Final Exam ECO 201

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A good is rival if one person's use of it_____ the quantity others can use of it increases has no effect on decreases none listed

decreases

The entry of new firms into a competitive market will increase market supply and increase market price. increase market supply and decrease market price. decrease market supply and increase market price. decrease market supply and decrease market price.

increase market supply and decrease market price. The more firms, the more supply, but also the more competition and thus a lower market price.

Which of the following concepts cannot be illustrated by the production possibilities frontier? efficiency opportunity cost equality trade-offs

equality The PPF says nothing about "who" will get the production, and therefore nothing about the distribution of income and equality.

An unregulated market produces too ______ of a good with an external cost and too _______ of a good with an external benefit. much; much much; little little; much little; little

much; little

If average product is decreasing, then marginal product... must be greater than average product. must be less than average product. must be increasing. cannot be decreasing.

must be less than average product.

A cost imposed on someone who is neither the consumer nor the producer is called a corrective tax. command and control policy. positive externality. negative externality.

negative externality. Many things can be negative externalities, from walking down the street and seeing an offensive t-shirt, to swimming in polluted water.

Reaching an efficient bargain is difficult when the externality is large. number of interested parties is large. externality is negative. government becomes involved.

number of interested parties is large. The larger the number of parties, the larger the transaction cost necessary to apply the Coase theorem.

A good is excludable if its not an inferior good government can regulate its availability it is not a normal good people can be prevented from using it

people can be prevented from using it

If the price rises from $4.50 to $5.00 how much consumer surplus is LOST? $1.50 $2.00 $2.50 $3.00

$1.50

Roller blades have recently come back into style in Lexington, and several people in our class are considering buying them. For a new pair of roller blades, John is willing to pay $150, Jill is willing to pay $100, Ruth is willing to pay $90, Gretchen is willing to pay $60. If new roller blades are currently selling for $80 per pair, what is the total amount of consumer surplus that will result for these customers? $400 $340 $100 $60

$100 John is willing to pay $150. 150-80 = 70 in surplus Bill is willing to pay $100. 100-80 = 20 in surplus Ruth is willing to pay $90. 90-80 = 10 in surplus Gretchen is willing to pay $60. this person will not buy skates at a price of $80 Total surplus adds up to $100.

Assume there is a $6 per unit tax. What is the price consumers will pay per unit? $6 $9 $12 $15

$12

If Chelsea makes $100,000 a year and the income tax rate is 10% for income earned up to %50,000 and 20% for income greater than $50,000, then what is her total tax liability? $15,000 $5,000 $10,000 $20,000

$15,000 If Ashley makes $100,000 a year and the income tax rate is 10% for income earned up to $50,000 and 20% for income greater than $50,000, then what is her total tax liability? $15,000 = 50,000X.1 + 50,000X.2 = 5,000+10,000=$15,000

Table 1 contains the 2017 tax brackets for singles. If your friend Patricia makes $85,000 what is her total tax liability? $15,146 $16,988 $21,250 $17,455

$16,988 This is found by the following formula: 9325*.10+(37950-9325)*.15+(85000-37950)*.25=16,988.75

Scenario 3: Irving and his wife Gertrude decide to take their life savings of $20,000 to buy a small retail shop. They plan to make and sell tie-dyed, University of Kentucky T-shirts. They hire a professional tie-dyer for $6.00 an hour who makes 20 t-shirts per hour. The following are needed to produce the shirts: dye, costing $1 per shirt, plain white t-shirts costing $1 each and an industrial washing machine for $1000. What is the marginal cost of producing one additional T-shirt? $2.00 $12.30 $2.30 $8.00

$2.30 The marginal or additional cost of making one more t-shirt is $1 for the shirt + $1 for dye + 30 cents in labor cost. = $2.30

Suppose Lauren, Leslie and Lydia are all planning to purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $10 Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. If the sale occurred, the total consumer surplus for the transaction would be $15 $25 $45 $90

$25 Lauren doesnt purchases since her WTP <P Leslie buys. Her CS: 25-15 = 10 Lydia buys. Her CS: 30-15 = 15 Total Consumer Surplus: 10+15 = 25

Refer to Figure 7-1. If the price of the good is $150, then consumer surplus amounts to $150 $200 $250 $300

$250 Calculate the consumer surplus of each rectangle, one at a time, and then add them together.

Suppose that UK students have a demand for 'Cats football tickets of: D = 50 - 5P, where D is the quantity of tickets demanded, and P is the price. Suppose then that UK Athletics has a supply curve of S = 5 + 10P, where S is the quantity of tickets supplied and P is the price. What is the equilibrium price of UK football tickets? $1 $2 $3 $5

$3 Set S = D because supply equal to demand is the equilibrium condition for markets. Then, solve for P, the price that allows supply to be equal to demand (the equilibrium price). 5 + 10P = 50 - 5P 15P = 45 P = 3

What is the dollar amount of the excise tax? $1 $3 $7 $2

$3 The tax is the distance the supply curve shifts up vertically. We can see this on the Y axis as the difference between P1 and P2.

What is the value of the consumer surplus after the tax? $9,800 $3,000 $4,200 $4,900

$3,000 The consumer surplus after the tax is represented by the area a. Find the area of this triangle. The formula for the area of a triangle is (1/2)*Base*Height. Area = (1/2)*(16-10)*(1,000-0) = (1/2)*6*1,000 = $3,000.

What is the tax revenue? $10,000 $9,000 $7,000 $3,000

$3,000 Government revenue is the tax ($3) times the amount sold (1000) = $3,000

What is the value of the producer surplus before the tax? $4,200 $2,000 $3,000 $800

$4,200 The producer surplus before the tax is represented by the area d+e+f. Find the area of this triangle. The formula for the area of a triangle is (1/2)*Base*Height. Area = (1/2)*(9-3)*(1,400-0) = (1/2)*6*1,400 = $4,200.

What is the value of the consumer surplus before the tax? $9,800 $3,000 $4,200 $4,900

$4,900 The consumer surplus before the tax is represented by the area a+b+c. Find the area of this triangle. The formula for the area of a triangle is (1/2)*Base*Height. Area = (1/2)*(16-9)*(1,400-0) = (1/2)*7*1,400 = $4,900.

Refer to Table 7-3. If the price is $20, then consumer surplus in the market is $20, and Wilbur and Ming-la purchase the good. $45, and Carlos and Quilana purchase the good. $45, and Quilana, Wilbur, and Ming-la purchase the good. $55, and Carlos, Wilbur, and Ming-la purchase the good.

$45, and Quilana, Wilbur, and Ming-la purchase the good. Consumer surplus for each consumer = willingness to pay - price. The consumer surplus for the market is equal to the sum of all of the buyers' consumer surpluses. Only buyers who actually buy the good can have a consumer surplus.

What is the total value of consumer surplus AFTER the imposition of the tax? $450 $200 $1,250 $2,700

$450 Like question 4, the formula for consumer surplus is the same, except the equilibrium price is now $9 instead of $7 and QD is now 300. (($12-$9)*300)/2)=$450

What are the total fixed costs of producing 4 Burritos-As-Big-As-Your-Head? 32 22 0 10 27

10 The total fixed costs of producing 4 Burritos-As-Big-As-Your-Head is $10.

If the price of ice cream is $3 per gallon, then Marco buys Q=8. How much will his Consumer surplus increase by if the new price is $2? 8 10 18 36

10 There are two ways to do this: 1. Calculate the original CS: 1/2X2X8=8. Then calculate the new CS: 1/2X3X12=18. Take the difference: 18-8=10 2. Or you could calculate just the increase: Part I: New buyers enter the market: 1/2X1X4 =2. PartII: Existing consumers now save $1 extra: $1X8=8. Add them 2+8=10

If the market price is set at $2, what is the quantity demanded in the market? 6 units 4 units 2 units 11 units

11 units

Andy, Brenda, Carol, and David sell custom made sofas. Andy's willingness to sell each sofa is $2200, Brenda's willingness to sell each sofa is $2500, Carol's willingness to sell each sofa is $3200 and David's willingness to sell each sofa is $4000. Assuming each individual can only sell one sofa at a time, what is total producer surplus if the market price for sofa is $3000? 1800 1300 500 1500

1300 At the market price of $3000, only Andy and Brenda will be willing to sell their sofa because their willingness to sell price is lower than the actual selling price. Producer surplus is determined by: market price less willingness to sell Andy producer surplus: 3000 - 2200 = 800 Brenda Producer surplus = 3000 - 2500 = 500 Total producer surplus: 800+500 = 1300

Look at Table 1. If the equilibrium price of gyros is $6.00, what is market supply in Lexington? 6 8 14 23

14 To find the market supply we horizontally add the quantity supplied by each firm at each price. So at $6.00, market supply will be 6 + 8 = 14,

If Chelsea makes $120,000 a year and the income tax rate is 10% for income earned up to $40,000 and 20% for income greater than $40,000, then what is her total tax liability? 12,000 16,000 20,000 4,000

16,000

A restaurant is deciding how many dish washers to staff for the next night shift. They know that the marginal benefit of a dish washer follows the chart below. If it costs $21 to have a dish washer for the night shift, how many dish washers should the restaurant staff? 1 2 3 4

If the price of ice cream is $3 per gallon, then Marco buys Q=8. If the new price is $2, how much will his Consumer surplus increase due to increased quantity purchased? 2 8 10 16

Refer to Table 11-4. Suppose the cost to plant each tree is $120 and the 4 homeowners have agreed to split all tree-planting costs equally. How many trees would Adams prefer to plant? 0 1 2 3

2 His cost would be $30 for each tree.

Fred is a student at UK who rents an attic apartment in an old house on Euclid Avenue. Fred likes to shop at the Kroger on Euclid because the people that shop there are far more interesting than the shoppers at other Kroger stores and it is within walking distance of his apartment. Fred is going to Kroger and he has $10 to spend. Fred plans to use his $10 to buy Doritos which cost $2 per bag and bottles of Pepsi, (2-litre size), which cost $1 each. Fred plans to spend his entire $10. What is the opportunity cost of consuming one bag of Doritos? i.e. every time Fred buys one bag of Doritos, how many bottles of Pepsi is he giving up? 1 2 4 4.5

2 The opportunity cost of one bottle of Pepsi is half of a bag of Doritos.

Refer to Table 11-4. Suppose the cost to plant each tree is $300. How many trees should be planted to maximize the total surplus of the four homeowners? 1 2 3 4

2 Compute the consumer surplus for each consumer.

Suppose you go to a movie theater to watch a movie. You can buy pretzels or candy at the concession stand. You only have $15 to spend. Pretzels cost $6 and candy costs $3. How much does it cost in terms of candy to buy one more pretzel? 1/2 Candy $3 2 Candy 1/3 candy

2 Candy

Refer to Figure 4-2. Suppose Phil and Miss Kay are the only consumers in the market. If the price is $12, then the market quantity demanded is 0 units. 2 units. 4 units. 6 units.

2 units. Phil demands zero at that price.

The graph below represents the Production Possibility Frontier (PPF) for the next year of an economy which produces two goods: bicycles and lawnmowers.What is the opportunity cost of producing another lawnmower in terms of bicycles if the economy is currently producing efficiently at two and a half bicycles? 1 2.5 2 4

2.5 "Producing efficiently" means that the country is on the PPF. At two and a half bicycles, they are producing 4 lawnmowers. If they increase lawnmower production by 1 unit, bicycle production falls by 2.5 bicycles to zero. Hence, in this range of the PPF, the cost of one lawnmower is two and a half bicycles.

John has given his dog Leroy 18 dollars to go buy some treats at the local pet store. Leroy likes Milk Bones and Greenies. Milk Bones cost 3 dollars and Greenies cost 2 dollars, since they are on sale. What is Leroy's opportunity costs of one Greenie in terms of Milk Bones? 2 3 2/3 1.5

2/3 Since Greenies cost 2 dollars and Milk Bones cost 3 dollars, each time he purchases Greenies, he spends 2 dollars he could have put towards Milk Bones. This is 2/3 the cost of Milk Bones, so for every Greenies he buys, he gives up 2/3 a Milk Bones.

Suppose 5 baseball fans walk up to a hot dog stand, and each of them has a different value for a hotdog. Abe values a hot dog at $6, Ben values a hot dog at $2, Carol values a hot dog at $3, David values a hot dog at $12, and Erin values a hot dog at $0. How many of them will buy a hot dog if a hot dog costs $2.99? 5 1 3 2

Suppose a price decrease from $2,500 to $2,000 for the new Apple Macbook Pro causes the quantity demanded to increase from 10,000 to 20,000. What is the price elasticity of demand? 0 1/3 = .33 1 3 20

Refer to Table 2-3. What is the opportunity cost to Lexington of increasing the production of bourbon from 400 bottles to 600 bottles? 400 balls 300 Balls 200 Balls 100 Balls

300 Balls The opportunity cost is the difference in the number of balls.

The rational, purely competitive firm in the figure faced with a market price of $8 would produce at: 24 units 30 units 32 units 34 units 46 units

34 units The rational, purely competitive firm in the figure faced with a market price of $8 would produce at 34 units of output. This is because the market price of $8 tells us where the firm's demand or MR curve is. At 34 units of output MR =MC. This satisfies the profit-maximizing condition.

