Principles of Econ Exam 2

A binding price ceiling is usually designed to: a. keep prices below the equilibrium level. b. increase the quality of a good. c. prevent surplus. d. keep prices above the equilibrium level.

a. keep prices below the equilibrium level.

The cross-price elasticity of demand between coffee and creamer can be expected to be a. negative because they are complements b. positive because they are complements c. positive because they are substitutes d. negative because they are substitutes

a. negative because they are complements

Over the years, state and local governments have separated smoking and nonsmoking sections in restaurants or banned smoking in public areas completely. Governments implement rules against smoking because smoking generates a _____ externality, as many smokers don't consider the _____ cost of their habit. a. negative; marginal external b. negative; marginal private c. positive; marginal external d. positive; marginal private

a. negative; marginal external

If the minimum wage is a binding price floor: a. those who want to work will outnumber the jobs available. b. there will be a job for everyone who is willing to work. c. business owners will hire the same number of workers as before but at the higher wage. d. the equilibrium wage will rise.

a. those who want to work will outnumber the jobs available.

For decades, chemical giant DuPont released a hazardous chemical from their production of Teflon into a small town in West Virginia. This caused multiple members of the community to develop cancer. DuPont later settled a lawsuit by agreeing to pay damages to the plaintiffs. DuPont's marginal private cost of a Teflon product was $3, and the marginal external cost to society was $1.25. What was the marginal social cost of a Teflon product? a. $1.75 b. $4.25 c. $3.00 d. $1.25

b. $4.25

An economist for Starbucks has determined that the cross-price elasticity between Dunkin' cold brew coffee and Starbucks cold brew coffee is 2. Which statement is TRUE? a. The economist has determined that Dunkin' and Starbucks cold brew are complements. b. Some customers consider Dunkin' cold brew and Starbucks cold brew to be substitutes. c. If the price of Dunkin' cold brew rises 10%, people will buy 20% less Starbucks cold brew. d. The cross-price elasticity indicates that Starbucks cold brew is an inferior good compared to Dunkin' cold brew.

b. Some customers consider Dunkin' cold brew and Starbucks cold brew to be substitutes.

If total revenue goes up when the price falls, demand is said to: a. be price-inelastic. b. be price elastic c. be unit elastic d. have positive price elasticity

b. be price elastic

The economic burden of a tax is the: a. government-designated burden of a tax payment. b. burden created by the change in after-tax prices faced by buyers and sellers c. percentage increase in the tax on an item. d. laws governing sales taxes in a country.

b. burden created by the change in after-tax prices faced by buyers and sellers

If a tax is imposed on single-use plastic bags and collected from consumers, the _____ curve will shift _____ by the amount of the tax. a. demand; upward b. demand; downward c. supply; upward d. supply; downward

b. demand; downward

If demand is _____, a higher price yields _____ total revenue. a. inelastic; lower b. inelastic; higher c. elastic; higher d. elastic; no change in

b. inelastic; higher

If two goods are substitutes, the cross-price elasticity of demand must be: a. negative b. positive c. zero d. infinite Feedback

b. positive

In deciding whether to mow your lawn today, you consider (a) tomorrow's weather forecast and (b) the degree to which the lawn may have become unsightly in the view of your neighbors. (a) reflects _____ analysis; (b) reflects _____ analysis. a. positive; positive b. positive; normative c. normative; normative d. normative; positive

b. positive; normative

People get around New York City in numerous ways: they drive, ride the subway, take buses, and use cabs, Lyfts, or Ubers. In Jackson, a small town in upstate New York, residents travel almost exclusively by car. If New York state raises its gas tax, who will suffer a disproportionate share of the economic burden of the tax increase? a. residents of New York City b. residents of Jackson d. no one; tax changes don't impact the economic burden of a tax

b. residents of Jackson

Price elasticity of supply measures how responsive: a. sellers are to changes in the prices of competing goods. b. sellers are to price changes. c. buyers are to price changes. d. sellers are to changes in cost of production.

b. sellers are to price changes.

In general, rent controls set a rental price below the equilibrium price. Therefore: a. the quantity of rent-controlled apartments supplied exceeds the quantity demanded. b. the quantity of rent-controlled apartments demanded exceeds the quantity supplied. c. there is no surplus, as all units will be rented at a lower price. d. the incidence of poverty is reduced.

b. the quantity of rent-controlled apartments demanded exceeds the quantity supplied.

