Micro Econ_Module 6 Quiz_Some Answers

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Figure 5-3 shows the market for measles vaccinations, a product whose use generates positive externalities. Refer to Figure 5-3. What is the economically efficient output level?

Which of the following do economists assume rational people do

Respond to economic incentives

Equilibrium consumer surplus is

Right angle triangle above market equilibrium

Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?

Sale revenue rises

Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue?

Sales revenue decreased

Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is (infinity symbol) What happens to sales revenue if the restaurant increases its price by 5 percent.

Sales revenue falls by 100 percent.

Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?

Sales revenue rises

Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk? Answers: a.Sales revenue falls. b.Sales revenue rises. c.Sales revenue remains unchanged. d.It cannot be determined without information on prices.

Sales revenue rises.

Significance of Price Elasticity of Demand

A one percent increase in income leads to a five percent increase in wine consumption.

Studies show that the income elasticity of demand for wine is approximately five. What does this mean?

Calculate the income elasticity if an 8% increase in income leads to a 4% increase in quantity demanded for organic produce.

0.5

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.

0.5; The product is inelastic

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product. A) 2; The product is elastic. B) 0.2; The product is inelastic. C) 0.5; The product is inelastic. D) 50%; The product is inelastic.

0.5; The product is inelastic.

Jaycee Jeans sold 40 pairs of jeans at $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.

0.6

At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula.

0.9

Suppose the value of the price elasticity of demand is -3. What does this mean?

1 percent increase in the price of the good causes quantity demanded to increase by 3 percent

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as it desires. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services? Answers: a.Supply is unit-elastic. b.Supply is perfectly elastic. c.Supply is perfectly inelastic. d.Supply is relatively inelastic.

Supply is perfectly elastic.

0.5; The product is inelastic.

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.

2.69

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand?

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 to 10,000 units. Use midpoint formula

1.22

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.

1.22

An increase in the demand for green tea raises the price of green tea from $16 a pound to $20 a pound. As a result, quantity supplied increases by 30 percent. Using the midpoint formula, what is the value of the price elasticity of supply?

1.35

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club memberships? A) -1.6 B) -0.625 C) 0.625 D) 1.6

1.6

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

1.62

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

1.62

The price elasticity of supply for umbrellas is 2. Suppose you're told that following a price increase, quantity supplied increased by 30 percent. What was the percentage change in price that brought this about? A) 60 percent B) 15 percent C) 6.7 percent D) impossible to determine without additional information

15 percent

Refer to Figure 6-3. Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f.

3.125

Suppose Barry is maximizing his utility from consuming used paperback novels and audio books. The price of a used novel = $4 and the price of an audio book = $8. If the marginal utility of the last novel was 32 units of utility (utils) what was the marginal utility of the last audio book purchased? Answers: a.2 utils b.12 utils c.16 utils d.64 utils

64 utils

Suppose Joe is maximizing total utility within in his budget constraint. If the price of the last pair of jeans purchased is $25 and it yield 100 units of extra satisfaction and the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be

80 units of utility

Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-4 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Refer to Figure 5-4. What is the economically efficient level of pollution reduction?

9 million tons

Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-4 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Refer to Figure 5-4. Suppose the emissions reduction target is currently established at 8 million tons. What is the area that represents the cost of eliminating an additional 1 million tons?

Suppose the value of the price elasticity of demand is -3. What does this mean? A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. D) A $1 increase in price causes quantity demanded to fall by 3 units.

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Suppose the value of the price elasticity of supply is 4. What does this mean?

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

Suppose the value of the price elasticity of supply is 4. What does this mean

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent

Suppose the value of the price elasticity of supply is 4. What does this mean? A) A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent. B) A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent. C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent. D) For every $1 increase in price, quantity supplied increases by 4 units.

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1% increase in the price of the good causes quantity demanded to decrease by 3%.

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. what does this mean?

A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.

Partnership

A business in which two or more persons combine their assets and skills

Sole proprietorship

A business owned and managed by a single individual

Corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant? A) Demand is likely to be perfectly inelastic. B) Demand is likely to be perfectly elastic. C) Demand is likely to be relatively elastic. D) Demand is likely to be relatively inelastic.

Demand is likely to be relatively inelastic.

Which of the following statements about the price elasticity of demand is correct?

Demand is more elastic in the long run than it is in the short run.

Which of the following statements about the price elasticity of demand is correct? A) The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good. B) The absolute value of the elasticity of demand ranges from zero to one. C) Demand is more elastic in the long run than it is in the short run. D) Demand is more elastic the smaller the percentage of the consumer's budget the item takes up.

Demand is more elastic in the long run than it is in the short run.

Which of the following statements about the price elasticity of demand is correct?

Demand is more elastic in the long run that it is in the short run.

Equilibrium producer surplus is

Downwards mirror image of consumer surplus

complements

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

Remain Constant

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

One implication of compensating differentials is that laws passed to protect the health and safety of workers may not make workers better off than they were prior to the passages of the laws. Why is this so? Answers: a.The principal-agent problem that exists in the workplace may cause workers to shirk more after the work environment becomes safer. b.Workers may suffer from cognitive dissonance, which means that the perception workers have that their jobs are hazardous is not true. c.In non-competitive markets, workers are unlikely to receive a compensating differential to compensate for jobs with extra risk. As a result, after the laws are passed their wages will not change. d.If the laws make the work environment safer, there is no reason to pay workers a compensating differential for the risk associated with their jobs.

If the laws make the work environment safer, there is no reason to pay workers a compensating differential for the risk associated with their jobs.

1.22

A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

Which of the following exemplifies the tragedy of the commons? A) Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. B) The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. C) Canadian citizens receive free universal health care administered by provincial governments. D) The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

Since 1950 there has been a substantial increase in wheat production. The increase in production has led to a decrease in the price of wheat because of which of the following factors? Answers: a.The absolute value of the price elasticity of demand for wheat is less than 1 and the income elasticity of demand for wheat is greater than 1. b.The absolute value of the price elasticity of demand for wheat is greater than 1 and wheat is a close substitute for other food products. c.The absolute value of the price elasticity of demand for wheat is less than 1 and the income elasticity of demand for wheat is low. d.The income elasticity of demand for wheat is high and wheat is an inferior good.

The absolute value of the price elasticity of demand for wheat is less than 1 and the income elasticity of demand for wheat is low.

positive if subscribers consider the services substitutes for each other.

The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be

Suppose the California Nurses Union successfully secured a 12 percent increase in the wages of registered nurses. If a hospital responds by reducing the quantity of registered nurses hired and increasing the quantity of physician's assistants hired, what conclusion can you draw

The cross-price elasticity of demand between registered nurses and physician's assistants is positive

Refer to Figure 6-4. Which of the following statements is true about the price elasticity of demand?

The elastic portion of a straight-line downward sloping demand curve corresponds to the segment above the midpoint.

Suppose that the government grants child care subsidies to mothers entering the labor force. what is likely to happen to the equilibrium wage and quantity of labor?

The equilibrium wage falls and the equilibrium quantity of labor rises

Suppose the following two events occur in the market for elementary school teachers...What is likely to happen to the equilibrium wage and quantity of teachers as a result of these two events?

The equilibrium wage rises and the effect on the equilibrium quantity of elementary school teachers is indeterminate

Suppose a chain of convenience stores reorganized its system of supplying its stores with food. This led to a sharp reduction in the number of trucks that the company had to use and increased the amount of fresh food on store shelves. Which of the following statements best describes the chain stores' actions? Answers: a.The change implemented is not an example of technological change because it did not require the use of new machinery of equipment. b.Technological change refers only to the introduction of new products or improvements to existing product. As such, the scenario described in the question is not technological change. c.The firm is able to produce more output (increase its sales) using fewer inputs (less trucks). Therefore, the chain of convenience stores has implemented a positive technological change. d.The scenario described is an example of management efficiency and not technological change. Essentially, the chain changes its way of operating its business.

The firm is able to produce more output (increase its sales) using fewer inputs (less trucks). Therefore, the chain of convenience stores has implemented a positive technological change.

How does the construction of a market demand curve for a private good differ from that for a public good? A) There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. B) There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.

positive

The price elasticity of an upward-sloping supply curve is always

The price of wheat has fallen since 1950. Which of the following explains this price decline? Answers: a.The price elasticity of demand is less than 1 (in absolute value) and the income elasticity of demand for wheat is low. b.The price elasticity of demand is greater than 1 (in absolute value) and the income elasticity of demand for wheat is low. c.The price elasticity of demand is less than 1 (in absolute value) and wheat is an inferior good. d.The price elasticity of demand is greater than 1 (in absolute value) and the income elasticity of demand for wheat is greater than 1.

The price elasticity of demand is less than 1 (in absolute value) and the income elasticity of demand for wheat is low.

Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil in the short term? A) The price elasticity of supply is likely to be very high and supply is inelastic. B) The price elasticity of supply is likely to be close to zero and supply is perfectly elastic. C) The price elasticity of supply is likely to be low and supply is highly inelastic. D) The price elasticity of supply is likely to be low and supply is highly elastic.

The price elasticity of supply is likely to be low and supply is highly inelastic.

With an effective price floor, producer surplus would be

The whole left triangle minus the consumer surplus and the deadweight loss

According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at -0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low?

There are few close substitutes for toothpaste

There are few close substitutes for toothpaste.

Which of the following is a common mistake consumers commit when they make decisions?

They fail to ignore sunk costs.

What are the 3 fundamental questions that any economy must answer

What will be produced, how will these goods or services be produced, and who receives them

the increase in quantity sold is large enough to offset the lower price.

When demand is elastic, a fall in price causes total revenue to rise because

the percentage change in quantity demanded exactly offsets the percentage change in price.