If Qd = 500 - 20P, and Qs = 200 + 40P, at what price can we expect to have a shortage in this market? 7 6 5 4

Suppose that the market equilibrium price in a perfectly competitive market is $20. Given the information about a firm in this industry found in the table above, what should the firm's output level be? 3 units of output. 4 units of output. 5 units of output. 6 units of output

5 units of output. A profit maximizing, perfectly competitive firm will produce on output level where marginal revenue is equal to marginal cost. Since the price is equal to marginal revenue in this market structure, P = MR = $20. We need to find marginal costs from the table above. This firm will produce five units of output because this is the quantity where MR=MC=$20.

In the absence of any government intervention, how many tons of paper are produced in a year (when the market fails)? 60 million tons. 50 million tons. 40 million tons. 30 million tons.

50 million tons.

The following table shows the cost to a baker associated with different levels of production, (per day) of wedding cakes. Fixed inputs include a bakery kitchen space that is leased as well as ovens and refrigeration equipment. In total, these fixed inputs have a cost of $60 per day. The variable costs represent the wages paid to assistant bakers and the cost of materials associated with production of the wedding cakes. Complete the following table: Whats the ATC at Q=3? 110 75 60 55

If the price of ice cream is $3 per gallon, then Marco buys Q=8. If the new price is $2, how much will his Consumer surplus increase due to existing customers paying a lower price? 2 8 10 16

What are the average total costs of producing 4 Burritos-As-Big-As-Your-Head? 10 4 2 8 31

8 The average total costs of producing 4 Burritos-As-Big-As-Your-Head is $8. ($32/4 = TC/Q)

A good has a price elasticity demand as 1.5, which of the following is likely the good? Doctor's Visits Eggs A BMW Any type of Secondary Education

A BMW Elasticity that is greater than 1 implies elastic good. From the four choices, BMW is more likely to have greater number of substitutes relative to the other options. BMW is a luxury good, which likely has an elastic demand. Doctors visits is a necessity (fewer substitutes) so is likely to have a more inelastic demand. Eggs has no close substitutes, since eggs are not easily substituted in most recipes and so has more inelastic demand. Secondary education has a broad market definition that includes community college and four year colleges as varied as Berea, UK, and UL, meaning it has a more inelastic demand.

The following graph depicts... A Positive Externality A Negative Externality

A Negative Externality

A shortage will result when: A price floor does not bind A price floor binds A price ceiling binds A price ceiling does not bind

A price ceiling binds A price ceiling is the minimum price that can be charged. Its binding below the equilibrium price. When a price ceiling binds people will demand a greater quantity of the product at that price than firms are willing to supply. There will thus be a shortage.

Which of the following will NOT shift the demand curve for pizza? a price change in Coca-cola, a compliment to pizza a price change in pasta, a substitute for pizza A change in aggregate income A price change of pizza

A price change of pizza

Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22? Quilana Wilbur Ming-la All three buyers experience the same loss of consumer surplus.

All three buyers experience the same loss of consumer surplus. The consumer surplus for each buyer must be calculated with the price equal to $20, and then with the price equal to $22. These numbers then must be compared.

Jess and Herbert work in the LEAP Lab and are paid $200 per week. The earnings of tutors rise to $250 per week and Iris and Jake decide to also work in the LEAP lab. By how much has total producer surplus risen following the raise? Less than $100 Between $100 and $200 Between $200 and $300 More than $300

Between $100 and $200 After the raise, Jess and Herbert each receive $50 more of producer surplus. Iris and Jake decide to work when the pay is $250 but not when it is $200, so their willingness to sell their tutoring services is between $200 and $250, meaning they each receive between $0 and $50 of producer surplus, meaning total producer surplus for the four students rises between $100 and $200.

Alan, Betty, and Craig live in Hazard County and Dean, Ed, and Francesca live in Graves County. Alan values a new hiking trail at $200, Betty values a new hiking trail at $150 , Craig values a new hiking trail at $175, Dean values a new hiking trail at $150, Ed values a new hiking trail at $275, and Francesca values a new hiking trail at $100. A new hiking trail costs $400. According to cost-benefit analysis, where will a hiking trail be built? Neither Hazard nor Graves Only Hazard Only Graves Both Hazard and Graves

Both Hazard and Graves Calculate the benefit by summing the benefit for each person in each town. Then the benefit in Hazard is 200+150+175 = 525 and the benefit in Graves is 150+275+100 = 525. Because the benefit (525 dollars) is more than the cost (400 dollars), cost-benefit analysis would tell us to build the hiking trail in both Hazard and Graves.

Given what you know about the impact that trade has on people within an economy, if Nicholasville were to declare it illegal for anyone to buy from or sell to anyone in Lexington, what would most likely happen as a result? Lexington would become richer. Nicholasville would become poorer and Lexington would become richer. Both Lexington and Nicholasville would become richer. Both Lexington and Nicholasville would become poorer.

Both Lexington and Nicholasville would become poorer. Since all trade is, by definition, mutually beneficial, this means that any decrease in trade between people that would have happened had it not been for the policy must make people worse off.

________ has the comparative advantage in producing Hersey's bars, and ____ has the comparative advantage in producing Reese's Cups. Brad, Brad Brad, Steve Steve, Brad Steve, Steve

Brad, Steve

Which of the following is an example of the free-rider problem? Both Zoe and Zach receive low-cost dental care at the local dental school, so neither of them pays the full cost of the care. Alfred receives a free lunch from the local "Meals on Wheels" program because of his low monthly income. Yet his next door neighbor, Alice, is not eligible for the free lunch. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking. Sam purchases a burger at a fast food restaurant and gets a second burger free because the restaurant is having a buy one, get one free sale.

Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking. Betty does not have to pay for the benefits she receives.

Calculate the benefit by summing the benefit for each person in each town. Then the benefit in Hazard is 200+150+175 = 525 and the benefit in Graves is 150+275+100 = 525. Because the benefit (525 dollars) is more than the cost (400 dollars), cost-benefit analysis would tell us to build the hiking trail in both Hazard and Graves.

Two goods for which an increase in the price of one leads to a decrease in the demand of the other describes Substitutes Complements Normal Goods Inferior Goods

Complements A complement refers to a complementary good or service that is used in conjunction with another good or service. For example, if the price of hot dogs rises so much that people stop consuming them, this will also cause a decrease in demand for hot dog buns

Which of the following is a measure of the benefit from a good as a buyer perceives it? Willingness to Pay Consumer Surplus Producer Surplus Total Surplus

Consumer Surplus

Which of the following is a measure of the benefit from a good as a buyer perceives it? Willingness to pay Consumer surplus Producer surplus Total surplus

Consumer surplus Consumer surplus is a measure of the benefit from a good as buyers perceive it, that is, it is the amount that buyers are willing to pay for a good minus the amount they actually pay for it.

Two Keys knows that if they raise the price of Bud Light on Tuesday nights by 10% that there will be a 15% decrease in Bud Lights sold. Two Keys also knows that if they raise the price of Miller Lite on Thursday by 10% there will be a 8% decrease in Miller Lites sold. If Two Keys wants to increase profit, which of the following should they do? Decrease the price of Bud Light on Tuesday and increase the price of Miller Lite on Thursday Decrease the price of Bud Light on Tuesday and decrease the price of Miller Lite on Thursday Increase the price of Bud Light on Tuesday and increase the price of Miller Lite on Thursday Increase the price of Bud Light on Tuesday and decrease the price of Miller Lite on Thursday

Decrease the price of Bud Light on Tuesday and increase the price of Miller Lite on Thursday Determine which of the two goods is elastic/inelastic. The numbers provided indicate the elasticity for Bud Light in Tuesday is 1.5 (15/10) = elastic. Decreasing the price of a good thats elastic will lead to higher revenues. Similarly, the elasticity for Miller Lite on Thursdays is inelastic (8/10=0.8). For any business wanting to raise revenue should increase the price of a good that has an inelastic demand.

Elasticity of SUPPLY indicates which of the following? Degree of producer response to a change in quantity Degree of producer response to a change in price Degree of consumer response to a change in quantity Degree of consumer response to a change in price

Degree of producer response to a change in price

If Pazzo's installs more pizza machines in the long run, average total cost will rise. Pazzo's thus faces Constant returns to scale Economies of scale Diminishing marginal product Diseconomies of scale

Diseconomies of scale Diseconomies of scale is characterized by rising average total cost with rising quantity produced. Economies of scale is characterized by falling average total cost with rising quantity produced. Constant returns to scale is characterized by constant average total cost with rising quantity produced. Diminishing marginal productivity is the property where the marginal product produced by an input decreases as the quantity of that input used in production increases due to the existence of fixed inputs (Short run).

Suppose that Fayette County is considering adding a guard rail to a dangerous curve by the Kentucky river. The guard rail will cost $70,000. The average damage done to vehicles that slide off the road at the curve is $10,000. It is expected that the guard rail will prevent 5 vehicles from sliding off the road during its usable life. What should the county do? Install the guard rail because safety is priceless. Install the guard rail because the benefits exceed the costs. Do not install the guard rail because the costs exceed the benefits. Do not install the guard rail at any cost because drivers can purchase private insurance for their vehicles.

Do not install the guard rail because the costs exceed the benefits. 5 X $10,000 = $50,000

Which of these goods is more inelastic? Doctor visits BMW cars A Carribbean Cruise Coca-Cola

Doctor visits Doctor's visits are a necessary good. There are also few good substitutes for doctor's visits

Which of the following is LEAST likely to be a compliment to a car? Tires Gasoline Dumbbells Fast Food

Dumbbells

The city government of Lexington is concerned with both efficiency and equality. They need an economist to help them understand what each of these concepts entail. How would you compare efficiency and equality? Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society. Assuming that "fairly" means "equally."

At a price of $4 we will have what? Either a price floor that is not binding or a price ceiling that is not binding Either a price floor that is not binding or a price ceiling that is binding. Either a price floor that is binding or a price ceiling that is not binding Either a price floor that is binding or a price ceiling that is binding

Either a price floor that is binding or a price ceiling that is not binding If there is a price floor (mandatory minimum price) of $4 it will raise the price since it is more than the equilibrium price of $3 and thus be binding. If there is a price ceiling (mandatory maximum price) there will be no effect because the equilibrium price of $3 is below the price ceiling of $4 so it will not be binding.

Which of the following describes inelastic demand? Elasticity equals 0 Elasticity is less than 1 Elasticity equals 1 Elasticity is greater than 1 Elasticity equals infinity

Elasticity is less than 1 Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price, ceteris paribus. The smaller the number the less responsive the demand is to changes in price.

If supply and demand both increase, we are certain that the equilibrium price will increase. True False

False

If supply and demand both increase, we are certain that the equilibrium price will increase. True False

False

If you can always produce more of a good with the same amount of resources as someone else then you will always have a comparative advantage in producing that good. True False

False

In both competitive and monopoly markets, Price = Marginal cost = Marginal Revenue. True False

False

One roommate creates a negative externality for his other roommate by making noise late at night. The best way to fix this externality is government intervention. True False

False

Figure 1 shows the perfectly competitive market a certain firm faces. What do you expect to happen in the long run? Firms will enter and all firms will make zero profit Firms will enter and firms will make positive profit Firms will exit and firms will make zero profit Firms will exit and firms will make positive profit

Firms will enter and all firms will make zero profit Because this is a perfectly competitive market, there will be zero economic profit in the long run. When there is positive profit firms will enter the market and when there is negative profit firms will exit the market, so that in the long run, there is zero economic profit.

Amanda, a UK Alum living in Washington DC has tickets to see the Wildcats beat Kansas in Rupp Arena. It takes 1.5 hours to fly to Lexington from DC and 8 hours to drive. The plane ticket will cost $200 dollars and the drive will cost her $80 dollars. Amanda makes $40/hour working at an accounting firm. How will she get to Lexington AND what is the true cost of her mode of transportation? Drive for $260 Fly for $260 Drive for $400 Fly for $400

Fly for $260 Economic costs involve both the direct cost of something and the opportunity cost. For Amanda, the cost of traveling to Lexington involves not only the cost to travel, but also the lost income from working. Thus, for flying, the costs involve the $200 dollar costs for the ticket and the 1.5*40 = $60 dollar cost of lost income, for a total cost of flying of $260. For driving the direct cost of $80 dollars and the 8*40 = $320 dollar cost of lost income makes driving costs Amanda a total of $400. She will choose the less expensive choice, so chooses to fly at an economic costs of $260.

Consider two individuals — Howard and Mai — each of whom would like to wear sweaters and eat tasty food. The gains from trade between Howard and Mai are least obvious in which of the following cases? Howard is very good at knitting sweaters and at cooking tasty food, but Mai's skills in both of these activities are very poor. Howard is very good at knitting sweaters and at cooking tasty food; Mai is very good at knitting sweaters, but she knows nothing about cooking tasty food. Howard's skills in knitting sweaters are fairly good, but his skills in cooking tasty food are fairly bad; Mai's skills in knitting sweaters are fairly bad, but her skills in cooking tasty food are fairly good. Howard's skills are such that he can produce only sweaters, and Mai's skills are such that she can produce only tasty food.