To treat a sore back, Kyoko undertakes a course of physical therapy. Kyoko's marginal benefit from her first physical therapy session is $250, from her second, it's $225, from her third, it's $175, and from her fourth, it's $100. Physical therapy sessions cost $175 each. Assuming Kyoko's final physical therapy session will earn her zero consumer surplus, Kyoko will have _____ physical therapy sessions, and her total consumer surplus will be _____. a. four; $125 b. three, $125 c. three, $100 d. four; $0

b. three, $125

Elaine is willing to pay up to $230 for a particular camera, but the price of the camera is $215. The marginal cost of producing the camera is $150. The total surplus from this transaction is _____; the consumer surplus is _____; and the producer surplus is a. $150; $75; $75 b. $80; $40; $40 c. $80; $15; $65 d. $150; 80; $70

c. $80; $15; $65

If the price of herring increases by 8%, and the quantity demanded falls by 20%, the absolute value of the price elasticity of demand is________. Since the demand is ________ , this increase in price will therefore lead to a ________ in total revenue. a. 2.5; elastic; increase b. 2.5; inelastic; decrease c. 2.5; elastic; decrease d. 0.4 ; elastic; decrease

c. 2.5; elastic; decrease

Which of these is a positive economic statement? a. The government ought to balance its budget and eliminate the deficit. b. That company with a 50% profit rate made too much profit at the expense of consumers. c. If the government raises taxes, people will have less income available for purchases and saving. d. At 10%, the inflation rate is too high, and the government should act to reduce it.​

c. If the government raises taxes, people will have less income available for purchases and saving.

On a market graph, producer surplus is the area that is: a. above the demand curve. b. below the demand curve. c. above the supply curve and below the price.​​ d. above the demand curve and below the supply curve.

c. above the supply curve and below the price.​​

Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government imposes a $25 tax on designer handbags and collects the tax from suppliers, the price of expensive handbags for buyers will: a. increase by $25. b. increase by more than $25. c. increase by less than $25. d. decrease

c. increase by less than $25.

A quantity control on milk production is a _____. It is set _____ the equilibrium quantity. a. quota; above b. quota rent; below c. quota; below d. quota rent; above

c. quota; below

The price elasticity of demand for a particular life-saving drug is zero, and the price elasticity of supply is 0.50. If a $10 tax is levied on producers, how much of this tax will eventually be paid by consumers? a. $0 b. $7.50 c. $5.00 d. $10.00

d. $10.00

Which of these statements is TRUE regarding economic efficiency? a. Efficient outcomes will make everyone better off. b. Efficient outcomes are also equitable. c. Efficiency is associated with minimizing economic surplus. d. Efficiency is associated with maximizing economic surplus.

d. Efficiency is associated with maximizing economic surplus.

Which of these illustrates a positive externality? a. Martin's company experiences an increase in profits due to his cost-cutting initiatives. b. Artem loses sleep when an airport is built near his home, and planes fly overhead. c. Ella can buy a shirt at half price because someone else returned it.​ d. The value of Maria's house rises when the city builds a park nearby, enhancing her view.

d. The value of Maria's house rises when the city builds a park nearby, enhancing her view.

A key difference between equity and efficiency is that equity concerns _____ and efficiency focuses on _____. a. cost minimization; maximizing economic surplus b. cost minimization; equality c. welfare maximization; fairness d. fairness; maximizing economic surplus

d. fairness; maximizing economic surplus

If your income decreases, and your consumption of hot cross buns increases, hot cross buns are considered a ________ good. The income elasticity of your demand for hot cross buns would then be _________ a. normal good; positive b. normal good; positive c. inferior good, positive d. inferior good, negative

d. inferior good, negative

Which of these is a quantity regulation? a. a dental insurance claim b. a minimum wage c. a wheat farmer assistance program d. limits on the number of cod that can be caught in the North Atlantic Ocean

d. limits on the number of cod that can be caught in the North Atlantic Ocean

If a firm produces a product that has easily available variable inputs, its supply curve will be: a. vertical b. perfectly inelastic c. relatively steep d. relatively flat

d. relatively flat