Micro Econ Final exam

Look at the table Marginal Cost of Sweatshirts. The marginal cost of the second sweatshirt is:

$11

There are two consumers, Andy and Ben, in the market for pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. At the equilibrium price and quantity, total producer surplus is:

$14

Look at the figure Pollution and Efficiency. In this market, whose sulfur emissions are a result of production, an efficient solution takes place at a price of _____ and a quantity of _____.

$15; 30

Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility for the first unit is:

200

Look at the table Marginal Benefit from Additional Streetlights. Suppose that the marginal cost of installing a streetlight is $6. What is the socially optimal number of streetlights in the neighborhood?

3

Rivalrous

A characteristic of a good according to which its consumption by one person reduces its availability for another person.

economic profit formula

Economic Profit= Total Revenue - Opportunity Costs = Total Revenue - (Explicit + Implicit Costs)

Which of the following best describes the income effect of a price increase?

Michelle's apartment rent increases, so she cancels her subscription to a monthly magazine

total surplus

Sum of producer and consumer surplus consumer surplus + producer surplus

comparitive advantage

The situation where someone can produce a good at lower opportunity cost than someone else can

shortage

a situation in which a good or service is unavailable

network externalities

a situation in which the usefulness of a product increases with the number of consumers who use it

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, cornflakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

a standardized product.

A binding price floor causes:

a surplus in the market and wasted resources.

common resources

rival in consumption but not excludable

The figure The Market for Hamburgers shows the weekly market for hamburgers in Irvine, Kentucky. If 400 hamburgers are sold, producer surplus will equal:

$200.

Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is:

0

Look at the table The Utility of Pecan Rolls. The marginal utility for the second roll is:

15

A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and $5 in average fixed cost. The total cost of producing 10 pairs of eyeglasses is:

350

Identify the true statement regarding Coase and property rights

The assignment of property rights to someone is essential.

marginal social cost

The extra cost to society of producing an additional unit of output, including both the private cost and the external costs.

Which of the following is a positive economic statement?

There has been an increase in the rate of inflation.

Because Casey can type reports faster and more accurately than Ahmet, Casey has a(n) _____ in typing reports

absolute advantage

binding price ceiling

below equilibrium and causes a shortage

Suppose the town of Falls Valley has a mosquito problem. After a bad summer, the town accountants explain that the marginal cost of providing one more treatment for mosquito control is $100,000. The town should provide the additional mosquito control only if the marginal:

benefit for all individual citizens adds up to at least $100,000.

positive externalities

benefits created by a public good that are shared by the primary consumer of the good and by society more generally

Thinking in economic terms, when Mary Sweet-Tooth is deciding whether to eat another brownie, she:

compares all of the benefits and costs of eating another brownie.

John consumes pizza and pasta, both normal goods. He is maximizing his utility in consumption of both goods. The price of pasta rises. Assuming that diminishing marginal utility applies to both goods, as he adjusts to this event, the marginal utility of pizza will _____, and the marginal utility of pasta will _____.

fall; rise

Profit in monopoly

find intersection to MC and MR for optimal Q diff between P and ATC times q give profit in monopoly P-ATCxQ

If the state government gave you the exclusive right to sell cement to municipalities, your monopoly would result from:

government restrictions to entry.

A binding price ceiling is designed to:

keep prices below the equilibrium level.

Look at the table Consumer Equilibrium. Assume that the price of both goods is $1 per unit, that you consume three units of good X and three units of good Y, and that you are spending all of your income. To maximize utility, assuming that the goods are divisible, you would consume _____ of X and _____ of Y.

more; less

A binding price ceiling will cause a persistent _____, and a binding price floor will cause a persistent _____.

shortage; surplus

If at a given quantity MB = MC, the decision maker should do _____ of the activity.

that amount

Specialization and trade usually lead to:

the exchange of goods and services in markets.

The licenses that are exchangeable and that enable the holder to pollute up to a specified amount during a given period are called:

tradable emissions permits.

Economists identify the satisfaction a person derives from the consumption of goods and services as:

utility.

An input whose quantity can be changed in the short run is a(n) _____ input.

variable

Scarcity

we do not have sufficient resources to produce all of the goods and services we want.

