Econ 202-001 Prin Economics- Mirco

To raise money for a new student union, the Student Snack Bar charges customers a tax of on each beverage. In the graph, the original demand curve for beverages is labeled "Demand" and the shifted demand curve, which accounts for the tax, is labeled "Shifted Demand." Use this graph to answer the questions.

$0.50

Belinda runs the only bakery in town and so has a monopoly position in the cake market. She initially makes and sells the quantity of cakes as a monopolist charging one price as shown in the accompanying graph. After a period of time, however, she decides to use her market power to negotiate the selling price of each cake with its buyer. If she were to sell each cake at a price equal to the marginal benefit of the purchaser, Belinda's producer surplus would go from _____ to _____.

$12; $24

What is the total economic surplus in the market for corn?

$20,000

Commercial and personal gardeners use millions of pounds of fertilizer each year. Unfortunately, many tend to overuse it, resulting in ground water pollution as the excess fertilizer is carried to streams and rivers as runoff. The graph displays the social marginal cost which includes both the private marginal cost and the external damage to society. Suppose the government imposes a tax to correct for the externality. What is the efficient per-unit tax at the socially optimal equilibrium? What are tax revenues at the socially optimal equilibrium?

$5, $40 million

What is the equilibrium price and quantity in this market for quinoa?

$6 per bushel and 6 thousand bushels

The graph shows the marginal social benefit, marginal private benefit, and marginal private cost curves in the taco market. The market price in equilibrium with no interventions is _________. The socially optimal quantity is ___________.

$6, six

The figure shows the demand and marginal revenue curves for on-demand movie rentals on Xfinity. Round to the nearest unit displayed. Assume that marginal cost and average cost are constant at $20. If the cable company has market power, what price will it charge and what quantity will it sell?

$60, 4 thousand rentals

A friend comes up to you and offers you a free ticket to a Dodgers game that night, and you decide to attend the game. The game takes 5 hours and costs you $25 for transportation. If you had not attended the game, you would have worked at your part-time job for $12 an hour. What is the cost to you of attending the game?

$85

The rational rule for employers tells us that you should hire workers until the

wage = marginal revenue product of labor

Companies do not charge everyone their reservation price because

willingness to pay is private information that people have an incentive to keep hidden.

The price of peanut butter goes up by 10% and the demand for jelly falls by 6%. What is the cross-price elasticity of demand for jelly with respect to peanut butter? Are peanut butter and jelly substitutes or complements?

-0.6, complements

The price of muffins at your local bakery rises from $1.50 to $2.00. As a result the quantity of brownies purchased drops from 175 to 125 muffins per day. Calculate the absolute value of the price elasticity of demand for muffins. Use the midpoint formula and round to the nearest hundredth if needed.

1.17

For most consumer, which of the following is an inferior good?

10-year-old used car

Based on the production possibility frontier for a furniture company which of these combinations of producing recliners and couches would be feasible and efficient?

200 thousand couches, 300 thousand recliners

You have recently opened a new toy manufacturing business in a competitive market. You charge $5 per toy produced and are considering hiring additional workers to assist you in expanding your business. At the market wage of $20, how many workers should you hire?

3

Suppose the historical government in Iceland imposes a quota of 80,000 oil lamps sold per year. What will be the price in rigsdaler and quantity exchanged in the market? (Round to the nearest whole number.)

30 rigsdaler; 80,000 oil lamps

Consider a firm having to decide how many factory lines to build given the benefits and costs described in the table. How many factory lines would maximize their economic surplus?

4

Suppose that Paulie and Vinny can each produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny can produce in hour, respectively, if they devote all of their time and effort into making the good.

4 t-shirts

The graph shows the marginal social cost, supply, and demand curves in the hand sanitizer market. At what quantity could the government set a quota to correct this externality? What size tax or subsidy could the government set to correct this externality?

8; $2 tax

At the efficiency outcome, what is the consumer surplus?

A + B + C

Consider the two perceived firm demand curves shown in the graph. Select the statement that best describes the market structure of each.

A is perfect competition, and B is monopoly

Which of the following would be a binding policy?

A minimum wage greater than the equilibrium wage

Which of the following positions is likely to result in a significantly lower wage (the lowest wage) relative to other nursing positions that require similar skills and experience?

A position that allows you to see patients virtually while working from home.

Which of the following situations would lead to the largest tax incidence for suppliers?

A tax of $1 is placed on buyers and supply is the relatively more inelastic curve.

Assume Sophie and Chad can both make muffins and cookies and the only limited resource is their time, all other resources they have access to are plentiful. Who has the absolute advantage in making cookies? Who has the comparative advantage in making muffins?