Howard is very good at knitting sweaters and at cooking tasty food, but Mai's skills in both of these activities are very poor. To understand which of the goods Howard should produce, requires a comparison with Mai, and there is little information about Mai's skills other than that they are "poor".

An increase in demand will result in a ____ in quantity in the long run Increase Decrease No Change

Increase

Using this Laffer curve. If the tax rate is at point A, the government should ______ the tax rate to raise tax revenue. If the tax rate is at point B, the government should _____ the tax rate to raise tax revenue. Increase, Increase Increase, Decrease Decrease, Increase Decrease, Decrease

Increase, Decrease

Which of the following is a positive statement? Coca-Cola is better than Pepsi Kroger Co. Had positive earnings in the first quarter of 2020 Economics is the best college major All of the above

Kroger Co. Had positive earnings in the first quarter of 2020

Households sell which of the following to firms in markets for factors of production Income Land, Labor and Capital Goods and Services Wages, rent and profits

Land, Labor and Capital

Refer to Table 7.1. If the price of the good is raised from $25 to $35 what is the change in total consumer surplus? Loss of $30 dollars Gain of $30 dollars Loss of $25 dollars Gain of $25 dollars

Loss of $30 dollars When the price of the good is $25 Carla has $5 of consumer surplus, Devon has $5 of consumer surplus, Edgar has $15 of consumer surplus and Felicia has $20 consumer surplus, for a total of 5+5+15+20 = $45 of consumer surplus. When the price is raised to $35 only Edgar and Felicia will buy the good. Edgar will have $5 of consumer surplus and Felicia will have $10 of consumer surplus, for a total of $15 of consumer surplus. Thus there is a loss of 45-15 = $30 of consumer surplus, choice A is correct.

Don Franklin recently bought the Hyundai dealership in Lexington, which of the following is not a variable cost he will face when running his business? Hiring salespeople Purchasing inventory Making payments on the facility Purchasing complementary beverages for service customers

Making payments on the facility Each of the other options are variable costs because he can adjust them in the short run as the market fluctuates. Facility payments (rent) is a fixed cost because he cannot change the amount of his payments in the short run. Only in the long run can he adjust his payments on the facility

In what sense do externalities cause the "invisible hand" of the marketplace to fail? Externalities lead to government intervention in markets, which exacerbates the problems associated with externalities. Externalities result in prices that are too high for many consumers to pay. Markets fail to produce the maximum total benefit to society when positive or negative externalities are present. Markets produce too little of a good when positive or negative externalities are present.

Markets fail to produce the maximum total benefit to society when positive or negative externalities are present.

Beer and bourbon are substitutes. The Kentucky General Assembly just lowered the tax on bourbon to make it cheaper to buy and encourage Kentucky industry. What do you expect the effect of this change to be in the market for beer? Price of beer increases, quantity decreases Price of beer increases, quantity increases Price of beer decreases, quantity decreases Price of beer decreases, quantity increases

Price of beer decreases, quantity decreases A change in the price of a related good shifts the demand curve. Since the price of bourbon decreases, it will increase the quantity demanded for bourbon and decrease the demand for beer, since they are substitutes. A decrease in the demand for beer will shift the demand curve in, resulting in lower prices and lower quantity sold.

Beer and bourbon are substitutes. The Kentucky General Assembly decides to decrease the legal drinking age in the state of Kentucky to 18. At the same time, Woodford Reserve decides to exit the bourbon market to produce basketballs instead. What do expect the effect of these changes to be in the market for bourbon? Price of bourbon increases, quantity decreases Price of bourbon increases, quantity change indeterminate Price of bourbon decreases, quantity decreases Price of bourbon decreases, quantity change indeterminate

Price of bourbon increases, quantity change indeterminate When the number of buyers of a good change, there is a shift in demand. When the legal drinking age is lowered there will be an increase in buyers and in increase in demand for bourbon (right shift in demand). When there is a change in the number of sellers, there is a shift in supply. When there is a decrease in the number of bourbon sellers there will be a decrease in supply (left shift in supply). These two shifts will results in a higher price for bourbon, but without knowing how much the curves shift, the quantity change will be indeterminate - Practice this by drawing the graphs and shifts.

What is the effect on the price and quantity of bicycles if there is a significant increase in the price of gasoline, and at the same time a major bicycle manufacturer goes out of business? Price will increase, the change in quantity is indeterminant Price will decrease, the change in quantity is indeterminant The change in price is indeterminant, quantity will increase The change in price is indeterminant, quantity will decrease

Price will increase, the change in quantity is indeterminant

If a tax raises the price of cigarettes, what will happen? Quantity demanded will decrease Demand will decrease Quantity supplied will decrease Supply will decrease

Quantity demanded will decrease When the price of a good changes, quantity demanded or quantity supplied will be affected, there will be movements along the demand or the supply curves but no shifts. The key then is to figure out how price affects quantity demanded or quantity supplied. As price increases quantity demanded will decrease and quantity supplied will increase

Scenario 3: Irving and his wife Gertrude decide to take their life savings of $20,000 to buy a small retail shop. They plan to make and sell tie-dyed, University of Kentucky T-shirts. They hire a professional tie-dyer for $6.00 an hour who makes 20 t-shirts per hour. The following are needed to produce the shirts: dye, costing $1 per shirt, plain white t-shirts costing $1 each and an industrial washing machine for $1000. The following represent fixed inputs in the short run for Irving and Gertrude: Retail shop and T-shirts. Professional tie-dyer and washing machine. Retail shop and washing machine. Professional tie-dyer and dye.

Retail shop and washing machine. The retail shop and the washing machine are considered fixed inputs in the short run.

Samim runs an Infiniti dealership. A car dealership is a classic principal agent relationship. The dealership (the principle) hires salespeople (the agents) to sell cars for them based on commission. Which of the following is not an example of shirking, and thus should not worry Samim? Salespeople looking at Youtube instead of following up with customers Salespeople taking advantage of their employee discount for customers Salespeople joyriding cars Salespeople cleaning up their workspace when not busy

Salespeople cleaning up their workspace when not busy Other choices are examples of bad behavior within a business setting.

Economics deals primarily with the concept of Money Banking Scarcity Poverty

Scarcity

Based on the "actual incidence" of the tax, between supply and demand, which is relatively more ELASTIC? Supply Demand

Supply Since the burden on the producer is less, the supply curve is more elastic, as the producers are able to decrease production and push the tax off to consumers.

A ____ will occur if a price ____ is set above the market equilibrium price. Surplus, ceiling Surplus, floor Shortage, ceiling Shortage, floor

Surplus, floor

If the price is set at $30, there is a ____ because quantity ____ is greater than quantity ____. Shortage, supplied, demanded Shortage, demanded, supplied Surplus, supplied, demanded Surplus, demanded, supplied

Surplus, supplied, demanded

A Canadian can produce 2 units of maple syrup or 2 units of burgers in an hour. An American can produce 1 unit of maple syrup or 4 units of burgers in an hour. What is true about this situation? The Canadian's opportunity cost of producing maple syrup is 2 burgers The American has the absolute advantage in producing both goods The Canadian will import burgers The American will export maple syrup

The Canadian will import burgers The Canadian has the comparative advantage in producing maple syrup, since 1 unit of maple syrup costs the Canadian 1 unit of burger. So the Canadian will specialize in maple syrup and import burgers from the American.

Consider a Production Possibilities Frontier for Coca-Cola and Pizza. Use the Y-axis for Coca-Cola and the X-axis for Pizza. If a new technology makes it easier/cheaper to bottle Coca-Cola, how will the production possibilities curve shift? The X-axis will pivot outward, and the Y-axis will not move. The whole curve will shift outward The whole curve will shift inward The Y-axis will pivot outward, and the X-axis will not move.

The Y-axis will pivot outward, and the X-axis will not move.

When a good can potentially harm consumers and producers are aware of this and consumers are not, then we would typically say that the market outcome is inefficient because The actual market output level will be higher than the socially optimal output level. The actual market output will be lower than the socially optimal output level. information about the market output level will be impossible for economists to observe. products should not hurt consumers.

The actual market output level will be higher than the socially optimal output level.

Which of the following should you NOT consider when you are deciding whether to watch tomorrow's lecture video. The lost sleep due to having to wake up to watch the video The cost of tuition How much you will learn from the video The effect watching the video will have on your final grade

The cost of tuition

Floyd owns a barbershop. He has sunk costs of $50,000 for the building, $10,000 for his equipment, and $5,000 for his education in being a barber. It costs him $100 per day for each barber and it costs him $50 per day to cover operating costs. Each barber will bring him in $150 per day in revenue and he brings $200 per day to his business in revenue because he charges a premium for performing haircuts. Floyd uses the economic decision rule to determine if he should hire more barbers. Which of the following is one of the costs he considers? The cost of the building The cost of his equipment The cost of his education The cost per barber

The cost per barber A rational decision maker will only do something if the marginal benefit is greater than the marginal cost. Only the cost per barber is a marginal cost, the rest are sunk costs

Suppose that a University of Kentucky MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies to the University of Kentucky for MBAs, then which of the following statements is correct? The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs. The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs. There is not enough information to answer the question.

The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. There will be no benefits out there to society that are not able to be earned by the holder of the MBA degree.

The manager of the Euclid Kroger notices that when the price of bread increases, the quantity sold at his store falls. What phenomenon best describes this? The law of demand The demand schedule Shifts in demand Shifts in quantity demanded

The law of demand This is an example of the law of demand, which is "the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises."

The state of Kentucky has decided to increase the 6 percent state sales tax so that businesses must now send in 8 percent of their sales revenues to the state. What is most certainly true as a result? The actual incidence will fall on the consumers. The actual incidence will fall on the businesses. The legal incidence will fall on the consumers. The legal incidence will fall on the businesses.

The legal incidence will fall on the businesses. While there is not enough given information to determine who will pay the actual incidence, the businesses, since they have to send in the tax, must pay the legal incidence.

Suppose there is a shortage in the market for avocados. Assuming a competitive and unrestrained market, what happens over time? The price of avocados will fall, and the shortage will worsen. The price of avocados will rise, and the market will eventually reach equilibrium. The price of avocados will rise, and a large surplus will be created. Producers will stop growing avocados.

The price of avocados will rise, and the market will eventually reach equilibrium.

Assume the price of cheese decreases. What will happen in the pizza market? The supply of pizza increases. The supply of pizza decreases. The quantity supplied of pizza increases. The quantity supplied of pizza decreases.

The supply of pizza increases.

Which of the following would result in a shift in supply? The price of the good itself changes The technology used to make the good changes The expectations of the buyers changes Average income in the market increases

The technology used to make the good changes Changes in the price of a good leads to movement while expectations of the buyers and income levels affect demand rather than supply.

During the summer many businesses in Lexington stay open even though they are largely empty. Why is this? They have to serve those still in Lexington for the summer Their variable costs are covered if they stay open Their fixed costs are covered if they stay open It gives an opportunity to try out new products before students return

Their variable costs are covered if they stay open If a firm can cover their variable costs, it is profitable to stay open in the short run. This is an application of the shut down rule. If they cover variable costs, any additional revenue helps them cover some of their fixed costs. Sometimes profit maximization implies loss minimization. The business is suffering a loss, but the loss would be even greater if they shut down. Only in the long run if they cannot cover their total costs will they shut down.

Which of the following government interventions sets a quantity limit in the face of a negative externality and allows the market to determine the price? Corrective Tax Tradable Permits Regulation Corrective Subsidies

Tradable Permits

Which of the following government interventions sets a quantity limit in the face of a negative externality and allows the market to determine the price? Corrective tax Tradable permits Regulation Corrective subsidies

Tradable permits Tradable permits set a quantity and allow the market to determine the price. Corrective subsidies are used for positive externalities. A corrective tax will set a price for negative externalities and allow the market to determine the quantity.

"Economics is fun" is an example of a normative statement. True False

True

A consumer will buy a product if the marginal benefit of that product is greater than the marginal cost. True False

True

A good with a lot of substitutes is typically more elastic than a good with only a few substitutes. True False

True

A perfectly inelastic demand curve is vertical, while a perfectly elastic demand curve is horizontal. True False

True

Asking a good question in a lecture is an example of a positive externality because other students benefit from hearing the answer to that question as well. True False

True

Barriers to trade reduce total consumption by limiting trade. True False

True

Demand Curves slope downward. True False

True

Economic researchers tend to use observational data rather than experimental data. True False

True

Generally, a tax will reduce both consumer and producer surplus. True False

True

It is possible to reach a point outside of a PPF, but only by trading. True False

True

The Adams Family buys 20 Big K Pops, (2-litre bottles of a Kroger brand soft drink), per week. The Adams Family yearly income changed from $20,000 to $30,000 and at the same time they started buying 12 more Big K Pops per week. This tells us that the Adams Family sees Big K Pops as a complementary good. a substitute good. an inferior good. a normal good.

a normal good. As their income rose, their demand for K-pop rose as well.