Diminishing returns to an input occur:

when some inputs are fixed and some are variable.

Look at the figure Demand, Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government wanted to regulate Figglenuts-R-Us such that it would minimize the deadweight loss while allowing the firm to break even, it would impose a price ceiling of:

$50.

Look at the figure The Demand and Supply of Wheat. A price of _____ will result in a _____.

$8; surplus

how to calculate price elasticity of demand

% change in quantity demanded / % change in price

midpoint formula

(x₁+x₂)/2, (y₁+y₂)/2

You decide to quit your $60,000-per-year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, you have earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the first year as an illustrator is:

- $45,000

Until recently Rosemarie worked as an accountant, earning $30,000 annually. Then she inherited a piece of commercial real estate that had been renting for $12,000 annually. Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited. At the end of the first year, her books showed total revenues of $260,000 and total costs of $230,000 for food, utilities, cooks, and other supplies. Her economic profit at the end of one year is:

-$12,000.

Look at the table Price Elasticity. What is the price elasticity of demand between $1.00 and $0.75?

0.54

If the price of chocolate-covered peanuts decreases from $1.10 to $0.95 and the quantity demanded increases from 190 bags to 215 bags, then the price elasticity of demand (by the midpoint method) is:

0.8

Britain must give up the production of 75 hats to produce 25 additional sweaters. The opportunity cost of producing 3 hats is _____ sweater(s).

1

Look at the figure The Demand for e-Books. What is the price elasticity of demand (by the midpoint method) when the price decreases from $6 to $4?

1

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The horizontal intercept for Faruq's budget line is _____ tacos.

10

Britain must give up the production of 75 hats to produce 25 additional sweaters. The opportunity cost of producing 4 sweaters is _____ hats.

12

Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____.

4 bushels; profit; $0

Look at the figure Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is perfectly competitive. If market price of a bushel of tomatoes is $18, in the short run the farmer's profit-maximizing output is _____ bushels.

5

price ceiling

A legal maximum on the price at which a good can be sold

price floor

A legal minimum on the price at which a good can be sold

Which of the following is an example of an import quota?

A limit on the total number of shoes imported from Italy.

Monopoly

A market in which there are many buyers but only one seller. MR=MC to determine Q

Shortage vs. Scarcity

A shortage can be temporary or long-term, but scarcity always exists.

inelastic demand

A situation in which an increase or a decrease in price will not significantly affect demand for the product

Tariff

A tax on imported goods

There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, all other things equal, you would expect the demand for:

Bayer aspirin to be more price-elastic.

private goods

Benefits and services over which the owner has full control of their use.

Look at the figure A Tariff on Oranges in South Africa. When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from PW to PT and the volume of imports falls to:

C2 - Q2.

nonexcludable

Characteristic of a public good: if the good is available to one actor to consume, then other actors cannot be prevented from consuming it as well.

Look at the figure Quantity Controls. If the government decides to restrict the quantity sold to 100, which of the following is FALSE?

Consumer surplus is maximized.

consumer surplus

Difference between market price and what consumers would be willing to pay (BxH)/2

Total Costs (TC)

FC + VC

public goods

Goods that are neither excludable nor rival in consumption

implicit costs

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

A market for an artificially scare good, also known as a club good, produces an_____ quantity. A club good is____n consumption, and is____

Inefficient non rival Excludable

Suppose Ivy buys only two things, books and coffee, and receives the same satisfaction from the last book bought as she did from the last coffee bought. Books cost twice as much as coffee, and she has spent all of her money. Diminishing marginal utility applies to both goods. If she is trying to maximize her utility:

Ivy should buy more coffee and fewer books.

Look at the figure Monopoly Model. The profit-maximizing quantity is at point

J

If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. We know that:

Laurence's opportunity cost of writing programs is less than Carrie Anne's.

Profit Maximizing Rule

MR=MC

Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. Based on this information, _____ has the comparative advantage in making brownies and _____ has the comparative advantage in making cookies.

Mark; Julie

Which of the following is FALSE about the circular-flow diagram?

Money flows from households to firms as households offer factors of production for sale.

Look at the figure Supply and Demand. A binding price floor is represented by:

P1.

profit in perfect competition

Profit=TR-TC

What is the difference between a shortage and scarcity?

