ECON 2030 Exam #1

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Price (P) of good (-)

price goes down, quantity demand goes up

losers of trade

producers of the discontinued product and consumers of the opposite because of price increases

winners of trade

producers of the sole product and consumers of the opposite because of price reduction

absolute advantage

productivity

Market Equilibrium:

quantity supplied = quantity demanded we sell everything we want to because this is true, every buyer can find a seller

Quantity Supplied (Qs)

specific amount willing and able to sell at a specific price

Link with Reservation Price

value of what it is you are giving up, minimum amount of money a seller will sell

Future price (-)

waiting to sell for best reward

sunk costs

cost you give up regardless (money)

Inferior good (-)

ones we would buy less

Other input costs (-)

if other costs increase (other than labor), supply decreases b/c doing less

suppose the government imposes a $1 excise tax on a good, suppose further that the demand elasticity is 0.4 and the supply elasticity is 0.6. 1) what % of the tax falls on the buyers? 2) What % of the tax falls on the sellers? 3) What change in price of the good for buyers? 4) What is the change in the price do sellers receive?

(both are inelastic, less than 1) 1) Es/(Ed+Es) x 100 = 60% 2) Ed/(Ed+Es) x 100 = 40% 3) Increases by 60% of the tax, $.60 4) Decreases by 40% of tax, $.40

opportunity cost per unit table

- what you give up to make one - value: what you give up / what you get

Determinants of Supply

-costs of labor(-) -other input costs(-) -productivity(+) -expectations (future price (-) ) -number of sellers

Disequilibrium

-excess supply -excess demand

Determinants of quantity demand

-income -price of related goods -tastes and preferences -expectations (future price and future income) -number of buyers

Determinant of Quantity Supplied

-price of goods(+)

Canada - 25 coal, 100 potatoes whales - 20 coal, 60 potatoes 1) the move to autarky will cause employment of Canadian farms to... 2)the move the autarky will benefit coal consumers in which country?

1) decrease 2) only whales

suppose Mark and Howie can spend their take baking cookies or brownies. Their productivity is mark - 16 cookies, 4 brownies howie - 14 cookies, 2 brownies 1) Who has the absolute advantage in baking cookies and who has comparative advantage in baking brownies? 2) Can mutually beneficial trade occur and who would bake what? 3) Howies opportunity cost for baking one cookies is?

1) mark; howie 2) yes if mark does brownies and howie does cookies 3) 1/7

Suppose that apples are the main input in the productivity of apple cider. suppose further that the wage paid to apple harvesters decreases. 1) the wage change will cause the ___ apples to ___ (supply/demand, inc/dec) 2)the equilibrium price of apply cider will ____ and the equilibrium quantity of apple cider transacted will ____

1) supply of, increase 2) dec, inc

The Method

1. Who is DIRECTLY affected? Who's going to notice the change and alter their behavior (buyer or seller) a. i.e., Who would notice the change and alter their behavior? 2. How does behavior change? More or less 3. What is the result?

If "workers in the United States are the most productive in the world," why do we consume so many imported goods?

Because they are cheap to produce, thus cheaper to sell (opportunity cost); productivity is irrelevant to the question, opportunity cost is what matters most in this situation

If "trade can make everyone better off," why is there so much opposition to it?

Everything comes with a cost, must look at both sides, be suspicious if someone is only giving you one side of a story; countries as a whole if you add up all the benefits and costs, the benefits will outweigh the costs for ALL countries as a WHOLE; there will be opposition only from those INDIVIDUALS from which the costs outweigh the benefits; we are setting policies for the country as a WHOLE; trade allows for countries to produce outside their limits

Suppose rational decision-maker Charles faces a choice: he can either see Helen Gillet or Beth Patterson in concert. Suppose further that tickets to see Helen are free while tickets to see Beth are $5 each and he has not yet obtained a ticket to see either performer. - What is Charles's benefit from seeing Beth?

Expected pleasure of seeing Beth

If the tax on gas increases by $.05 cents, how will the price at the pump change?

