Final Exam Review

Which resources have private gains, but shared costs?

Common Resources

The price elasticity of demand for a good with a vertical demand curve is:

Perfectly Inelastic

According to the interdependence principle, when faced with a decision, you should ask what: a) else might my decision affect? b) else might affect my decision? c) else might my decision affect and what else might affect my decision? d) past decisions might my decision affect?

c) else might my decision affect and what else might affect my decision?

A good that is non-rival and excludable is known as a ___

club good

Which of the following is an example of an in-kind transfer? a) Junko receives an old-age pension from her former employer. b) Tomasi is eligible for an income supplement because he lost his job. c) Ellen is eligible for income because she had a type of accident that qualifies. d) Martin receives housing from the government due to his low income.

d) Martin receives housing from the government due to his low income.

An import is a good or service:

purchased from a foreign seller

Does diminishing marginal product lead to rising or lowering marginal costs for a seller?

rising

To get maximum output, you should allocate each task to the person who can do the task with the lowest ___

opportunity cost

By contrast with a market that produces the socially optimal output, a market with negative externalities will:

overproduce

Buyers bear all the economic burden of a tax if the demand curve is _____, given an upward sloping supply curve.

perfectly inelastic

The percent of the population whose household income falls below the poverty line is known as the ___ rate

poverty

A rational buyer will keep buying a product until marginal benefit equals ___

price

The extra benefit enjoyed by the buyer of one extra unit of a good or service is known as the marginal ___ benefit

private

A (surplus/shortage) occurs when quantity demanded exceeds quantity supplied

shortage

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

- 2 - substitutes

For a normal good, what does a tax cut on consumer income do to demand?

A rise in demand

What happens to demand in the following situation for the reusable bag market: Kenya banned the use of disposable plastic shopping bags due to concern over plastics pollution.

Demand shifts out

When people focus their efforts, on the tasks they have a comparative advantage in, what will happen to output?

More of all goods will be produced than if everyone produced everything for themselves.

Which cost is incurred, regardless of what decision is made?

Sunk costs

If there is a rise in the price of a product that is a complement-in-production, what will happen to the supply curve?

The supply curve shifts out, because firms want to make more since they will get paid more

Which of the following is an example of a negative externality? a) When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors. b) Bae's company has a decrease in profits when the demand for its product falls. c) Raul loses weight because he wants to feel better, but the weight loss means that he needs new clothes. d) Rita gains weight while she is on vacation because she eats more than normal.

a) When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors.

When the demand curve shifts backward, what there is a decrease in: a) quantity demanded b) demand

a) quantity demanded

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are ___ goods

normal

Suppose that the world price of TVs is $400, and the government imposes a $100 tariff. The new price domestic consumers pay for a TV is:

$500

Joachim produces and sells baskets. His marginal cost for one basket is $10, and his average cost is $7. He gains producer surplus every time that he sells a basket at a price (above/below) ($7/$10)

- above - $10

What conditions must be met for private bargaining to be effective in resolving an externality?

- bargaining costs must be low - property rights must be clear

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes unless the marginal (benefit/cost) of watching another episode (exceeds/less than/equal) to the marginal cost

- benefit - less than

Amul Food Factory in India makes ice cream and produces processed and condensed milk. In the factory, the firm's employees use raw milk and sugar. The firm runs on electricity and purchases raw milk every day. Large robotic assembly lines fill and package the ice cream containers. Large industrial freezers store the ice cream. Based on this scenario, can you identify the fixed costs for Amul Food Factory?

- cost of building the factory - purchasing the robotic assembly lines - purchasing the industrial freezers

The world price of a pair of pants is $30, but the domestic price is $50. Opening up to international trade will lead to _____ in the domestic producer surplus and _____ in the domestic consumer surplus.

- decrease - increase

If demand is (elastic/inelastic), a higher price yields (higher/lower) total revenue.

- elastic - lower

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

- less -$150

The price of a car wash falls by 10%. In response to this price change, the quantity demanded for car washes increases by 20%. What is the absolute value of the price elasticity of demand for car washes?

2

Lyft cuts the price of a ride in New York City by 10%. Thereafter, the quantity of rides demanded rises by 25%. What is the absolute value of the price elasticity of demand for Lyft rides?

