econ final

The table above shows the quantity of gasoline supplied and demanded at various prices in a country. If the government sets a price floor of $2.75 on a gallon of gasoline, what is the price per gallon?

$3.25

Which of the following is most likely to occur when a competitive market adjusts from one equilibrium to another?

An increase in demand shifts the demand curve to the right. A rightward shift in the demand curve results in an increase in the equilibrium price and the equilibrium quantity, which causes producer surplus (the triangle below the equilibrium price and above the supply curve) to increase.

If a normal good is produced in a competitive market, which of the following combination of events could cause the price of the good to increase and the quantity to decrease?

An increase in the average income of consumers and an increase in the price of a variable input

Assume that the market for beef is perfectly competitive and in equilibrium. Which of the following would most likely result in an increase in both the equilibrium price and the equilibrium quantity of beef?

An increase in the supply of potatoes, a complementary good

A professor hires two aides, assigning them the tasks of reading student papers and of typing lecture notes on a computer. One of the aides, Ben, can read 1 page of a student paper per minute or type 50 words of lecture notes per minute, and the other aide, Ann, can read 3 pages of a student paper per minute or type 60 words of lecture notes per minute. Which of the following statements is true?

Ann has a comparative advantage in reading student papers, and Ben has a comparative advantage in typing lecture notes.

Assume that the price of orange juice increases by 40 percent following a crop failure. If the quantity demanded falls by 10 percent, which of the following is true?

The absolute value of the price elasticity of demand is 0.25 and is equal to the percentage change in quantity demanded divided by the percentage change in price, 10%/40%, or 0.25.

According to the law of diminishing marginal utility, which of the following is true?

The additional satisfaction received from consuming extra units of a good decreases as consumption of the good increases.

Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1.

The consumers and the producers each bear a part of it.

If a 10 percent increase in the price of good X results in a 20 percent decrease in the quantity of good Y demanded, which of the following is true?

The cross-price elasticity between good X and Y (CRXY)(CRXY) can be calculated as the ratio of the percentage change in the quantity of good Y to the percentage change in the price of good X. Thus, CRXY= (−20 % / 10 %)=−2. The cross-price elasticity between good X and good Y is negative implying that X and Y are complementary goods.

The cross-price elasticity of demand between goods J and K is −3. A 20 percent decrease in the price of good K will result in a

The cross-price elasticity of demand between goods J and K is −3, which is the percentage change in the quantity demanded of good J divided by the percentage change in the price of good K. This implies that the 20 percent decrease in the price of good K will result in a 60 percent increase in the quantity demanded of good J, which is calculated as −3 times −20 percent equals 60 percent.

If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices?

The demand for peanuts must be unit price inelastic.

Assume there are two goods in a market economy. The amount of each good produced is determined by

The interaction of buyers and sellers in the market determines the quantity produced of a good.

The graph above shows the marginal benefit that a student receives from additional hours of study, and the marginal cost the student will incur from additional hours of study. Which of the following is true?

The optimal number of hours that the student should study is So hours.

In relation to tacos, the cross-price elasticity of demand for Good X is negative. What would be the result if the price of tacos increases?

When the cross-price elasticity is negative, this means that the two products are complements. Therefore, an increase in the price of tacos will decrease the demand for Good X.

An increase in the supply of coffee could be caused by

a decrease in the cost of labor used to produce coffee

All of the following cause a rightward shift in the demand schedule for a normal good EXCEPT

a decrease in the price of the good

A production possibilities curve can shift inward if there is

a natural disaster

A 10 percent increase in Sandra's income causes Sandra's consumption of milk to decrease from 10 cartons to 6 cartons. Sandra's income elasticity of demand for milk is

less than zero and therefore milk is an inferior good

The additional satisfaction received from consuming an additional unit of a good is called the

marginal utility

At her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500 for a diamond ring because the

marginal utility of a bottle of water is less than the marginal utility of a diamond ring

All of the following are included in computing the opportunity cost of attending college EXCEPT

money spent on clothing expenses

In the short run, a decrease in production costs of a product will shift

only the supply curve to the right

The amount of product Z that must be forgone in order to obtain some amount of product Y is called

opportunity cost

A country produces computers and rice. If resources are fully employed and there is technological progress only in the production of rice, the opportunity costs of producing computers and rice will change in which of the following ways?

opportunity cost of computers- increase opportunity cost of rice- decrease

Of the feasible and efficient points on the production possibilities curve (PPC)(PPC) above, producing at which point will lead to the most economic growth in the future?

point n

The graphs above show Mary's demand for hamburgers and Mark's demand for hamburgers. Suppose Mary and Mark are the only two consumers in the market. Which of the following is a point on the market demand curve for hamburgers?