The marginal product of labor is the change in total product caused by a one-unit increase in the quantity of labor employed, holding the quantity of capital constant. a one-unit increase in both the quantity of labor and the quantity of capital employed. a change in the cost of labor. a one-unit increase in the quantity of capital employed, holding the quantity of labor constant.

a one-unit increase in the quantity of labor employed, holding the quantity of capital constant. The marginal product of labor is the change in total product caused by a one-unit increase in the quantity of labor employed, holding the quantity of capital fixed. The marginal product of capital would show the change in total product caused by a one-unit change in capital holding other inputs constant.

A movement downward and to the right along a demand curve for parking passes to campus parking lots is called a(n) increase in demand of parking passes. decrease in demand of parking passes. decrease in quantity demanded of parking passes. increase in quantity demanded of parking passes.

increase in quantity demanded of parking passes. Movement down and to the right along a demand curve results in a lower price and an increase in quantity.

A production possibilities frontier shifts outward when the economy experiences economic growth. the desires of the economy's citizens change. at least one of the basic principles of economics is violated opportunity costs are lessened.

the economy experiences economic growth. The other answer choices refer to the movements along the PPF, whereas the level of economic growth refers to the shift outward of the PPF.

Today's demand curve for gasoline could shift in response to a change in today's price of gasoline. the expected future price of gasoline. the number of sellers of gasoline. All of the above are correct.

the expected future price of gasoline. If people think that the price of gas is going to go up in the future, they may buy more today, which would shift demand up and to the right, all else being equal.

Lexington plans to hold a free music festival for its citizens. Citizens from Nicholasville hear about it and come to the festival. This is an example of... the free-rider problem A negative externality A good that is excludable and non-rival in consumption A club good

the free-rider problem This is an example of a free-rider problem because the citizens from Nicholaville benefit from the concert but pay nothing

The main difference between the U.S. economy and pure market economy is: the level of government intervention. There is no difference between them. pure market economies sell only organic goods. that workers have no incentive to work hard in a pure market economy.

the level of government intervention. The main difference between the U.S. economy and pure market economy is the level of government intervention. In a pure market economy, the government only intervenes to maintain property rights and support law enforcement and a legal system that facilitates trade. In the U.S. economy the government also intervenes in answering the questions pertaining to how resources are allocated in the society.

If the supply of a product decreases, then we would expect equilibrium price to increase and equilibrium quantity to decrease. to decrease and equilibrium quantity to increase. and equilibrium quantity to both increase. and equilibrium quantity to both decrease.

to increase and equilibrium quantity to decrease. If the supply decreases, that means that it "shifts" up and to the left. Assuming that the demand curve stays fixed, this will result in a higher equilibrium price and lower equilibrium quantity.

Jewell goes to Tally Ho for breakfast. She has the option of blueberry pancakes, bacon and eggs, or a cinnamon roll. If she chooses the pancakes, then her opportunity cost is bacon and eggs the cinnamon roll and the bacon and eggs whichever item would have been her second best choice to the pancakes the cinnamon roll

whichever item would have been her second best choice to the pancakes If Jewell selected the pancakes then her opportunity cost is the bacon and eggs or the cinnamon roll, whichever she prefers. Recall that the opportunity cost is "the highest valued alternative." (This means only one of the two alternative choices is the opportunity cost.) Also, recall that opportunity cost is subjective. One person might see pancakes as the best second choice while another views the cinnamon roll as the best second choice. Therefore, it would depend on preferences.

Which of the following could be the cross-price elasticity for between Coke and Pepsi? -1 0 0.4 -1.2

0.4

Scenario 1: Use the following information to answer this question. Kim decides to quit her old job that paid $1,000 a month to open a flower shop in downtown Lexington. Suppose she opens her shop in a building she owns, which she could be renting out to someone else for $1,000 a month. In addition, A to Z Rental required her to sign a one year lease on the coolers needed for her shop and the rent is $200 a month. Hiring three assistants costs her $1,800 a month. Finally, the flowers, vases and other material needed for making flower arrangements average $5,000 a month. Kim's long run fixed costs are: $9000 per month $2200 per month $0 per month $1000 per month $4000 per month

$0 per month There are no fixed costs in the long run.

The market equilibrium price of salmon is $5 per pound. Suppose a $1 tax is levied on the producers of salmon, and this causes the price of salmon to increase to $5.55 per pound. What is the tax burden to producers? $1 $0.55 $5.55 $0.45

$0.45

The market equilibrium price of wheat is $10 per bushel. Suppose a $4 tax is levied on the producers of wheat, and this causes the price of wheat to increase to $11 per bushel. What is the tax burden to consumers? $1 $2 $3 $4

The per unit economic burden (actual incidence) of the tax to producer is $1 $7 $3 $2

$1 The incidence on producers is the price the producers sold the good before the tax, minus the price they are selling after the tax. $7-$6=$1

What is the total value of consumer surplus BEFORE the imposition of the tax? $1,250 $200 $450 $2,700

$1,250 The consumer surplus before the tax is price at QD=0 minus the equilibrium price times the quantity demanded, divided by two. In this instance (($12-$7)*500)/2= $1,250

The per unit economic burden (actual incidence) of the tax to consumers is $2 $7 $3 $1

$2 The tax incidence is the amount the consumer pays after the tax minus the amount the consumer paid before the tax. $9-$7= $2

What is the value of the producer surplus after the tax? $4,200 $2,000 $3,000 $800

$2,000 The producer surplus after the tax is represented by the area e. Find the area of this triangle. The formula for the area of a triangle is (1/2)*Base*Height. Area = (1/2)*(7-3)*(1,000-0) = (1/2)*4*1,000 = $2,000.

When the price of the good is $175, the firm's maximum profit is $16,500 $20,375 $25,750 $90,125

$25,750 Profit involves finding total revenue and total cost.

What is the dollar value of the deadweight loss generated by this tax? $300 $200 $100 $600

$300 Deadweight loss is the loss of consumer and producer surplus not made up by tax revenues. it is calculated by multiplying the difference from tax and no tax price and the difference in no tax and tax quantity, all divided by 2. (($9-$6)*(500-300))/2=$300

The firm is the figure would shut down at any price below: a) $10 b) $8 c) $6 d) $4 e) $2 $10 $8 $6 $4 $2

$4 The firm is the figure would shut down at any price below $4 because this would take price below average variable costs.

If the price is $4.50, what is total consumer surplus? $3 $4.50 $3.50 $5.50

$4.50

What is total surplus at the equilibrium price? $20 $90 $45 $30

$45

Refer to Figure 7-1. If the price of the good is $250, then consumer surplus amounts to $50 $100 $150 $200

$50 In this case, the consumer surplus is a box.

In the figure, the amount of the tax per unit is ______ and the producers pay _______ of the tax. $3; $2 $5; $3 $5; $2 $2; $1

$5; $3

What is the value of the deadweight loss from taxation? $200 $300 $400 $600

$600 Find the area of the two triangles, c and f, and add them together. The formula for the area of a triangle is (1/2)*Base*Height. Area of c = (1/2)*(10-9)*(1,400-1,000) = (1/2)*1*400 = 200. Area of f = (1/2)*(9-7)*(1,400-1,000) = (1/2)*2*400 = 400. Area of c +Area of f = 200+400 = $600.

For Local Taco, total cost is $1,800 when output equals 100 tacos, and total cost is $1,000 when output is zero tacos. What are average variable costs when output equals 100 tacos? $800 $80 $8 $100 $18

Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is $100,525 $90,125 $84,500 $75,250

$90,125 Total revenue is equivalent to "gross sales"; just the total amount of revenue earned without considering costs.

How much revenue does the government generate from this tax? $900 $300 $600 $1,500

$900 Tax revenue is equal to the equilibrium price minus the selling price of the producers times the equilibrium quantity. ($9-$6)*300=$900

If you know that with 10 units of output, average fixed cost is $12.50 and average variable cost is $82.50, then total cost at this output level is: $93.75. $97.78. $950. $880.

$950.

If a $6 per unit tax is introduced in this market, then the price that consumers pay will equal ____ and the price that producers receive net of the tax will equal _____. $10; $4 $9; $3 $8; $2 $7; $1

$9; $3

The demand for Trader Joe's sesame chicken is most likely elastic. In order for this to be the case, what must be true? (% change in Q / % change in P) < 1 elasticity of demand < 1 % change in Q > % change in P (% change in P / % change in Q) > 1

% change in Q > % change in P For demand to be elastic, % change in Q must be > % change in P

Suppose that the price of UK football tickets is raised from $5 to $7 and as a result the number of students that attend falls from 8000 to 7500. Calculate the price elasticity of demand -0.19 -5.26 -2 -1

-0.19

Which of the following could be the correct cross-price elasticity of peanut butter's price on demand for jelly? 1 0 0.4 -1.2

-1.2

Which of the following could be the cross-price elasticity for between peanut butter and jelly? 1 0 0.4 -1.2

-1.2

Suppose that the price of student basketball tickets rises from $5 to $10, and in response ticket sales drop from 3,000 tickets to 2,700 tickets. Calculate the price elasticity of demand in absolute value. 0 6.33 0.16 0.73

0.16

If the price of peanut butter increases by 5% and we see that the quantity of jelly decreases by 4%, what is the cross-price elasticity of demand? 5% 4% 0.8% 1.25%

0.8%

In the production possibilities frontier depicted in the figure above, what is the opportunity cost of increasing the production of bananas from two million pounds to three million pounds? 3 million hats 2 million hats 1/2 million hats 1 million hats

1 million hats The PPF assumes that all any point on the curve implies inputs are used efficiently. To increase production of one good, production of another good has to be given up. In this scenario, its only possible to increase banana production from 2 million to 3 million is by reducing the production of Hats by 1 million (From 5 million to 4 million)

Consider the rivalry and excludability of each of the following goods. Use this information to determine whether the goods are public goods, private goods, common resources, or produced by a natural monopoly. 1. Fish in the ocean 2. A hot dog sold at a stand owned by the city government 3.Basic research on lifestyle and cholesterol levels 4.Netflix

1. Common resource 2. Private good 3. Public good 4. Club good

Refer to Table 3-24. The opportunity cost of 1 unit of cheese for England is 1/4 unit of bread. 1 hour of labor. 4 units of bread. 4 hours of labor.

1/4 unit of bread. In 1 hour, 1 unit of cheese can be made, or 1/4th a unit of bread.

If the price of ice cream is $3 per gallon, then Marco buys Q=8. How much will his Consumer surplus increase by if the new price is $2? 8 10 12 4

What are the total variable costs of producing 2 Burritos-As-Big-As-Your-Head? 1 10 22 4 14

14 The total variable costs of producing 2 Burritos-As-Big-As-Your-Head is $14.

If a $6 per unit tax is introduced in this market, then the new equilibrium quantity will be: 20 units 40 units 60 units None of the above

20 units

If Chelsea makes $120,000 a year and the income tax rate is 10% for income earned up to $40,000 and 20% for income greater than $40,000, then what is her marginal tax rate? 16.667% 10% 20% $80,000

20%

Table 1 contains the 2017 tax brackets for singles. If Seth makes $140,000, what is his average tax rate? 19.5% 22.1% 28% 23%

23% (9325*.10+(37950-9325)*.15+(91900-37950)*.25+(140000-91900)*.28)/140,000 = 0.23

Refer to Table 3-3. Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is 8 units of cheese and 10 units of wine 24 units of cheese and 15 units of wine 40 units of cheese and 20 units of wine 48 units of cheese and 30 units of wine

24 units of cheese and 15 units of wine There is no trade going on in this case.

Refer to Table 11-4. Suppose the cost to plant each tree is $90. How many trees should be planted to maximize the total surplus of the four homeowners? 1 2 3 4

4 Compute the consumer surplus for each of the consumers.

Refer to Table 7.1. If the price of the good is $28, how many units will be sold 2 3 4 5

4 If the price of the good is $28, then Carla, Devon, Edgar and Felicia will buy it because their willingness to pay is greater than $28.

Which of the following is a possible combination of Hersey's bars and Reese's cups that Steve could make in 10 hours? 10 Hersey's bars and 5 Reese's cups 10 Hersey's bars and 2 Reese's cups 6 Hersey's bars and 2 Reese's cups 5 Hersey's bars and 10 Reese's cups

6 Hersey's bars and 2 Reese's cups

April spent 7 hours studying for an exam. Normally, she would have spent that time watching Netflix instead of studying. She figures that she could have made a "B" after only studying 1 hour, but she really wanted an "A." What is Judy's marginal cost in terms of TV viewing to improve her grade from a "B" to an "A?" 4 Hours 7 Hours 6 Hours $6/hour

6 Hours

Refer to Table 3-3. Which of the following combinations of cheese and wine could France produce in 40 hours? 2 units of cheese and 20 units of wine 4 units of cheese and 15 units of wine 6 units of cheese and 5 units of wine 8 units of cheese and 20 units of wine

6 units of cheese and 5 units of wine This is assuming no trade takes place between countries.