Absolute cookies: Chad. Comparative muffins: Sophie.

Liana gives up a salary of $80,000 per year at the Kellogg food manufacturing company to start her health food manufacturing company. She invests $50,000 of her savings in her company, savings that had been earning her $4,000 per year in interest. During Liana's first year in the health food business, total revenue is $300,000, and her explicit financial costs are $225,000. What is Liana's accounting profit from her first year in business? What is Liana's economic profit from her first year in business?

Accounting Profit: $75,000 Economic Profit: -$9,000

When a perfectly competitive market is in equilibrium with no market failures, which of the following occur?

All of the Above (all options)

Which of the following is true when there is free entry and exit in the market?

All options

Suppose you manage a convenience store. If macaroni and cheese is an inferior good, what do you suppose would happen to the price and quantity sold of macaroni and cheese as incomes fall during a recession?

Both the price and quantity would increase.

David's Candle Company has a cost advantage over rival candle makers in the form of along-term exclusive contract with a key supplier of paraffin, a key ingredient in candles. Consider the accompanying diagram. David's average cost curve is:

C

The table below describes the individual demand for lawn care services from each resident of a neighborhood for the year. How would the market demand for lawn care in the neighborhood change if the price per lawn care service increased from $30 to $40?

Decrease by 25

Suppose Otto enjoys having iced lattes with coffee and oat milk. If the price of coffee increases, what will happen to his demand for oat milk?

Decrease in demand (shift of curve)

Suppose a farmer produces crops using water, land, and fertilizer. The price of water increases due to a drought in the region. How does this affect the farmer's decisions to supply crops?

Decrease in supply (shift of curve)

The popularity of smartphones led app developers to be more highly valued in the labor market than their desktop computer programming colleagues. Which of the following best represents what would happen in the market for desktop computer programmers as smartphones became popular?

Decreased Labor Supply

Using the payoff matrix for Earl and Duke, what is the Nash equilibrium?

Duke sets a low price. Earl sets a low price.

Suppose that instead of each farmer in an area owning a specific parcel of land, all farmland is pooled together. The profits that remain from all of the pooled farmland is divided among all of the participating farmers equally. Which is the most likely consequence of a property right system like this being used?

Free riding would occur from various farmers on the land.

Which of the following is a positive statement?

Lower college tuition will lead to more children from poor families attending college.

Use the table to answer the question. What is the Nash Equilibrium? What is the socially optimal outcome for Raquel and Angelica?

Nash Equilibrium: Both charge $1. Socially optimal: Both charge $3.

Inferior goods have a ___________ income elasticity of demand. Normal goods have a ____________ income elasticity of demand. Luxuries have a __________ income elasticity of demand than necessities.

Negative; Positive; Larger

Which of the following is the most effective example of group price discrimination?

Offering senior citizens a 10% discount at IHOP

As an economist for Bass Pro Shops, a large retail company that specializes in outdoor activities, you analyze sales data for kayaks. The graph shows the firm demand curve and marginal revenue curve for weekly kayak sales for each Bass Pro location. Bass Pro acquires each kayak from the manufacturer for $600. Bass Pro's optimal pricing strategy is to charge $_____ per kayak for a weekly profit of $_____.

Price: $900; Profit: $1,200

Suppose Matilda likes drinking either a sparkling water or iced tea each afternoon. How will Matilda's demand for iced tea change if the price of iced tea increases?

Quantity demanded decreases (movement along curve)

Suppose Taylor has decided to start a bracelet making business. Which of these costs will not be considered in marginal decisions of how many bracelets to produce?

Rent for the storefront where production happens

Which of the following is NOT a signal?

Saying you have the required skills in a job interview.

__________ markets do not necessarily lead to efficient outcomes, whereas ________ markets tend to yield efficient outcomes.

Strategic Interactions in; competitive

Suppose Stella ranks her preferences for spending her free afternoon as: 1. Going to a get coffee with a friend 2. Studying for her accounting exam 3.Taking a nap

Studying for her accounting exam, and the cost of the coffee

Suppose the price of a good is currently above the market equilibrium price. Is there a surplus or a shortage? Is quantity demanded or quantity supplied greater?

Surplus; Quantity Supplied

Which scenario BEST illustrates an oligopolistic industry?

The Coca-Cola Company and PepsiCo (the companies that make Coke and Pepsi, respectively) sell most of the soft drinks consumed around the world.

Paper producers can manufacture both printing paper and drawing paper. What effect would rising prices for printing paper have on the supply of drawing paper?

The supply of drawing paper will decrease.

The graph shows the demand and marginal revenue (MR) curves faced by a small sneaker manufacturer for two different groups of consumers. They can produce a pair of sneakers for a constant marginal cost (MC) of $20/pair, can identify varying consumer groups, and they have no fixed costs. Use the graph to answer the questions.

