ECON 613 Final Exam

(Part B) Between 2019 and 2020, freight rates for VLCCs (very large crude carriers) collapsed from $88,400 to $28,000 a day. The utilization rate of the overall tanker fleet fell from 91% to 84%. Between 2020 and 2021, as the world economy recovered, VLCC rates rose to $34,800 a day, and utilization of the overall tanker fleet rose to 86%. (a) Using relevant demand and supply curves, illustrate the shift in short-run equilibrium in tanker services between 2019 and 2020. (b) Using relevant demand and supply curves, illustrate the shift in short-run equilibrium between 2020 and 2021.

Make Graph (a) demand curve decreases as P goes from 88,400 to 28,000 and Q goes from 91 to 84 (b) demand curve decrease as P goes from 44,800 to 28,000 and Q goes from 91 to 84

-Example of Currency Carry Trade & Short Sales -A currency trader borrows 1,000 USD from a US bank, converts the funds into Turkish Lira (TRY) and buys 1-year Turkey government bonds for the equivalent amount (about 2,400 TRY). -Assume that the Turkey government bond yield rate is 12.5% (Jan. 28, 2014) and 1-year US Treasury yield rate is 0.12%. -The trader stands to make a profit of 12.38% as long as the exchange rate between the countries does not change.

When USD borrowed by a currency trader is converted to TRY for financial investment in Turkey, the supply of USD increases (the supply curve shifts to the right) in the foreign exchange market, causing USD to depreciate and TRY to appreciate.

Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. There is a market maker in this market. What is the profit-maximizing bid-ask spread per unit for a market maker? a. $6 bid; $12 ask b. $7 bid; $11 ask c. $8 bid; $10 ask d. $9 bid; $9 ask

a. $6 bid; $12 ask

Some potential consumers were NOT served, and they happened to be all senior citizens. If the marginal cost is constant at $6.35 and the restaurant can charge senior citizens separately, what will be the profit- maximizing price for senior citizens? a. $6.80 b. $6.60 c. $6.40 d. $6.20

a. $6.80

Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. There is a market maker in this market. Now suppose competition among several market makers forces the spread down to $4. How many goods are traded? a. Four b. Five c. Six d. Seven

a. Four

The table below contains both the demand and supply schedules of the market for rice. Price is denominated in dollars ($) and quantity is denominated in hundredweights. What is the equilibrium price and quantity in the market for rice? a. $12; 3 hundredweights b. $12; 1 hundredweight c. $2; 9 hundredweights d. $9; 2 hundredweights

d. $9; 2 hundredweights

Example - When government intervenes in the market

-In 2009, the Obama administration purchased surplus cheese from dairy farmers and distributed it to food pantries in the U.S. and overseas. The government also paid farmers to reduce their dairy herds. -When both demand and supply curves shift in opposite directions, we can predict whether the market equilibrium price increases or decreases. -However, a change in the market equilibrium quantity remains indeterminate. Depending on how far each curve shifts, the market equilibrium quantity may increase, decrease, or remain unchanged.

Things that will change demand curve

-Income -Prices of related goods -tastes (preferences) -expectations about future prices -# of buyers

Demand Curve Shifts Leftward (Demand __________)

-Decreases -when income decreases; -when a good is less valued; -when prices of complements rise; -when prices of substitutes fall; -when the price is expected to be lower; -when the number of consumers decreases; -when transaction costs rise

Supply Curve Shifts Leftward (Supply ________)

-Decreases -when input prices rise; -when changes in property rights raise the cost of production; -when government policy changes raise the cost of production; -when price is expected to be higher; -when the number of sellers decreases

Demand Curve Shifts Rightward (Demand _______)

-Increases -when income increases; -when a good is more valued; -when prices of complements fall; -when prices of substitutes rise; -when price is expected to be higher; -when number of consumers increases; -when transaction costs fall

Supply Curve Shifts Rightward (Supply __________)

-Increases -when input prices fall; -when cost-saving technology (knowledge) is made available; -when changes in property rights reduce the cost of production; -when government policy changes reduce the cost of production; -when price is expected to be lower; -when number of sellers increases

-Example of Bubbles: US Housing Market --In 1993, government policies began encouraging low-income citizens to buy houses by reducing qualifications for home borrowing from government-sponsored lenders like Fannie Mae. --This led to an increase in demand for houses. --Housing prices increased dramatically, especially where supply was limited due to strict zoning that makes supply less elastic (a steeper supply curve)

-Many investors expected prices to continue to rise. Buying continued and lenders did not seem concerned. -Yale economist Robert Shiller warned of an irrational housing bubble in 2005. He identified the bubble by noting that house prices were becoming very expensive relative to rents.