2.5

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs? (use the midpoint formula)

2.7

Frank is a barley farmer in a perfectly competitive market. The market price of barley is $250 per ton. If Frank charges $245 per ton, he will (lower/raise) his profitability by $5 per ton

Lower

Suppose supply shifts out and demand shifts back. What happens to the equilibrium price and quantity? Correct!

Price falls. The effect on quantity is uncertain.

When there is excess demand, do prices either rise or fall?

Rise

Why is the supply curve upward sloping?

Sellers can make more profit per unit if the market prices rise.

In the market for pesticides shown here, the original equilibrium price is $25. In an effort to reduce the usage of pesticides, a tax is then placed on the buyers in this market. Who bears the statutory burden of this tax?

The buyer, it is stated in the question

What will happen to the demand curve in the housing market if the realtor association predicts new housing prices to fall in a few months, and why?

The demand curve will shift backward, because the reason for future lower prices is a current lower quantity demanded

An increase in producer surplus would most likely occur if: a) an effective price floor was imposed. b) an effective price ceiling was imposed. c) the market price of the good decreased. d) no changes occurred in the market.

a) an effective price floor was imposed.

Which of the following is an example of a quota? a) A government limits the amount of a product that can be sold in a market. b) A government sets a minimum or maximum price that can be charged. c) A government sets a limit on how many inputs can be used in the production process. d) A government places a regulation on how many consumers are allowed in a market.

a) A government limits the amount of a product that can be sold in a market.

Which situation would shift the demand curve backwards? a) A report is published noting that the product has adverse health effects. b) There is an increase in the number of consumers in the market for the product. c) There is an improvement in production technology used by sellers.

a) A report is published noting that the product has adverse health effects.

According to diminishing marginal utility, which of the following people would gain the lowest marginal benefit from an extra $100 of income? a) Ariana, an actress with an annual household income of $1,500,000 b) Shawna, a single mother of three young children with an annual household income of $19,000 c) Devin, head of a three-person household with an annual household income of $120,000 d) Chin, a single person with an annual household income of $20,000

a) Ariana, an actress with an annual household income of $1,500,000

Which of the following claims reflects normative analysis? a) The minimum wage should be higher so that workers earn a living wage. b) Higher prices mean that the purchasing power of income falls. c) If the minimum wage were higher, companies that employ minimum wage workers would have higher costs. d) Fewer people will buy cars if their price rises.

a) The minimum wage should be higher so that workers earn a living wage.

Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the a) time he spent cooking the dinner. b) time it will take to walk, meet his friends, and walk back. c)amount of money he will spend at the dining hall. d)value he places on eating dinner with his friends.

a) time he spent cooking the dinner.

Paper producers can manufacture both printing and drawing paper. What effect would rising prices for printing paper have on the market for drawing paper? a) The quantity supplied of drawing paper will increase. b) The supply of drawing paper will decrease. c) The supply of drawing paper will increase. d) The supply of drawing paper will double as compared to before.

b) The supply of drawing paper will decrease.

The distribution of wealth is _____ the distribution of income. a) the same as b) more unequal than c) less unequal than d) unrelated to

b) more unequal than

Sellers bear a smaller incidence of a tax when: a) the tax is higher b) supply is more elastic relative to demand. c) demand is more elastic, relative to supply d) demand is perfectly inelastic

b) supply is more elastic relative to demand.

Which of the following is NOT a correct rationale about why income redistribution programs do not always reduce efficiency? a) Fewer resources may need to be devoted to dealing with crime when incomes are more equal. b) Less concentrated political power may exist when incomes are more equal. c) When incomes are more equal, work incentive grows. d) Worker productivity grows when educational opportunities are widespread.

c) When incomes are more equal, work incentive grows.

Asking "One more?" allows the _____ principle to be analyzed as a simple question. a) cost-benefit b) opportunity cost c) marginal d) interdependence

c) marginal

A key difference between equity and efficiency is that equity deals with _____ and efficiency focuses on _____. a) equality; minimizing costs b) maximizing welfare; fairness c) minimizing costs; equality d) fairness; maximizing economic surplus

d) fairness; maximizing economic surplus

Good M has an income elasticity of demand of -0.7. Which of the following items might good M be? a) champagne b) cognac c) organic, fresh juice d) generic toothpaste

d) generic toothpaste

Survey data for Americans are illustrated in a graph with the average level of well-being reported (on the vertical axis) at each level of income (on the horizontal axis). The slope of this curve indicates the relationship between well-being and income is consistent with _____ marginal benefit for additional income.

diminishing

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item.

equal to