Exam Review - Ec 201

price would increase, and its output would decrease

If a good that generates negative externalities were priced to take these negative externalities into account, its

the government does not raise revenue

If a price ceiling in this market is set at P1, then:

the quantity demanded will exceed the quantity supplied.

If a price ceiling is set below the equilibrium price in a market

Becomes more elastic, because it's more than 1 and more responsible to a price change.

"Because binge-watching is so prevalent and easy on Netflix, viewers watch Netflix's library faster and run out of things to watch. The more hours a household watches Netflix, the faster Netflix value proposition falls and the lower the probability of subscription renewal." Over time, own-price elasticity of demand for Netflix:

Increase in quantity demanded

A new subsidy paid to producers pushes the price of solar panels down. How does this affect the demand for solar panels?

Beth has a comparative advantage at making hamburgers.

Alex can produce either 2 tacos or 4 hamburgers. Beth can produce either 10 tacos or 30 hamburgers What is true about this statement?

producer surplus of 190 and Amanda experiences a consumer surplus of 10.

Amanda buys a ruby for 330 for which she was willing to pay 340. The minimum acceptable price to the seller, Tony, was 140. Tony experiences a:

shift the supply curve to the right

An improvement in production of technology will:

Asarta Inc. could pay the fishermen $8,500 and keep polluting

Asarta Inc. is polluting into a nearby fishing stream; doing so benefits them $40,000 a year. The fishermen are unhappy as their trout are dying off. Typically, the fishermen can catch trout and sell it to a local market where they can earn about $8,000 a year. Currently, the fishermen have the rights to use the stream as they see fit. Which of the following is an optimal solution according to the Coase Theorem?

A

At equilibrium, consumer surplus would be represented by the area:

amount of apples that will be available at various prices will decline

Because of the significant snow fall in the plains this year, the supply of fertilizer to Washington State's apple farmers substantially decreased. As a result, the price of fertilizer has increased in Washington State. This statement indicates the:

benefits has resulted in an underallocation of resources to X.

Curve St embodies all costs (including externalities) and Dt embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the market equilibrium output is Q1, we can conclude that the existence of external

elastic because it's more than one, price increases so consumers have lots of alternative to switch to.

If a good has lots of available substitutes, we expect demand for that good to be:

the goods are compliments

If cross-price elasticity is negative,

the goods are substitutes

If cross-price elasticity is positive,

1.80-2.00 = 0.1 -2.5 / -10% = 0.25 *100 = 25% increase, 25%

If the price elasticity of demand for a product is -2.5, then a price cut from $2.00 to $1.80 will ________ the quantity demanded by about ________.

-0.5 / 10 *100 = 5%

If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by:

shortage, and the price will tend to rise

If the price in this market is $4 per bushel, there will be a

75 - 65 = 10 85 -65 = 20 20 + 10 = 30

In the market for a particular pair of shoes, Jena is willing to pay 75 for a pair while Jane is willing to pay 85 for a pair. The actual price that each has to pay for a pair of shoes is 65. What is the combined amount of consumer surplus for Jena and Jane?

elasticity is negative

Inferior good:

elasticity is positive

Normal good:

Elastic because it is a small change in price, but a big change in quantity. its more than 1.

Suppose Netflix is at a point where decreasing its prices would increase revenues. This means that demand is:

Subsidize the buyers

S1 and D1 represent the current market supply and demand, respectively. S2 and D2 represent the socially optimal supply and demand. One way that the government could shift demand to its socially optimal level is to:

a rightward shift of the supply curve

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause

no money changes hands and there is no pollution. this is because Pennsylvania cant afford to pollute.

Suppose that all the air pollution in New York comes from Pennsylvania. New York citizens are willing to pay $400 million for clean air. Overall, the total net benefit to Pennsylvania from pollution is $200 million. New York is given property rights to the air in its state. What do we expect to happen to the air in New York:

Smogton residents will pay industries and there will be no pollution.

