HW 1 & 2

What is the value of the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?

$1,200

How much of the tax is paid by buyers?

$3

The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?

2 1/2 Russian tea cakes

If the economy is currently producing at point W, what is the opportunity cost of moving to point X?

5 million tons of paper

________ means the supply curve has shifted to the right, while ________ refers to a movement along a given supply curve in response to an increase in price.

An increase in supply; an increase in quantity supplied

What area represents the deadweight loss at P2?

C + E

Consider a country that produces only two goods: kayaks and coconuts. Suppose it is possible for this country to increase its production of kayaks without producing fewer coconuts. In this case, its current output combination is efficient.

False

If a country produces only two goods, it is possible to have a comparative advantage in the production of both those goods.

False

In response to a shortage the market price of a good will rise; as the price rises, the demand will decrease and supply will increase until equilibrium is reached.

False

One desirable outcome of a market economy is that it leads to a more equitable distribution of income.

False

The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss.

False

The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in the price of a substitute product.

False

Which country has a comparative advantage in the production of cashews?

Pakistan

Assume that the graphs in this figure represent the demand and supply curves for mustard and that bratwurst and mustard are complements. What panel describes what happens in this market when the price of bratwurst falls?

Panel (c) - Shift in quantity demanded

Which of the following statements about positive economic analysis is false?

There is much more disagreement among economists over positive economic analysis than over normative economic analysis.

The division of the burden of a tax between buyers and sellers in a market is called tax incidence.

True

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.

True

If the current market price is $25, the market will achieve equilibrium by

a price decrease, decreasing the quantity supplied and increasing the quantity demanded.

Which of the following would cause the equilibrium price of ketchup to increase and the equilibrium quantity of ketchup to decrease?

an increase in the price of tomatoes

If a decrease in income leads to an increase in the demand for macaroni, then macaroni is

an inferior good.

If the marginal cost of keeping a doctor's office open one additional hour per day is $200, then the doctor should keep the office open for one extra hour

as long as the marginal benefit she receives is just equal to or greater than $200.

Increasing opportunity cost is represented by a ________ production possibilities frontier.

bowed out

An outward shift of a nation's production possibilities frontier represents

economic growth.

Productive efficiency is achieved when

firms produce goods and services at the lowest cost.

Suppose that when the price of hamburgers increases, the Ruiz family increases their purchases of hot dogs. To the Ruiz family,

hamburgers and hot dogs are substitutes.

The production possibilities frontier model shows that

if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

Where do economic agents such as individuals, firms and nations, interact with each other?

in any arena that brings together buyers and sellers

An ________ is represented by a rightward shift of the demand curve while an ________ is represented by a movement along a given demand curve.

increase in demand; increase in quantity demanded

The law of demand implies, holding everything else constant, that as the price of yogurt

increases, the quantity of yogurt demanded will decrease.

Economists reason that the optimal decision is to continue any activity up to the point where

marginal benefit equals the marginal cost.

To affect the market outcome, a price floor

must be set above the equilibrium price.

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except

produce a combination of goods that lies outside its own production possibilities frontier.

A supply curve

s a curve that shows the relationship between the price of a product and the quantity of the product supplied.

In economics, choices must be made because we live in a world of

scarcity

The substitution effect of a price change refers to

the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes.

Each point on a demand curve shows

the willingness of consumers to purchase a product at different prices.

Point C is (outside frontier)

unattainable with current resources

Buyers will bear the entire burden of a unit tax if the demand curve for a product is

vertical.

Which of the following is not an example of an economic trade-off that a firm has to make?

whether or not consumers will buy its products