INCREASE, but not exactly by $.05, buyers have the higher burden

Substitutes:

Increase price (+) D1 = f(P2) direct (+)

Complements:

Increase price (-)D1 = f(P2) indirect (-)

It depends

Price of good (+)

Qs = f(p), direct relationship, price goes up, Qs goes up (b/c want to sell more of a more expensive item to earn more money/benefit) (don't know why the price is going up therefore can't say the opposite)

Saves $5, expected pleasure of seeing Helen

Excess demand:

Shortage producing too little, buyers change behavior by bidding more (like in an auction)

Excess supply:

Surplus producing too much, sellers change behavior by lowering price

Zero (amount you have to pay either way, always monetary, dollars)

Quantity Demanded (QD)

a specific amount of a good/service we are willing and able to purchase at a specific price (actual price = P), Qd = f(P), as Qd increases, P decreases, inverse relationship

Suppose cheese and eggs are complements in consumption. An increase in the supply of cheese, everything else held constant, will cause the demand for eggs to ____ and the equilibrium quantity of eggs transacted to____. a) increase; increase b) decrease; decrease c) decrease; increase d) increase; decrease

a) increase; increase

which of the following concepts is depicted by the numerical slope of the production possibilities frontier at a particular point on the PPF? a) the opportunity cost of the good measured on the horizontal axis b) the degree of attainability of the combination of goods c) the degree of efficiency of the combination of goods d) the rate of economic growth

a) the opportunity cost of the good measured on the horizontal axis

Bulgaria is said to have the absolute advantage over Albania in producing a good if a. Bulgaria can produce more of the good per worker hour than Albania can. b. Albania can produce more of the good per worker hour than Bulgaria can. c. Bulgaria has a higher opportunity cost of producing the good than does Albania. d. Albania has a higher opportunity cost of producing the good than does Bulgaria.

a. Bulgaria (productivity) can produce more of the good per worker hour than Albania can.

"To get a job as a top executive, new evidence shows, it helps greatly to have experience in as many of a business's functional areas as possible. A person who burrows down for years in, say, the finance department stands less of a chance of reaching a top executive job than a corporate finance specialist who has also spent time in, say, marketing." The preceding is an example of a statement about a _____ issue. a. microeconomics b. macroeconomics

a. Microeconomic - only one type of job

Suppose that Brussels sprouts are a normal good. Suppose further that incomes in the country are decreasing. a. who is affected? b. behavior change? c. what will be the result?

a. buyer b. buy less c. The equilibrium price of Brussels sprout will decrease and the equilibrium quantity of Brussels sprouts will decrease.

An increase in the hourly wage rate, everything else held constant, will cause _____ in the marginal cost of an extra hour of leisure. a. an increase b. a decrease c. no change

a. an increase - losing more money to not working because working will give you more than before

Suppose that chicken and turkey are substitutes in consumption (determinant of demand). Suppose further that the price of chicken increases. a. Which side of the turkey market is directly affected by this change? b. How will their behavior change?

a. buyers b. Buy more turkey b/c its price hasn't changed

Suppose the number of buyers of pencils increases while, at the same time, labor costs in the pencil industry increase. In the situation above,... a. how will the demand for pencils change? b. how will the supply of pencils change?

a. increase b. decrease

"How has the production of clothing in the United States changed over the last 25 years?" is an example of a _____ question. a. microeconomics b. macroeconomics

a. microeconomic - is only clothing, only one industry

Suppose milk is the main input in the production of cream cheese. Suppose further that the price of milk decreases. a. Which side of the cream cheese market is directly affected by this change? b. How will their behavior change?

a. sellers b. sell more

Suppose worker productivity increases in the watch industry. a. who is affected? b. behavior change?

a. sellers b. sell more

Demand (D)

ability and willingness to purchase a good/service at various prices or regardless of price (price doesn't matter to demand) (dependent variable)

supply

ability and willingness to sell a good/service at various prices

marginal benefits

additional benefit above what you have already derived

Suppose a store sells a pair of shoes for $30 each and is running a buy one get one half off sale. Suppose further that you buy four pairs of shoes. The marginal cost of the third pair of shoes purchased is _____ a) $15 b) $30 c) $45 d) $75 e) $90

b) $15

suppose your friend martha has a hot stock tip; she tells you that the price of Google stock will be $10 higher tomorrow that it is now. If you believe her, what is the most profitable action to take today? a) wait and take no action b) buy google stock c) sell google stock

b) buy google stock

Suppose that worker productivity _____ in the bubble bath industry. Everything else held constant, the equilibrium price of bubble bath liquid will _____ and the equilibrium quantity transacted will decrease. a) increase; increase b) decrease; decrease c) decrease; increase d) increase; decrease