When demand is unit-elastic, a change in price causes total revenue to stay the same because

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is

Zero

Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity?

a and b only

Consider the following types of demand curves: a. a vertical demand curve b. a horizontal demand curve c. a linear downward-sloping demand curve Which of the demand curves listed exhibits a price elasticity of demand coefficient that remains constant along the demand curve?

a and b only

Consider the following types of demand curves: vertical demand curve horizontal demand curve linear downard-sloping demand curve Which of the demand curves listed exhibits a price elasticity of demand coefficient that remains constant along the demand curve?

a and b only

What is productive efficiency? Answers: a.a situation in which resources are allocated to their highest profit use b.a situation in which resources are allocated such that goods can be produced at their lowest possible average cost c.a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it d.a situation in which firms produce as much as possible

a situation in which resources are allocated such that goods can be produced at their lowest possible average cost

Which of the following items is likely to have the highest income elasticity of demand?

a vacation home in the Swiss Alps

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except

an increase in the demand for the good

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that

an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

Economists estimated that the price elasticity of beer is -0.3 and the income elasticity of beer is 0.09. This means that . . .

an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

Economists estimated that the price elasticity of beer is 0.23 and the income elasticity of beer is -0.09. This means that

an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, then an increase in tolls will result in

an increase in total revenue

If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product this product is Answers: a.an income elastic good. b.an inferior good. c.a necessity. d.a luxury good.

an inferior good.

Firms pay famous individuals to endorse their products because

apparently demand is affected not just by the number of people who use a product, but also the type of person that uses the product

private costs A) are borne by producers of a good while social costs are borne by government. B) are borne by consumers of a good while social costs are borne by government. C) are borne by producers of a good while social costs are borne by society at large. D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.

are borne by producers of a good while social costs are borne by society at large.

Sunk costs A) are costs associated with repairing something you already own. B) are important for optimal decision making. C) are costs that have already been paid and cannot be recaptured in any significant way. D) are costs that firms sink into marketing.

are costs that have already been paid and cannot be recaptured in any significant way.

Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 5-1 shows the paper market. Use this Figure to answer the following question(s). Refer to Figure 5-1. What is the deadweight loss from producing at the market equilibrium?

area E

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 Answers: a.only if the marginal benefit she receives is greater than $200 plus an acceptable profit margin. b.as long as the marginal benefit she receives is just equal to or greater than $200. c.as long as the marginal cost does not rise. d.until the marginal benefit she receives reaches zero.

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

Perfectly competitive firm maximizes profit in the short run

at the level of output where marginal revenue equals marginal cost

People make optimal decisions

at the margin

If the marginal cost curve is below the average variable cost curve, then the...

average variable cost must be downward sloping

If you burn your trash in the back yard in spite of regulations against it, then you are A) acting economically irrationally and creating a social cost. B) avoiding the private costs associated with disposing your trash some other way and creating a social cost. C) acting rationally and creating a positive externality. D) saving landfill space and creating a social benefit.

avoiding the private costs associated with disposing your trash some other way and creating a social cost.

Compare two situations. (A) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B) A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that Answers: a.bargaining between the firm and the victims of the air pollution caused by the firm will result in little reduction of pollution in either situation (A) or (B) because the firm has greater economic and political power than the victims. b.bargaining between the firm and the victims of the air pollution caused by the firm would lead to a greater reduction in pollution in situation (A) than situation (B). c.bargaining between the firm and the victims of the air pollution caused by the firm would lead to a smaller reduction in pollution in situation (A) than situation (B). d.bargaining between the firm and the victims of the air pollution caused by the firm would lead to an equal reduction in pollution in situation (A) and situation (B).

bargaining between the firm and the victims of the air pollution caused by the firm would lead to an equal reduction in pollution in situation (A) and situation (B).

Assume that a monopolist practices perfect price discrimination. The firm's marginal revenue curve will Answers: a.will lie below its demand curve. b.be perfectly elastic. c.be equal to its demand curve. d.will be perfectly inelastic.

be equal to its demand curve.

If the cross-price elasticity of demand for goods A and B is a negative value, this means the 2 goods are

complements

If the EPA does implement its plan to enact tougher limits on smog-forming ozone, the quantity of product being produced by the polluting firms will ________ and the product price will ________.

decrease; increase

An article in the Wall street journal & laser eye surgeries...these two developments

decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries

Figure 5-7 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Refer to Figure 5-7. Identify the area that shows the deadweight loss from overfishing.

ekh

A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is

elastic

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 orchids, the demand for her orchids is

elastic

If at a price of $24, Susie sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is . . .

elastic

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is

elastic

Oligopoly has___ number of firms that sell a(n) ___ product with a ___ ease of entry

few, identical or differentiated, low

For many products, such as fast foods, a variety of prices can be found, but sellers with higher prices can expect to sell their products because Answers: a.arbitrage will quickly eliminate price differences. b.their demand is perfectly inelastic. c.consumers are not sensitive to prices. d.firms differentiate products in many ways, for example, higher priced fast food restaurants may offer better service.

firms differentiate products in many ways, for example, higher priced fast food restaurants may offer better service.

Which of the following is an example of a product that is nonexcludable and rivalrous? A) free concert (with limited seating) in a park B) national defense C) automobiles D) oil

free concert (with limited seating) in a park

Which of the following pairs of goods would be an example of complements

gas and automobiles

Jason gets utility out of a skateboard since the skateboard...

generates enjoyment or satisfaction

Overuse of a common resource may be avoided by all of the following methods except

government taking over ownership of all private common resources

Francis Crawford recently received a 20 percent wage increase and desires to work less. We can conclude that at his current wage his supply of labor curve Selected Answer: Correct has a negative slope. Answers: is U-shaped. has a positive slope. is vertical. Correct has a negative slope. Francis Crawford recently received a 20 percent wage increase and desires to work less. We can conclude that at his current wage his supply of labor curve Answers: a.is U-shaped. b.has a positive slope. c.is vertical. d.has a negative slope.

has a negative slope.

Rational ignorance Answers: a.helps to explain why rent seeking by special interest groups occurs. b.refers to attempts by special interests to use government action to make themselves better off at the expense of others. c.explains the Arrow impossibility theorem. d.explains why consumers ignore sunk costs when they vote.

helps to explain why rent seeking by special interest groups occurs.

A perfectly elastic demand curve is

horizontal

The demand curve for an individual seller's product in perfect competition is Answers: a.the same as market demand. b.downward sloping. c.vertical. d.horizontal.

horizontal.

Market supply is found by Answers: a.vertically summing the relevant part of each individual producer's marginal cost curve. b.horizontally summing the relevant part of each individual producer's marginal cost curve. c.vertically summing each individual producer's average total cost curve. d.horizontally summing each individual producer's average total cost curve.

horizontally summing the relevant part of each individual producer's marginal cost curve.

Income elasticity measures A) how a good's quantity demanded responds to change in the goods price. B) how a good's quantity demanded responds to change in the price of another good. C) how a good's quantity demanded responds to change in buyers' incomes. D) how a good's quantity demanded responds to producers' incomes.

how a good's quantity demanded responds to change in buyers' incomes.

Income elasticity measures . . .

how a good's quantity demanded responds to change in buyers' incomes.

The income elasticity of demand measures

how much the quantity demanded responds to changes in consumers' income.

The cross-price elasticity of demand measures

how much the quantity demanded of one good responds to the price of another good.

Price elasticity of demand measures

how much the quantity demanded responds to changes in the price.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price

Grace Matuski finally got blue shoes...she went back to wearing old ones because more comfortable...won't give them away. Grace's behavior

ignores the fact that purchase price is now a sunk cost and has no bearing on whether she should give them away or not

The De Beers Company blocked competition Answers: a.in the diamond market by controlling the output of most of the world's diamond mines. b.by controlling the supply of most of the world's high-quality bauxite, the mineral used to produce aluminum. c.in the market for fresh and frozen cranberries because it controls about 80 percent of the cranberry crop. d.because it has lower costs of producing than other department stores due to economies of scale.

in the diamond market by controlling the output of most of the world's diamond mines.

Studies have shown that drinking one glass of red wine per day may help prevent heart disease. Assume this is true, and favorable weather has increased the grape harvest of California vineyards. In the market for red wine, these two developments would Answers: a.increase demand and decrease supply, resulting in an increase in the equilibrium quantity and a decrease in the equilibrium price of red wine. b.increase demand and increase supply resulting in an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of red wine. c.increase demand and increase supply, resulting in an increase in the equilibrium price and an uncertain effect on the equilibrium quantity of red wine. d.increase demand and increase supply, resulting in an increase in both the equilibrium price and the equilibrium quantity of red wine.

increase demand and increase supply resulting in an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of red wine.

In September 2012, the average price of gasoline in the United States was $3.91 per gallon, and consumers purchased nearly 5 percent less gasoline than they had during September 2011, when the average price of gasoline was $3.66 per gallon. Based on these figures, when the price of gasoline rose from $3.66 to $3.91 per gallon, total revenue . . .

increased.

The demand for labor is described as a derived demand because Selected Answer: Answers: a.it is derived by workers seeking to earn income to fund the consumption of goods and services. b.it is derived from the demand for products that use labor in the production process. c.it is derived by producers seeking to make profits by starting new businesses. d.it is derived from government institutions which rely on labor markets for the purpose of raising tax revenue.

it is derived from the demand for products that use labor in the production process.

Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers?

it is perfectly elastic

Seth is a competitive body builder. He says he has to have his 12-oz package of protein powder to "feed his muscles" every day. On the basis of this information, what can you can conclude about his price elasticity of demand for protein powder?

it is perfectly inelastic

which is considered a negative externality? A) cleaning up the sidewalk on your block B) graduating from college C) repainting the house you live in to improve its appearance D) keeping a junked car parked on your front lawn

keeping a junked car parked on your front lawn

With an effective price flow, quantity demanded would be

leftwards point, on demand curve where it hits the price floor

In economics, the term ________ means "additional" or "extra." Answers: a.allocative b.marginal c.equity d.optimal

marginal

The existence of a surplus in a market will cause

market price to fall and quantity supplied to decrease

The production possibilities frontier shows the (blank) combinations of 2 products that may be produced in a particular time period with available resources.

maximum attainable

Cross Elasticity

measures the responsiveness of demand for one good to changes in the price of a related good - either a substitute or a complement

In most markets, supply is

more elastic in the long run than in the short run

When a negative externality exists, the free market produces...

more than the economically efficient output level

When a negative externality exists, the private market produces Answers: a.more than the economically efficient output level. b.less than the economically efficient output level. c.products at a low opportunity cost. d.products at a high opportunity cost.

more than the economically efficient output level.

When a negative externality exists, the private market produces A) more than the economically efficient output level. B) less than the economically efficient output level. C) products at a low opportunity cost. D) products at a high opportunity cost.

more than the economically efficient output level.

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is

negative, so Sefton considers potatoes to be an inferior good

negative, so Sefton considers potatoes to be an inferior good.

Which of the following wood products would have the most elastic demand

new houses

The Arrow impossibility theorem states that Selected Answer: Answers: a.it is impossible to separate corporate desires from public bureaucracy. b.no system of voting can be devised that will ensure a 100 percent voter turnout. c.it is impossible for a majority voting system not to consistently represent the preferences of voters. d.no system of voting can be devised that will always consistently represent the underlying preferences of voters.

no system of voting can be devised that will always consistently represent the underlying preferences of voters.

IGiven: Ed = 0 a perfectly inelastic demand. if a 100$ tax was placed on production, how much of it would truly be paid by the producer?

none at all, since the buyer has no choice, the burden is passed completely to him in the form of a higher market price

Suppose a competitive firm is paying wage of $12/hr and sells its product at $3/unit. Assume that labor is the only input. If hiring another worked would increase output by three units per hour, then to maximize profits the firm should

not hire an additional worker

Private producers have no incentive to provide public goods because Answers: a.the government subsidy granted is usually insufficient to enable private producers to make a profit. b.production of huge quantities of public goods entails huge fixed costs. c.they cannot avoid the tragedy of the commons. d.once produced, it will not be possible to exclude those who do not pay for the good.

once produced, it will not be possible to exclude those who do not pay for the good.

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is

one that sells a luxury good

At a price of $8 a dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 a dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is . . .

perfectly elastic

If firms do not increase their quantity supplied when price changes, then supply is . . .

perfectly inelastic

Which of the following is an example of a positive externality?

planting trees along a sidewalk which add beauty and creates shade

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transportation is

positive

For people who live near bus route, subway station, etc, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transpiration is

positive

The price elasticity of an upward-sloping supply curve is always

positive

A firm increased its production and sales because the firm's manager rearranged the layout of his factory floor. This is an example of A) investment in human capital. B) economies of scale. C) positive technological change. D) inspired management.

positive technological change.

The price elasticity of an upward-sloping supply curve is always . . .

positive.

If demand increases and supply decreases, then equilibrium

price rises

If demand decreases, then equilibrium

price rises and quantity falls

Total revenue equals

price times quantity sold

A market demand curve reflects the

private benefits of consuming a product

If a producer is willing to sell a unit of output at $15 and the market price is $20, the $5 difference is

producer surplus

The area above the market supply curve and below the market price is equal to the...

producer surplus

If the EPA does implement its plan to enact tougher limits on smog-forming ozone, ________ would bear more of the external cost of pollution and the gap between the marginal private cost of pollution and the marginal social cost of pollution would ________.

producers; narrow

Mr. Peabody chooses to invest in companies that produce goods and services at the lowest possible cost. Mr. Peabody is investing in companies that are Answers: a.allocatively efficient. b.productively efficient. c.guaranteed to make a profit. d.All of these.

productively efficient.

If the United States and other developed nations pay the cost of reducing public emissions, developing nations such as China could benefit from the reduction while not contributing to it. In this sense, one can think of reducing carbon emissions as being like a

public good

public good.

Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption? A) public goods B) private goods C) quasi-public goods D) common resources

public goods

If demand and supply decrease, then equilibrium

quantity falls

If demand and supply increase, then equilibrium

quantity rises

The 2005 European Union Emission Trading Scheme is an agreement among 24 European Union nations to

reduce carbon dioxide emissions

Economists argue that the level of pollution should be Answers: a.reduced completely to zero because by definition, it is a negative external effect. b.ignored because it has always been present since the beginning of history. c.reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. d.best determined by elected officials who can speak on behalf of the public.

reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society.

Deadweight Loss

refers to the reduction in economic surplus resulting from not being in competitive equilibrium

If a firm raised its price and discovered that its total revenue fell, then the demand for its product is

relatively elastic

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

remain constant

If the demand for a lifesaving drug were perfectly inelastic and the price doubled, the quantity demanded would

remain constant

Which of the following is an implicit cost of production? A) interest paid on a loan to a bank B) wages paid to labor plus the cost of carrying benefits for workers C) the utility bill paid to water, electricity, and natural gas companies D) rent that could have been earned on a building owned and used by the firm

rent that could have been earned on a building owned and used by the firm

With an effective price floor, quantity supplied would be

rightwards point, on supply curve where it hits the price floor

The situation that occurs when one person's consuming a unit of a good means no one else can consume it

rivalry

If the price elasticity of demand for a good is unitary and price rises by 20 %, what happens to sales of the good?

sales fall by 20%

If a good's income elasticity of demand is positive, this means

sales of the good increase when buyers' incomes increase

All of the following cost curves are U-shaped except one. Which curve is not U-shaped? Answers: a.the marginal cost curve b.the average fixed cost curve c.the average total cost curve d.the average variable cost curve

the average fixed cost curve

The income effect of a price change refers to Answers: a.the change in demand that occurs when consumer income changes. b.the change in the quantity demanded that results from a change in price, making the good more or less expensive relative to other goods, holding everything else constant. c.the change in demand that occurs when both income and price change. d.the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant.

the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant.

By definition, economics is the study of...

the choices people make to attain their goals, given their scarce resources

All Gini coefficients must lie between 0 and 1. The lower the value Selected Answer: Correct the closer the income distribution is to being equal. Answers: a.the more unequal the income distribution. b.the closer the income distribution is to being equal. c.the lower the degree of poverty according to the federal government's definition of poverty. d.the greater the degree of poverty.

the closer the income distribution is to being equal.

If a firm is in an anti-trust court case accused of monopolizing a product, the firm would hire an economist to show

the cross-price elasticity of demand between the firm's food and another is positive

Suppose a decrease in the supply of bottled water results in a decrease in revenue. This indicates

the demand for bottled water is elastic in the price range considered

Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that Answers: a.the law of demand has been violated. b.the number of tarot card readers has increased. c.the demand for tarot card readers has increased. d.tarot card readers are deliberately charging high prices because they provide services for superstitious clients.

the demand for tarot card readers has increased.

A major problem with using tradable emissions allowance system to control pollution is

the difficulty in determining the emissions target

The principle of opportunity cost is that...

the economic cost of using a factor of production is the alternative use of that factor that is given up

A firm's primary interest when it hires an additional worker is Answers: a.the extra revenue the firm realizes from hiring that worker. b.the cost of hiring the additional worker. c.whether or not the new worker gets along with the firm's existing workers. d.how the average output of the firm will be affected by this new worker.

the extra revenue the firm realizes from hiring that worker.

The law of diminishing marginal utility states that

the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.

The substitution effect of an increase in the price of Raisin Bran refers to Answers: a.the decrease in the demand for Raisin Bran when its price rises. b.the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. c.the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant. d.the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, cause consumers to buy less Raisin Bran.

the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, cause consumers to buy less Raisin Bran.

Consider the following economic agents: Who, in a centrally planned economy, decides what goods and services will be produced with the scarce resources available in that economy? Answers: a.the government b.producers c.consumers d.consumers and producers e.the government, consumers and producers

the government

The income effect of a wage increase is observed when Answers: a.leisure's higher opportunity cost causes workers to take more leisure and work less. b.leisure's higher opportunity cost causes workers to take less leisure and work more. c.the higher wage income causes workers to take more leisure and work less. d.the higher wage income causes workers to take less leisure and work more.

the higher wage income causes workers to take more leisure and work less.

When demand is elastic, a fall in price causes total revenue to rise because

the increase in quantity sold is large enough to offset the lower price.

When demand is elastic, a fall in price causes total revenue to rise because . . .

the increase in quantity sold is large enough to offset the lower price.

Along a downward-sloping linear demand curve,

the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.

If Dan buys cracker jacks and peanuts rationally, then...

the marginal utility per dollar spent on cracker jacks and peanuts will be equal

The economic impact of Smith's invisible hand is

the market provides consumers with what they want

the market supply curve that reflects private cost

Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of waste water into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 5-1 shows the paper market. Use this Figure to answer the following question(s). Refer to Figure 5-1. What does S2 represent?

the market supply curve that reflects social cost

The production function shows A) the total cost of producing a given quantity of output. B) the maximum output that can be produced from each possible quantity of inputs. C) the technology used to produce output. D) the incremental output gained by improving the production process.

the maximum output that can be produced from each possible quantity of inputs.

Price elasticity of demand is calculated as

the percentage change in quantity demanded divided by the percentage change in price.