Which of the following will NOT shift the demand curve for pizza? A change in the price for Coca-Cola, a compliment to pizza A price change in pasta, a substitute for pizza A change in aggregate income A change in the price of pizza

A change in the price of pizza

Which type of economy will likely feature the most government intervention? A market economy A command economy A mixture between command and market economy They will all have very similar levels of government intervention

A command economy

Which of the following would shift the supply curve for UK basketball tickets to the left? Our star player getting injured A decrease in the price of UK basketball tickets A global pandemic that restricts arena seating Our opponent being a weak team

A global pandemic that restricts arena seating

The UK Bookstore assumes that T-shirts and books are substitutes. Which of the following measures would confirm their assumption? A negative cross-price elasticity A positive cross-price elasticity A negative income elasticity A positive income elasticity

A positive cross-price elasticity Substitutes are characterized by positive cross-price elasticities, that is the percentage change in quantity of books sold should be positive when the percentage change in price of T-shirts is positive, that is the price of T-shirts and quantity demanded of Books move in the same direction (and vice versa).

Refer to Figure 7-15. When the price is P2, producer surplus is A A+C A+B+C D+G

A+B+C The amount sold at that price would be Q2.

What is producer surplus if price is P2? A and B B and C D and G A, B, and C

A, B, and C

Refer to Table 11-4. Suppose the cost to plant each tree is $340 and the 4 homeowners have agreed to split all tree-planting costs equally. Which homeowner(s) would be in favor of planting at least 1 tree? only Benitez only Benitez and Chen only Benitez, Chen, and Davis Adams, Benitez, Chen, and Davis

Adams, Benitez, Chen, and Davis $340/4 = $85

If a firms P=$4, then which of the following is true? Average Revenue = $4 Marginal Revenue = $4 Marginal Cost = $4 All of the above

All of the above

Which of the following is a possible outcome of increasing the minimum wage? Higher wages Reduced Hours for workers No effect on hours, employment, or wages All of the above Only (a) and (b)

All of the above

Which of the following resources is scarce? Diamonds Food Gold All of the above

All of the above

Who's demand schedule violates the law of demand? John Jacob Jason All of their demand schedules follow the law of demand

All of their demand schedules follow the law of demand

What areas on the graph represent the deadweight loss that results from the tax? Areas U+V Areas U+W Areas S+U Areas S+T

Areas U+V Deadweight loss is the area of the triangle formed by the pretax price, the tax price, and what the producer sells at, which is the triangles U and V.

Assume there is a $6 per unit tax. What area represents the loss to consumer surplus due to the tax? A, B, and C B and C D and E B, C, D and E

B and C

Assume there is a $6 per unit tax. What area represents the total tax revenue from the tax? B and C D and E B and D C and E

B and D

Refer to Figure 10-4. The socially optimal quantity would be Q1. Q2. Q3. Q4.

Q2. Which takes into consideration the externality.

An increase in demand is different than an increase in quantity demanded. True False

True

Assume that beer and cheese have the same elasticity of supply. Beer is more elastic than cheese. Which will have more deadweight, a $1 tax on beer, or a $1 tax on cheese? Beer Cheese

Beer

At what point in Table 1 does a Brioche Doree first face inelastic demand for bagels? Between $5 and $4 Between $4 and $3 Between $3 and $2 Between $2 and $1 Between $1 and $0

Between $2 and $1 There is unit elastic demand between $3 and $2, elastic demand between $5 and $4 and between $4 and $3, and inelastic demand between $2 and $1 and between $1 and $0, so a Brioche Doree will first face inelastic demand for bagels between $2 and $1. You should use the midpoint method to determine these price elasticity of demands. Practice calculating the elasticities at the different price ranges.

If Bob's opportunity cost of producing bananas is lower than Steve's opportunity cost of producing bananas, then Steve has an absolute advantage in producing bananas Bob has an absolute advantage in producing bananas Bob has a comparative advantage in producing bananas Steve has a comparative advantage in producing bananas

Bob has a comparative advantage in producing bananas

Assuming Bob and Joe can trade apples and strawberries, how should they spend their time? The table depicts the number of apples and strawberries Bob and Joe can each pick in a day. Bob should only pick strawberries, and Joe should only pick apples They should both only pick apples They should both spend half of their time picking apples and half of their time picking strawberries Joe should pick only apples, but Bob should pick apples and strawberries

Bob should only pick strawberries, and Joe should only pick apples

Cengage produces textbooks that students purchase. Currently there is a 10% tax on textbooks in the State of Kentucky. Governor Bevin is considering abolishing the tax. If the tax is abolished, who will gain surplus from this? No one will Only Cengage Only Students Both Cengage and Students

Both Cengage and Students Since taxes affect buyers and sellers and both lose surplus when additional taxes are levied, both will gain surplus when taxes decrease or are abolished.

If Indiana were to declare that it would be illegal to trade goods with Kentucky, what would be the most likely result? Both States would become richer Both States would become poorer Indiana would become richer and Kentucky would become poorer Kentucky would become richer and Indiana would become poorer

Both States would become poorer

Assume there is a $6 per unit tax. What area represents the total deadweight loss due to the tax? C and E B and D B, C, D and E A and F

C and E

Quantity demanded increases when the price of a good increases. True False

False

Rational thinkers should include sunk costs in their decision making. True False

False

Refer to Table 4-2. Whose demand does not obey the law of demand? Abby's Brandi's Carrie's DeeDee's

Carrie's The Law of Demand states that the lower the price the more that will be demanded, all else being equal.

Which of the following is not a public good? Clean Air National Defense The findings of Basic Research The benefits of effectively fighting poverty

Clean Air Clear air is not a public good, it is a public resource because it is rival in consumption. The other choices are all public goods.

Which does your instructor prefer? Coca-Cola Pepsi

Coca-Cola

Which of the following is a true statement? Trade can benefit everyone in society because it allows people to specialize in activities in which they have an absolute advantage. For both parties to gain from trade, the price at which they must trade must lie below the two opportunity costs. Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer Trade will benefit one party and cause harm to the other.

Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer

Which of the following is not a determinant of Elasticity of Supply Ease of acquiring and utilizing inputs Time required to produce the good Ability to store output Definition of market

Definition of market The definition of market is a determinant of the elasticity of demand. The missing determinant of the elasticity of supply is availability of infrastructure facilities. For more information consult the ECO 201 Supplemental Course Packet.

Based on the actual incidence of the tax, which is more elastic, supply or demand? Supply Demand

Demand

If the price of Coca-Cola increases, which of the following is most likely to happen. Demand for Pepsi will increase because Coke and Pepsi are compliments Demand for Pepsi will decrease because coke and Pepsi are compliments Demand for Pepsi will increase because Coke and Pepsi are substitutes Demand for Pepsi will decrease because Coke and Pepsi are substitutes

Demand for Pepsi will increase because Coke and Pepsi are substitutes

According to the circular flow diagram, if Denny is the owner of a landscaping business and he just received $50 for mowing Mrs. Pendleton's lawn, the $50 represents a cost of production for Denny's firm. the $50 represents wages, rent, and profit to Denny's firm. Denny acts as a firm who interacted in the markets for factors of production with Mrs. Pendleton. Denny acts as a firm who interacted in the markets for goods and services with Mrs. Pendleton.

Denny acts as a firm who interacted in the markets for goods and services with Mrs. Pendleton. Firms provide goods and services to households, according to the circular flow diagram.

When a market allocation of resources maximizes the total surplus received by all members of society, we say there is Efficiency Equity Market Power Market Failure

Efficiency

Suppose you calculate the price elasticity of demand for licorice to be -0.8. This is... Elastic Inelastic Unit Elastic

Elastic

Suppose you calculate elasticity of demand for pizza to be -1.2. This is an example of... Elastic Demand Inelastic Demand Unitary elastic demand

Elastic Demand

Refer to Table 3-3. Which of the following is true: France has the comparative advantage in cheese and England has the comparative advantage in wine England as the absolute advantage in cheese France has the comparative advantage in wine and England has the comparative advantage in cheese France has the absolute advantage in cheese and thus the comparative advantage in wine

England as the absolute advantage in cheese France has the comparative advantage in wine and England has the comparative advantage in cheese

A price above ATC in the long run will induce ____. Entry Exit

Entry

Today's demand curve for bicycles could shift because of which of the following? a. Today's price of bicycles b. The number of sellers of bicycles c. Expectations about the future price of bicycles d. How long it takes to manufacture a bicycle

Expectations about the future price of bicycles

Since the United States has recently become able to produce crude oil cheaply, it will likely... Import Crude Oil Export Crude Oil Not Trade Crude Oil

Export Crude Oil

A price ceiling is binding when the price ceiling is set above the equilibrium price. True False

False

A price ceiling is binding when the price ceiling is set above the equilibrium price. True False

False

A trade between two people will only ever help the person who "gets the better end of the trade". True False

False

Because Bill Gates has several billion dollars, he no longer faces scarcity. True False

False

Flu vaccination is a good example of a negative production externality. True False

False

Generally, monopolies create deadweight loss because of over production. True False

False

The "invisible hand" will NOT function properly without the help of government intervention. True False

False

if you can produce more of a good with the same amount of resources as someone else you always have a comparative advantage. True False

False

A good with few substitutes typically has a more elastic demand than a good with many substitutes. True False

False Having more substitutes means that consumers can be more responsive to price changes. goods with more substitutes then have more elastic demand.

When incomes increase by 12% consumption of Ramen Noodles decreases by 17%. This is because Ramen Noodles are a _____ good. Normal Inferior Luxury Complimentary

Inferior

Which of the following is likely to have more elastic demand? Goods without close substitutes Necessities Goods with narrow market definitions Goods with short time horizons

Goods with narrow market definitions Narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly-defined goods. ie: food (broad category) has a fairly inelastic demand b/c there are no good substitutes for it

Which economic agent is not involved in the basic circular flow model? Government Households Firms All are involved

Government

Which of the following will a pure market economy not address? What to produce How much equality there will be How to produce Who gets the goods and services

How much equality there will be

Which of the following statements is true about the short run and the long run? In the long run all inputs are variable; in the short run at least one input is fixed. Economists typically refer to the short run as a period of time in which the firm does not have sufficient time to change the amounts of any of its inputs. In the long run all costs are fixed; in the short urn some costs are fixed. The short run is a period of time less than 6 months. The long run refers to a production planning period of longer than one year.

In the long run all inputs are variable; in the short run at least one input is fixed. In the long run all inputs are variable; in the short run at least one input is fixed.

An increase in demand will ____ total surplus. Increase Decrease Not change

Increase

Suppose you are asked to be a pricing consultant for a local bakery. The bakery wants to raise its revenue by changing the price of its Blueberry Muffins. You run some tests and find out that their Blueberry Muffins have inelastic demand. How would you change the price in order to raise revenue? Increase the price Decrease the price Do not change the price Not enough information

Increase the price

This supply curve is ___ at a price of $30. Elastic Inelastic Unit Elastic

Inelastic

John Calipari has seen that revenues increase from basketball tickets when prices are raised. He has asked you why this is the case. You tell him, that of course the Wildcats face _____________demand for basketball tickets. Perfectly Inelastic Inelastic Unit Elastic Elastic Perfectly Elastic

Inelastic The Wildcats face inelastic demand, when price increases total revenue increases, that is, quantity demanded will face a smaller percentage decrease than the percentage increase in price.

The owner of a low-cost sunglasses manufacturer notices that as incomes rise, demand for his sunglasses decreases. This is likely because his sunglasses are a ____ good. Normal Luxury Inferior Special

Inferior

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then Iowa has a comparative advantage in the production of corn. Iowa has an absolute advantage in the production of corn. Iowa should import corn from Oklahoma. Oklahoma should produce just enough corn to satisfy its own residents' demands.

Iowa has a comparative advantage in the production of corn. Absolute advantage is about efficiency (how much you can produce given an amount of labor), whereas comparative advantage is about opportunity cost (how much you can produce of one good given the amount you can produce of another good with the same amount of labor).

Which of the following is NOT true of the "circular flow model"? It is an economic model It incorporates the decision making between households, firms and the government It represents the flow of inputs, outputs and dollars All of the above are correct

It incorporates the decision making between households, firms and the government

If there is a rightward shift in the supply curve (supply increases) what will happen to total surplus? It will increase It will decrease It will stay the same Not enough information.

It will increase With a rightward shift in the supply curve, and not shift in the demand curve, producers will produce more of the good and quantity demanded will increase. Thus, total surplus captured by consumers and producers will increase.