b) decrease; increase

Suppose that price of pumpkins increases. Everything else held constant, that will cause ____ in the demand of pumpkins. a) a decrease b) no change c) an increase

b) no change, only changes quantity demand

"How has the production of all goods and services in the United States changed over the last 25 years?" is an example of a _____ question. a. microeconomics b. macroeconomics

b. Macroeconomic - includes all goods and services

"For American families, household incomes rose strongly in 2015, breaking a years-long pattern of income stagnation. The median household's income in 2015 was $56,500, an increase of 5.2 percent over the previous year, the Census Bureau reported Tuesday." The preceding is an example of a statement about a _____ issue. a. microeconomics b. macroeconomics

b. Macroeconomic - median (center number) household income

Suppose Remus decides to go fishing at Lake Pescaccio on his day off from work, but he faces a choice: he can fish the east, south, or west side of the lake. His expected catch for the day is as follows: 3 fish on the east side, 4 fish on the south side, or 5 fish on the west side. Suppose further that Remus chose to fish the east side of the lake. Was Remus' decision rational? a. yes b. no

b. No. - rational means doing something if it is greater than or equal to the opportunity cost, if the benefit is better than the cost

microeconomics

behavior of individual people and businesses, mom and pop to Walmart, individual markets, not necessarily indicative of the economy as a whole

Suppose mac and cheese in an inferior good, suppose further that national income in increasing. Who is directly affected? How does buyer behavior change?

buyers, demand will decrease

suppose that mac and cheese is an inferior good, suppose further that the national income is decreasing. Everything else held constant, the equilibrium price of mac and cheese will ____ and the equilibrium quantity transacted will____. a) dec, dec b) inc, be ambiguous c) inc, inc d) inc, dec e) dec, inc

c) inc, inc

Suppose you observe a market in which, at a given point in time, the quantity producers are willing and able to sell is _____ the quantity consumers are willing and able to purchase. Thus we say that there is a _____ of the good and over time, everything else held constant, the price in the market will increase. a. greater than; shortage b. greater than; surplus c. less than; shortage d. less than; surplus

c. less than, shortage

Suppose the price of umbrellas increases. Everything else held constant, this will cause the _____ of umbrellas to _____. a. supply; increase b. supply; decrease c. quantity supplied; increase d. quantity supplied; decrease

c. quantity supplied; increase

In a market, a shortage exists when _____ is greater than _____. a. demand; supply b. supply; demand c. the quantity demanded; the quantity supplied d. the quantity supplied; the quantity demanded

c. the quantity demanded; the quantity supplied

Suppose a customer offered Tony, a rational painter, $500 for his painting and he sold it. It can be concluded with certainty that Tony's reservation price for his paint is ________$500. a) less than b) equal to c) greater than d) less than or equal to e) greater than or equal to

d) less than or equal to

Suppose Justin is employed, his regular wage is $10 per hour, and he must receive overtime pay for hours worked over 40 in a workweek at a rate of time and one-half his regular rate of pay (i.e., $15 per hour). Last week he worked 42 hours. What was Justin's marginal benefit for working the 42nd hour? a. $0. b. $5. c. $10. d. $15. e. $30. f. $430.

d. $15. - only refers to the last hour

Suppose Remus decides to go fishing at Lake Pescaccio on his day off from work, but he faces a choice: he can fish the east, south, or west side of the lake. His expected catch for the day is as follows: 3 fish on the east side, 4 fish on the south side, or 5 fish on the west side. Everything else held constant, Remus' benefit of fishing the east side of the lake is _____ fish. a. -6 b. -2 c. -1 d. 3 e. 4 f. 5 g. 9

d. 3 - benefit you only look at what you get, will always be positive

Bulgaria is said to have the comparative advantage over Albania in producing a good if a. Bulgaria can produce more of the good per worker hour than Albania can. b. Albania can produce more of the good per worker hour than Bulgaria can. c. Bulgaria has a higher opportunity cost of producing the good than does Albania. d. Albania has a higher opportunity cost of producing the good than does Bulgaria

d. Albania has a higher opportunity cost of producing the good than does Bulgaria