Scarcity will almost always exist, but a shortage will exist only if the price is kept below the equilibrium level.

Suppose you manage a corner grocery store. If peanut butter is an inferior good, what do you suppose would happen to the price and quantity sold of peanut butter as incomes fell during a recession?

The price and quantity would both increase.

If you decide to go to Cancún with your friends during spring break, you cannot go to Paris with your sister in the summer. This statement best represents this economic concept:

The real cost of something is what you must give up to get it

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?

Total revenue will fall.

If the estimated price elasticity of demand for foreign travel is 4:

a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

An external benefit

a benefit that an individual or firm confers on others without receiving compensation

An announcement that smoking will harm your ability to think clearly will most likely result in:

a decrease in the demand for cigarettes.

inferior good

a good that consumers demand less of when their incomes increase

normal good

a good that consumers demand more of when their incomes increase

production possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

perfect competition

a market structure in which a large number of firms all produce the same product MR= P determines Q

price elasticity

a measure of the sensitivity of demand to changes in price

Pigouvian subsidy

a payment designed to encourage activities that yield external benefits

Pigouvian tax

a tax imposed on an activity that creates a negative externality

excise tax

a tax on the production or sale of a good

emissions tax

a tax that depends on the amount of pollution a firm produces

If a 20% price increase generates a 20% decrease in quantity demanded, then this is _____ response.

a unit-elastic

The best example of a private good is:

an automobile.

Externality

an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

Which of the following ALWAYS results in an increase in price and quantity?

an increase in demand with no change in supply

Which of the following will NOT cause an increase in the supply of good X?

an increase in the price of inputs used to produce good X

An external cost:

an uncompensated cost that an individual or firm imposes on others.

Nico rents 10% more DVDs when his income increases by 20%. Based on this information, we know that DVDs:

are a normal good.

Look at the figure A Firm's Cost Curves. The curve X represents the firm's _____ cost curve.

average variable

Look at the graph Price Controls. An effective price floor would be at price _____ and a _____ would result from the difference between points _____.

b; surplus; f and e

Look at the graph Price Controls. The consumer surplus lost to a price floor at point b is equal to the area:

bcge

Taken collectively, people in nations that engage in international trade are not likely to:

be made worse off.

A price ceiling on a good often results in:

black market or underground transactions of the good

The amount by which total utility _____ when an additional unit of a good is consumed is _____.

changes; marginal utility

Assume that Colombia gives up three motorcycles for each ton of coffee it produces, while Bolivia gives up seven motorcycles for each ton of coffee it produces. Colombia has a comparative advantage in _____ production and should specialize in _____.

coffee; coffee

Joe's budget line reflects the _____ available to Joe if he spends _____ of his income.

consumption bundles; all

variable costs

cost that depends on the quantity of output received

explicit costs

costs that require a firm to spend money

A tax leads to a(n) _____ in consumer surplus and a(n) _____ in producer surplus.

decrease; decrease

elastic demand

demand in which changes in price have large effects on the amount demanded not so steep demand curve

fixed costs

doesn't depend on quantity of an output produced.

A market for a private good with no externalities produces an ______ quantity of goods. A private good is _____ in consumption, and is

efficient Rival Excludable

A higher rate is most likely to decrease the amount of revenue that the government collects from an excise tax if demand is _____ and supply is _____.

elastic; elastic

nonrivalrous

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

Money that must be paid for the use of factors of production such as labor and capital is an:

explicit cost.

In the simplest circular-flow model, households supply _____ and demand _____.

factors of production; goods and services

When marginal cost is BELOW average variable cost, average variable cost must be:

failing

Suppose the local real estate market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a large subdivision of new homes has just been completed. Given these two changes and assuming that real estate is a normal good, we can predict that the price of real estate will _____ and the quantity of real estate bought and sold will _____.

fall; fall

All else equal, if a price floor above the equilibrium is imposed on a market and the government buys the surplus, consumer surplus will _____ and producer surplus will _____.

fall; rise

Average Fixed Cost (AFC)

fixed cost divided by the quantity of output

Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip is $150, Mountain River Adventures will offer _____ trips per day and will have producer surplus equal to _____.

four; $80

If a country's price in the absence of trade is lower than the price with trade, then the domestic quantity supplied with trade is _____ the domestic quantity demanded.

greater than

If total utility is rising as more salsa is consumed, we can definitely say that marginal utility is:

greater than zero.