Supply Curve and Law of Supply

-Supply curve shows a positive relationship between the price and the quantity supplied of a product. -As price rises (falls), quantity supplied increases (decreases). -At least some sellers, if not all, will respond to a change in price. -Law of Supply --all input prices remain the same --no changes in technology in use --no new expectations about future price changes

(Part B) (In the fictional scenario below, you are asked to apply your understanding of demand and supply, exchange rates as well as price elasticity.) After years of ultra-loose monetary policy (i.e., maintaining extremely low domestic interest rates, resulting in historic devaluation of yen), the Bank of Japan (BOJ) has signaled the market that the end of its quantitative easing is in sight (meaning that the BOJ will soon take steps to raise the interest rate in Japan and reduce the interest rate gap between the US and Japan). (b) At times, a major problem for Japanese automobile manufacturers has been the appreciation of the yen against the US dollar. This causes the yen to be more expensive in terms of the US dollar. Explain how the appreciation of the yen from 150 to, say, 130 yen per US dollar affects the wholesale cost of supplying Japanese vehicles to the United States.

-The appreciation of the yen from 150 yen per US dollar (weaker yen) to 130 yen per US dollar (stronger yen) increases the wholesale cost of supplying Japanese vehicles to the United States. -supply curve will decrease

Example - When the market for delivery services is affected by gasoline price increases

? Leftward shift in supply curve

-Example (Sanctions against Russia) --In September 2014, the U.S. and Europe issued a new round of punitive sanctions against Russia in retaliation for Putin's annexation of Crimea. --What effect would this have on the exchange rate for the Russian Rubble versus USD (or the Euro)?

? Supply Increase and Demand Decrease

Suppose that the exchange rate between United States dollars (USD) and Swiss francs (CHF) is such that USD/CHF is 0.965. Which of the following is most likely to be the exchange rate (USD/CHF) if there is a decrease in the demand for Swiss francs among all countries (not just the US) but the demand for the US dollar stays the same? a. 0.750 b. 0.867 c. 0.965 d. 1.000

d. 1.000

A profit-maximizing pharmaceutical company sells its patented drug in the U.S. and Mexico. The marginal cost of selling the drug remains the same, regardless of in which market the drug is sold) If no arbitrage is permitted, which of the following statements about the pharmaceutical company is correct? a. The company will set the respective drug prices in each market in such a way that the marginal revenue is the same as the marginal cost in each market b. The company will set the respective drug prices in each market in such a way that the marginal revenue is the same in both markets c. The company will charge a higher price in the market with the lower price elasticity of the demand d. All of the statements are correct

d. All of the statements are correct

After years of ultra-loose monetary policy (maintaining extremely low domestic interest rates, resulting in historic devaluation of yen), the Bank of Japan (BOJ) has signaled the market that the end of its ultra- loose monetary policy (or quantitative easing) is in sight (meaning that the BOJ will soon take steps to raise the interest rate in Japan and reduce the interest rate gap between the US and Japan). Which of the following would be expected in the foreign exchange market? a. The supply curve of USD will shift to the right, causing USD to appreciate b. The supply curve of USD will shift to the right, causing the quantity demanded of USD to decrease c. The demand curve of JPY will shift to the right, causing JPY to depreciate d. The demand curve of JPY will shift to the right, causing the quantity supplied of JPY to increase

d. The demand curve of JPY will shift to the right, causing the quantity supplied of JPY to increase

Following an increase in Mexican interest rates relative to U.S. interest rates, which caused Mexican investors to borrow abroad to invest domestically, which of the following is expected to occur? a. The dollar would appreciate relative to the peso, and Mexican prices would increase b. The dollar would appreciate relative to the peso, and Mexican prices would decrease c. The dollar would depreciate relative to the peso, and Mexican prices would increase d. The dollar would depreciate relative to the peso, and Mexican prices would decrease

d. The dollar would depreciate relative to the peso, and Mexican prices would decrease

