EC 201 Exam 2
Nonexcludable good
Good people cannot easily be prevented from consuming, even if they did not pay for it - Traffic
You make a pizza for $6 and sell it to a customer for $10. The customer would have been willing to pay $15 dollars for the pizza. What is customer's consumer surplus? - $4 - $15 - $5 - $9
$5
Consumer surplus example: $2500 to $500 price at a quantity of 1 million sofas.
0.5 * 1 million * (2500 - 500) - Area of a triangle
What is comparative advantage?
Ability to carry out a task at allowed opportunity cost than other tasks
What is absolute advantage?
Ability to carry out a task more efficiently than other people
Marginal product of labor (MPL)
Additional amount produced by hiring one more worker
What is an externality?
Benefit or cost received by someone not directly involved in production or consumption of a good
Economists' view is that cheap imports: - can raise people's living standards. - does not threaten some jobs. - increase domestic prices. - do not shrink any businesses.
Can raise people's living standards
_____ lead(s) to an efficient allocation of goods in which each item winds up being sold to the person who will get the highest marginal benefit from it. - Equity - Competitive markets - Government intervention - Externalities
Competitive markets
Everything below the demand curve and above the price
Consumer surplus
External marginal cost
Cost of an additional unit of good that is imposed on people other than the producer - Pollution
Private marginal cost
Cost to the producer of an additional unit
_____ is how far economic surplus falls below the efficient outcome. - Deadweight loss - Efficient quantity - Equity - Consumer surplus
Deadweight loss
The technical argument that comparative advantage leads to _____ is _____ international trade. - lower economic surplus; in favor of - lower economic surplus; against - greater economic surplus; in favor of - greater economic surplus; not true of
Greater economic surplus; in favor of
Are hourly wages or hours of work prices in the labor market?
Hourly wages
Coase Theorem
If bargaining is costly, externality problems persist
All the following are tragedies of the commons, EXCEPT: - the cutting down of entire rainforests. - overfishing. - natural disasters. - traffic jams.
Natural disasters
If a new tax on sellers of $500 per automobile is introduced, equilibrium occurs at the point where the _____ curve meets the _____ curve. - New supply; demand - Old supply; new demand - New supply; new demand - Old supply; demand
New supply; demand
Everything above the supply curve and below the price
Producer surplus
To limit negative externalities, the government can eliminate the overproduction by using the quantity regulation of _____ to the socially optimal quantity. - private bargaining - corrective subsidies - corrective taxes - setting a quota
Setting a quota
What will happen if the world price of T-shirts is above a country's domestic price? - The country will export T-shirts. - The country will import T-shirts. - Foreign sellers will make up the difference of domestic supply and domestic demand. - The world price will increase to the equilibrium price of the domestic market.
The country will export T-shirts
One of the three factors that shape comparative advantage is abundant inputs, which refer to: - unique skills, production methods, or expertise that can lower costs of production. - a country that can export goods and services more than they import. - the relative abundance of the necessary inputs compared to your trading partners. - the similar resources that are abundant in your trading partner's country and in your country.
The relative abundance of the necessary inputs compared to your trading partners
Tax incidence
Who bears the economic burden of taxes
When does one have a comparative advantage?
When you have the lowest opportunity cost in producing goods
A salon's owner used to have one hair stylist and she hired one more. The customers increased from 40 to 75 customers per week. She is paying each stylist $500 per week and charges $30 per haircut. If she adds one more hair stylist, she might get 30 extra customers per week. Should she hire a third hair stylist? Why? - No, the third hair stylist would add $900 to revenue but cost $1,500. - No, the marginal revenue product of an extra worker is less than the wage. - Yes, the third hair stylist would add $3,150 to revenues but cost $1,500. - Yes, the marginal revenue product of an extra worker exceeds the wage.
Yes, the marginal revenue product of an extra worker exceeds the wage
Marginal revenue product (MRP)
Additional revenue generated by hiring one more worker
Which of these describes an ideal market? - Few sellers of identical products - Many sellers of somewhat different products - Many sellers of identical products - Few sellers of somewhat different products
Many sellers of identical products
Consumer surplus formula
Marginal benefit - price - Benefit = willingness to pay - Cost/price = had to pay
How does a subsidy work?
