ECON 300 Test 1

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The figure at right shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than

$14

Given the following market​ equations: ​Supply: Qs​ = 0 ​+ 3p ​Demand: Qd​ = 99 - 3p Solve for the equilibrium price​ =$

$16.50

A consumer has ​$200200 per month to be spent on books​ (good B) and DVDs​ (good D). Market prices are as​ follows: Pb​ = ​$20 and PD​ = ​$40. Given this​ data, what is the marginal rate of​ transformation?

(5,10) -0.50

Suppose the demand function for a good is expressed as Q​ = 100 minus− 4p. If the good currently sells for​ $10, then the price elasticity of demand equals?

-0.67.

Suppose the demand equation​ is: Q = 80 - 1.50p What is the price elasticity of demand if the price is ​$40 and output is 20 ​units? The price elasticity of demand is (blank) This means that if the price increases by 9​%, the quantity demanded will (blank) by (blank) %?

-3 decrease by 27%

Suppose Jim has a demand curve​ of: Q(J/D)= 8-p, and Sam has a demand curve of: Q(S/D)= 6-0.5p. How much is the total demand at a price of ​$8.50? How much is total demand at a price of ​$5.00​?

1.75 units 6.50 units

The figure at right shows​ Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks assuming he has​ $20 to spend on these goods. Which of the following points are on​ Bobby's price − consumption ​curve?

10 snacks and 15 juices

The figure at right shows​ Bobby's indifference map for soda and juice. Upper B1 indicates his original budget line. Upper B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his substitution​ effect?

3

The figure at right shows a graph of a market for pizzas in a large town. At a price of​ $7, what is the amount of excess​ demand?

30 Units

A consumer has ​$130 in monthly income to be spent on two goods Z and B. The price of good Z ​(Pz​) is ​$8.00 The Marginal Rate of Transformation​ (MRT) is equal to −2. That is 2 units of good B can be traded for 1 unit of good Z. What is the price of good​ B? ​ How many units of good B can be purchased if all income is used for that​ good?

4$ 32.50 Units

A consumer has ​$220 in monthly income to be spent on two goods Z and B. The price of good Z ​(Pz​) is ​$8.00 The Marginal Rate of Transformation​ (MRT) is equal to minus−2. That is 2 units of good B can be traded for 1 unit of good Z. What is the price of good​ B? How many units of good B can be purchased if all income is used for that​ good?

4$ 55$

The figure at right shows a graph of the market for pizzas in a large town. No pizzas will be supplied unless the price is above

5$

Max has allocated​ $100 toward meats for his barbecue. His budget line and an indifference map are shown in the figure at right. Which of the following best describes​ Max's preferences?

a​ = b ≻ e

A specific tax on sellers will

shift the supply curve to the left.

What is the effect of a​ 50% income tax on​ Dale's budget line and opportunity​ set? A​ 50% income tax

shifts the budget line​ inward, decreasing the opportunity set.

If the price of one good increases while the price of the other good and the​ consumer's income remain​ unchanged, what will happen to the budget​ line?

The budget line rotates inward from the intercept on the axis of the good that did not change in price.

If the​ consumer's income increases while the prices of both goods remain​ unchanged, what will happen to the budget​ line?

The budget line shifts outward without a change in slope.

Which of the following is​ true?

The elasticity of demand varies along most demand curves.

What might explain a professional baseball player having lower production the year after signing a multi−million dollar​ contract?

The income effect.

Michelle spends all her money on food and clothing. When the price of clothing​ decreases, she buys more clothing. In the diagram to the​ right, the substitution effect is defined by the movement from point? In the diagram to the​ right, the income effect is defined by the movement from point? The income effect causes her to buy ? clothing?? Clothing is a ? good??

A to B B to C More Normal

Given the following​ data: Consumer Income Y​ = $40 Px​ = $4 Pz​ = $5 Which of the following bundles are attainable with these prices and​ income? If the price of good X were to increase to​ $5, which of the following bundles would be​ attainable?

A, B, E A, E

Which of the following statements is​ true?

A. More tax revenue is raised if a tax is collected from consumers. B. More tax revenue is raised if a tax is collected from producers. C. More tax revenue is raised if a tax is collected from both consumers and producers. D. The same tax revenue is raised regardless of whether the government collects the tax from consumers or producers. E. There is no way to identify with any certainty the collection conditions under which more tax revenue will be raised D.

Which of the following statements is​ true?

A. The equilibrium price after a specific tax will be the same whether the tax is collected from consumers or producers. This is the correct answer. B. The equilibrium price after a specific tax will depend on whether the tax is collected from consumers or producers. C. The tax incidence on consumers will be higher if the tax is collected from consumers. D. The tax incidence on producers will be higher if the tax is collected from producers. A

A​ consumer's willingness to trade one good for another can be expressed by the​ consumer's

Both: marginal rate of substitution. indifference curve.

In tracing out a​ price-consumption curve​ (PCC) for good​ X, which of the following variables is held​ constant?