How does an increase in the price of laptop memory chips affect the market for laptops? a. The demand curve for laptops shifts to the right b. The demand curve for laptops shifts to the left c. The supply curve for laptops shifts to the right d. The supply curve for laptops shifts to the left

d. The supply curve for laptops shifts to the left

If the Chinese Yuan devalues against the US dollar, then a. both the US exporters and Chinese importers would benefit b. the US exporters would benefit while the Chinese importers would be hurt c. the US exporters would be hurt while the Chinese consumers would benefit d. both the US exporters and Chinese importers would be hurt

d. both the US exporters and Chinese importers would be hurt

Consider the forex where US dollars (USD) and Japanese yen (JPY) are traded) Other things being equal, if the quantity demanded of JPY is smaller than the quantity supplied of JPY at the current exchange rate, JPY will soon _ and Japanese exports are likely to _. a. depreciate; decrease b. appreciate; decrease c. appreciate; increase d. depreciate; increase

d. depreciate; increase

The amount of a product that consumers are willing and able to purchase at a particular price is called _ and an inverse relationship between the product price and the quantity demanded of the product is called _. a. supply; quantity supplied b. quantity supplied; supply c. demand; quantity demanded d. quantity demanded; demand

d. quantity demanded; demand

A rightward shift in the supply curve of Y implies that a. sellers (producers) supply less of Y as the price of Y falls b. sellers (producers) supply more of Y as the price of Y rises c. sellers (producers) supply less of Y at each and every price level d. sellers (producers) supply more of Y at each and every price level

d. sellers (producers) supply more of Y at each and every price level

When the price of a manufactured good is expected to be higher than today, what will a profit-maximizing seller do today?

you may increase production today but reduce the amount of the good you release in the marketplace today

e(a) = -2.0; e(b) = -3.0

|e(a)| < |e(b)| 1/|e(a)| > 1/|e(b)| (P(a)-MC) / P(a) = 1/|e(a)| > (P(b)-MC) / P(b) = 1/|e(b)|

Example - When the market for electric cars is affected by consumer subsidy

-D1 is before the subsidy -QS 500 < 1,000 QD

(Part B) (In the fictional scenario below, you are asked to apply your understanding of demand and supply, exchange rates as well as price elasticity.) After years of ultra-loose monetary policy (i.e., maintaining extremely low domestic interest rates, resulting in historic devaluation of yen), the Bank of Japan (BOJ) has signaled the market that the end of its quantitative easing is in sight (meaning that the BOJ will soon take steps to raise the interest rate in Japan and reduce the interest rate gap between the US and Japan). c) Suppose that the Japanese yen rises by 10% against the US dollar. Which of the following are plausible explanations of why a change in the US retail price of Japanese-made cars will be relatively small? (i) The wholesale cost accounts for only part of retailers' costs (ii) American retail demand for Japanese cars is inelastic (iii) American retail supply of Japanese cars is inelastic

(i) True, the larger it is the larger the impact on the retail price -a 10% increase in the wholesale cost due to the stronger yen might translate to a smaller percentage increase in the final retail price because other costs remain constant in USD. (ii) False, because price rises more during inelastic demand (iii) True

-Demand Curve Shifts (When property rights change) -People purchase more or less of a good even without a change in price, because

-"A change in something other than price" alters their willingness to pay for the good. -In 2005 Supreme Court ruled downloading music without permission violated publishers' copyrights. As a result, free alternatives became illegal

Direct and Indirect Price Discrimination

-"Direct" discrimination means that you can identify individuals in the two groups, set different prices to them, and prevent arbitrage -"Indirect" means that you cannot distinguish individuals in the two groups, or you cannot prevent arbitrage

Oil prices per barrel increase from $85 → $120

-A leftward shift in the supply curve -A decrease in supply -A decrease in quantity supplied of the good at each and every price

Currency Carry Trade & Short Sales

-A strategy in which an investor borrows a certain currency with a relatively low-interest rate and uses the funds to purchase a different currency yielding a higher interest rate. -borrow 100 shares of M sell it for $500 per share; price drops to $450

Example: A Big Mac in Bejing is 24.40 Yuan (CNY); A Big Mac in New York is $5.81; the Current Exchange rate = USD/CNY = 6.37 Is CNY overvalued or undervalued against USD? How does CNY fare against USD? How far does one unit of CNY go in the US?