At a given point in time a combination of two goods is attainable if it lies _____ the production possibilities frontier. a. outside of b. on or outside of c. on d. on or inside of e. inside of

d. on or inside of

Suppose the price of umbrellas increases. Everything else held constant, this will cause the _____ umbrellas to _____. a. demand for; increase b. demand for; decrease c. quantity demanded of; increase d. quantity demanded of; decrease

d. quantity demanded of; decrease

At a given point in time a combination of two goods is inefficient if it lies _____ the production possibilities frontier. a. outside of b. on or outside of c. on d. on or inside of e. inside of

e. inside of

Suppose lawn mower sellers, but not buyers, expect the price of lawn mowers to _____ next month. Everything else held constant, the equilibrium price of lawn mowers will decrease and the equilibrium quantity transacted will _____ TODAY.

decrease, increase

Suppose milk is the main input in the production of cream cheese. Suppose further that the price of milk decreases. Everything else held constant, the equilibrium price of cream cheese will _____ and the equilibrium quantity of cream cheese transacted will _____.

decrease, increase

Suppose worker productivity increases in the watch industry. Everything else held constant, the equilibrium price of watches will _____ and the equilibrium quantity of watches transacted will _____.

decrease, increase

Normal good (+)

demanding more

Suppose Tony, a rational painter, has a reservation price of $500 for his painting 'Banana Head'. Suppose further that a potential client liked the painting and made him an offer that Tony rejected. It can be concluded with certainty that the client's offer was _____ $500. a. greater than b. greater than or equal to c. equal to d. less than or equal to e. less than

e. less than

income

effects the ability to purchase

Suppose Remus decides to go fishing at Lake Pescaccio on his day off from work, but he faces a choice: he can fish the east, south, or west side of the lake. His expected catch for the day is as follows: 3 fish on the east side, 4 fish on the south side, or 5 fish on the west side. Everything else held constant, Remus' opportunity cost of fishing the east side of the lake is _____ fish. a. -6 b. -2 c. -1 d. 3 e. 4 f. 5 g. 9

f. 5 - costs & benefits are never negative, only the next best alternative

T/f: An extraordinarily talented person could have the comparative advantage in everything she does

false

Suppose Kelley, a rational consumer, recently saw a painting priced at $1500, liked it, and bought it. It can be concluded with certainty that Kelley's reservation price for the painting was _____ $1500. a. greater than b. greater than or equal to c. equal to d. less than or equal to e. less than

greater than or equal to

Cost of labor (i.e., wages, benefits) (-)

if labor cost goes up, (everything else constant) less for seller, doing less work, supply will decrease

Productivity (+)

increase productivity, supply increases, selling more

Number of sellers (+)

increase sellers in your business, increase supply and selling

Suppose lawn mower buyers, but not sellers, expect the price of lawn mowers to _____ next month. Everything else held constant, the equilibrium price of lawn mowers will _____ and the equilibrium quantity transacted will increase TODAY.

increase, increase

Suppose that chicken and turkey are substitutes in consumption. Suppose further that the price of chicken increases. Everything else held constant, the equilibrium price of turkey will _____ and the equilibrium quantity of turkey transacted will _____.

increase, increase

Suppose the number of buyers of pencils increases while, at the same time, labor costs in the pencil industry increase. Everything else held constant, the equilibrium price of pencils will _____ and the equilibrium quantity of pencils transacted will _____. increase; increase increase; decrease increase; be ambiguous decrease; increase decrease; decrease decrease; be ambiguous be ambiguous; increase be ambiguous; decrease be ambiguous; be ambiguous

increase; be ambiguous

Comparative Advantage

lowest opportunity cost

"most economists believe that federal government budget deficits are helpful when economies are in recession, but some say that when they are near full employment, as the US economy is now..." is an example of _____economics

macro

Reservation Price

max price that you would be willing and able to pay for a good/service (how much you think it's worth)

"The average cost of a 30s ad for the Super bowl crept up to $5 million this year." this is an example of _____ economics

micro

Price of related goods

name brand vs. non-name brand

autarky

no trade

marginal costs

the additional cost to you over and above the costs you have already incurred

seller's side of the market

the behavior of the seller

opportunity cost

the benefit you might have gained from choosing the next best alternative

macroeconomics

the economy of the whole

The price of goods that are substitutes in consumption move . . .

together

Answer true or false to the following statement. Engaging in trade with other countries allows the United States to consume outside of its production possibilities frontier.

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