price $4 Quantity 7

If a hurricane reduced the crab population, the price of crabs and quantity sold would change in which of the following ways?

price - increase quantity - decrease

If both supply and demand for wheat increase, the equilibrium price and quantity of wheat will most likely change in which of the following ways?

price - indeterminate Quantity- increase

To maximize utility, a consumer with a fixed budget will purchase quantites of goods so that the ratios of the marginal utility of each good to its

price are equal

If a 10 percent increase in the price of a good leads to a 25 percent decrease in the quantity demanded of the good, demand is

relatively elastic

The study of economics exists because people are confronted with the basic problem of

scarcity

In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both equilibrium price and quantity to decrease?

supply curve - no shift demand curve- shifts to the left

A change in which of the following will cause a change in the supply of personal computers (PC's) in the short run?

technology

In a perfectly competitive market, a change in which of the following could cause a shift in the supply curve?

technology

For an inferior good, an increase in consumer income will cause

the demand curve to shift to the left

As a factor of production, capital refers to the

tools and machinery used to produce goods and services

In the country Beta it takes two hours of labor to produce a unit of tea and four hours of labor to produce a unit of bread. In the country Zeta it takes three hours of labor to produce a unit of tea and nine hours of labor to produce a unit of bread. Which of the following is true?

A country has a comparative advantage in producing a good if it has the lowest opportunity cost of producing the good. In Beta it takes 2 hours to produce a unit of tea and 4 hours to produce a unit of bread; the opportunity cost of a unit of bread is two units of tea. In Zeta it takes 3 hours to produce a unit of tea and 9 hours to produce a unit of bread; the opportunity cost of a unit of bread is 3 units of tea. Since two teas (Beta) is less than three teas (Zeta) for a unit of bread, Beta has the comparative advantage in producing bread.

Which of the following changes will lead to an increase in the supply of good X?

A decrease in input prices (energy prices) decreases the cost of production and shifts the supply curve to the right. As a result, more of the good will be offered for sale at each possible price for the good.

Which of the following will cause the demand for a normal good to increase?

A decrease in the price of a complementary good will lead to an increase in demand for the normal good. When goods are complements of each other, this means that the goods are often used together, and therefore consumption of one good tends to enhance consumption of the other.

Which of the following will shift the supply curve for apples to the right?

A decrease in the rental price for apple harvesting equipment will increase the productivity of workers and lower the cost of production, causing the supply curve for apples to shift to the right.

If cotton is used to produce towels, an increase in the price of cotton will result in which of the following changes in the towel market?

A decrease in the supply of towels, which leads to a shortage of towels followed by upward pressure on the price of towels

Which of the following would shift the short-run supply curve for strawberries?

A strike by all farmworkers

If bologna is an inferior good, which of the following must be true?

An increase in consumer income will decrease the demand of bologna.

Which of the following will increase the demand for pizza, a normal good?

An increase in consumers' income

Both Amy and Brad produce and consume apple pie and ice cream. In one hour, Brad makes five apple pies or ten gallons of ice cream while Amy makes fifteen apple pies or fifteen gallons of ice cream. Based on the above information, one can correctly conclude that

Brad has a comparative advantage in making ice cream and will sell ice cream to Amy

The table above shows the amount of labor required to produce a unit of corn and a unit of shoes in Brazil and Spain. If both countries have equal numbers of workers, what pattern of international trade between Brazil and Spain is most likely to emerge?

Brazil will export corn and import shoes.

A linear production possibilities curve indicates which of the following?

Constant opportunity costs

After the government imposed a $0.20 per gallon tax on gasoline, the price of a gallon of gasoline increased from $1.00 to $1.15. Which of the following statements is true?

Consumers bear most, but not all, of the tax burden.

If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?

Consumers will bear most of the burden of the tax.

Assume that Larry spends his entire allowance on the purchase of pretzels and ice-cream cones. The price of a bag of pretzels is $1$1, and the price of an ice-cream cone is $2$2. At his current consumption combination, the marginal utility of pretzels is 2020 and of ice-cream cones is 6060. To maximize his utility, Larry should

Correct. Utility maximization occurs when the marginal utility per dollar of each good is equal. Since the marginal utility per dollar of ice-cream cones (60/2=30) exceeds the marginal utility per dollar of pretzels (20/1=20), Larry should buy more ice-cream cones and fewer pretzels to maximize his utility.

According to the information in the table above, which of the following statements is true if both countries have the same number of workers?

Country A has an absolute advantage in manufactured goods but a comparative advantage in service goods.

Assume that a 2 percent increase in the price of bologna causes a 5 percent decrease in the demand for cheese. What is the cross-price elasticity of demand between the two goods, and how are these goods related?