The price elasticity of demand is equal to

the percentage change in quantity demanded divided by the percentage change in price

If the demand for iPods is price elastic, then

the percentage change in quantity demanded is greater than the percentage change in price (in absolute value).

If the demand for cell phone service is inelastic, then

the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

The price elasticity of supply is equal to

the percentage change in quantity supplied divided by the percentage change in price.

The price elasticity of supply is equal to A) the value of the slope of the supply curve. B) the change in quantity supplied divided by the change in price. C) the percentage change in price divided by the percentage change in quantity supplied. D) the percentage change in quantity supplied divided by the percentage change in price.

the percentage change in quantity supplied divided by the percentage change in price.

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing Answers: a.the percentage change in quantity demanded of Coca-Cola by the percentage change in the quantity demanded of Pepsi-Cola. b.the percentage change in the price of Pepsi-Cola by the percentage change in quantity demanded of Coca-Cola. c.the percentage change in the price of Coca-Cola by the percentage change in the price of Pepsi-Cola. d.the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

The attainable production points on a production possibility curve are Answers: a.the horizontal and vertical intercepts. b.the points along the production possibilities frontier. c.the points outside the area enclosed by the production possibilities frontier. d.the points along and inside the production possibility frontier.

the points along and inside the production possibility frontier.

Refer to Figure 6-4 At the midpoint of the demand curve, in absolute value,

the price elasticity coefficient is one

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then Answers: a.the price elasticity of demand for teapots is greater than 1 in absolute value. b.the demand for teapots is unit-elastic. c.the price elasticity of demand for teapots is equal to zero. d.the price elasticity of demand for teapots is less than 1 in absolute value.

the price elasticity of demand for teapots is greater than 1 in absolute value.

The most profitable price for a monopolist is Answers: a.the highest price a consumer is willing to pay for the monopolist's product. b.the price at which demand is unit-elastic. c.a price that maximizes the quantity sold. d.the price for which marginal revenue equals marginal cost.

the price for which marginal revenue equals marginal cost.

The income effect of a price change refers to the impact of a change in

the price of a good on a consumer's purchasing power

Total revenue is equal to

the price of a product multiplied by the number of units of the product sold

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change A) income and hold everything else constant. B) tastes and preferences and hold everything else constant. C) the price of the product and hold everything else constant. D) the price of a close substitute and hold everything else constant.

the price of the product and hold everything else constant.

Adam Smith's invisible hand refers to

the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole

Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded and total revenue when price increases?

the quantity demanded does not change but total revenue increases

If the price of SUVs falls, then:

the quantity supplied of automobiles will fall

An individual's labor supply curve shows Selected Answer: Answers: a.the relationship between the quantity of hours worked and total income earned by that individual. b.the relationship between wages and the quantity of labor that a firm is willing to employ. c.the relationship between wages and the quantity of labor that she is willing to supply. d.the maximum wage rates offered to that individual by various potential employers.

the relationship between wages and the quantity of labor that she is willing to supply.

The income elasticity of demand measures Answers: a.the responsiveness of quantity demanded to changes in income. b.how a consumer's purchasing power is affected by a change in the price of a product. c.the percentage change in the price of a product divided by the percentage change in consumer income. d.the income effect of a change in price.

the responsiveness of quantity demanded to changes in income.

Which of the following is not a determinant of a good's price elasticity of demand?

the slope of the demand curve

What is behavioral economics? A) the study of how people make wealth-maximizing decisions B) the study of how people behave in the face of scarcity C) the study of situations in which people act in ways that are not economically rational D) the study of how people make decisions at the margin

the study of situations in which people act in ways that are not economically rational

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit,

the supply curve shifted to the left resulting in an increase in the equilibrium price

A free market fails when Answers: a.there is government intervention. b.there is an external effect in either production, consumption, or both. c.firms that produce goods which create positive externalities go bankrupt. d.firms that produce goods which create negative externalities earn high profits.

there is an external effect in either production, consumption, or both.

Refer to figure 3-5. At a price of $15

there would be a surplus of 4 unites

Perfectly competitive firm maximizes profit in the long run

they don't. Profit in the short run leads to new firms that eliminate the profit in the long run.

Suppose $1 billion is available in the budget and Congress is considering allocating the funds to one of the following three alternatives: a. subsidies for education b. research on Alzheimer's c. increased border security If voters prefer a to b and b to c, then if preferences are transitive, Answers: a.they should prefer c to a. b.they should be indifferent between a and c. c.they should prefer a to c. d.it is not always possible to rank voters' preferences between a and c.

they should prefer a to c.

The midpoint formula is used to measure the elasticity of demand between two points on a demand curve

to ensure that we have only one value of the price elasticity of demand between two points on a demand curve

Economists assume that rational people do all of the following except Answers: a.use all available information as they act to achieve their goals. b.undertake activities that benefit others and hurt themselves. c.weigh the benefits and costs of all possible alternative actions. d.respond to economic incentives.

undertake activities that benefit others and hurt themselves

Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5-6. Refer to Figure 5-6. What is the value of the net gain to society as a result of subsidizing chicken pox vaccinations?

value equal to the area of FEG

Costs that change as output changes

variable costs

A demand curve which is [blank] represents perfectly inelastic demand, and a demand curve which is [blank] represents inelastic demand.

vertical; downward sloping

Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________.

vertical; downward sloping

Along a downward sloping linear demand curve, total revenue is the greatest . . .

where demand is unit elastic.

Along a downward-sloping, linear demand curve, total revenue is the greatest

where demand is unit elastic.

If the percentage change in price is 20 percent, and the elasticity of demand is -5, then the quantity demanded

will decrease by 100%

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

will decrease by 45 percent

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

will decrease by 45 percent.

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded A) will increase by 45 percent. B) will increase by 5 percent. C) will decrease by 45 percent. D) will decrease by 5 percent.

will decrease by 45 percent.

If the percentage increase in price is 15% and the value of the price elasticity of demand is -3, then quantity demanded . . .

will decrease by 45%.

If a firm shuts down it a.will suffer a loss equal to its fixed costs. b.will produce nothing but must pay its variable costs. c.will produce nothing but must pay its fixed and variable costs. d.will earn enough revenue to cover its variable costs but not all of its fixed costs.

will suffer a loss equal to its fixed costs. Answers:

Studies show that income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21. This is indicates that . . .

wine and spirits are luxury goods.

Inferior Goods

with income elasticities that are negative

Normal Goods

with income elasticities that are positive

The minimum wage law has which effect

workers are willing to offer a larger quantity of labor ffor sale employers are willing to hire a smaller quantity of labor a surplus of labor at the minimum wage creates higher unemployment

Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. Should Allison continue to offer the 3-color pinstripe application? Answers: a.yes, she still makes a profit by selling the 3-color application. b.yes, but only if she lowers the price of the 1-color application c.no, her marginal benefit is less than her marginal cost d.More information is needed for Allison to make this decision.

yes, she still makes a profit by selling the 3-color application.

A product is considered to be nonexcludable if

you cannot keep those who did not pay for the item from enjoying its benefits

A product is considered to be nonexcludable if A) you can keep those who did not pay for the item from enjoying its benefits. B) you cannot keep those who did not pay for the item from enjoying its benefits. C) your consumption of the product reduces the quantity available for others to consume. D) it is jointly owned by all members of a community.

you cannot keep those who did not pay for the item from enjoying its benefits.

If profit equals revenue, then cost must equal

zero

Consumer Surplus

"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket." Describes the concept of

Suppose your expenses for this term are as follows: tuition: $10,000, room and board: $6,000, books and other educational supplies: $1,000. Further, during the term, you can only work part-time and earn $8,000 instead of your full-time salary of $20,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college? Answers: a.$11,000 b.$17,000 c.$23,000 d.$29,000

$23,000

If the market price is $25, the average revenue of selling five units is Answers: a.$5. b.$12.50. c.$25. d.$125.

$25.

Arthur buys a new cell phone for $150. He receives consumer surplus of $150 from the purchase. How much does Arthur value his cell phone? Answers: a.$0 b.$150 c.$225 d.$300

$300

If the market price is $40, the average revenue of selling five units is Incorrect $200. Answers: a.$8. b.$20. c.$40. d.$200.

$40.

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $45,500 (which was earning $1,500 interest per year) to rent a salon, hire a part-time assistant, and to buy equipment and hairdressing material. Based on this information, what is the amount of her implicit costs in her first year as a hairdresser? A) $80,000 B) $70,000 C) $42,000 D) $41,500

$41,500

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $45,500 (which was earning $1,500 interest per year) to rent a salon, hire a part-time assistant, and to buy equipment and hairdressing material. Based on this information, what is the amount of her explicit costs in her first year as a hairdresser? A) $45,000 B) $45,500 C) $47,000 D) $87,000

$45,500

Example of Cross Elasticity of Demand

% Qd of good A __________________ % Price of good B

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean

(WRONG! A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.) A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption

In May 2011, the average price of gasoline in the United States was $3.76 per gallon and consumers bought 5 percent less gasoline than they had during May 2010, when the average price was $2.79 per gallon. Based on these numbers, what was the price elasticity of demand for gasoline from May 2010 to May 2011?

