midterm econ practice
A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about
- %change in quantity supplied = (Q2 - Q1) / (Q2+Q1)/2 - %change in price = (P2 - P1) / (P2+P1)/2 - Es = %change in quantity supplied / %change in price - ( 600 - 400 ) / ( 600 + 400 ) /2 = 0.4 - ( 12 - 10 ) / ( 12 + 10 ) /2 = 0.1818 - 0.4 / 0.1818 = 2.20 - answer = 2.2
If the price decreased from $36 to $12, total revenue would
- revenue = price * quantity - $36 * 200 units = $7200 - $12 * 1000 units = $12000 - $12000 - $7200 = $4800 - answer = $4800
Suppose there is a flood in St. Louis, Missouri, that destroys several beer bottling facilities. Which of the following would not be a direct result of this event?
Buyers would not be willing to buy as much as before at each relevant price.
Which of the following statements about comparative advantage is not true? a. A country may have a comparative advantage in producing a good, even though it lacks an absolute advantage in producing that good. b. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. c. The principle of comparative advantage applies to countries as well as to individuals. d. Economists use the principle of comparative advantage to emphasize the potential benefits of free trade.
Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.
Assume Lianna buys coffee beans in a competitive market. It follows that
Lianna cannot influence the price of coffee beans even if he buys a large quantity of them.
Which of the following statements is valid when the market supply curve is vertical?
Market quantity supplied does not change when the price changes.
If the demand for a good falls when income falls, then the good is called
a normal good.
If a binding price floor is imposed on the video game market, then
a surplus of video games will develop.
A payroll tax is a
a tax on the wages that firms pay their workers
Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by
between $0.50 and $1.
A decrease in supply will cause the largest increase in price when
both supply and demand are elastic. NOT THE ANSWER
A likely example of complementary goods for most people would be
chips and salsa
A tax on the sellers of coffee will increase the price of coffee paid by buyers,
decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
Equilibrium quantity must decrease when demand
decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.
If the number of sellers in a market increases, then the
demand in that market will increase. NOT THE ANSWER
If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in
higher prices but lower total revenue from marijuana sales. NOT THE ANSWER
Goods produced abroad and sold domestically are called
imports.
A legal minimum on the price at which a good can be sold is called a
price floor
A professor spends 10 hours per day giving lectures and writing papers. For the professor, a graph that shows his various possible mixes of output (lectures given per day and papers written per day) is called his
production possibilities frontier.
Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the
quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.
A baker recently has come to expect higher prices for bread in the near future. We would expect
the baker to supply less bread now than she was supplying previously.
Income elasticity of demand measures how
the quantity demanded changes as consumer income changes.
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
A production possibilities frontier is bowed outward when
the rate of trade-off between the two goods being produced depends on how much of each good is being produced.
Absolute advantage is found by comparing different producers'
input requirements per unit of output.
A key determinant of the price elasticity of supply is the
time horizon
If the supply of a product increases, then we would expect equilibrium price
to decrease and equilibrium quantity to increase.
total revenue
total revenue = Price × quantity sold
Consider two individuals, Marquis and Serena each of whom would like to wear sweaters and eat tasty food. The gains from trade between Marquis and Serena are most obvious in which of the following cases?
Marquis's skills are such that he can produce only sweaters, and Serena's skills are such that she can produce only tasty food.
Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation?
New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.
Which of the following is not correct? a.A tax places a wedge between the price that buyers pay and the price that sellers receive. b.The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers. c.In the new after-tax equilibrium, buyers and sellers share the burden of the tax. d.Taxes levied on sellers and taxes levied on buyers are not equivalent.
Taxes levied on sellers and taxes levied on buyers are not equivalent.
Which of the following was not a reason OPEC failed to keep the price of oil high?
The agreement OPEC members signed allowed each country to produce as much oil as each wanted.
A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve
downward by exactly $1.50.
A popular celebrity that is paid highly for her time should probably not mow her own lawn because
her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her.
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would
increase by less than $1,000.
A farmer has the ability to grow either corn or cotton or some combination of the two. Given no other information, it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton
is equal to 1.
A competitive market is a market in which
no individual buyer or seller has any significant impact on the market price.
For which pairs of goods is the cross-price elasticity most likely to be positive?
pens and pencils
The presence of a price control in a market for a good or service usually is an indication that
policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.
As a student, Jordyn spends 40 hours per week writing term papers and completing homework assignments. On one axis of her production possibilities frontier is measured the number of term papers written per week. On the other axis is measured the number of homework assignments completed per week. Jordyn's production possibilities frontier is a straight line if
she can switch between writing term papers and completing homework assignments at a constant rate.
Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the
supply curve will shift downward by $20, and the effective price received by sellers will increase by $20. NOT THE ANSWER
The term tax incidence refers to
the distribution of the tax burden between buyers and sellers
You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
The Earned Income Tax Credit, a government program that supplements the incomes of low-wage workers, is an example of a
wage subsidy.