According to the theory of comparative advantage, a country will export a good only if... It can produce that good using less labor than other countries Its productivity is higher in producing that good than the productivity of other countries producing that good Its cost of producing that good, in terms of other goods, is at least as low as the cost to produce that good in other countries All of the above

Its cost of producing that good, in terms of other goods, is at least as low as the cost to produce that good in other countries

Who has the absolute advantage in picking apples, and why? The table depicts the number of apples and strawberries Bob and Joe can each pick in a day. Bob, because he can pick more total apples in a day than Joe Bob, because he can pick relatively more apples in a day than Joe Joe, because he can pick more total apples in a day than Bob Joe, because he can pick relatively more apples in a day than Bob

Joe, because he can pick more total apples in a day than Bob

Which points on the PPF are efficient? J and L J, N, K, and L M K and N

K and N

Which points on the graph are economically feasible? K and M only K and N only K, M, and N only J, K and N only

K, M, and N only

If a store sells 100 CD's per day before a tax is imposed, after the tax is imposed, they will expect to sell... More than 100 CD's per Day Less than 100 CD's per Day 100 CD's per Day

Less than 100 CD's per Day

At a price of $10, a Harry Potter novel is expected to sell 9,000,000 copies. If the novel is offered for sale at a price of $15, then the publisher can expect to sell.. More than 9,000,000 copies Less than 9,000,000 copies Exactly 9,000,000 copies Impossible to determine

Less than 9,000,000 copies

The supply of a good will be more elastic, the More the good is considered a luxury Broader the definition of the market for the good Larger the number of close substitutes for the good Longer the time period being considered

Longer the time period being considered

In the presence of a positive externality, the market outcome will produce too ____, because the market price is too ____. High, High High, Low Low, High Low, Low

Low, Low

Suppose Jessica goes to the store to buy fruit. If she only buys mangos, she can buy 6. If she only buys papayas, she can buy 18. Each time she buys one mango she gives up buying 3 papayas.Based on this information, which of the following linear equations is a correct representation of Jessica's budget constraint? (assume P=papayas and M = mangos) M = 6 - 1/3P M = 6 - 3P M = 18 - 6P M = 3 - 1/6P

M = 6 - 1/3P Suppose Jessica goes to the store to buy fruit. If she only buys mangos, she can buy 6. If she only buys papayas, she can buy 18. Each time she buys one mango she gives up buying 3 papayas. Based on this information, which of the following linear equations is a correct representation of Jessica's budget constraint? (assume P=papayas and M = mangos) M = 6 - 1/3P. 6 is the Y-intercept - the number of mangos she can buy is she only buys mangos and -1/3 (the slope) is the opportunity cost of 1 papaya. If one mango = 3 papayas, then 1 papaya = 1/3 of a mango.

Suppose: QS=3+6P and QD=22-5P If the government imposes a price ceiling of $3 in this market, what will occur? A shortage A surplus Market Equilibrium

Market Equilibrium

Suppose: QS=5+2P and QD=10-P If the government imposes a price ceiling of $4 in this market, what will occur? Shortage Surplus Market Equilibrium

Market Equilibrium Market equilibrium occurs at p = (5/3). Since the price ceiling is set above market equilibrium price, it is not binding, and the result will be market equilibrium.

Which is NOT a feature of a monopoly? Price Setting ability More than One firm Zero Economic Profit Barriers to Entry

More than One firm

An unregulated market produces too ______ of a good with an external cost and too _______ of a good with an external benefit. Much, Much Much, Little Little, Much Little, Little

Much, Little

Which of these goods is the most inelastic? Necessary Medical Surgery A Luxury Car A Caribbean Cruise Pepsi

Necessary Medical Surgery

If there is a permanent increase (shift) in market demand, what will happen in a competitive market in the long run? Overall market quantity increases, price increases Overall market quantity increases, price stays the same Overall market quantity increases, price decreases Overall market quantity stays the same, price increases

Overall market quantity increases, price stays the same In the short run quantity and price will increase, which will induce entry leading to a shift in the supply curve. Thus, quantity will increase and price will stay the same in the long run. See Figure 8 in the Mankiw book for more information.

What is the socially optimal price and quantity? P = $12, Q = 50 P = $13, Q = 40 P = $13, Q = 60 P = $12, Q = 40

P = $13, Q = 40

What is the equilibrium price and quantity in this market? P = 5, Q = 800 P = 35, Q = 600 P = 25, Q = 400 P = 35, Q = 200

P = 25, Q = 400

Assume that you go to the store with $12 to buy Coke (C) and Pizza (P). A slice of pizza costs $3, and a bottle of Coke costs $2. Which of the following equations represents your budget constraint? P = 4 + (3/2)C P = 12 - (3/2)C P = 6 - (3/2)C P = 4 - (3/2)C

P = 4 - (3/2)C

What price will the monopolist pick? P1 P2 P3

Woodford Reserve sells some quantity of bourbon at a price of $40. If Woodford Reserve increases their price by $1 and people no longer buy their Bourbon, what kind of price elasticity of demand does Woodford Reserve face? Perfectly Inelastic Demand Inelastic Demand Unit Elastic Demand Elastic Demand Perfectly Elastic Demand

Perfectly Elastic Demand In this situation Woodford is facing perfectly elastic demand, since when the price is raised they go from facing some positive demand for their product to facing zero demand for their product.

Which of the following is most likely to cause a negative externality experienced by students? Studying with friends Phones going off during lecture The LEAP tutoring lab The Supplemental Course Packet

Phones going off during lecture The other options are likely to have external benefits to students in that they aid learning and are thus positive externalities. Phones going off during lecture imposes an external cost on students when they are distracted by the noise.

If the price is above ATC, firms earn _____ economic profit in the short run Positive Negative

Positive

Which of the following is not a determinant of deadweight loss due to taxation? Tax size Price elasticity of supply Price elasticity of demand Price

Price Tax size, price elasticity of supply, and price elasticity of demand are all determinants of deadweight loss, however, the price of the good does not determine the deadweight loss due to taxation.

What will happen if there is an increase in demand for lemons in Lexington as well as a decrease in supply Change in the price of lemons is ambiguous, quantity of lemons goes up Change in the price of lemons is ambiguous, quantity of lemons goes down Price of lemons goes up, change in quantity of lemons is ambiguous Price of lemons goes down, change in quantity of lemons is ambiguous

Price of lemons goes up, change in quantity of lemons is ambiguous With an increase in demand and in supply the price of lemons will increase, but the change I quantity of lemons is ambiguous, it depends on whether the increase in supply or demand dominates.

Coke and Pepsi are substitutes. If the price of Coke increases, what do we expect to happen to the price and quantity of Pepsi? Price will increase, and quantity will increase Price will decrease, and quantity will increase Price will increase, and quantity will decrease Price will decrease and quantity will decrease

Price will increase, and quantity will increase

The area below the equilibrium price and above the supply curve is known as: Consumer willingness to pay Producer willingness to sell Producer surplus Consumer surplus

Producer surplus Producer surplus is the area above the supply curve and below the equilibrium price. Consumer surplus is the area below the demand curve and above the equilibrium price. Consumer willingness to pay lies along the demand curve and consumer willingness to sell lies along the supply curve.

If Chelsea makes $120,000 a year and the income tax rate is 10% for income earned up to $40,000 and 20% for income greater than $40,000. This is a ____ tax structure. Progressive Regressive Proportional

Progressive

In a market based economy such as is present in most societies, which of the following in NOT an appropriate role for government? Act as referee in market Protect private property rights Enforce laws and support a judicial system Promote equality and fairness

Promote equality and fairness While market based economies answer the three questions of allocation: what and how much to produce, how to produce, and for whom to produce, government still has a place in these economies to: protect private property rights, law enforcement and judicial system, and act as a referee in market. It is NOT needed to promote equality and fairness.

Which of the following is not a private solution to externalities? Moral Codes Charitable Activity Business Integration Protected Wetlands

Protected Wetlands Other choices are private solutions to externalities because they do not involve the government, they involve the actions of individuals. The fourth is not a private solution to externalities because wetlands are protected by the government.

Consider the following market: QS =2 + 2P and QD = 17-P. What is the equilibrium quantity and price? Q = 12, P = 3 Q = 14, P = 6 Q = 7, P = 15 Q = 12, P = 5

Q = 12, P = 5

What quantity will the monopoly produce? Q1 Q2 Q3

If there is excess demand, what is true? Quantity demanded is less than quantity supplied There is a surplus The current market price is above the equilibrium price Quantity demanded is more than equilibrium quantity.

Quantity demanded is more than equilibrium quantity. If there is excess demand, quantity demanded will be more than quantity supplied, resulting in a shortage. Price will be below equilibrium price and quantity demanded is more than equilibrium quantity.

Refer to Table 7-3. If the market price for the good is $20, who will purchase the good? Ming-la only Carlos and Quilana only Quilana and Wilbur only Quilana, Wilbur, and Ming-la only

Quilana, Wilbur, and Ming-la only In order to purchase a good, the consumer's willingness to pay must be higher than the market price,

Which of the following would you expect the market to provide too little of from society's point of view? Exhaust from automobiles Restored historic buildings Barking dogs Gasoline

Restored historic buildings Restored historic buildings create a positive externality around them so the market will provide too few of them. The other options are all items that create negative externalities. Exhaust from automobiles, barking dogs, and gasoline all affect people that don't use them in negative ways so we expect the market will provide too much of these because the social costs they impose are not internalized.

A common resource is Rival in consumption and excludable Rival in consumption and not excludable Non-rival in consumption and excludable Non-rival in consumption and not excludable

Rival in consumption and not excludable A common resource is a type of good consisting of a natural or human-made resource system, whose size or characteristics makes it costly, but not impossible, to exclude potential beneficiaries from obtaining benefits from its use.

Which of the following illustrates the concept of external cost? Bad weather decreases the size of the wheat crop. An increase in the demand for cheese raises the price paid by consumers of pizza, thereby harming these consumers. Smoking harms the health of the smoker. Smoking harms the health of nearby non-smokers.

Smoking harms the health of nearby non-smokers.

The graph below represents the Production Possibility Frontier (PPF) for the next year of an economy which produces two goods: bicycles and lawnmowers.Which of the following is a possible explanation for the shape of the Production Possibility Frontier. It requires fewer resources (labor, raw materials, equipment, ...) to produce a lawnmower than a bicycle. It requires more resources (labor, raw materials, equipment,...) to produce a lawnmower than a bicycle. To produce an additional lawnmower, some resources (labor, raw materials, equipment,...) that were being used to produce bicycles must now be used to produce lawnmowers. Some resources (labor, raw materials, equipment,...) are better at producing lawnmowers compared to bicycles than other resources.

Some resources (labor, raw materials, equipment,...) are better at producing lawnmowers compared to bicycles than other resources.

Suppose that when the price of a 16 oz. to-go cup of gourmet coffee is $4.25, students purchase 750 cups per day. If the price decreases to $3.75 per cup, which of the following is the most likely outcome? Students would purchase fewer than 750 cups per day. Student would continue to purchase 750 cups per day. Students would purchase more than 750 cups per day. We do not have enough information to answer this question.

Students would purchase more than 750 cups per day. The Law of Demand implies this.

The cost of microchips has gone down with Moore's Law (that the number of transistors in a dense integrated circuit doubles approximately every two years). Microchips are used in the production of computers. What has been the result in the market for computers? Supply has increased Quantity supplied has increased Demand has increased Quantity demanded has increased

Supply has increased Microchips are inputs to computers, and when input prices go down, the supply increases, that is, the supply curve shifts.

A ____ will occur if a price ____ is set above the market equilibrium price. Surplus, Ceiling Surplus, Floor Shortage, Ceiling Shortage, Floor

Surplus, Floor

Suppose goods X and Y are substitutes for each other. If the price of good Y increases, what is the result in the market for good X? The demand for X increases The demand for X decreases. The quantity demanded of X increases. The quantity demanded of X decreases.

The demand for X increases

Suppose it is Sunday night, and you have class on Monday morning. Which of the following should you NOT consider when deciding whether you will go to class? How much you will learn in class How going to class tomorrow might affect your final grade The cost of the tuition you pay to attend that school The amount of sleep you will give up to make it to class on time

The cost of the tuition you pay to attend that school

Which of the following is a disadvantage of government provision of a public good? The government lacks information about what people are willing to pay for the good. The government does not provide enough of any public good. The private sector can provide all public goods at a lower cost. None of the above is a disadvantage.

The government lacks information about what people are willing to pay for the good. Prices are information, and without prices, there is no information about consumer willingness to pay.

If college education in Kentucky produces positive externalities, we would expect The government to tax education The government to subsidies education People to internalize their own externality without government intervention Colleges to set admissions limits

The government to subsidies education

Suppose that the demand for a good is more elastic than the supply. What does this imply? The incidence of the tax falls more heavily on producers than consumers The incidence of the tax falls equally on consumers and producers The incidence of the tax falls more heavily on consumers than producers There is too little information given to know whether the incidence of the tax falls more heavily on producers or consumers.

The incidence of the tax falls more heavily on producers than consumers When demand is more elastic than supply the incidence of the tax falls more heavily on producers than consumers.

If taxed, which of the following markets is likely to experience a high deadweight loss: The market for Mercedes-Benz cars The market for eggs The market for cigarettes The market for healthcare

The market for Mercedes-Benz cars The larger the elasticities, the larger the deadweight loss. Mercedes-Benz cars have a high price elasticity of demand due to being a luxury good and experience higher deadweight loss if taxed. The other options are generally considered necessities and so will have a lower price elasticity of demand and experience lower deadweight loss if taxed.