Smokestack industries has the property rights to all air in Smogton. Polluting has a marginal cost to the residents of Smogton of $120. According to Coase Theorem, what will happen?

% change in quantity demanded / % change in price

The basic formula for the price elasticity of demand is

Positive because the goods are substitutes

The cross-price elasticity of Netflix and Disney+ is likely

0.6*20% = 12% increases by 12%

The cross-price elasticity of butter and margarine is 0.6. If the price of butter increase by 20%, how does the quantity of margarine change?

an inferior good

The graph depicted shows:

the demand curve is downward-sloping

The income and substitution effects are part of the reason why:

25 - 20 / 20 = 0.25 9 - 10 / 10 = -0.1 0.25 / -0.1 = -2.5

The price of a good is originally 10 and decreases to 9. As a result, quantity increases from 20 to 25. What is the price elasticity of demand?

law of supply

The upward slope of the supply curve reflects the

30 million because -2 = .5 / (3/12) -.25 = 50% and 60 * .50 = 30 million.

There are approximately 60 million Netflix subscribers in the U.S., and the average customer pays about $12 per month. Suppose own-price elasticity of demand for Netflix is -2.0. If Netflix cuts its price by $3 per month, how many subscribers will it add?

Q = 40, P = 75 75 -15 = 40 70 + 5 = 75

Two effects: 1. Quality improves such that consumers value the new product $15 more than they valued the old product 2. Price increases by $5 - What is the new equilibrium price and quantity?

- Resource costs - Technology - Price expectations - number of sellers

What are determinants of Supply?

- Tastes and preferences - Number of buyers - Expectations - Substitutes - Compliments

What are determinants of demand?

The producers of apples must not pay a tax

What could be responsible for the shift from S1 to S3?

A good people cannot easily be prevented from consuming

What is a non-excludable good?

a good where, when one person uses the good, others can also use it

What is a non-rival good?

consumer surplus + producer surplus

What is a total social surplus?

listening to NPR without donating at their annual fundraiser.

What is an example of a free rider?

a bike path around a city or town

What is an example of a public good?

30*30*.5 = 450

What is consumer surplus before the merger?

Non-binding: above equilibrium binding: below equilibrium

What is non-binding and binding?

21 - 13 = 8 8*8*1/2 = 32

What is the amount of consumer surplus after the government imposes the excise tax on the market?

15 - 11 = 4 40 - 36 = 4 4*4*1/2 = 8

What is the amount of deadweight loss after the government imposes the excise tax on the market?

13 - 5 = 8 8*8*1/2 = 32

What is the amount of producer surplus after the government imposes the excise tax on the market?

(14-10) = 4 (12-10) = 2 (10-10) = 0 = 6

What is the value of consumer surplus?

a decrease in demand because an inward shift leads to both lower equilibrium price and quantity

What will cause a decrease in market equilibrium price and a decrease in equilibrium quantity?

after the shift in the demand, there would be a surplus at price P1

What would best explain why the shift in demand from D1 to D2 would cause price to rise from P1 to P2?

an increase in the price of the wheat

What would cause the quantity of wheat supplied to increase from point a to point b?

the expectation by consumers that gasoline prices will be higher in the future

What would most likely increase the demand for gasoline?

an increase in consumer incomes

What would shift the demand for coffee from D1 to D2?

Overproduce the produce because of a negative externality

When producers do not have to pay the full cost of producing a product, they tend to:

-15 / 10 = -1.5

When the price of a product increases 10 percent, the quantity demanded decreases 15 percent. The price elasticity of demand for this product is

- 10 / 15 = -2/3 INELASTIC because less than 1!!

When the price of a product is increased 15%, the quantity demanded decreases 10%. We can therefore conclude that the demand for this product is

diminishing marginal utility

You pay $10 per month for one streaming service. When a new streaming service launches, you feel like you are already watching enough TV and are only willing to pay $5 per month for the new stream service. This is an example of:

Social supply shifts left

it is discovered that drinking Bang energy drinks makes people aggressive and more likely to start fights. What happens: