic growth is a more important economic goal than low inflation. The federal government spends $500 billion on education per year. Health care is a right of all citizens.

The federal government spends $500 billion on education per year.

(Figure: Producer Surplus and Mystery Books) Avery, Amanda, Lucan, Henry, and Imelda are used booksellers, each of whom has a rare print of The Soothsayer's Gambit, the classic mystery novel by Joan Reeves. The booksellers vary widely in their valuations of their copies of the book and thus in what price they would need to part with it. When the market price of the book falls from $45 to $35, the producer surplus _____, leaving the total producer surplus at _____. increases by $10; $140 decreases by $40; $60 increases by $35; $180 decreases by $10; $140

decreases by $40; $60

Along a supply curve, a rise in the price of a good will: increase the producer surplus. decrease the producer surplus. increase the consumer surplus. decrease the producer surplus and increase the consumer surplus.

increase the producer surplus.

During an economic downturn, a state government debates what type of economic stimulus—a tax cut or spending increase—would produce the most efficient outcome, that is, the outcome with the: largest economic surplus. lowest total costs. lowest total benefit. smallest positive difference between benefits minus total cost.

largest economic surplus.

Over the last several decades, the number of manufacturing jobs have decreased in the United States and have increased in other countries, such as Mexico. The U.S. also exports goods to Mexico. Most exports are agricultural products like corn, soybeans, and dairy, but exports also include intellectual property. This information suggests that Mexico has a __________ (higher/lower) opportunity cost of manufacturing goods relative to the United States. The United States must have a ____________ (absolute/comparative advantage) in producing ___________ (agricultural products/computer software/manufactured goods/both agricultural products and computer software).

lower, comparative advantage, both agricultural products and computer software

To obtain a license to work as a barber, hairstylist, or cosmetologist, one must graduate from a state-approved barber or cosmetology program and pass a state exam, limiting the number of people who can practice these professions. In this scenario, market failure would arise from: irrationality. market power. externalities. information problems.

market power.

Congratulations! After working your way through college as a certified nursing assistant (CNA), you have now completed your nursing degree and are designated as a registered nurse (RN)! You are now a functioning RN at the hospital. Some of the tasks between a CNA and an RN overlap, but you should delegate some tasks to CNAs because they have a lower _________ (opportunity cost/marginal cost/absolute advantage) of completing the tasks. Your __________ (absolute advantage/specialization/internal market) allows you to take on more complex nursing tasks.

opportunity cost, specialization

Which of these government regulations is LEAST likely to lead to market failure? subsidies for vaccinations limits on sugar imports rent control farm subsidies

subsidies for vaccinations

Consider these claims concerning the Affordable Care Act (a.k.a. Obamacare) in 2009-10: (i) In the late 2000s, the number of uninsured Americans hit a record high of 60 million. (ii) Health care reform of some kind was needed to address the widespread lack of access to medical care. (iii) Among the options available, the Affordable Care Act provided the best fit to the mix of public and private institutions that make up the American health care system. (i) reflects _____ analysis; (ii) reflects _____ analysis; and (iii) reflects _____ analysis. positive; positive; normative positive; normative; positive positive; normative; normative normative; positive; normative

positive; normative; normative

Harrison is willing to buy the last ticket to the Billy Elliot play for $15, while Stefania is willing to pay $25. Harrison is first in line and buys a ticket for $15. He then resells his ticket to Stefania for $20. By reselling the ticket instead of going to the play himself, Harrison caused: the sum of the consumer and producer surplus to increase. the sum of the consumer and producer surplus to decrease. a deadweight loss of $5. the consumer surplus to decrease and the producer surplus to increase.

the sum of the consumer and producer surplus to increase.

As the actual market quantity increases past the efficient quantity, what is true? -Some of the previous economic surplus gained is offset by the deadweight loss from overproduction. -Economic surplus is maximized. -The marginal cost of each additional transaction exceeds the marginal benefit. -The marginal benefit of each additional transaction exceeds the marginal cost.

-Some of the previous economic surplus gained is offset by the deadweight loss from overproduction. -The marginal cost of each additional transaction exceeds the marginal benefit.

Davis Florist has two employees, Anita and Jerome, and two tasks that need to be completed, floral arrangements and floral delivery. It takes Anita 30 minutes to finish one floral arrangement and 40 minutes to make a delivery. It takes Jerome 10 minutes to finish one floral arrangement and 30 minutes to make a delivery. Each worker works six hours per day. e. Suppose that, initially, both Jerome and Anita spend four hours each day doing floral arrangements and two hours each day doing deliveries. Now suppose they change their tasks, so that each individual does nothing but the task in which she or he has a comparative advantage. How many more floral arrangements and deliveries could they produce each day? ___________ additional floral arrangements and _______ additional deliveries

4, 2 It takes Jerome 10 minutes to finish a floral arrangement and 30 minutes to make a delivery. Therefore, if he devotes four hours to floral arrangements and two hours to deliveries, he will complete 24 floral arrangements and 4 deliveries in a six-hour day. It takes Anita 30 minutes to finish a floral arrangement and 40 minutes to make a delivery. Therefore, if she devotes four hours to floral arrangements and two hours to deliveries, she will complete 8 floral arrangements and 3 deliveries in a six-hour day. This adds up to 32 floral arrangements and 7 deliveries per day. If they allocate tasks based on comparative advantage, Jerome will make floral arrangements, and Anita will make deliveries. In a six-hour day, Jerome could complete 36 floral arrangements, and Anita could make 9 deliveries. Thus, if each individual specializes in the task in which she or he has a comparative advantage, the two together will complete 4 additional floral arrangements and 2 additional deliveries in a six-hour day.

(Figure: Producer Surplus in the Market for Baseballs) Consider the figure Producer Surplus in the Market for Baseballs. At a price of P1, the producer surplus equals the area: LMK. P1K0. P2M0. P2P1KM.

P1K0.

At the equilibrium quantity, marginal benefit is _______ (less than, greater than, equal to) marginal cost. Consuming __________ (less/more) means that some mutually beneficial exchanges do not take place, and producing _______ (less/more) means that some goods go unsold.

equal to, less, more