Microeconomics exam 2 review
Firms estimate the demand for labor by ____________.
A and B only
How does a consumer's budget set differ from his budget constraint?
A budget set refers to all of the possible bundles of goods and services a consumer can purchase, while a budget constraint is limited to the bundles he can purchase using all of his income.
Why are there two different views on the effect of taxation on labor supply in the United States?
All of the above
Countries that do not have an absolute advantage in the production of a good ___ benefit from trade
Can
The mercantilist economic doctrine was widely followed from the sixteenth to the eighteenth centuries in Europe. Mercantilists advocated the use of tariffs to restrict trade, as they believed that countries that export more than they import will increase wealth. What could be the problem with such an economic policy?
Consumers pay a price that is higher than the world price, reducing consumer surplus.
Suppose wages in the market for plumbers increase. Some plumbers start taking on extra plumbing jobs while others cut back on the number of hours they work. What could explain this?
For those plumbers who choose to work more, the substitution effect (on leisure) of the wage increase is stronger than the income effect. For those who decided to work less, the reverse is true.
Which of the following is not likely to be subject to the tragedy of the commons?
National defense
Suppose an identical tax is levied on capital, labor, and land. Would the tax have the same effect in each of these markets? Explain your answer
No, an identical tax would yield similar effects but not the same effects, since it is rather unlikely that the relative demand and supply elasticities would be the same in each market
Examples of direct regulation include ____________.
Price ceilings zoning restrictions laws resticting alcohol purchases
Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its profit
Produce unitl thr additional revenue from one extra unit equals the additional cost of each unit
What types of goods are likely to be traded in a black market? (Check
Prostituion Drug dealing
____ occurs when expectations cause people to discriminate against a certain group
Statistical discrimination
____ occurs when people's perfences cause them to discriminate against a certain group
Taste-baste discrimination
What is the intent of a Pigouvian tax?
To induce producers of a negative externality to reduce production to the socially optimal level
Which of the following is a factor underlying government taxation and spending decisions?
To raise revenues to pay for operations
Are there real-world markets that resemble double oral auctions?
Yes, trading on the New York Stock Exchange is very similar to a double oral auction
A black market is ____________.
a nonlegal market for regulated goods and services.
Given the consumer's response to a decrease in the price of wine wine, we can say that the solution of the buyer's problem ___________.
all of the above
In a perfectly competitive market, a seller ___ choose to raise the price of its good since all sellers in the market produce ___, so rising the price would result in ____
cannot, identical goods, losing all its customers
Externalities are called market failures because they ___________.
cause markets to produce suboptimal social outcomes
A linear PPC would show ___, and a PPC that is curved away from the origin would show ____
consstant opportunity costs, increasing opportunity costs
A change in consumer tastes away from corn dogs towards hot dogs This is ___ corn prices by shifting the demand curve for corn ___
decrease, leftward
A decrease in the number of demanders in the corn market: This will ___ corn prices by shifting the deamdn curve for the corn ____
decrease, leftward
A fall in the price of wheat (a substitute for corn) This will ___ corn prices by shifting the demand curve for corn ___
decrease, leftward
A weather pattern that produces a bumoer corn crop: THis will ___ corn prices by shifting the supply curve for corn ___
decrease, rightward
if the market price of the product falls, producer surplus will ___ since this change results in a lower price, which mesnd there is ___ area between the supply curve and the market price for the good
decreases, less
Direct regulation is ____________.
direct actions by the government to control the amount of an activity
in the domestic economy when outsourcing exists, prices --- social surplus ____, and labor market welfare ____
fall increases decreases
partial credit, Concept Question 7.3.2 Assume there are two industries in our economy: the production of pizza and the production of calzones. Each of these products is produced in a similar way with similar ingredients and requires similar skills. If the market price of pizza in this competitive market is below the ATC curve and the price of calzones is above the ATC curve, ____________.
firms currently making pizza will switch to making calzones
Which of the following is a problem that black markets pose in an economy?
gpverments yse resources to enforce the law
The economy as a whole benefits from outsourcing if the gain in social surplus is ____ the losses in labor welfare
greater than
When firms switch from making pizza to making calzones, the price of pizza will ___ and the price of calzones will ____
increase decrease
This will result in a shift in the ____ until profits are ____
industry supply curve Zero
All else being equal, the steeper the supply curve, the ___ the social surplus in a market
larger
All else equal, the steeper the demand curve, the larger the social surplus in a market
larger
For a consumer with a given level of income, the combinations of goods for the budget constraint will be ___ than for the budget set
lower
Public good are ___ goods, while common pool resource goods are ___ goods
non-rival rival
An individual or a firm can internalize an externality by ___________.
paying the cost of the externality
All firms in a perfectly competitive market are said to be __________.
price takers
Canada recently discovered large reserves of shale gas As a result, Canada's production possibilities curve would ___
shift outward
A production possibilities curve (PPC) ___________.
shows the relationship between the maximum production of one good for a given level of production of another good.
The owner of a company that manufactures automobile parts states that it will not hire employees This is an example of ____
statistical discrimination
A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because ___________.
the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off.
Consumer surplus is __________.
the value or total benefits one receives from a good in excess of the price paid for it.
For an individual, consumer surplus is calculated as the difference between the ___ to pay and the price actually paid for a good
willingness
From the "equal bang for the buck" rule, we can predict that he responds by increasing his consumption of ____
wine
Suppose you had to organize a double oral auction for a good that has perfectly elastic demand. Do you expect prices to approach the competitive equilibrium?
Yes, there is no reason why price in a double oral auction for a good with perfectly elastic demand would not be expected to approach the equilibrium price. Your answer is correct.
The two most important goals for government policy involve a trade-off between __________ and __________.
equity; efficiency
Given the long-run adjustment process that takes place after a supply or demand shock, we know that the industry supply curve must be __________.
horizontal, since the supply curve shifts until price is back to its original level and profits are back to zero.