A classic example of a binding price floor is... Manufacturer suggested retail price Rent Control The minimum wage Lines at a gas pump

The minimum wage

Which of the following is not an example of a market failure arising due to ill-defined property rights? The failure of people to restrain automotive emissions The over-hunting of deer The over-farming of family-owned farms The failure of private citizens to provide national defense

The over-farming of family-owned farms The other choices are all examples of market failures that arise because there are not property rights, because no one person "owns" clean air, people don't have the incentive not to pollute it, because no one person "owns" all the deer, people don't have the incentive not to shoot it (this is why we have mandated hunting seasons), and because people cannot be charged for the defense they receive, private citizens do not provide for national defense, instead the government steps in. This is an example of the use of a privately owned resource where the owner bears the full responsibility for how it is used. Here there are clearly defined property rights and an example of their use.

Suppose the price of good X increases. In terms of demand, what is the result? The demand for good X increases The demand for good X decreases The quantity demanded of good X increases The quantity demanded of good X decreases

The quantity demanded of good X decreases

If the USE of a good by consumers produces a negative externality what do we expect? The social benefit from the good is higher than the private benefit The social benefit from the good is less than the private benefit The social cost of the good is more than the private cost The social cost of the good is less than the private cost

The social cost of the good is more than the private cost Because this regards the use of a good or purchase of a good we know that it affects the buyer's side of the market (demand-side) and thus private value. Since it is a negative externality there is an external cost so the social value will be less than the private value.

Consider the production possibilities frontier for oranges, on the x-axis, and trampolines, on the y-axis. If we have an unusually good year of weather for growing oranges, then... The x-intercept will shift outwards, but the y-intercept will not shift The y-intercept will shift inward, but the x-intercept will not shift Both the x and the y-intercept will shift Neither intercept will shift

The x-intercept will shift outwards, but the y-intercept will not shift

When Hurricane Sandy hit the Jersey Shore, there was a shortage of gasoline. Many consumers were forced to wait in line at the pump. The local government considered imposing a price ceiling on gasoline temporarily. Why might they do this? To increase the supply of gasoline. To decrease the supply of gasoline. To increase the price of gasoline. To decrease the price of gasoline.

To decrease the price of gasoline. The local government was attempting to keep gas stations from charging higher than normal prices.

A tax is levied on all Toyota Camrys produced in Georgetown, Kentucky. Which of the following is NOT likely to happen? Both consumers of Camrys as well as Toyota will pay part of the tax. Toyota will bear all of the tax burden. Fewer Toyota Camrys will be sold. The price of Camrys will increase.

Toyota will bear all of the tax burden. The tax is levied on the seller so the supply curve will shift inward, raising prices and decreasing quantity demanded. However, even though the tax is levied on the seller, the tax burden falls on both buyers and sellers.

One reason for a government to impose a tax is to generate revenue. True False

True

Wearing a mask while in public is an example of a positive externality. True False

True

The Coase Theorem says Corrective taxes will push the market to the social optimum Internalizing the externality will alter the incentives people face so that they take into account the effects of their actions on others Two parties can bargain privately to solve problems related to externalities, absent transaction costs Government should mandate vaccination, because refusing vaccines imposes costs on others, resulting in a negative externality.

Two parties can bargain privately to solve problems related to externalities, absent transaction costs Simply put, a Coase Theorem can be used to settle disputes. Developed by Ronald Coase, the Coase theorem can be applied to those disputes over property rights we mentioned just a moment ago. A Coase theoremstates that when there is a disagreement about property rights those parties concerned can find a way to come to a mutually beneficial outcome by means of bargaining or negotiating terms. Keep in mind that in order for the theorem to be utilized, there cannot be any costs involved when negotiating a solution.

Suppose you calculate the cross-price elasticity between two goods to be 0. This implies that these goods are... Compliments Substitutes Unrelated Goods Perfect Goods

Unrelated Goods

The demand for beer is more elastic than the demand for milk. The supply of beer and the supply of milk are similar in steepness. Which would generate a larger deadweight loss? a $1 per unit excise tax imposed on beer a $1 per unit excise tax imposed on milk

a $1 per unit excise tax imposed on beer Given the supply curves are similar in steepness, which means similar in elasticity, the good with the more elastic demand will create a larger deadweight loss. This is because the quantity demanded will drop more, generating less tax revenue to make up for the loss in consumer surplus.

The tax on cigarettes is an example of a consumption tax. a corrective tax. an income tax. a command-and-control policy.

a corrective tax. Because the goal is to decrease to incentive to smoke.

Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that we should agree with Senator Johnson. a good decision requires that we recognize both viewpoints. there are no tradeoffs between equity and efficiency. we should agree with Senator Brown.

a good decision requires that we recognize both viewpoints. Senator Brown's policy will increase equity, but decrease efficiency. Senator Johnson's point is that efficiency losses will outweigh equality gains.

When the social cost curve is above a product's supply curve, the government has intervened in the market. a negative externality exists in the market. a positive externality exists in the market. the distribution of resources is unfair.

a negative externality exists in the market. Because the costs associated with production of the good are lower than the true costs of production, once the externality is considered.

Refer to Figure 10-4. This market is characterized by government intervention. a positive externality. a negative externality. None of the above is correct.

a negative externality. This is because social cost is higher than private cost.

Suppose UK's basketball team adds a very likable, rising star to their roster next season, and at the same time, Covid-19 restricts the seating in Rupp Arena. What is the expected impact of these two effects on the price of basketball tickets? a. Price will increase b. Price will decrease c. Indeterminant

a. Price will increase

Peanut butter and jelly are compliments. If the price of jelly decreases, what do we expect to happen to the price and quantity of peanut butter? a. Price will increase, and quantity will increase b. Price will decrease, and quantity will increase c. Price will increase, and quantity will decrease d. Price will decrease and quantity will decrease

a. Price will increase, and quantity will increase

A bakery owner notices as he lowers the price of blueberry scones, more customers want to buy blueberry scones. This is due to... a. The law of demand b. The demand schedule c. A shift in demand d. A shift in supply

a. The law of demand

What is a pure market economy's answer to "What to produce"? a. What firms believe people want and will make the firm a profit b. What the government believes is socially optimal c. What business owners believe is socially optimal d. What individuals demand from firms and government at any price

a. What firms believe people want and will make the firm a profit

Suppose that before coming to college you were offered a job that would pay $45,000 per year. Also, assume that the cost of college tuition is $10,000 per year, books cost another $1,000, and you will spend $7,000 on food while at college. You chose to attend college, therefore... a. You value your college education at more than $10,000 per year a. You value your college education at more than $55,000 per year a. You value your college education at more than $56,000 per year a. You value your college education at more than $63,000 per year

a. You value your college education at more than $56,000 per year

The impact of one person's actions on the well-being of a bystander is called an economic dilemma. deadweight loss. a multi-party problem. an externality.

an externality. Where either the cost or the benefit of an economic exchange is at least in part borne by a third party.

The Laffer Curve shows us that as the size of the tax increases, tax revenue increases but then eventually starts to decrease. as the size of the tax increases, tax revenue always increases as the size of the tax increases, tax revenue always decreases. the size of the tax and tax revenue are unrelated.

as the size of the tax increases, tax revenue increases but then eventually starts to decrease. The Laffer curve is shaped like a downward facing parabola with tax rate on the horizontal axis and revenue on the vertical. This set up shows that increasing tax rates increases revenues up to a certain point, then increasing the tax rate further decreases revenue

A firm is producing 100 units of output at a total cost of $800. The firm's average variable cost is $5 per unit. The firm's: average fixed cost is $3. average total cost is $500. total variable cost is $300. total fixed cost is $755. marginal cost is $8.

average fixed cost is $3.

Market failure associated with the free-rider problem is a result of a problem associated with pollution. benefits that accrue to those who don't pay. losses that accrue to providers of the product. market power.

benefits that accrue to those who don't pay. A fireworks display in Triangle Park in downtown Lexington can be observed by people across the city, so it would be difficult to charge money for it.

Cozumels begins experiencing diminishing marginal returns between the 2nd and 3rd Burrito-As-Big-As-Your-Head. between the 0 and 1st Burrito-As-Big-As-Your-Head. between the 3rd and 4th Burrito-As-Big-As-Your-Head. between the 1st and 2nd Burrito-As-Big-As-Your-Head. at an uncertain time. There is not enough information to determine this.

between the 3rd and 4th Burrito-As-Big-As-Your-Head. Cozumels begins experiencing diminishing marginal returns between the 3rd and 4th Burrito-As-Big-As-Your-Head because this is where marginal cost begins to rise.

In a market economy, supply and demand determine both the quantity of each good produced and the price at which it is sold. the quantity of each good produced but not the price at which it is sold. the price at which each good is sold but not the quantity of each good produced. neither the quantity of each good produced nor the price at which it is sold.

both the quantity of each good produced and the price at which it is sold. The intersection of the supply and demand curves gives a price and a quantity.

What area on the graph represents the deadweight loss from taxation? c + f b + d a + e c

c + f Remember, deadweight loss arises from trades that would have happened, but did not due to the government intervention (excise tax).

Which of the following statements is a positive statement? a. The state of Kentucky should provide free tuition for state residents b. The economy would be better if more people attended ECO 201 classes c. Average earnings are higher for students that take economics classes than students who don't d. People should know that economists don't just study how to make money.

c. Average earnings are higher for students that take economics classes than students who don't Choice C is a positive statement, meaning it is descriptive, about how the world is. The other choices are all normative, or prescriptive, they say how the world should be. Most of economics is positive, economists try to explain how the economy works. If you hear an economist saying a normative statement they are acting as policy advisers, not scientists.

What is the cost of picking one strawberry in terms of apples of picking one strawberry for Bob and Joe, respectively? The table depicts the number of apples and strawberries Bob and Joe can each pick in a day. a. Bob: 2 apples, Joe: 4 apples b. Bob: 2 apples, Joe: ¼ apple c. Bob: ½ apple, Joe: 4 apples d. Bob: ½ apple, Joe: ¼ apples

c. Bob: ½ apple, Joe: 4 apples

The externality associated with technology spillovers cannot be internalized by government is a negative externality. can be internalized, potentially, through taxation of firms that are responsible for technology spillovers. can be internalized, potentially, through patent protection.

can be internalized, potentially, through patent protection.

The best way for Government to solve the "free rider"problem is to: encourage people to "do their part" for the collective group collect taxes to provide services because of the non excludable nature of public goods islolate the free riders and tax only those selfish, mean people collect taxes to provide services because of the excludable nature of public goods

collect taxes to provide services because of the non excludable nature of public goods

A good that is rival in consumption and not excludable is called a public good. common resource. club good. private good.

common resource. The fish in the Kentucky River are an example.

The marginal benefit of going to a 'Cats game during the week is currently $6 for you. Assume that the price of going to the game measures its marginal cost, and that price is currently $4. Assuming you are rational, you will: not be able to enjoy a net gain from going to games during the week. continue going to games until the marginal benefit of doing so falls below $4. continue going to games until the marginal benefit of doing so falls to zero. choose not to go to any games during the week.

continue going to games until the marginal benefit of doing so falls below $4. If you are rational and the marginal cost to you of attending movies is $4, you will continue going to movies as long as the marginal benefit of doing so is greater than or equal to the marginal cost of $4.

Sunk costs are: costs that have already been incurred as the result of past decisions. costs associated with current operational decisions. costs that add to the firm's marginal costs. costs that form the major component of the firm's variable cost.

costs that have already been incurred as the result of past decisions. Sunk costs are costs that have already been incurred as the result of past decisions.

You are deciding which class to take for your final available time slot next semester. You can take economics, statistics, or history. If you choose to take economics instead of history or statistics, what is the opportunity cost of taking economics? a. The benefit you would have gotten from taking history b. The benefit you would have gotten from taking statistics c. The benefit you would have gotten from taking history plus the benefit you would have gotten from taking statistics d. The benefit you would have gotten from whichever class was your next best option

d. The benefit you would have gotten from whichever class was your next best option

Suppose the price of good X increases. What is the result? a. The demand for good X increases b. The demand for good X decreases c. The quantity demanded for good X increases d. The quantity demanded for good X decreases

d. The quantity demanded for good X decreases

Elasticity of demand indicates which of the following? degree of consumer response to a price change. degree of consumer response to a quantity change. degree of producer response to a price change. degree of producer response to a quantity change.

degree of consumer response to a price change.

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the demand for ice cream cones in this price range is elastic. demand for ice cream cones in this price range is inelastic. demand for ice cream cones in this price range is unit elastic. price elasticity of demand for ice cream cones in this price range is 0

demand for ice cream cones in this price range is elastic. Recall that the midpoint formula measures elasticity the same regardless of the direction of the change.

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs.

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources. One is concerned with "who" gets what is produced, the other is concerned with "what" is produced.

Neither public goods nor common resources are excludable, but only public goods are not rival in consumption. excludable, but only common resources are not rival in consumption. rival in consumption, but only public goods are not excludable. rival in consumption, but only common resources are not excludable.

excludable, but only public goods are not rival in consumption. The difference between the fish in Lake Erie and national defense in the United States is that national defense does not run out when too many people are defended.

Consider the introduction of a $20 per unit tax in this market. Which areas represent the deadweight loss associated with this tax? f + g k - g j - f k + f + j + g

f + g

Refer to Figure 3-10. Both Alice and Betty face a constant trade-off between producing pitchers of lemonade and pizzas. can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production. would benefit from specializing in lemonade production. would benefit from specializing in pizza production.

face a constant trade-off between producing pitchers of lemonade and pizzas. You know it is a constant trade off because both PPFs are straight lines.

