Econ: Chapter 2 & 4 Study Questions Exam 1

4: Suppose a new pollution tax of $0.01 per kilowatt-hour of electricity is imposed on coal-fired power producers by the federal government. Which of the following correctly describes how this tax will affect the market for electricity served by these power plants?

The supply of electricity will decrease

4: Suppose that the State of California imposes a minimum wage of $15 per hour. In the entry-level labor market in California fast-food restaurants, the quantity of labor demanded at $15 per hour is 800 thousand, and the quantity of labor supplied is 1.2 million. Which of the following is true?

There is a surplus of 400 thousand workers in the labor market

4: Suppose the federal government imposes a price floor (support price) in the milk market at a price of $3 per gallon. If market quantity demanded at $3 is 1 billion gallons, and if market quantity supplied is 1.5 billion gallons, then which of the following is true?

There is a surplus of 500 million gallons of milk, and the federal government will buy the 500 million gallons to maintain the $3 price

2: Combinations of goods outside the PPC have which of the following characteristics?

They are not attainable given our existing stock of resources and technology

2: Suppose that the alternative uses of an hour of your time in the evening, ranked from the best to worst, are (1) study economics, (2) watch TV, and (3) play pool. You can only choose one. What is the opportunity cost of studying economics?

Watching TV

2: If an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC, which of the following is true?

We must decrease the production of food. This foregone food production represents the opportunity cost of the increase in shelter

2: Which of the following is not one of the three fundamental economic questions?

What happens when you add to or subtract from a current situation?

2: Which of the following best describes the three fundamental economic questions?

What to produce, how to produce, and for whom to produce

2: From 2-6, to move from U to B, the opportunity cost would be

Zero

4: From 4-9, which of the following might cause a shift from S1 to S2?

A decrease in input prices

2: Which of the following is an example of an organization using marginal analysis?

A government official considering about what effect an increase in military good production will have on the production of consumer goods

2: From 2-6, which of the following points on the PPC are efficient production points?

A,B,C,D

2: From 2-6, which of the following points on the PPC are full-employment production points?

A,B,C,D

2: A production possibilities curve shows the various combinations of two outputs that

An economy can produce

2: From 2-6, which of the following points are attainable with resources and technology currently available?

B,C,D,U

4: Why don't competitive markets do a good job providing public goods?

Because it is difficult to exclude people from gaining benefits from public goods without paying for them, and so market demand does not reflect the benefits to society from the public good

2: Which of the following reasons might explain why an economic would be operating inside its PPC?

Because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers for a certain race or gender

4: The market shown in 4-9 is initially in equilibrium at E1. Changes in market conditions result in a new equilibrium at E2. This change is stated as a(an)

Decrease in supply and a decrease in quantity demanded

4: From 4-9, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?

E1 to E2

4: The market shown in 4-9 is initially in equilibrium at point E1. Union negotiations for workers producing good X result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increases is in effect?

E2

4: Which of the following is not an example of market failure?

Efficient equilibrium

4: Suppose that the federal government provides wheat farmers with a price floor above the market equilibrium price of wheat, creating a surplus. Which of the following causes a reduction in the surplus of wheat?

Elimination of the floor price

4: Suppose that X and Y are substitutes. If the price of Y increases, how will this change the market equilibrium for X?

Equilibrium price and quantity will rise

2: If a PPC has capital on the vertical axis and consumer goods on the horizontal axis, which of the following is true?

Greater emphasis on the production of capital today leads to greater outward shifts in the PPC, thus increasing the wealth of people of the future

2: Three different economies have made choices about the production of capital goods. Which of the following is most likely to produce the greatest growth in the PPC?

Greater production of of capital goods than what is needed to replace worn-out capital

4: The market shown in 4-9 is initially in equilibrium at E3. Changes in market conditions result in a new equilibrium at E4. This change is stated as a(an)

Increase in supply and an increase in quantity demanded

4: If society allows firms to freely pollute the environment, which of the following is true?

Market equilibrium output will be too high relative to the efficient output level

2: A production possibilities curve is drawn based on which of the following assumptions?

None

2: An economy can produce various combinations of food and shelter along a PPC. We first increase the production of shelter along the PPC. If we then continue to shift more production to the shelter, then which of the following is most likely to happen to the opportunity cost of shelter?

Opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter

2: Which word or phrase best completes the following sentences? Marginal analysis means evaluating _________ changes from a current situation?

Positive or negative

4: If goods A and B are complements, and if the price of good B rises, how will this affect the market equilibrium for good A?

Price and quantity will both fall

4: If the cost of producing a good rises for sellers, then how will this affect the market equilibrium for that good?

Price will ride and quantity will fall

4: Suppose that Big-Cat and Fat-Cat are rival cat food brands, and the price of Fat-Cat is reduced. Following this price drop, is there a shortage or a surplus of Big-Cat at the old price of Big-Cat?

Surplus

2: An economy can produce various combinations of food and shelter along a PPC. Suppose a technological innovation resulted in a new, higher-yielding crop that generated more bushels of grain for a given set of land, labor, and capital resources. If this innovation did not affect the productivity of shelter production, which of the following would be true?

The PPC will rotate outward along the food axis, but will not shift the shelter axis

2: Suppose that an economy can produce various combinations of fish can bread. If more people with strong fishing skills became employed in this economy, how would the PPC change?

The PPC would shift outward on the fish axis, but would not change on the bread axis

2: In the study of economics, investments means

The accumulation of of capital that is used to produce goods and services

4: Suppose that the city of Arcata, California, imposes rent control so that rents cannot exceed $500 per month on one-bedroom rental units. Suppose that $500 had also been the equilibrium rental price in Arcata before a huge new apartment complex was built in the nearby town, where rents are $400 per month. Which of the following would be true?

The equilibrium rental price in Arcata will fall below $500, and thus rental control will not affect the rental market in Arcata

4: Suppose that the average equilibrium monthly rental price of apartments and rooms in a college town had been steady at $600, but then the college expanded enrollment from 10,000 to 12,000, and suddenly there was a shortage of rental housing at the prevailing price of $600. Which of the following is most likely to be true?

The shortage occurred because demand increased, and a new market equilibrium will feature higher rental prices and more rental units available on the market

4: If there are external benefits for good X, then which of the following would be true?

The socially efficient amount of good X can be achieved if society subsidizes consumer of good X

4: If a price ceiling is set at $10, and the equilibrium market price is $8, then which of these is the price that consumers actually pay?

$8