-Answer 1: Convert the Big Mac Price in China to USD = 24.40 / 6.37 = $3.8304 --For $3.8304, you can buy how many Big Macs in the US? 3.8304 / 5.81 = 0.6593 Big Macs --CNY is undervalued by 34.07% -Answer 2: If the currencies had the same purchasing power, then 24.40 CNY must be traded for 5.81 which means the Big Mac exchange rate should be 24.40/5.81 = 4.1997 per USD --(4.1997 - 6.37) / 6.37 = -0.3407 or 34.07% undervalued

Demand Increase or Decrease Market Changes

-As demand increases (as the demand curve shifts rightward along the supply curve), both market equilibrium price and quantity increase -As demand decreases (as the demand curve shifts leftward along the supply curve), both market equilibrium price and quantity decrease

Supply Increase or Decrease Market Changes

-As supply increases (as the supply curve shifts rightward along the demand curve), the market equilibrium price falls and market equilibrium quantity increases -As supply decreases (as the supply curve shifts leftward along the demand curve), market equilibrium price rises and market equilibrium quantity decreases

Supply Curve Shifts (When property rights change)

-At a price of $1,200 per delivery, a group of doctors is willing to supply 17 deliveries a month. A malpractice-award cap will decrease their malpractice insurance premium and, therefore, the marginal cost of each delivery, resulting in a rightward shift in the supply curve from S1 to S2. The quantity of deliveries that doctors are willing to supply increases to 30 per month at a price of $1,200 per delivery.

Market Equilibrium

-At the market equilibrium price of $8 (denoted by PE), the quantity supplied 70 (denoted by QS) equals the quantity demanded 70 (denoted by QD). -There is neither surplus nor shortage in the market. Thus, there is no pressure for the price to change at PE=$8.

Bubbles

-Bubbles (if they exist) are prices that cannot be explained by normal economic forces -Expectations about the future play a role in keeping bubbles going -If a future price increase is expected, buyers will accelerate their purchases to avoid it while sellers delay selling to take advantage of it -Both changes increase the price and, in this sense, expectations are self-fulfilling

Law of Demand

-Ceteris Paribus (other things remaining the same) or (other things being equal). If the price for good rises (falls), the quantity demanded of the good decreases (or increases) --The demand curve shows an inverse relationship between the price and quantity demanded of a product --As price rises (falls), quantity demanded decreases (increases). --At least some buyers, if not all, will respond to a change in price.

Shifts in Demand for USD (Supply of JPY)

-The larger the U.S. interest rate differential, the greater is the demand for U.S. assets and the greater is the demand for dollars on the forex. -The higher the expected future exchange rate, the larger is the expected profit from holding dollars, so the larger is the quantity of dollars demanded on the forex. -The lower the U.S. inflation rate relative to that of Japan, the greater is the demand for dollars on the forex. -The greater confidence investors have in US economy than in Japanese economy, the larger is the quantity of dollars demanded on the forex.

Foreign Exchange Market (Forex)

-The market in which the currency of one country is exchanged for the currency of another. -The exchange rate is the price at which one currency exchanges for another. -The exchange rate is determined by demand and supply in the forex and fluctuates like all prices. -$1 → 150 Yen; 1 Yen → $0.0067 -Forex for JPY and USD: --Those who need USD/demand for USD (they pay using JPY/supply for JPY) --Those who need JPY/demand for JPY (they pay using USD/supply of USD)

Shifts in Supply of USD (Demand for JPY)

-The smaller the U.S. interest rate differential, the greater is the demand for Japanese assets and the greater is the supply of US dollars on the forex. -The lower the expected future exchange rate, the smaller is the expected profit from holding dollars, so the larger is the quantity of dollars that people plan to sell on the forex. -The higher the U.S. inflation rate relative to that of Japan, the greater is the supply of dollars on the forex. -The weaker confidence investors have in US economy than in Japanese economy, the larger is the quantity of dollars supplied on the forex.

(Part B) Answer this question with USD as the base currency and CNY as the base currency, respectively. Consider the forex market for the US dollars (USD) and Chinese yuan (CNY). Other things being equal, what would happen to the value of USD relative to CNY if a global financial market panic would cause the US interest to rise relative to the interest rate of China? Analyze the problem by shifting curve(s) appropriately.