-0.33

If the price of gasoline increases 30% and this causes the quantity demanded to fall 15%, the elasticity of demand is equal to

-0.5 (Quantity/price)

If 20 units are sold at a price of $50 and 30 units are sold at a price of $40, then the elasticity of demand calculated using the midpoint formula is

-1.8

Which of the following statements about elasticity of demand is correct? -Elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good -The absolute value of the elasticity of demand ranges from 0-1 -Demand is more elastic in a long time period than it is in a short time period -Demand is more elastic the smaller percentage of the consumer's budget the item takes up

-Demand is more elastic in a long time period than it is in a short time period

Consider an industry that is made up of nine firms each with a market share (percent of sales) as follows: a. Firm A: 30% b. Firm B: 20% c. Firms C, D and E: 10% each d. Firms F, G, H and J: 5% each What is the value of the Herfindahl-Hirschman Index and how is the industry categorized? Answers: a.1700; moderately concentrated b.1425; moderately concentrated c.1600; moderately concentrated d.2600; highly concentrated

.1700; moderately concentrated

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce. A) -0.66 B) 0.5 C) 1.5 D) 2

0.5

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.

0.6

Jaycee Jeans sold 40 pairs of jeans at a price of $40. when it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.

0.6

At a price of $100, Beach side Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula.

0.9

Suppose the price of gasoline is $3.50 per gallon, the quantity of gasoline demanded is 150 billion gallons per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon, which increases the price of gasoline by $0.75 per gallon. What is the new equilibrium quantity of gasoline demanded after the tax is imposed? Answers: a.109.72 billion gallons per year b.127.25 billion gallons per year c.148.27 billion gallons per year d.161.61 billion gallons per year

148.27 billion gallons per year

Refer to Figure 6-7. Use the midpoint formula to calculate the value of the price elasticity of supply between g and h?

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is A) 2 chairs. B) 3 chairs. C) 4 chairs. D) 38 chairs.

2 chairs

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range?

2.43

The absolute value of the price elasticity of demand for Stork ice cream is 4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded

2.5

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded? A) 40 percent B) 25 percent C) 2.5 percent

2.5 percent

Suppose a hurricane decreased supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 to 240 tons. what is the absolute value of the price elasticity of demand

2.69

The price elasticity of the supply of teenage labor services is approximately 1.36. Suppose the minimum wage rises from $7.25 per hour to $8.75. Using the midpoint formula, calculate the approximately change in the quantity suppled of teenage labor . . .

25.5%

Assume that the price elasticity of demand for gasoline is -0.06. If the government tax causes the price of gasoline to increase by 50%, what will be the decrease in the quantity of gasoline demanded?

3.0%

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer.

5 utility units

If Ey = 2, then by what % must incomes of consumers rise in order to double sales of this good?

50%

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be A) 2,000 units of utility. B) 500 units of utility. C) 100 units of utility. D) 80 units of utility.

80 units of utility.

Suppose the value of the price elasticity of demand is -3. What does this mean?

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Which of the following is an example of positive technological change? A) A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards. B) A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. C) A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases. D) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

Limited Liability

A form of business ownership in which the owners are liable only up to the amount of their individual investments.

Studies show that the income elasticity of demand for wine is approximately five. What does this mean?

A one percent increase in income leads to a five percent increase in wine consumption

Studies show that the income elasticity of demand for wine is approximately five. What does this mean? A) A one percent decrease in the price of wine leads to a five percent increase in wine consumption. B) A one percent increase in income leads to a five percent increase in wine consumption. C) A five percent increase in income leads to a one percent increase in wine consumption. D) Wine is a relatively elastic good.

A one percent increase in income leads to a five percent increase in wine consumption.

Studies show that the income elasticity of demand for wine is approximately five. What does this mean?

A one point increase in income leads to a five percent increase in wine consumption.

Elastic

With an effective price floor, there would be

A surplus between the two points on the price floor

Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities? A) Ronald Coase B) A. C. Pigou C) Adam Smith D) David Hume

A. C. Pigou

If Ed = 1, then demand is said to be unit elastic

An increase in price will have no impact on total revenue • A decrease in price will have no impact on total revenue

If Ed < 1, then demand is said to be inelastic

An increase in price will increase total revenue • A decrease in price will decrease total revenue

If Ed > 1, then demand is said to be elastic

An increase in price will reduce total revenue • A decrease in price will increase total revenue

Asset

Anything of value that is owned

Linesha, a college student working part-time receives a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information . . .

Blu-ray discs are normal goods and DVDs are inferior goods.

Which of the following goods would most likely have the most inelastic demand

Bread

Refer to figure 10-4. which of the following statements is true?

Bundles r and w are not affordable

A perfectly elastic demand curve is shown

By a straight horizontal demand line (left to right)

A perfectly inelastic demand curve is shown

By a straight vertical demand line (top to bottom)

0.5

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

Which of the following forces productive efficiency?

Competition among sellers

Who ultimately decides what goods or services will be produced in a market economy?

Consumers

the marginal benefit of consuming a product is equal to its price

Consumers are willing to purchase a product up to the point where

Goods which are substitutes

Cross Elasticity will have a positive sign (positive relationship)

Goods which are complements

Cross Elasticity will have negative sign (inverse relationship)

Linesha, a college student working part-time receives a wage increases. An avid movie buff, she increased her purchases of DVDs and reduced her purchases of video cassettes. Based on this information,

DVDs are normal good and video cassettes are inferior goods

Assume that you own a small boutique hotel. In an attempt to raise revenue you reduce your rates by 20%. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?

Demand is inelastic.

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

Demand is likely to be relatively inelastic.

he marginal benefit equals the marginal cost from the last unit sold.

Economic efficiency in a competitive market is achieved when

the marginal benefit equals the marginal cost from the last unit sold.

Economic efficiency in a competitive market is achieved when

a black market

Economists refer a to a market where buying and selling take place at prices that violate government price regulations as

Elastic

In producing goods, which input is the last to be paid

Entrepreneurs

Which of the following characteristics is common to monopolistic competition and perfect competition? Answers: a.Firms produce identical products. b.Entry barriers into the industry are low. c.Each firm faces a downward -sloping demand curve. d.Firms take market prices as given.

Entry barriers into the industry are low.

What describes what occurs at a market equilibrium?

Everyone who wants to buy at the current price can do Every seller who is willing to sell at the current price can do so The market is cleared, there is no surplus/shortage

relatively inelastic

Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Source: Jonathan D. Glater and Alan Finder, "In New Twist on Tuition Game, Popularity Rises With the Price," New York Times, December 12, 2006 Based on the information above, the demand for Hendrix College education is

The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and bettwe farm equipment which increases in productivity?

Farm revenues decrease.

If George can mow 10 lawns and cultivate 5 gardens a day, and Jack can mow 6 lawns or cultivate 4 gardens a day, then

George has an absolute advantage in both lawn mowing and garden cultivating

Refer to Figure 6-5. Identify the two goods which are substitutes.

Good X and Good Z

Income elasticity of demand

Higher income raises the quantity demanded for normal goods but lowers the quantity demanded for inferior goods.

Which of the following could explain why the demand for table salt is inelastic?

Households devote a very small portion of their income to salt purchases

Which of the following could explain why the demand for table salt is inelastic?

Households devote a very small portion of their incomes to salt purchases.

the two brands of detergent are close substitutes.

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that

Which of the following is a positive economic statement? Answers: a.The standard of living in the United States is too low. b.If the price of beef falls, a larger quantity of it will be bought. c.The government should implement a national consumption tax. d.The U.S. government should increase regulations on the banking industry.

If the price of beef falls, a larger quantity of it will be bought.

puts a legal limit on the rent that landlords can charge for an apartment.

In New York City, about 1 million apartments are subject to rent control by the local government. Rent control

landlords have an incentive to rent more apartments than they would without rent control

In a city with rent-controlled apartments, all of the following are true except

must lie below the free market equilibrium price.

In order to be binding, a price ceiling

Formula of Income elasticity of demand

Income elasticity of demand = Percentage change in quantity demanded/Percentage change in income

If a good has a negative income elasticity of demand, this indicates that the good is

Inferior

Which of the following demonstrates the endowment effect?

Isabella was not willing to part with her "George Clooney" poster although she was offered $100 for it, a sum greater than what it costs to purchase another such poster

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government is likely to use to determine what quantity of a public good should be supplied? A) It conducts public surveys to determine if consumers want the product. B) It hires economists to estimate the market demand for the product. C) It takes a vote in Congress. D) It evaluates the costs and benefits of producing the good

It evaluates the costs and benefits of producing the good

If the price elasticity of demand for canned soup is estimated at 1.62. What happens to sales revenue if the price of canned soup rises?

It falls

With the increased usage of cell phone serves, what has happened to the price elasticity of demand for land-line telephone services

It has become more price elastic

With the increased usage of cell phone services, what has happened to the price elasticity of demand for land-line telephone services?

It has become more price elastic

Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve

It is elastic at high prices and inelastic at low prices

It is perfectly elastic

Seth is a competitive body builder. He says he has to have his 12-oz. package of protein powder to "feed his muscles" every day. On the basis of this information, what can you conclude about his price elasticity?

It is perfectly inelastic.

Refer to figure 10-2. The Bobsey twins both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences?

Laurel enjoys romantic comedies more than Hardy

An effective price floor would be

Line above market equilibrium

$325

Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system?

If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this goods (MU/P), and what should Callum do?

MU/P has decreased and Callum should buy less of this good.

If a grocery store sells a bag of potatoes for $2.30, what do economists call the money received in payment?

Marginal revenue for the store

Which of the following types of goods has the most inelastic demand?

Necessities

Types of Goods

Normal Goods and Inferior Goods.

Which of the following statements about the economic decisions consumers, firms, and the government have to make is false? Answers: a.Governments face the problem of scarcity in making economic decisions. b.Only individuals face scarcity; firms and the government do not. c.Both firms and individuals face scarcity. d.Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Only individuals face scarcity; firms and the government do not

Refer to figure 3-7. Assume that the graphs in this figure represent the demand and supply curves for women's clothing. Which panel best describes what happens in this market when the wages of seamstresses rise?