Consumer Income

If the demand curve for a good always has unitary price​ elasticity, what does this imply about consumer​ behavior?

Consumers will spend a constant total amount on the good.

The figure at right shows​ Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. As the price of snacks​ rises, Bobby's utility

Decreases

When​ John's income was​ low, he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners. Now that his income is​ high, a pay raise causes him to dine out more often and buy fewer frozen dinners. Which graph in the above figure best represents​ John's Engel curve for dining​ out?

Graph B. Up to the left.

The above figure shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for coffee after severe weather destroys a large portion of the coffee​ crop?

Graph C

The figure at right shows​ Larry's indifference map and budget lines for ham and pork. Which of the following statements is​ TRUE?

Ham is an inferior good.

The U.S. supply of frozen orange juice comes from Florida and Brazil. What is the effect of a freeze that damages oranges in​ Florida? The price of frozen orange juice in the United States will (blank) ​Furthermore, the quantity of orange juice sold by Floridian firms will (blank), and the quantity sold by Brazilian firms will (blank)?

Increase Decrease, Increase

The figure at right shows a graph of the market for pizzas in a large town. If the price falls from​ $10 to​ $7 per​ pizza, the quantity of pizzas demanded will

Increase by 30

A rightward shift of the supply curve will lead to​ a(n)

Increase in quantity demanded. Decrease in equilibrium price. Excess supply at the old equilibrium price.

Gillen and Hasheminia​ (2013) estimate that the elasticity of demand for air travel is negative 0.17−0.17 for people traveling alone and negative 3.09−3.09 for couples. Are these elasticities elastic or​ inelastic? The elasticity of demand for single travelers is (blank) and for couples is (blank) For which type of traveler is demand less ​elastic? Why do you think these elasticities differ in this​ way? The demand is less elastic for singles because they are more likely to be traveling for

Inelastic Elastic Singles Business

Cranfield​ (2012) estimated that the demand elasticities were negative 0.83−0.83​, negative 0.61−0.61​, and negative 0.76−0.76 for Canadian​ beef, chicken, and​ pork, respectively. Are these demand elasticities elastic or​ inelastic? The elasticity of demand for Canadian beef chicken, and pork is? Which product is least ​ELASTIC?

Inelastic, Inelastic, Inelastic Chicken

Max has allocated​ $100 toward meats for his barbecue. His budget line and an indifference map are shown in the figure at right. What happens if​ Max's mother gives him 10 pounds of​ burger?

Max is indifferent between this gift and the dollar value of the burger.

The diagram to the right contains several consumption bundles labeled A to G. A consumer reports that she prefers bundle B to bundle F. What property has been​ violated? A consumer reports that he prefers bundle E to bundle B but can not tell you about preferences for C relative to E. What property has been​ violated? A consumer reports that she prefers bundle B to​ C, prefers bundle E to​ B, but prefers bundle C to E. What property has been​ violated?

More is preferred to less Completeness Transitivity

Given the​ income-consumption curve to shown to the right. Good X (Blank) and good Y is (blank)?

Normal Good, Normal Good

Lionfish is an aquatic invasive species in the southeastern U.S. and the Caribbean. Current removal policies focus on harvesting the lionfish for human consumption.​ However, a fishing license is required to fish in most southern states. Assume the supply of fishing licenses is Qs​ = 50​ + 0.05L​ + 40P, where Upper L equals lionfish populationL = lionfish population and P​ = price of a fishing​ license, and the demand for fishing licenses is Qd equals 1400 minus 60 Upper PQd = 1400 − 60P. What is the equilibrium price and quantity of fishing licenses when L​ = 1,000?

P= 13 Q= 620

The substitution effect for a wage increase in terms of hours worked must be? If leisure is a normal good then the substitution effect and income effect work in ?

Positive Opposite Directions

Suppose that the price of a good decreased. The substitution effect shows the change in consumption for all goods in reaction to a change in (blank) holding (blank) constant The income effect shows the change in consumption for all goods in reaction to a change in (blank) holding (blank) constant

Relative Prices, Utility Purchasing Power, Relative prices

The substitution effect can be measured holding​ ________ constant.

Utility

Clifford lives by the motto​ "Eat drink and be merry​ today, for tomorrow​ doesn't matter." If​ today's consumption is represented by​ "x" and​ tomorrow's consumption is represented by​ "y", then which of the following best represents​ Clifford's utility​ function?

U​ = x

Which of the following is​ true?

When ε ​= −​1, demand is considered unitary elastic. When ε ​< −​1, demand is considered elastic. When −1 ​< ε ≤ ​0, demand is considered inelastic.

An inferior good exhibits

a downward sloping Engel curve. A decline in the quantity demanded as income rises. A negative income elasticity.

Government prohibition of advertising cigarettes on television would most likely result in

a leftward shift in the demand curve for cigarettes.

An increase in the price of a good will lead​ to: An increase in production costs will lead​ to:

a movement up along the supply curve for that good. a leftwardleftward shift of the supply curve.