Look at the table Comparative Advantage I. Sweden has a comparative advantage in producing:

herring only.

Because of monopoly, consumers experience _____ than with perfect competition.

higher prices

Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government imposes a $5 excise tax on leather shoes and collects the tax from the suppliers, the price of leather shoes will:

increase by less than $5.

Look at the figure The Market for Lattes. If the government assesses a tax of $0.75 on each latte, the price the consumer pays for a latte after the tax will:

increase from $2 to $2.25.

The law of demand states that other things equal, as the price:

increases, the quantity demanded will decrease.

what is microeconomics

individual decision makers in the economy.

A market for a common resource produces an______ quantity. A common resource is ______ n consumption and is ______

inefficient Rival Nonexcludable

A market for a public good produces an ______ quantity. A public good is _____ in consumption and is _____

inefficient nonrival nonexcludable

Which is NOT an inefficiency caused by binding price ceilings?

inefficient allocation of sales among sellers

As part of an antiobesity program, the government levies an excise tax on high-fat foods. We expect consumers to pay almost all of this tax if demand is _____ and supply is _____.

inelastic; elastic

According to the Heckscher-Ohlin model, Brazil will have a comparative advantage in oranges if the factors _____ in the production of oranges are _____.

intensive; abundant

If a monopolist is producing a quantity that generates MC = MR, then profit:

is maximized.

A price ceiling is not effective if

it is set above the equilibrium price.

The figure Model of a Market for a Common Resource shows the intersection of the private supply and demand curves. Without any consideration of the marginal social cost of using a common resource, the quantity of the common resource used at Q will be:

larger than is socially desirable.

Price-discriminating firms will impose a price structure that offers customers with a _____ demand a _____ price and offers customers with a(n) _____ demand a _____ price.

less elastic; higher; more elastic; lower

Look at the table Consumer Equilibrium. Assume that the price of good X is $2 per unit and the price of good Y is $1 per unit, that you consume three units of good X and three units of good Y, and that you are spending all of your income. To maximize utility, assuming that the goods are divisible, you would consume _____ of X and _____ of Y.

less; more

tradeable emissions permits

licenses to emit limited quantities of pollutants that can be bought and sold by polluters

The amount by which an additional unit of an activity increases total benefit is:

marginal benefit.

A "how much" decision is best made by comparing the _____ of an action to the _____ of that action.

marginal benefits; marginal costs

When the allocation of resources is such that a different allocation would increase society's welfare, economists say:

market failure has occurred.

In 2002, the steel industry argued that higher tariffs on steel were necessary to help fight the war on terrorism. This is an example of the _____ argument.

national security

Xavier notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps him study. If Xavier keeps the tutor until his grade actually begins to fall, his marginal utility for the last hour of tutoring will be:

negative.

When a market is in equilibrium and there is no outside intervention to change the equilibrium price:

no mutually beneficial trades are missed.

Kayla and Jada are roommates in New York City. Both Kayla and Jada recently received raises. Kayla now buys more album downloads than before, but Jada buys fewer. Kayla behaves as if album downloads are _____ goods, and Jada's income elasticity of demand for album downloads is _____.

normal; negative

If drivers decide to make phone calls without considering the costs imposed on others, the:

number of phone calls made while driving will be more than the socially optimal quantity.

Which of the following is a systematic mistake that leads to irrational decisions?

overconfidence

The land you own has the only known source of aloe needed to make anti-itch lotion. In this case, your monopoly results from

ownership of scarce inputs

Look at the figure Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's orange crop. Which panel BEST describes how this will affect the market for oranges?

panel B

Look at the figure Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose scientists discover that eating a tomato a day prevents aging. Which panel BEST describes how this will affect the market for tomatoes?

panel C

Look at the figure Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel BEST describes how this will affect the market for used furniture, an inferior good?

panel D

When a public transit system (such as a subway or bus line) raises its fares, its total revenue may increase. This suggests that demand is:

price-inelastic.