Panel (b)

$75

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

Figure 5-2 shows a market with a negative externality. Refer to Figure 5-2. The marginal benefit of the last unit produced is represented by the price

the percentage change in quantity supplied divided by the percentage change in price.

Price elasticity of supply is used to gauge

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-5 illustrates the situation in the toilet paper market. Refer to Figure 5-5. The efficient output is

Refer to Figure 5-3. The efficient output level is

Which of the following statements is correct?

Short-run profits may be given up to increase long run profits.

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

Suppose the value of the price elasticity of supply is 4. What does this mean?

Once a product becomes established, network externalities may create _______ costs that make consumers reluctant to buy a new product with better technology.

Switching

above; below

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

Which of the following would cause an increase in the equilibrium wage? Selected Answer: Correct The demand for labor increases faster than the supply of labor. Answers: a.The supply of jobs increases more than the demand for jobs. b.The demand for labor increases faster than the supply of labor. c.The supply of labor increases more than the demand for labor. d.The supply of labor increases and the demand for labor decreases.

The demand for labor increases faster than the supply of labor.

How will an increase in labor productivity affect equilibrium in the labor market? Answers: a.The demand for jobs will increase and the equilibrium wage and quantity of labor will increase. b.The supply of labor will increase and the equilibrium wage and quantity of labor will increase. c.The demand for labor will increase and the equilibrium wage and quantity of labor will increase. d.The demand for labor will decrease because fewer workers will be needed to produce the same output. The equilibrium wage and quantity of labor will decrease.

The demand for labor will increase and the equilibrium wage and quantity of labor will increase.

What would happen in the red apple market if the price of golden apples decreases?

The demand for red apples would fall

Table 6-1 Price Quantity $35 40 25 50 Refer to Table 6-1. Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Select the correct implication from your work.

The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.

When demand is elastic, a fall in price causes total revenue to rise because

The increase in quantity sold is large enough to offset the lower price.

Which of the following statements about commission systems of compensation is false?

The lack of income stability will induce the more productive workers to leave in search of more secure employment

The price elasticity of supply is equal to

The percentage change in quantity supplied divided by the percentage change in price.

Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded and total revenue when price increases?

The quantity demanded does not change but total revenue increases.

In October, market analysts predict that the price of platinum will fall in November. what happens in the platinum market in October, holding all else constant?

The supply curve shifts to the right

What is the endowment effect? (Selling House NB)

The tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.

Which of the following is an example of market "production," as used by economist? Answers: a.Garvey takes out a low-cost government loan to start his pet-sitting business. b.Heidi makes a pizza for her family's dinner. c.Katrina works as a cashier at the local produce stand. d.The theatre and film studies department in Fine Art's College stages a play at the local theatre.

The theatre and film studies department in Fine Art's College stages a play at the local theatre.

the area above the market supply curve and below the market price

The total amount of producer surplus in a market is equal to

Which of the following summarizes the impact of population growth on the labor market? Selected Answer: Answers: a.There will be an increase in the demand for jobs. This will result in an increase in the equilibrium wage rate and a movement along the labor supply curve. b.There will be an increase in both the demand for labor and the supply of labor. As a result, the equilibrium wage will not change. c.There will be an increase in the demand for labor. As a result, the wage rate will rise and the quantity of workers supplied will decrease. d.This will increase the labor supply, reduce the equilibrium wage and increase the quantity of labor demanded.

This will increase the labor supply, reduce the equilibrium wage and increase the quantity of labor demanded.

At a price of $20, Daphne sells 35 hand-painted dog collars per week. When she raised her price to $25, she sold 28 per week. Based on this information, the demand for her dog collars is

Unit elastic

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

Wesley enjoyed his second bottle of iced tea less than his first bottle, all else constant

Which of the following is likely to occur as the result of the law of diminishing marginal utility? A) Petra's utility from her second apple was less than her satisfaction from her first orange. B) Hudson enjoyed his second slice of pizza more than his first. C) Sabines' utility from her first granola bar is greater than Rachel's utility from her second granola bar. D) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Price Floor

Which term refers to a legally established minimum price that firms may charge?

the maximum price that a buyer is willing to pay for a good

Willingness to pay measures

Which of the following is the best example of a short run adjustment? A) A local bakery purchases another commercial oven as part of its capacity expansion. B) Your local Wal-Mart hires two more associates. C) Smith University completed negotiations to acquire a large piece of land to build its new library. D) Toyota builds a new assembly plant in Texas.

Your local Wal-Mart hires two more associates.

an externality is A) a benefit realized by the purchaser of a good or service. B) a cost paid for by the producer of a good or service. C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. D) anything that is external or not relevant to the production of a good or service.

a benefit or cost experienced by someone who is not a producer or consumer of the product produced

Which of the following displays these two characteristics: rivalry and nonexcludability? A) a public good. B) a private good. C) a quasi-public good. D) a common resource.

a common resource.

Last year the Pottery Palace supplied 8,000 $40 each and this year supplied same amount at $55 each. Based on this evidence, the Pottery Palace has experienced

a decrease in supply

Holding everything else constant, an increase in the price of MP3 players will result in Answers: a.a decrease in the quantity of MP3 players supplied. b.a decrease in the demand for MP3 players. c.an increase in the supply of MP3 players. d.a decrease in the quantity of MP3 players demanded.

a decrease in the quantity of MP3 players demanded.

If opportunity costs are constant, the production possibilities frontier would be graphed as...

a downward sloping straight line

a laptop computer and a desktop computer; beef and pork

Which of the following items is likely to have the highest income elasticity of demand? Answers: a.a luxury cruise to several European countries b.water c.breakfast cereal d.a hamburger

a luxury cruise to several European countries

The Kindle is a product for which its usefulness increases with the number of people who use it. This explanation describes an economic concept known as

a network externality

Refer to figure 3-4. If the current market price is $10, the market will achieve equilibrium by

a price increase, increasing the quantity supplied and decreasing the quantity demanded

Which of the following is an example of a nonexcludable product?

a public library

Ey = - 0.6: this good is an inferior good

a rise in income of 10% would lead to demand falling by 6%

Ey = + 1.6: this good is a normal good

a rise in income of 10% would lead to demand rising by 16%

Ey = + 0.4: this good is a normal good

a rise in income of 10% would lead to demand rising by 4%

Ey = - 2.1: this good is an inferior good

a rise in income of 10% would lead to a fall in demand of 21%

If the current market price for a particular book is $30 a unit and a price ceiling is imposed at $20 per book, then

a shortage of the book will develop at the ceiling price

Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?

a, b, and c.

Perfectly competitive firms ___ both allocative and productive efficiency

achieve

The market demand for a public good can be determined by...

adding up how much each consumer is willing to donate at each quantity amount

The market demand for a public good can be determined by

adding up how much each consumer is willing to pay for each unit of the public good

Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service. Answers: total unintended additional surplus

additional

A recent Wall Street Journal article advocates for an increase in the gas tax. If the government increases the tax on gas, it...

affects the market equilibrium for gas

air-travel and weed killer

A characteristic of the long run is A) there are fixed inputs. B) all inputs can be varied. C) plant capacity cannot be increased or decreased. D) there are both fixed and variable inputs

all inputs can be varied.

In the long run...

all of the firm's costs are variable costs; there are no fixed costs of production

The revenue received from the sale of ________ of a product is a marginal benefit to the firm. Answers: a.an additional unit b.the total number of units c.no units d.only profitable units

an additional unit

If tires and gasoline are compliments then

an increase in price of gasoline will reduce the consumption of tires

An increase in the demand for orthodontic services leads to Answers: a.a rise in the rates of dental insurance. b.an increase in the supply of orthodontists. c.an increase in the demand for orthodontists. d.lower prices for orthodontic care.

an increase in the demand for orthodontists. Answers:

Which of the following explains why talented major league baseball players command much higher salaries than neurosurgeons? Answers: a.because the total value of baseball games is much higher than the total value of neurosurgery b.because it takes far more skill and training to be a major league baseball player than to be a neurosurgeon c.because the supply of talented major league baseball players is low relative to its demand compared to the supply of neurosurgeons. Therefore, adding another player yields far greater marginal benefit than adding another neurosurgeon. d.because the supply of talented major league baseball players is relatively low compared to the supply of neurosurgeons. Therefore, major league baseball players exert far more market power than neurosurgeon.

because the supply of talented major league baseball players is low relative to its demand compared to the supply of neurosurgeons. Therefore, adding another player yields far greater marginal benefit than adding another neurosurgeon.

Consider a good whose consumption takes place publicly. Your decision to buy that good depends

both on the characteristics of the product and on how many other people are buying the good.

The demand for big screen TVs would fall, if big screen TVs are normal goods and:

buyer's of big screen TVs incomes fall because of a recession

If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because . . .

buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.

For-profit producers will produce only private goods because

buyers will be willing to pay for the goods since the benefits are excludable

Consumers maximize total utility within their budget constraint by

buying the goods with the largest marginal utility per dollar spent

Consumers maximize total utility within their budget constraint by A) buying the cheapest goods they can find. B) buying whatever they like the best. C) buying the goods with the largest marginal utility per dollar spent. D) spending the same dollar amount for each good.

buying the goods with the largest marginal utility per dollar spent.

Suppose you have worked at a local sandwich shop for six months and now you plan to ask your manager for a raise. How can you convince your manager that you are wroth more money than you are being paid?

by demonstrating to your manager the marginal revenue product your employment contributes to the sandwich shop

c and d only

You have an absolute advantage whenever you...

can produce more of something than others with the same resources

The 2005 European Union Emission Trading Scheme is an example of a

cap-and-trade system

Alternative approaches for reducing carbon dioxide emissions are

carbon taxes and carbon trading

Income elasticity measures how a good's quantity demanded responds to

change in buyers' incomes.