-When USD is the base currency demand increases so demand curve shifts to the right -When CNY is the base currency the demand curve also shifts to the right the exchange rate is decreasing

Effects of Currency Devaluation

-When a country's currency depreciates, it makes the country's exporting goods cheap relative to foreign goods, causing exports from the country to increase and imports into the country to decrease -When a country's currency appreciates, it makes the country's exporting goods expensive relative to foreign goods, causing exports from the country to decrease and imports into the country to increase

(Part B) (In the fictional scenario below, you are asked to apply your understanding of demand and supply, exchange rates as well as price elasticity.) After years of ultra-loose monetary policy (i.e., maintaining extremely low domestic interest rates, resulting in historic devaluation of yen), the Bank of Japan (BOJ) has signaled the market that the end of its quantitative easing is in sight (meaning that the BOJ will soon take steps to raise the interest rate in Japan and reduce the interest rate gap between the US and Japan). (a) How will the forex respond to the BOJ's recent signal? The figure below depicts the forex before the BOJ signaled the market. Use the figure below to explain how the signal will affect the exchange rate (USD/JPY).

-a large gap between USD and JPY, the possibility for a gap to be reduced, JPY will become more attractive -will want to sell USD for JPY -The curve will shift to the right; JPY will gain value USD will lose value

-If you have a curve where all previously stated factors are the same --If the price of beef falls from $3 to $2

-a leftward shift of the demand curve -a decrease in the demand -a decrease in quantity demanded at each and every price

-If you have a curve where all previously stated factors are the same --If income increases from 1,000 to 1,500

-a rightward shift of the demand curve -an increase in the demand -an increase in quantity demanded at each and every price

-Effects of Expectation on Demand and Supply -When a future price increase is expected,

-buyers will accelerate their purchases to avoid it (the demand curve shifts to the right) -sellers will delay selling to take advantage of it (supply curve shifts to the left)

Example -A group of high-value customers (e=-2) --their willingness to pay is ____ --_____ price elastic (less responsive or sensitive to change in price) --their price elasticity of demand is relatively _____ -A group of low-value customers (e=-3) --their willingness to pay is ____ --_____ price elastic (more responsive or sensitive to change in price) --their price elasticity of demand is relatively _____

-high; less; small -low; more; low

(Part B) Answer this question in two parts. First, critique the following statement. Then correct the statement if the statement is flawed. Economists generally agree that when demand decreases, the price falls. But a fall in price leads to a decrease in supply that, in turn, causes the price to rise again.

-supply increases faster than demand; demand curve shifts to the left; P and Q equilibrium decreases

Big Mac Index (Latte Index)

-the purchasing power parity (if goods and services can move freely from one country to another then price should be able to transfer) --not true cause some countries over or undervalue the USD --the index is different prices of Big Mac in other countries

Supply of USD (Demand for JPY) -Suppose 1 USD is now traded for more JPY, say, 115 JPY instead of 110 JPY.

1 USD can buy more Japanese goods than before, and US households and firms will find Japanese goods cheap relative to US goods.

Supply Curve Shifts (When the price of an input (wage) changes)

At $1.25 per roll, GlaxoSmithKline is willing to produce 1.5 million rolls of Tums each month. Wage subsidies from St. Louis reduce the marginal cost of producing each roll of Tums. As a result, the supply curve shifts to the right, from S1 to S2, leading the company to increase supply to 2.9 million rolls per month.

Supply Curve Shifts (When cost-saving technologies become available)

At a price of $60 million, 3 movies are produced each year. Computer-generated animation reduces the marginal cost of producing each movie, translating into a rightward shift in the supply curve from S1 to S2. At the original price, $60 million, Disney is now willing to supply 6 movies instead of 3 per year.

(Part B) Answer this question in two parts. First, find the flaws in the reasoning in the following statement, paying particular attention to the distinction between shifts of and movements along the supply and demand curves. Then, draw a diagram to illustrate what actually happens in each situation. "A technological innovation that lowers the cost of producing a good might seem at first to result in a reduction in the price of the good to consumers. But a fall in price will increase demand for the good, and higher demand will send the price up gain. It is not certain, therefore, that an innovation will really reduce price in the end."

It assumes that a fall in price will always lead to an increase in demand. This is only true if the demand curve is downward-sloping, which means that consumers are willing to buy more of a good as the price falls. However, the statement does not consider the possibility that the demand curve might be perfectly inelastic (i.e., quantity demanded does not change with price) or even upward-sloping (i.e., consumers are willing to buy more of a good as the price rises). -The supply curve has shifted to the right, and at the new equilibrium product price will shift down -Consumers will buy more because more affordable

Demand for USD (Supply of JPY) -Suppose 1 USD is now traded for less JPY, say, 105 JPY instead of 110 JPY.