Cross-price elasticity of demand equals −2.5, and these goods are complements.

Which of the following changes in the demand for and the supply of a good will necessarily result in an increase in both the equilibrium price and quantity of the good in a market?

Demand - increase Supply - no change

The table provided shows the number of labor hours required to produce a cell phone or a unit of lumber in Estonia and in Finland.

Finland can produce a unit of lumber with fewer hours of labor than Estonia and therefore has an absolute advantage in producing lumber.

Moving from left to right along a downward- sloping linear demand curve, price elasticity varies in which of the following ways?

First elastic, then unit elastic, and finally inelastic

Which of the following best describes how a consumer maximizes total utility from the consumption of a bundle of goods and services?

Given limited income and the prices of the goods, a consumer maximizes utility by choosing the combination of the two goods such that the marginal utility of the last dollar spent on one good is equal to the marginal utility of the last dollar spent on the other good. That is, the extra utility per dollar spent must be the same for the last unit of each good.

Which of the following statements describes an economy confronting scarcity?

If more of one good is produced, less of another good must be produced.

Which of the following is associated with a command economy?

In a command economy, government control of the economy replaces markets.

Which of the following situations best illustrates the law of demand?

In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased

Which of the following statements relating to income elasticity is true?

Income elasticity of demand measures the responsiveness of demand to changes in consumers' income and is calculated as the ratio of the percentage change in quantity demanded to the percentage change in income. When the magnitude of the income elasticity is 5, a 10 percent increase in income will lead to a 50 percent increase in quantity demanded of the good.

Assume the income elasticity of demand for good Z equals −5.0. Which of the following is true?

Income elasticity of demand measures the responsiveness of demand to changes in consumers' income. When the coefficient of the income elasticity of demand is negative, this indicates that Good Z is an inferior good—that is, the demand for Good Z decreases as consumers' income increases.

Which of the following is true of the cross-price elasticity of demand?

It is greater than zero for two goods that are substitutes.

Cindy and Martin both sew t-shirts in a small factory. Using the same resources, Martin can sew twelve t-shirts and Cindy can sew nine t-shirts in one day. Which of the following can be concluded from the given information?

Martin has an absolute advantage in sewing t-shirts because he can sew more t-shirts than Cindy (12>9) using the same resources.

Mickey has a $20 gift card that she is planning to use to download 10 songs and 5 games. The download price for each song is $1 and the download price for each game is $2. Her marginal utility from the tenth song is 30, and her marginal utility from the fifth game is 70. Based on this information, which of the following statements is true?

Mickey can increase utility by buying more games and fewer songs.

If the government eliminates an effective minimum wage in a competitive labor market, which of the following is true?

Minimum wage workers will experience a decrease in hourly pay.

In the diagram above, if there is a price ceiling set at P1, consumer surplus will be represented by the area

P3ACP1

A decrease in raw material prices will change the equilibrium price and quantity in a market in which of the following ways?

Price - decrease quantity - increase

If an unusually cold summer destroyed a large portion of the bee population, the equilibrium price and quantity of honey produced by bees will most likely change in which of the following ways?

Price - increase Quantity - decrease

Which of the following is necessary in a well-functioning capitalist economy but not in a command economy?

Protection of property rights

The diagram above depicts the demand and supply curves for good Y. The perfectly competitive market is initially in equilibrium, but the government decides to institute a price floor program by setting the price of good Y at PF and agrees to purchase all unsold units of good Y from the producers. The cost of this program to the government is represented by which of the following areas?

Q1IKQ3

Assuming a downward-sloping demand curve and an upward-sloping supply curve, which of the following will occur as a result of an increase in the sales tax on a good?

Quantity demanded will decrease.

Assume that the market for lemonade is perfectly competitive and currently in equilibrium. Lemons are key ingredients in lemonade. If the price of lemons decreases, how will the lemonade market be affected?

Supply will shift rightward, decreasing the equilibrium price and increasing the equilibrium quantity of lemonade.

If the price elasticity of supply for pickles is 2 and the price of pickles increases by 10 percent, then the quantity supplied of pickles will increase by

The price elasticity of supply is defined as the percentage change in the quantity supplied of a good divided by the percentage change in the price of the good. Given the value for the elasticity and the percentage change in the price, the resulting percentage change in the quantity supplied can be determined as follows: percentage change in quantity supplied == (elasticity of supply ×× the percentage change in price) =(2×10%)=20%

Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true?

The price elasticity of supply measures the responsiveness of quantity supplied to a change in price and is calculated as the ratio of the percentage change in quantity supplied to the percentage change in price. The value of the price elasticity of supply is 2, which is calculated as 20 percent divided by 10 percent.

If the value of the price elasticity of supply is 3, which of the following is true?