If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could

change price a little bit and observe what happens to total revenue

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using Answers: a.command-and-control policies. b.strong-arm tactics. c.global initiatives. d.market-based policies.

command-and-control policies.

If national laws protecting the health and safety of workers completely eliminate any and all risk, then

compensating wage differentials disappear and workers in risky occupations may be no better off

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are

complements

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are . . .

complements

If you would have been willing to pay $10 for a pizza and you only had to pay $8, what is that difference called

consumer surplus

The decision about what goods and services will be produced made in a market economy is made by

consumers and firms choosing which goods and services to buy or produce

Which of the following does economists promote as the way to make the best decision?

continue an enjoyable activity to where its marginal benefit equals marginal cost

In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ________ and get a ________.

cross-price elasticity; positive number

A firm that can effectively price discriminate will charge a higher price to Answers: a.customers who have the more elastic demand for the product. b.buyers who belong to the largest market segment. c.buyers who are members of the smallest market segment. d.customers who have the more inelastic demand for the product.

customers who have the more inelastic demand for the product.

All else equal, if the supply of veterinarians continues to increase while the population of dogs and cats continues to decline, the incomes of veterinarians will Answers: a.be indeterminate. b.increase. c.decline. d.remain unchanged.

decline.

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility A) rises. B) is constant. C) declines. D) fluctuates.

declines.

the price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 percent increase in the price of beef, holding every thing else constant, will cause the quantity of beef demanded to Answers: a.decrease by 12 percent. b.decrease by 26 percent. c.decrease by 32 percent. d.decrease by 60 percent.

decrease by 12 percent.

A(n) ________ is represented by a leftward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve. Answers: a.decrease in demand; increase in demand b.decrease in demand; increase in quantity demanded c.increase in demand; decrease in quantity demanded d.decrease in quantity demanded; decrease in demand

decrease in demand; increase in quantity demanded

The expectation of higher future prices actually causes higher prices now because

demand will increase now as people try to buy before the price rises

When a firm changes its price, the change in total revenue

depends on the elasticity of demand value and the direction of the price change

Which of the following would shift a nation's production possibilities frontier outward? Answers: a.discovering a cheap way to convert sunshine into electricity b.an increase in demand for the nation's products c.a decrease in the unemployment rate d.a law requiring workers to retire at age 50

discovering a cheap way to convert sunshine into electricity

Monopolistic competitive firms ___ allocative and productive efficiency

do not achieve

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and consumer surplus plus producer surplus is maximized, then Answers: a.maximum deadweight loss occurs. b.economic efficiency is achieved. c.profits are maximized. d.costs are minimized.

economic efficiency is achieved.

A shift of a firm's production possibilities frontier to the right represents...

economic growth

If a nation's production possibilities frontier moves outward, this represents

economic growth

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is . . .

elastic

If at a price of $50, Ghani sells 20 hand-made leather cell-phone covers but at a price of $60, zero units are sold. Based on this information, the demand for his cell-phone covers is

elastic or perfectly elastic.

The observation that people tend to value something more highly when they own it than when they don't is called the A) wealth effect. B) endowment effect. C) path dependent effect. D) endorsement effect.

endowment effect.

If policy makers use a tax to control pollution, the tax should be set...

equal to the external cost

If policymakers use a tax to control pollution, the tax should be set...

equal to the external cost

The opportunity cost of going to an outdoor music festival is Answers: a.the enjoyment you receive from going to the festival. b.the value of the time spent at the festival. c.equal to the highest value of an alternative use of the time and money spent on the festival. d.zero because there is no overhead costs for an outdoor festival. e.the cost of the festival ticket only.

equal to the highest value of an alternative use of the time and money spent on the festival

The situation in which anyone who does not pay for a good cannot consume it

excludability

Marginal utility is the A) total satisfaction received from consuming a given number of units of a product. B) average satisfaction received from consuming a product. C) extra satisfaction received from consuming one more unit of a product. D) satisfaction achieved when a consumer has had enough of a product.

extra satisfaction received from consuming one more unit of a product.

Costs that remain constant as output changes

fixed costs

Suppose that when the price of hamburgers decreases, the Ruiz family increases their purchases of ketchup. To the Ruiz family,

hamburgers and ketchup are complements

A demand curve that is horizontal indicates that the commodity

has a large number of substitutes

A demand curve that is horizontal indicates that the commodity

has a large number of substitutes.

Congress passed the Clean Air Act in 1970. Since this act was passed, emissions of the six main air pollutant

have fallen by more than one-half

13) Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to changes in the price of a related good. C) how responsive quantity demanded is to a change in price. D) how responsive sales are to a change in buyers' incomes.

how responsive quantity demanded is to a change in price.

Price elasticity of demand measures

how responsive quantity demanded is to a change in price.

Price elasticity of demand measures . . .

how responsive quantity demanded is to a change in price.

Price elasticity of supply is used to gauge

how responsive suppliers are to price changes.

Price elasticity of supply is used to gauge A) how responsive suppliers are to price changes. B) how responsive suppliers are to changes in future prices. C) how responsive suppliers are to a change in demand. D) how responsive sales are to a change in input prices

how responsive suppliers are to price changes.

Price elasticity of supply is used to gauge . . .

how responsive suppliers are to price changes.

In economics, the accumulated skills and training that workers have is known as Answers: a.human capital. b.entrepreneurship. c.physical capital. d.innovation.

human capital.

Economists assume that

humans are rational and respond to incentives

The Coase theorem states that

if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities

Imagine Point A inside the curve, B on the curve, and C outside of the curve. Point A is what

inefficient in that not all resources are being used

According to an article in the Wall Street Journal, elite hotels..Ritz Carlton cut rates...based on info, the demand for hotel rooms is

inelastic

According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton. Based on this information, the demand for hotel rooms is...

inelastic

If at a price of $10, 5 units are sold while at a price of $8, 6 units are sold, then the elasticity of demand for this good is

inelastic

The market for smart phones has grown rapidly over the past few years, due in part to the overwhelming success of the Apple iPhone. Following the successful launch of the iPhone in 2007, companies such as Samsung, HTC, and LG have all introduced products to compete with the iPhone. The smart phones introduced to compete with the iPhone would be considered...

inferior goods compared to the iPhone

For people who live near a bus route, a subway station, or a light rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transportation is...

infinity

A characteristic found only in oligopolies is Answers: a.break even level of profits. b.interdependence of firms. c.independence of firms. d.products that are slightly different.

interdependence of firms.

An externality

is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service

Economic Surplus

is equal to the sum of consumer surplus and producer surplus.

Total Utility

is equal to the sum of the marginal utilities of all units consumed.

Economic Surplus

is maximized in a competitive market when marginal benefit equals marginal cost

Price discrimination Answers: a.is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. b.is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. c.is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer. d.is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices.

is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost.

The demand curve for a monopoly firm Answers: a.is perfectly inelastic. b.lies below its marginal revenue curve. c.is the same as the market demand curve. d.is horizontal.

is the same as the market demand curve.

An advantage of imposing a tax on the producer that generates pollution is that

it forces the polluting producer to internalize the external cost of the pollution

An advantage of imposing a tax on the producer that generates pollution is that a.it forces the polluting producer to internalize the external cost of the pollution. b.the government can keep tabs on exactly what is produced in an industry. c.it will eliminate pollution. d.a producer can pass the cost of the pollution to consumers.

it forces the polluting producer to internalize the external cost of the pollution.

An advantage of imposing a tax on the producer that generates pollution is that A) it forces the polluting producer to internalize the external cost of the pollution. B) the government can keep tabs on exactly what is produced in an industry. C) it will eliminate pollution. D) a producer can pass the cost of the pollution to consumers.

it forces the polluting producer to internalize the external cost of the pollution.

The demand for all carbonated beverages is likely to be [blank] the demand for Dr. Pepper.

less elastic than

If diminishing marginal returns have already set in for Very Good Building & Development Company, and the marginal product of the 6th carpenter is 8 chairs, then the marginal product of hiring Ron Swanson as the 7th carpenter is...

less than 8 chairs

If demand is inelastic, the absolute value of the price elasticity of demand is

less than one

If demand is inelastic, the absolute value of the price elasticity of demand is A) one. B) less than one. C) greater than one. D) greater than the absolute value of the slope of the demand curve.

less than one.

If demand is inelastic, the absolute value of the price elasticity of demand is . . .

less thane one.

The income effect of a wage increase will cause a worker to devote Answers: more time to labor and more time to leisure. less time to labor and less time to leisure. less time to labor and more time to leisure. more time to labor and less time to leisure.

less time to labor and more time to leisure.

Refer to Figure 6-4. The inelastic segment of the demand curve

lies below the midpoint of the curve

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss. Answers: a.loss of $6,000 b.profit of $6,000 c.profit of $30,000 d.There is insufficient information to answer the question.

loss of $6,000

For consumers who opt to pay a $10 monthly fee to have unlimited texting on their cell phones, but choose not to pay a $5 monthly fee to have unlimited call minutes, the unlimited texting option has a ________ than the unlimited minutes option.

lower price elasticity of demand

A firm tries to increase the demand for the product it sells by:

lowering its price

Monopolistic Competition has___ number of firms that sell a(n) ___ product with a ___ ease of entry

many, differentiated, high

Perfect Competition has___ number of firms that sell a(n) ___ product with a ___ ease of entry

many, identical, high

income elasticity

measures how a good's quantity demanded responds to change in buyers' incomes.