Given the indifference curve shown to the​ right: a. What is the marginal rate of substitution as you move from point Upper C to point Upper E​? b. Would you expect the absolute value of the MRS to be ​higher, lower, or the same as you continue to substitute audio CDs for​ books?

a. -1/7 b. lower

The short − run elasticity of supply is less than the long − run elasticity of supply

because producers can adjust the amount of machinery in the long run but not in the short run.

For a given positively sloped supply​ curve, the price increase to consumers resulting from a specific tax imposed on sellers will be

greater the less price elastic demand is.

If the price of orange juice rises​ 10%, and as a result the quantity demanded falls by​ 10%, then one can conclude that the demand for orange juice

has a unitary elasticity.

If​ Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals​ 2, then

he would give up 5 salads to get the next pizza.

The market supply curve is found by

horizontally summing all individual supply curves.

What is the effect of a​ $1 specific tax collected from producers on equilibrium price and quantity if demand is perfectly inelastic? Price (blank) and quantity (blank)? What is the incidence on​ consumers? Explain. The incidence of the tax that falls on consumers is (blank) %? because consumers are (blank) price sensitive?

increased by 1, is unchanged, 100, Not

Governments often use a sales tax to raise tax revenue​, which is the tax per unit times the quantity sold. Will a specific tax raise more tax revenue if the demand curve is inelastic or elastic? A specific tax will raise more tax revenue if the demand curve is

inelastic because consumers will be less sensitive to price.

One characteristic of a Giffen good is that it

is an inferior good.

The price of leisure

is measured as foregone earnings.

Usury laws place a ceiling on interest rates that lenders such as banks can charge borrowers. Why would we expect​ low-income households in states with usury laws to have significantly lower levels of consumer credit​ (loans) than comparable households in states without usury​ laws? ​(Hint​: The interest rate is the price of a​ loan, and the amount of the loan is the quantity​ measure.) ​Low-income households in states with usury laws have lower levels of loans because

loan demand likely exceeds loan supply at the rate ceiling.

After a major disaster such as the Los Angeles earthquake and hurricanes such as​ Katrina, retailers often raise the price of​ milk, gasoline, and other staples because supplies have fallen. In some​ states, the government forbids such price increases. What is the likely effect of such a​ law? As a result of the price​ ceiling,

more will be demanded than is​ supplied, resulting in a shortage.

Equilibrium is defined as a situation in which

neither buyers nor sellers want to change their behavior.

The figure at right shows the market for apples. If a consumer group convinces the government to set a maximum price of​ $2 per​ pound, then

no apples will be supplied.

If the demand curve for a good is horizontal and the price is​ positive, then a leftward shift of the supply curve results in

no change in price

Under what conditions does the income effect reinforce the substitution​ effect? The income effect will reinforce the substitution effect for (blank) good. Under what conditions does it have an offsetting​ effect? The income effect will have an offsetting effect for (blank) good. If the income effect more than offsets the substitution effect for a​ good, what do we call that​ good? The income effect more than offsets the substitution effect for a (blank) good.

normal good inferior good Giffen good

A vertical demand curve for a particular good implies that consumers are

not sensitive to changes in the price of that good.

Suppose the quantity of x is measured on the horizontal axis. If the price consumption curve is vertical when the price of x​ changes, then the demand for x is

perfectly inelastic.

The percentage change in the quantity supplied in response to a percentage change in the price is known as the

price elasticity of supply.

If a good is considered a normal​ good, the demand curve will shift​ ________ when income increases because​ ________.

right; the income and substitution effects move in the same direction

If the supply curve of a product changes so that sellers are now willing to sell 2 additional units at any given​ price, the supply curve will

shift rightward by 2 units.

According to the Law of​ Demand, the demand curve for a good​ will: An increase in the price of a good will lead​ to: An increase in​ consumer's income will lead​ to:

slope downward a movement up along the demand curve for that good. a rightward shift of the demand curve for a normal good.

According to the Law of​ Demand, the demand curve for a good will

slope downward.

If both prices increases by​ 50%

slope of the budget constraint stay the same.

Max has allocated​ $100 toward meats for his barbecue. His budget line and indifference map are shown in the figure at right. If Max is currently at point​ e,

the absolute value of his MRS is less than the​ trade-off offered by the market. He is willing to give up more burger than he has to given market prices. He is not maximizing his utility.

If two bundles are on the same indifference​ curve, then

the consumer derives the same level of utility from each.

The above figure shows the supply and demand curves for rice in the U.S. and in Japan. Assume there is no trade between the two countries. If bad weather causes the supply curves in each country to shift leftward by the same​ amount, then

the price will increase more in Japan than in the U.S.

If a person supplies more hours of labor in response to a wage​ increase, then

the substitution effect is greater than the income effect.

Consumers and firms are known as price takers only if

they cannot unilaterally affect the market price.

An indifference curve represents bundles of goods that a consumer

views as equally desirable.

It is appropriate to use the supply − and − demand model in which of the following​ markets?

wheat market


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