The price elasticity of demand is computed as the percentage change in the _____ divided by the percentage change in _____.

quantity demanded; the price.

A decrease in the price of eggs will result in an increase in the:

quantity of eggs demanded.

Look at the figure Rent Controls. If rent controls are set at Rent1:

rental apartments may be of inefficiently low quality.

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect price to _____, output to _____, consumer surplus to _____, producer surplus to _____, and deadweight loss to _____.

rise; fall; fall; rise; rise

Look at the figure Strawberries and Submarines. As the economy moves from point A toward point D, it will find that the opportunity cost of each additional submarine:

rises.

standards

rules that protect the environment by specifying actions by producers and consumers.

marginal utility

satisfaction or usefulness obtained from acquiring one more unit of a product

Look at the figure Rent Controls. If rent controls are set at Rent0:

some renters will be willing to pay a price as high as Rent4 for Q0 units.

Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross-price elasticity for water and lemons is -0.13. This means that butter and margarine are _____, while water and lemons are _____.

substitutes; complements

If the price of coffee cups falls and the consumer decides to buy more coffee cups solely because they are less expensive, this describes the:

substitution effect.

Look at the figure The Demand and Supply of Wheat. If a price of $10 temporarily exists in this market, a _____ of _____ bushels will result.

surplus; 8,000

absolute advantage

the ability to produce a good using fewer inputs than another producer

marginal benefit

the additional or extra benefit associated with an action

marginal cost

the cost of producing one more unit of a good Upward sloping because of diminishing returns

The quota rent is:

the difference between the demand price and the supply price at the quota limit.

producer surplus

the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives (BxH)/2

marginal value

the difference in people's willingness to pay for one action compared to an alternative

Look at the figure Strawberries and Submarines. Suppose the economy is operating at point G. This implies that:

the economy has unemployment and/or inefficiently allocates resources.

The market for milk is initially in equilibrium. Milk producers successfully advertise to encourage milk drinking. At the same time, more milk producers enter the market. Standard demand and supply analysis tells us that:

the equilibrium quantity of milk will rise, but we can't determine how the equilibrium price will be affected

deadweight loss

the fall in total surplus that results from a market distortion, such as a tax 1/2 - (P2-P1) x (Q0-Q1)

You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business?

the job offer you did not accept at a local catering service

cost curve

the mathematical relationship between a firm's production costs and its output

Producers in a particular market will bear the greater burden of an excise tax:

the more price-elastic the demand is relative to supply.

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price floor in the market at a price of $0.40 per pound:

the price floor will not affect the market price or output.

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the supply curve is upward-sloping:

the price of sweaters will increase by less than $10.

equalibrium price

the price that balances quantity supplied and quantity demanded

Excludable

the property of a good whereby a person can be prevented from using it

Coase Theorem

the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

social optimal Quantity

the quantity of a good that results in the maximum possible economic surplus from producing and consuming the good

A price floor is likely to cause deadweight loss because:

the quantity of the good is less than the equilibrium quantity.

Look at the figure Rent Controls. If rent controls are set at Rent1:

the shortage of rental units is the distance Q3 - Q1.

It is certain that the equilibrium price will fall when:

the supply curve shifts to the right and the demand curve shifts to the left.

total revenue

the total amount of money a firm receives by selling goods or services PxQ

In economics, a marginal value refers to:

the value associated with one more unit of an activity.

Opprotunity Cost

the value of the best alternative forgone in making any choice. what you must give up in order to get something

If an emissions tax is too low:

there will be too much pollution.

average total cost

total cost/quantity always above avg variable cost

Average Variable Cost (AVC)

total variable costs divided by quantity of output upward sloping but is flatter than the marginal cost curve

Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. Jackson has an absolute advantage in producing:

wheat only.

In the figure The Socially Optimal Quantity of Pollution, the optimal level of pollution is:

where the marginal social benefit curve intersects the marginal social cost curve

Peanut butter and jelly are complements in consumption. Assuming that the supply curve of peanut butter is upward-sloping, if there is a decrease in the price of jelly, producer surplus in the peanut butter market:

will increase.

While eating pizza, you discover that the marginal benefit of eating one more slice is greater than the marginal cost of that slice. You conclude that:

you will be better off if you eat one more slice.