Refer to Figure 2-2. Boxes A and B of this circular-flow diagram represent firms and households. households and government. the markets for goods and services and the markets for financial assets. the markets for goods and the markets for services.

firms and households. The lines represent trade which is facilitated by markets.

For any competitive market, the supply curve is closely related to the preferences of consumers who purchase products in that income tax rates of consumers in that firms' costs of production in that interest rates on government

firms' costs of production in that Cost of production is what determines the shape of the supply curve, i.e. the combination of price and quantity amounts that firms are willing to offer.

The simple circular-flow diagram is a model that includes only some key players in the real economy. Which of the following key players are omitted from the simple circular-flow model? households firms government markets for factors of production

government Although not the driving force behind economic progress, government plays a sizable role in influencing economic activity.

Consider a good for which the number of people who benefit from the good is large and the exclusion of any one of those people is impossible. In this case, the market for this good will likely be provided by a private firm rather than the government. have a free-rider problem. not exist. be limited to a small number of units of production.

have a free-rider problem. Think of fire protection in Lexington. If you get protection, your neighbor is able to at least in part free-ride off of you.

Suppose the demand curve for UK basketball tickets is perfectly elastic but the supply curve for UK basketball tickets is not perfectly elastic or perfectly inelastic. If the equilibrium price of UK basketball tickets is initially $2, a downsizing of Rupp arena in the number of seats that causes a decrease in supply will: have no effect on the equilibrium price. have no effect on the equilibrium quantity. increase the equilibrium price. decrease the equilibrium price. increase the equilibrium.

have no effect on the equilibrium price. If demand is perfectly elastic and supply shifts, the equilibrium price will not change.

Which of the following indicates a perfectly elastic and perfectly inelastic good respectively? horizontal demand curve; horizontal supply curve. horizontal supply curve; horizontal demand curve. horizontal demand curve; vertical demand curve. vertical demand curve; horizontal demand curve.

horizontal demand curve; vertical demand curve. In order to see this, you would want to draw the graphs.

Suppose that the president of the University of Kentucky decides to host a private fireworks show in his backyard on campus. Assuming that students love to watch fireworks, this would be an example of a positive externality because it causes the product to be overproduced. provides an additional benefit to market participants. benefits consumers because it results in a lower equilibrium price. is a benefit to a market bystander.

is a benefit to a market bystander. The students are the bystanders.

The market demand curve is the sum of all individual demand curves. is the demand curve for every product in an industry. shows the average quantity demanded by individual demanders at each price. is always flatter than an individual demand curve.

is the sum of all individual demand curves. A competitive market is made up of "many" buyers (and sellers).

Consider the introduction of a $20 per unit tax in this market. Which areas represent the loss to consumer AND producer surplus as a result of this tax? k + f j + g k + j k + f + j + g

k + f + j + g

Consider the introduction of a $20 per unit tax in this market. Which areas represent the tax revenue? k + f j + g k + j k + f + j + g

k + j

The supply of a good will be more elastic, the more the good is considered a luxury. broader is the definition of the market for the good. larger the number of close substitutes for the good. longer the time period being considered.

longer the time period being considered. Consumers will respond more the more time they have to adjust to the price change.

The principal-agent problem describes a situation where: shareholders prevent managers from maximizing profits. firms fail to achieve high profits because of managerial incompetence managers follow their own inclinations, which often differ from the aims of shareholders firms fail to maximize long-term investment

managers follow their own inclinations, which often differ from the aims of shareholders

"Laissez-Faire" policies are more likely to be found in countries ruled by dictators. market-oriented economies. countries that do not enforce property rights. command-oriented economies

market-oriented economies. "Laissez Faire" policies are indicative of no government intervention, so they are more likely to occur in market-oriented economies.

A group of buyers and sellers of a particular good or service is called a(n) coalition economy. market. competition.

market. A market does not need to be a physical location, and it often is not.

Your roommate has an extra ticket to an upcoming 'Cats game which you want, and you are very good at washing cars. Unfortunately, he does not need his car washed. What could solve this problem? the barter system. the gold standard. an increasing marginal cost. money.

money. Since what you produce he does not want, there is no "coincidence of wants" which is what is required if barter is to take place. You need something that can be converted into any good or service: a "medium of exchange", like money.

Refer to Table 11-4. Suppose the cost to plant each tree is $380 and the 4 homeowners have agreed to split all tree-planting costs equally. Which homeowner(s) would be opposed to planting any trees? only Davis only Adams and Davis only Adams, Benitez, and Davis Adams, Benitez, Chen, and Davis

only Davis

As illustrated in Figure 18.3, the production of paper creates only an external benefit. only an external cost. both external benefits and costs. no externalities.

only an external cost.

Irving and his wife Gertrude decide to take their life savings of $20,000 to buy a small retail shop. They plan to make and sell tie-dyed, University of Kentucky T-shirts. They hire a professional tie-dyer for $6.00 an hour who makes 20 t-shirts per hour. The following are needed to produce the shirts: dye, costing $1 per shirt, plain white t-shirts costing $1 each and an industrial washing machine for $1000. What type of firm is the T-shirt shop? sole-proprietorship dictatorship partnership corporation

partnership This firm could be considered a partnership.

Lawrence is a photographer. He has $230 to spend and wants to buy either a flash for his camera or a new tripod. Both the flash and tripod cost $230, so he can only buy one. This illustrates the principle that people face trade-offs. trade can make everyone better off. rational people think at the margin. people respond to incentives.

people face trade-offs. If he did not face scarcity or a trade-off, then Lawrence would be able to do both.

Suggins Restaurant is considering offering and "early bird special", where customers over the age of 65 would receive a discount on their bill, as long as they come in before 6 PM. If they choose to implement this deal, it would be an example of price discrimination or multi-tier pricing. They choose to lower the price for elderly customers most likely because the owners of Suggins want their restaurant to be full of elderly people. people over the age of 65 most likely have a more elastic elasticity of demand for restaurant meals because they may be on fixed incomes. people over the age of 65 most likely have a more inelastic elasticity of demand for restaurant meals because they may be on fixed incomes. they can charge people over the age of 65 a higher price.

people over the age of 65 most likely have a more elastic elasticity of demand for restaurant meals because they may be on fixed incomes. Customers with lower incomes, such as students and older people who may be on a fixed income, have a lower income and thus a more elastic response to goods such as restaurant meals that are relatively more expensive for them and are not substitutes.

Economists compute the price elasticity of demand as the percentage change in price divided by the percentage change in quantity demanded. change in quantity demanded divided by the change in the price. percentage change in quantity demanded divided by the percentage change in price. percentage change in quantity demanded divided by the percentage change in income.

percentage change in quantity demanded divided by the percentage change in price. It is important to know how to describe the formula for elasticity. It is simply a measure of the relative change of demand to a change in price.

Which of the following is not a negative externality associated with driving cars on New Circle road? congestion pollution repairs accidents

repairs The owner of the car pays the full cost of this.

Production possibilities frontiers are usually bowed outward. This is because the more resources a society uses to produce one good, the fewer resources it has available to produce another good. the opportunity cost of producing a good decreases as more and more of that good is produced. of the effects of technological change. resources are specialized; that is, some are better at producing particular goods rather than other goods.

resources are specialized; that is, some are better at producing particular goods rather than other goods. It is harder for an economy to use all of its various resources to produce the same good, since some resources are better or worse at producing some goods. So, a mix of goods is produced more efficiently over just a single good.

A vacation home near Red River Gorge is not rival in consumption and excludable. rival in consumption and excludable. not rival in consumption and not excludable. rival in consumption and not excludable.

rival in consumption and excludable. You owning the vacation home and being able to keep it for yourself means it is excludable, and the fact that no one else can own it if you own it means that it is rival.

Converse has been fairly successful selling denim colored UK sportswear. Lydia, wanting to get in on the profit, has also entered this market. After producing her profit maximizing level of output she finds that her average total cost per unit is $40, her average variable cost per unit is $30, and her selling price (forced upon her by the market), is $35. In the short run my Lydia should: go back to college and shut down her denim UK sportswear business. stay in business even though she is suffering a loss. expand production since she is making a positive economic profit. burn down the Converse factory so she can capture their share of the market and make even bigger profits than the profit she is already making.

stay in business even though she is suffering a loss. According to the shut down rule, Lydia should stay in business in the short run evening though she is suffering a loss because she is covering part of her fixed costs of production. (Although burning down the Converse Factory is an interesting idea.)

The distance between the average total cost curve and the average variable cost curve is: the total cost the average fixed cost the marginal cost the total fixed cost

the average fixed cost AFC is the difference between ATC and AVC.

Which of the following best represents a long run adjustment: the hiring of four additional cashiers by a supermarket. a cutback on purchases of coke and iron ore by a steel manufacturer. the extra dose of fertilizer used by a farmer on his wheat crop. the construction by an automobile manufacturer of a new plant to produce small cars.

the construction by an automobile manufacturer of a new plant to produce small cars. The construction by an automobile manufacturer of a new plant to produce small cars best represents a long run adjustment.

Marginal cost is all costs associated with the production of goods. all costs associated with fixed inputs. all costs that vary with output. the increase in total cost resulting from a one-unit increase in output.

the increase in total cost resulting from a one-unit increase in output. Marginal cost is the increase in total cost resulting from a one unit increase in output.

"Now that John washes all the dishes and I mow the lawn, we can finish in two-thirds the time it took when we shared both functions." This statement most clearly reflects the gains from capital accumulation. the law of comparative advantage. the gains from technology. the law of supply.

the law of comparative advantage. If we can increase the overall level of production by specializing and dividing labor, than we have benefited from comparative advantage.

Honey producers provide a positive externality to orchards because the honey producers get more honey. the orchard owner frequently gets stung by the honey producer's bees. the orchard owner does not have to purchase bees to pollinate his flowers. the honey producers have to rent access to the orchard grounds.

the orchard owner does not have to purchase bees to pollinate his flowers. The orchard owner receives the benefits of bees without having to pay a cost.

Which of the following increases the odds that a good has elastic demand? the good is a necessity. the passage of time. the classification of the product is more general rather than specific the lack of the availability of substitutes.

the passage of time. b: Which of the following increases the odds that a good has elastic demand? a) the good is a necessity. (This makes the product more inelastic.) b) the passage of time. (This increases elasticity.) c) the classification of the product is more general rather than specific. (Specific classifications are more elastic than general.) d) the lack of the availability of substitutes. (This makes the product more inelastic.)

A production possibilities frontier is a straight line when the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good. an economy is interdependent and engaged in trade instead of self-sufficient the rate of tradeoff between the two goods being produced is constant. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

the rate of tradeoff between the two goods being produced is constant. The slope of the line is the trade off or opportunity cost of substituting production of one good for another. The ratio is changing when the PPF is curved.

A short-run production function assumes that... the usage of at least one input is fixed the level of output is fixed. all inputs are fixed inputs. both a and b both b and c

the usage of at least one input is fixed

Consider a production possibilities frontier with corn on the vertical axis and cars on the horizontal. Unusually good weather for growing corn shifts neither the horizontal intercept nor the vertical intercept. the vertical intercept upward but does not shift the horizontal intercept. the horizontal intercept rightward but does not shift the vertical intercept. the horizontal intercept rightward and the vertical intercept upward.

the vertical intercept upward but does not shift the horizontal intercept. Good weather has a positive impact in the production of only corn and has zero impact on the production of cars

When an economy is operating inside its production possibilities frontier, we know that there are unused resources or inefficiencies in the economy. all of the economy's resources are fully employed. economic growth would have to occur in order for the economy to move to a point on the frontier. in order to produce more of one good, the economy would have to give up some of the other good.

there are unused resources or inefficiencies in the economy. The points on the curve itself are the best it can do

Private companies will invest in medical research if they will produce general knowledge. they will produce a specific product for which they may receive a patent. there is no government intervention in the market for medical products. others will benefit from their discoveries.

they will produce a specific product for which they may receive a patent. Self interest is what motivates economic exchange, not benevolence.

When marginal product is rising we know that total product is decreasing at a decreasing rate. total product is increasing at a decreasing rate. total product is increasing at an increasing rate. total product is decreasing at an increasing rate.

total product is increasing at an increasing rate. When marginal product is rising, total product is increasing at an increasing rate. This implies that the firm is experiencing increasing marginal returns.

It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that resources would be used more efficiently if the government produced the weapons. resources would be used more efficiently if private firms provided national defense. weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable. national defense is rival in consumption and excludable, but weapons are not rival in consumption and not excludable.

weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable. See the definitions of public and private goods.

Suppose your own demand curve for tomatoes slopes downward. Suppose also that, for the last tomato you bought this week, you paid a price exactly equal to your willingness to pay. Then you should buy more tomatoes before the end of the week. you already have bought too many tomatoes this week. your consumer surplus on the last tomato you bought is zero. your consumer surplus on all of the tomatoes you have bought this week is zero.

your consumer surplus on the last tomato you bought is zero. Consumer Surplus = Price minus WTP If P=WTP, then CS=0

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