The price elasticity of supply measures the responsiveness of quantity supplied to a change in price and is calculated as the ratio of the percentage change in quantity supplied to the percentage change in price. When the magnitude of the price elasticity of supply is 3, a 10 percent decrease in price will lead to a 30 percent decrease in quantity supplied.

If growing corn becomes more profitable than growing wheat, which of the following will occur?

The price of corn will decrease.

Assume that more corn is used to produce ethanol. Simultaneously, more effective control of pests and weeds occurs in farming. Which of the following will definitely occur in the corn market?

The quantity of corn will increase.

Which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of the good increases satisfaction by 20 utils?

The total utility of consuming two units is 120.

Assume the price of a candy bar is $2 and the price of a bag of chips is $3. Assume Lilly's marginal utility from consuming an additional candy bar is 10 utils and her marginal utility from consuming an additional bag of chips is 12 utils. If Lilly is spending her fixed weekly allowance on candy bars and bags of chips, which of the following actions will maximize Lilly's total utility?

To maximize utility, Lilly must allocate her income so that the marginal utility per dollar spent on the last unit of each good is equal. The marginal utility per dollar spent on the last candy bar is 5 utils per dollar (10 utils divided by $2), and the marginal utility per dollar spent on the last bag of chips is 4 utils per dollar (12 utils divided by $3). Given Lilly's fixed weekly allowance, Lilly should buy more candy bars and fewer bags of chips.

Assume a consumer is spending all her income on two goods: X and Y. At the current consumption combination of the two goods, if the marginal utility per dollar spent on the last unit of good X exceeds that of the marginal utility per dollar spent on the last unit of good Y, what should the consumer do to maximize utility?

To maximize utility, consumers must allocate their income so that the marginal utility per dollar spent on the last unit of each good is equal. With the marginal utility per dollar of good X greater than that of good Y, the consumer should take a dollar that is being spent on Y and use it to buy a dollar more of X. The consumer should continue the substitution of X for Y until both goods provide the same marginal utility per dollar spent. Doing so will raise total utility.

If the demand for product X is perfectly elastic and the supply of product X decreases, which of the following will occur in the market for X ?

Total revenue will decrease.

Which of the following provides a possible explanation for a simultaneous increase in the equilibrium price and the quantity of blueberries in a market?

Two goods are substitutes if an increase in the price of one increases the demand for the other. In this situation, the increase in the price of strawberries will cause an increase in the demand for blueberries, shifting the demand curve to the right. The result will be a higher equilibrium price and quantity in the blueberry market.

If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the effect on their wage and employment?

Wage - increase employment - decrease

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

increasing the demand for pretzels and therefore the price of pretzels

Which of the following statements about the price elasticity of demand is true?

With more close substitutes, demand becomes more price elastic because buyers are more sensitive to price changes. A slight increase in a good's price will induce the buyers to go for its substitutes.

Which of the following statements regarding specialization and trade is true?

With specialization and trade, a country can consume beyond its production possibilities curve.

If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X and good Y is negative, which of the following must be true of good X?

X is an inferior good and is a complement to Y.

Carlos has a van with 20 seats and charges $10 per person per ride to the airport from downtown. Carlos' cost of the trip is $140 for any number of passengers. On one trip, Carlos has 19 seats filled when a person offers him $5 for the last seat. Should Carlos accept the offer?

Yes, since the marginal benefit exceeds the marginal cost.

The graph above shows the market demand for good X. A movement from point A to point B would most likely be caused by

a decrease in production costs for good X

The supply curve for automobiles will shift to the left in response to

an increase in wages in the automobile industry

A leftward shift in the supply curve of watches could be caused by

an increase in wages paid to workers who produce watches

If the increase in the price of one good decreases the demand for another, then the two goods are

complementary goods

The absolute value of the price elasticity of demand for a good increases when

consumers spend greater portion of their budget on the good

To determine whether two goods are complements, one would calculate the

cross-price elasticity of demand

Suppose that the demand for vegetables is price elastic. If the price of vegetables increases by 5 percent, the quantity of vegetables demanded would

decrease by more than 5 percent

Last year 17 million tons of beans were sold for $300 per ton. This year 17 million tons of beans were sold for $285 per ton. Which of the following changes in demand and supply could have caused this outcome?

demand - decrease supply - increase

In a given time period, a person consumes more and more of a good or service and, as a result, enjoys each additional unit less and is willing to pay less for each additional unit. This behavior is consistent with the law of

diminishing marginal utility

An outward shift of a production possibilities curve can be caused by

improving technology

When marginal utility is falling but positive, total utility will

increase at a decreasing rate

If the demand for insulin is price inelastic, a 5 percent increase in the price of insulin will

increase the total revenue of insulin producers