Japanese will need to pay only 105 JPY for every 1 USD, and Japanese households and businesses will find US goods cheap relative to Japanese goods.

Sellers expect the future price to be higher than today, effect on supply curve?

Leftward shift in supply curve

-Price discrimination allows two optimal prices to be set for two groups with different levels of price elasticity -What if two groups have the same price elasticity of demand? Is it possible to implement a direct price discrimination scheme?

The price discrimination scheme is not possible

(True/False) When the demand for a good or service increases, the consumers' valuation per unit of the good or service increases at every quantity.

True

In July 2014 the price of a Big Mac was $4.80 in the United States while in China it was only $2.73 at market exchange rates. So the "raw" Big Mac index says that the yuan was under-valued by 43% at that time. How would domestic inflation in China (the price of Big Mac in China also increases) affect the Big Mac Index? a. The Big Mac Index would indicate that the Chinese currency is less under-valued b. The Big Mac Index would indicate that the Chinese currency is more under-valued c. The Big Mac Index is not affected by inflation d. The Big Mac Index would indicate that the Dollar is more under-valued

a. The Big Mac Index would indicate that the Chinese currency is less under-valued

In a perfect price discrimination, a monopolist will serve all buyers as long as they are willing to pay a price which is equal to or greater than the marginal cost. a. True b. False

a. True

Price discrimination is the practice of charging different prices to different buyers or groups of buyers based on differences in demand a. True b. False

a. True

For a firm to maximize total profits through price discrimination, it should a. charge a high price to consumers with an inelastic demand and low price to consumers with an elastic demand b. charge a low price to consumers with an inelastic demand and high price to consumers with an elastic demand c. charge the same price to both sets of consumers d. charge nothing to both set of consumers—throw a party

a. charge a high price to consumers with an inelastic demand and low price to consumers with an elastic demand

Holding other things constant, an appreciation of the US Dollar relative to the Chinese Yuan causes the demand for the Yuan to _ and the supply for the Yuan to _. a. increase; decrease b. increase, increase c. decrease; increase d. decrease; decrease

a. increase; decrease

For direct price discrimination to work effectively a. the low-valued customers should not be able to engage in arbitrage b. you need to charge the same price to the different groups c. both groups should have the same elasticity of demand d. the low-valued customers should be able to engage in arbitrage

a. the low-valued customers should not be able to engage in arbitrage

An individual in the United States wants to buy office equipment from England that costs 2,800 pounds. If the exchange rate is $1.92, how much will it cost him in dollar terms? a. $2,800 b. $5,376 c. $1,458 d. Need more information.

b. $5,376

In 1986 and again in 2022, the release of movies associated with the Top Gun franchise starring Tom Cruise heavily featured aviator-style glasses, bomber jackets, and more. These two films introduced entire generations to clothing popularly worn and associated with branches of the United States military, particularly the U.S. Navy. What likely occurred in the market for aviator sunglasses in the years immediately following the release of both films? a. A decrease in the demand for aviator-style sunglasses at every price due to a change in consumer preferences b. An increase in the demand for aviator-style sunglasses at every price due to a change in consumer preferences c. No change in the demand for aviator-style sunglasses at every price d. A decrease in the market price for aviator-style sunglasses due to a change in consumer preferences

b. An increase in the demand for aviator-style sunglasses at every price due to a change in consumer preferences

The intersection between demand for dollars and the supply of dollars is known as the a. Inflation rate b. Exchange rate c. Price d. Quantity

b. Exchange rate

Under indirect price discrimination, we can perfectly identify low-value and high-value consumers and prevent arbitrage. Setting two prices for consumers based off an obvious characteristic of a consumer is the most common method of indirect price discrimination. a. True b. False

b. False

If movie theaters decided to increase the price for the movie tickets, holding other factors constant, what would happen to the demand for popcorn in the theatres? a. The demand for popcorn would shift to the left because popcorn and movies are substitute goods b. The demand for popcorn would shift to the left because popcorn and movies are complementary goods c. The demand for popcorn would shift to the right because popcorn and movies are substitute goods d. The demand for popcorn would shift to the right because popcorn and movies are complementary goods

b. The demand for popcorn would shift to the left because popcorn and movies are complementary goods

Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. There is a market maker in this market. At the optimal bid-ask spread, how many transactions would the market maker undertake in this market? a. Two transactions b. Three transactions c. Four transactions d. Five transactions

b. Three transactions

X and Y are complements in consumption (i.e., consumed together). If the price of Y rises, the demand for X _ and the demand curve of X shifts to the _. a. increases; left b. decreases; left c. increases; right d. decreases; right

b. decreases; left

A decrease in the price of a substitute for Y shifts the demand curve of Y to the _. a. right b. left c. it does not change the demand curve d. it changes the demand curve in a random fashion

b. left

An increase in the price of a complement of X shifts the demand curve of X to the a. right b. left c. it does not change the demand curve d. left but also upward

b. left

A profit-maximizing local restaurant offers a daily special and the demand schedule it faces is shown in the table below. There are an equal number of potential buyers at every $0.20 price point between $8.00 and $6.00. If the marginal cost is constant at $5.20, a. the profit-maximizing restaurant will charge $7.00 b. the profit-maximizing restaurant will charge $6.60 c. the profit-maximizing restaurant will charge $5.40 d. the profit-maximizing restaurant will charge $5.20

b. the profit-maximizing restaurant will charge $6.60

Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. There is a market maker in this market. At the optimal bid-ask spread, what is the total profit that the market maker makes? a. $8 b. $12 c. $18 d. $20

c. $18

A profit-maximizing local restaurant offers a daily special and the demand schedule it faces is shown in the table below. There are an equal number of potential buyers at every $0.20 price point between $8.00 and $6.00. What's the marginal revenue if the price falls from $6.80 to $6.60? a. $6.00 b. $5.60 c. $5.20 d. $4.80

c. $5.20

A profit-maximizing local restaurant offers a daily special and the demand schedule it faces is shown in the table below. There are an equal number of potential buyers at every $0.20 price point between $8.00 and $6.00. What's the marginal revenue if the price falls from $7.60 to $7.40? a. $7.20 b. $7.00 c. $6.80 d. $6.60

c. $6.80

Which of the following statements is true? a. In market equilibrium, there are unconsummated value-creating transactions b. In market equilibrium, there are unconsummated wealth-destroying transactions c. In market equilibrium, there are no unconsummated wealth-creating transactions d. In market equilibrium, there are no unconsummated wealth-destroying transactions

c. In market equilibrium, there are no unconsummated wealth-creating transactions

If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported goods and services (for instance, Chinese goods and services). How will this affect exchange rates? a. The dollar will appreciate relative to the yuan, and U.S. prices will increase b. The dollar will appreciate relative to the yuan, and U.S. prices will decrease c. The dollar will depreciate relative to the yuan, and U.S. prices will increase d. The dollar will depreciate relative to the yuan, and U.S. prices will decrease

c. The dollar will depreciate relative to the yuan, and U.S. prices will increase

The practice of buying a firm's good in one market at a low price and selling it in another market for a higher price in order to profit from the price difference is known as a. predatory pricing b. price collusion c. arbitrage d. mark-up pricing

c. arbitrage

A firm practicing direct price discrimination will charge a higher price to a. consumers known to have elastic demand b. all consumers c. consumers known to have inelastic demand d. consumers known to have a unitary elastic demand

c. consumers known to have inelastic demand

A leftward shift in the demand curve of X implies that a. consumers purchases fewer units of X as the price of X rises b. consumers purchases more units of X as the price of X falls c. consumers purchase fewer units of X at each and every price level d. consumers purchases more units of X at each and every price level

c. consumers purchase fewer units of X at each and every price level

Holding other things constant, a depreciation of the US Dollar relative to the Kenyan Shilling would cause the demand for the Shilling to _ and the supply for the Shilling to _. a. increase; decrease b. increase, increase c. decrease; increase d. decrease; decrease

c. decrease; increase

Electric car manufacturers such as Tesla and Rivian require copper, nickel, cobalt, and other battery metals in order to produce electric vehicles. Suppose the price of copper decreases dramatically. The minimum price necessary for electric vehicle manufacturers to recover their costs in the production of each electric vehicle would _, and the supply curve would shift to the _. a. increase; right b. increase; left c. decrease; right d. decrease; left