Income elasticity of demand

measures how much the quantity demanded of a good responds to a change in consumers' income. It is computed as the percentage change in the quantity demanded divided by the percentage change in income.

Pollution is an example of a

negative externality

If you expect the economy is going to boom and the average income will rise in the future, the type of firm that would be able to increase its sales if your expectations are met is

one that sells a luxury good

In economics, the term "free rider" refers to A) a person who evades taxes. B) a supervisor who delegates menial time-consuming activities to others. C) one who volunteers her services. D) one who waits for others to produce a good and then enjoys its benefits without paying for it.

one who waits for others to produce a good and then enjoys its benefits without paying for it.

Monopoly has___ number of firms that sell a(n) ___ product with a ___ ease of entry

one, unique, entry blocked

The "tragedy of the commons" refers to the phenomenon where A) individuals are free riders. B) people overuse a common resource. C) people do not internalize an externality. D) there is rivalry in consumption.

people overuse a common resource.

Cross-price elasticity of demand is calculated as the

percentage change in quantity demanded of one good divided by percentage change in price of a different good

Cross-price elasticity of demand

percentage change in quantity demanded of one good divided by percentage change in price of a different good.

Cross-price elasticity of demand is calculated as . . .

percentage change in quantity demanded of one good divided by percentage change in price of a different good.

If supply decreases, then equilibrium

price and quantity fall

If supply increases, then equilibrium

price and quantity rise

Perfectly competitive firms produce at a quantity where

price equals marginal cost and at a minimum average total cost

If demand decreases and supply increases, then equilibrium

price falls

If demand increases, then equilibrium

price falls and quantity rises

Monopolistic competitive firms produce at a quantity where

price is greater than marginal cost and above minimum average total cost

When there are many substitutes available for a good, then demand tends to be

relatively elastic

If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is

relatively elastic (P+, D-)

If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is

relatively elastic.

If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is Answers: a.unit-elastic. b.perfectly elastic. c.relatively inelastic. d.relatively elastic.

relatively elastic.

If a firm raised its price and discovered that its total revenue rose, then the demand for its product is

relatively inelastic

If a percentage change in price causes a smaller percentage change in quantity demanded, demand is

relatively inelastic

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

relatively inelastic

When there are a few number of substitutes available for a good, demand tends to be

relatively inelastic

Based on the information above, the demand for Hendrix College education is

relatively inelastic (P+, D+)

When there are few close substitutes available for a good, demand tends to be A) perfectly inelastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic.

relatively inelastic.

When there are few close substitutes available for a good, demand tends to be . . .

relatively inelastic.

Economic decline (negative growth) is represented on a production possibilities frontier model by the production possibility frontier Answers: a.shifting outward. b.shifting inward. c.becoming steeper. d.becoming flatter.

shifting inward.

What occurs when the quantity demanded is greater than the quantity supplied at the current market price?

shortage

If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe A) is maximizing total utility. B) should buy more apples. C) should buy more oranges. D) should buy same amount of oranges and apples.

should buy more apples.

Apple introduced the iPhone to the market in June 2007. Within two months, it had become clear that the price elasticity of demand for iPhones was

significantly higher than had been expected

There are 3 goods: sneakers, boots and socks. Relating two of them will always yield a positive cross elasticity of demand. Which two?

sneakers and boots, because they are substitutes.

The tragedy of the commons was avoided in the Middle Ages by

social pressure to uphold traditionally accepted limits on family use of the commons

The tragedy of the commons was avoided in the Middle Ages by Answers: a.selling common grounds to individuals. b.the local police who monitored entry into the commons. c.social pressure to uphold traditionally accepted limits on family use of the commons. d.the government which imposed a tax for the use of the commons.

social pressure to uphold traditionally accepted limits on family use of the commons.

Increasing opportunity cost along a bowed out production possibilities frontier occurs because

some factors of production are not equally suited to producing both goods or services

Scarcity Answers: a.stems from the incompatibility between limited resources and unlimited wants. b.can be overcome by discovering new resources. c.can be eliminated by rationing products. d.is a bigger problem in market economies than in socialist economies.

stems from the incompatibility between limited resources and unlimited wants

If the cross-price elasticity of demand for goods A and B is a positive value, this means the 2 goods are

substitues

The market for energy drinks has grown rapidly over the past several years. One report predicts that energy drinks might replace coffee for the current generation of teens and young adults. This report implies that energy drinks and coffee are

substitutes

A cost that has already been paid and cannot be recovered

sunk cost

Suppose the supply of bicycles is price elastic. This means that

suppliers will respond significantly to changes in the price of bicycles

Imagine Point A inside the curve, B on the curve, and C outside of the curve. Point B is

technically efficient

In general, a "big ticket item" such as a house or new car will

tend to have a more elastic demand than a lower priced good

The deadweight loss associated with the effective price floor would be

the 2 baby triangles inside the left

Which of the following summarizes the information provided by a Lorenz curve? Answers: a.the Gini coefficient b.the income distribution ratio c.the Lorenz coefficient d.the slope (the rise divided by the run) of the Lorenz curve at a particular point on the curve

the Gini coefficient

Marginal cost is Answers: a.the total cost of producing one unit of a good or service. b.the average cost of producing a good or service. c.the difference between the lowest price a firm would have been willing to accept and the price it actually receives d.the additional cost to a firm of producing one more unit of a good or service.

the additional cost to a firm of producing one more unit of a good or service.

Economics is the study of

the choices people make to attain their goals, given their scarce resources

According to a recent Wall Street Journal article, the recent Super Bowl has increased the popularity of hotel rooms in Phoenix, Arizona. How does the Super Bowl affect the market for hotel rooms?

the demand curve for hotel rooms shifts to the right

Figure 5-3 shows the market for measles vaccinations, a product whose use generates positive externalities. Refer to Figure 5-3. What does D1 represent?

the demand curve reflecting private benefit

Figure 5-2 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Refer to Figure 5-2. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?

the demand curve reflecting private benefits

Figure 5-3 shows the market for measles vaccinations, a product whose use generates positive externalities. Refer to Figure 5-3. What does D2 represent?

the demand curve reflecting social benefit

Economists estimated that the price elasticity of beer is -.23 and the income elasticity of beer is -.09. This means that...

the demand for beer is inelastic and beer is an inferior good

Which of the following firms is not able to practice price discrimination? Answers: a.land-line telephone companies b.the largest wheat farmer in Nebraska c.commercial airlines d.movie theaters

the largest wheat farmer in Nebraska

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of

the law of diminishing marginal utility.

A negative externality exists if

the marginal social cost of producing a good or service exceeds the private cost

Economist Jerry Hausman estimated the price elasticity of demand for breakfast cereal. He found that Answers: a.the price elasticity for a particular brand of raisin bran was the same as the elasticity of demand for all family cereals. b.the price elasticity of demand for Post Raisin Bran is less than the price elasticity of demand for Kellogg's Raisin Bran. c.the price elasticity of all family breakfast cereals is greater than the price elasticity of demand for Post Raisin Bran or Kellogg's Raisin Bran. d.the price elasticity of demand for a particular brand of raisin bran was larger in absolute value than the elasticity for all family cereals.

the price elasticity of demand for a particular brand of raisin bran was larger in absolute value than the elasticity for all family cereals.

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then . . .

the price elasticity of demand for teapots is greater than 1 in absolute value

The process involved in bringing oil to world markets can take years. Substitutes for oil-based products such as gasoline are limited. As a result Answers: a.the supply of oil is very elastic and the demand for oil is very elastic over short periods of time. b.the supply of oil is very inelastic and the demand for gasoline is inelastic over short periods of time. c.the supply of oil and the demand for oil shift to the right over short periods of time. d.the supply of oil and the demand for oil are both perfectly elastic over short periods of time.

the supply of oil is very inelastic and the demand for gasoline is inelastic over short periods of time.

The process involved in bringing oil to world markets can take years. Substitutes for oil-based products such as gasoline are limited. As a result . . .

the supply of oil is very inelastic and the demand for gasoline is inelastic over short periods of time.

Refer to Figure 5-4. The marginal cost of reducing pollution curve is the same curve as

the supply of pollution reduction curve.

If the cost of producing a product increases, then:

the supply of the product will decrease

The "tragedy of the commons" is a term that refers to

the tendency for a common resource to be overused

With an effective price floor, consumer surplus would be

the top part of the right triangle

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that

the two brands of detergent are close substitutes.

If the market for a product is broadly defined, then . . .

there are few substitutes for the product and the demand for the product is relatively inelastic.

The midpoint formula is used to measure the elasticity of demand between two points on a demand curve . . .

to ensure that we have only one value of the price elasticity of demand between two points on a demand curve.

What is the rationale behind a marketable emission allowance scheme? Answers: a.to create of a market for externalities: the scheme brings together buyers and sellers of marketable permits b.to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance c.to raise revenue for the government through the sale of emission permits and at the same time set an emissions target d.to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance

to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance

If a demand curve is elastic

total revenue falls when the price rises

If it is inelastic

total revenue rises as the price rises

Economists assume that rational people do all of the following except

undertake activities that benefit others and hurt themselves

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is . . .

unit-elastic.

Allocative efficiency best explains ________, and productive efficiency best explains ________. Answers: a.how something will be produced; when something will be produced b.when something will be produced; why something will be produced c.why something will be produced; what will be produced d.what will be produced; how something will be produced

what will be produced; how something will be produced

There is a deadweight loss

when economic surplus is maximized

When demand is price elastic, a fall in price causes total revenue to rise because

when price falls, total revenue automatically rises also the increase in quantity sold is large enough to offset the lower price percentage increase in quantity demanded is less than the percentage fall in price

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