They should price discriminate and charge $60/pair and $70/pair.

In which situation do you expect the store to have the most inelastic supply?

Time Frame: 1 Day. Warehouse size: Small.

In which situation will communication NOT solve a coordination problem?

Two prisoners deciding to confess or not with a plea deal option.

Suppose the government institutes a policy that requires all interior designers to acquire a license in order to work in the field. What do you expect to happen to the equilibrium wage and employment in the market for interior designers?

Wage increase, employment decreases

Suppose the government imposes a price ceiling below the equilibrium price. Is there a deadweight loss from the policy? If so, what is the deadweight loss?

Yes, C + F

Which statement BEST describes a negative externality?

Your neighbor has an ornamental pond that breeds mosquitoes.

An externality is:

a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

To alleviate the problems associated with the tragedy of commons, the government can:

all of the above

In the 1970s, less than 5% of musicians in the top five U.S. orchestras were women, whereas now that percentage exceeds 30%. A key reason for the change is that, in the1970s, orchestras began using blind auditions where candidates, with their names and backgrounds withheld, play for juries from behind a screen. Researchers have found that, even when an orchestra selection committee uses a screen only in the first round of selection, women are 50% more likely to reach the final round of selection than conditions. What outcome, beside greater gender equality, has likely resulted from impartiality in orchestras?

better orchestras

A firm should specialize in producing the good for which it has the

comparative advantage

Suppose a company lowers the price of its product 10%, and sold 20% more units. You can conclude that

demand for the product is currently elastic and revenue increased.

Suppose firms can freely enter and exit the market. In the long run, firms will:

enter this market until all firms earn zero economic profit.

Suppose the New York City housing market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a series of new apartment buildings has just been completed. Given these two changes, and assuming that apartment housing is a normal good, we can predict that the price of apartments will _____, and the quantity of apartments bought and sold will _____.

fall; rise or fall

The difference between a centralized economy and a market economy is that:

governments make production decisions in a centralized economy, and individuals make production decisions in a market economy.

A perfectly competitive market is a market in which all firms in an industry sell an .................... and there are ................ , each of whom is ................... relative to the size of the market.

identical good; many buyers and sellers; small

Suppose Yeti water bottles were the most popular water bottles on the market, but now Stanley water bottles go viral on social media and become the most popular. What will happen to demand for Stanley water bottles?

increase in demand (shift of curve)

For suppliers, a ______________ is an incentive to ____________, because there are few profit opportunities.

low price; decrease production

The socially optimal outcome occurs where the _____ benefit equals the _____ cost.

marginal social; marginal social

The more price sensitive a group is, the _____ their demand. Thus, you'll want to charge them a _____ price when engaging in group pricing.

more elastic; lower

Public goods like national defense and public radio are

nonrival and nonexcludable.

In contrast to perfect competition, a monopoly:

produces less at a higher price

Which is NOT a government action that results in a barrier to entry in a product market?

prohibiting advertisers from making false claims

The law of demand tells us that as price increases _____________. Diminishing marginal benefit tells us that each additional item yields a ___________ marginal benefit than the previous item.

quantity demanded increases: larger

The number of bank tellers declined from an average of 20 per branch in 1988 to 13 in2004, as ATMs replaced human tellers. This meant that the cost of running each branch fell. Banks responded by increasing the number of urban bank branches by 43% in the same time period, which increased the total number of bank employees. So ATMs shifted employees' work from routine tasks like deposits and withdrawals towards skills machines cannot provide, such as sales and customer service. When the use of ATMs became more prevalent, reducing the banks' overall costs, the ___________ effect was dominant. On net, labor and capital would be considered ____________ in this industry.

scale; complements

Suppose the government wants to correct for a market failure due to flu vaccines providing herd immunity. What policy would best reduce deadweight loss?

subsidy

Suppose there was a shift in curve(s) that led to an increase in price and a decrease in quantity. What can you confidently conclude about the curves that shifted?

supply decreased

The likely result of a binding price floor is a _____ of the good at a price _____ the equilibrium price.

surplus; above

Kate has a comparative advantage in ____________. Mary has a comparative advantage in ____________.

sweaters; dresses

After a year delivering pizzas, you get a raise, and you cut back on your hours. For you:

the income effect is stronger than the substitution effect.

Assume that the retail industry requires similar skills as the fast-food industry. What will happen in the market for labor in the fast-food industry if wages in the retail industry increase?

the market supply curve for labor will shift to the left.

Prisoners' Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailedfor bank robbery. Given the payoff matrix in the figure, the BEST response for Louise is:

to confess