c. decrease; right

If the exchange rate changes from "100 yen per US dollar" to "95 yen per US dollar," US dollar _ and Japanese yen _. a. appreciates; appreciates b. appreciates; depreciates c. depreciates; appreciates d. depreciates; depreciates

c. depreciates; appreciates

Other things being equal, if US firms and households purchase more goods and services produced in China, the demand for Chinese yuan _ and the supply of US dollar _. a. increases; decreases b. decreases; decreases c. increases; increases d. decreases; increases

c. increases; increases

Consider the market for X. If both supply and demand decrease (i.e., both the supply and demand curves shift leftward), the market equilibrium price ___ and the market equilibrium quantity ____. a. increases; may increase, decrease, or remain the same b. may increase, decrease, or remain the same; increases c. may increase, decrease, or remain the same; decreases d. decreases; may increase, decrease, or remain the same

c. may increase, decrease, or remain the same; decreases

Consider the forex market for the US dollars (USD) and Chinese yuan (CNY). Other things being equal, if a global financial market panic caused the US interest to rise relative to the interest rate of China, which of the following would be expected in the foreign exchange market? a. the demand curve of USD would shift to the right, causing the quantity supplied of USD to decrease b. the supply curve of CNY would shift to the right, causing the quantity demanded of CNY to decrease c. the demand curve of USD would shift to the right, causing the quantity supplied of USD to increase d. the supply curve of CNY would shift to the left, causing the quantity demanded of CNY to increase

c. the demand curve of USD would shift to the right, causing the quantity supplied of USD to increase

A profit-maximizing local restaurant offers a daily special and the demand schedule it faces is shown in the table below. There are an equal number of potential buyers at every $0.20 price point between $8.00 and $6.00. If the marginal cost is constant at $6.35, a. the profit-maximizing restaurant will charge $7.60 b. the profit-maximizing restaurant will charge $7.40 c. the profit-maximizing restaurant will charge $7.20 d. the profit-maximizing restaurant will charge $7.00

c. the profit-maximizing restaurant will charge $7.20

For direct price discrimination to work, a. the firm need not be able to identify members of the low-value group b. the firm must charge a single price to all its customers c. the firm need not worry about any arbitrage since all its customers are charged the same price d. the firm must be able to identify customers with different valuations

d. the firm must be able to identify customers with different valuations

The idea behind price discrimination is a. to be able to sell to high-value customers, who value the product most b. to be able to sell to the marginal customers, who are indifferent about the purchase c. to be able to sell to the low-value customers, who would otherwise not buy the product d. to be able to sell to both high and low value customers at different prices

d. to be able to sell to both high and low value customers at different prices

Consider the foreign exchange market for US dollars (USD) and euro (EUR). Other things being equal, if the supply of euro increases due to financial crisis in Greece and Spain, the supply curve of euro shifts _ and the demand curve of US dollars shifts _. a. to the right; to the left b. to the left; to the right c. to the left; to the left d. to the right; to the right

d. to the right; to the right

At any price below the equilibrium price (PE), quantity __________ (QX) > quantity __________ (QX), and thus shortage (excess _______) exists.

demanded; supplied; demand

-Demand Curve Shifts (When the price of a related good (complement) changes) -As the average price of PC tablets _______ from $350 to $200, the number of PC tablets purchased a month _______ from 2,400 units a month to 2,700 units a month

dropped; increased

-Demand Curve Shifts (When the price of a related good (substitute) changes) -With the imposition of a heavy tariff on Chinese-made jeans, the price of Chinese-made jeans _____ from $22 to $40. As a result, the number of pairs of Chinese-made jeans __________ from 400,000 pairs to 200,000 pairs.

rose; decreased

At any price above the equilibrium price (PE), quantity _______ (QX) < quantity __________ (QX), and thus surplus (excess ______) exists.

supplied; demanded; supply

(Part B) According to a New York Times article, the number of car producers in China is increasing rapidly. The newspaper reports that "China has more car brands now than the United States. . . . But while car sales have climbed 38 percent in the first three quarters of this year, automakers have increased their output even faster, causing fierce competition and a slow erosion in prices." At the same time, Chinese consumers' incomes have risen. Assume that cars are a normal good. Use a diagram of the supply and demand curves for cars in China to explain what has happened in the Chinese car market.

supply increases faster than demand, ever-increasing supply of cars, the price has eroded