Whenever a transaction occurs, the government pays the buyer or seller
Private marginal benefit
Benefit to the consumer from an additional unit
Consumer surplus
Difference between how much you are willing to pay for something and how much you actually pay for something
Which is NOT an argument for limiting international trade? - Preventing unfair competition - Increasing minimum wage - Enforcing minimum standards - Saving jobs
Increasing minimum wage
Price floor
Minimum legal price at which a good can be sold - Commonly seen in minimum wage laws
Binding price floor
Minimum price is above the equilibrium price
All these examples have negative externalities, EXCEPT: - driving a big SUV instead of a smaller hatchback. - getting a flu shot. - smoking outside a restaurant. - having an outdoor party at your house.
Getting a flu shot
Nonrival good
Good where consumption by one person doesn't diminish the amount available for someone else
Marginal social benefit formula
Marginal private benefit + external benefit
Marginal social cost formula
Marginal private cost + external cost
Efficient outcome
Outcome that yields the largest possible economic surplus
How are wages mainly determined?
Productivity
What is a statutory burden?
Responsibility of paying a tax on a product to the government
What is economic burden?
Who bears the burden of the tax
How do you describe a labor market in which many employers are competing to hire from a large pool of qualified workers with similar skills? - You describe the labor market as perfectly competitive. - You describe the labor market as noncompetitive. - There is an increase in labor supply. - There is a shift in the labor supply curve.
You describe the labor market as perfectly competitive
Which of the following is NOT true in a perfectly competitive labor market? - Employers need to pay higher wages than their competitors. - There are a lot of businesses looking to hire workers. - There are a lot of workers with similar skills. - There is a large pool of qualified workers in the market.
Employers need to pay higher wages than their competitors
What are trade costs?
Extra costs incurred as a result of buying or selling overseas, rather than domestically - Shipping costs, taxes paid on imports or exports, language barriers
An economist explains that as some businesses shrink, others find ways to profit from the opportunity to sell to a global marketplace of 7 billion people. What is this economist's view on trade? - Trade is about competition, not cooperation. - Trade is like a good marriage. - Trade is about business. - Trade is an opportunity and not just a threat.
Trade is an opportunity and not just a threat
What direction does the MRP curve slope?
Downwards
Which is NOT a part of the three-step recipe to analyze externalities? - Assess what externalities are involved - Assess the type of good - Predict the equilibrium outcome - Figure out the outcome that is in society's best interests
Asses the type of good
Employers are _____; they are _____ the time and effort of the employees they hire. - sellers; buying - buyers; buying - buyers; selling - sellers; selling
Buyers; buying
The forces of demand and supply often yield the best possible outcome for society. However, when externalities are involved, _____ must be accounted for as well as _____. - bystanders; sellers - bystanders; buyers and sellers - buyers; sellers - bystanders; buyers
Bystanders; buyers and sellers
A decrease in demand for your product will cause a(n) _____ in your business's labor demand, and a _____ the labor demand curve. - increase; movement along - increase; rightward shift of - decrease; movement along - decrease; leftward shift of
Decrease; leftward shift of
Deadweight loss formula
Economic surplus at efficient outcome - actual economic surplus
The benefits of mass production are sometimes called: - economies of scale. - abundant inputs. - economic surplus. - specialized skills.
Economies of scale
Price ceiling
Maximum legal price at which a good can be sold - lots of demand, not much supplied
The more your quantity declines in response to taxes, the (more or less) of the tax you will avoid
More
In a salon, hairdressers focus on hair coloring, and let their assistants do the hair washing. Allocating the washing task to assistants allows hairdressers to: - perform a task in which they are less productive and hold a comparative advantage. - assign higher paying tasks to their assistants. - perform a task in which they are more productive and hold a comparative advantage. - perform a task in which they are less productive and hold an absolute advantage.
Perform a task in which they are more productive and hold a comparative advantage
Autarky price
Price with no international trade (P_a)
A tariff is a _____. - limit on the quantity of exported goods - limit on the quantity of imported goods - tax on exported products - tax on imported products
Tax on imported products
The U.S. trade policy has been different from what it was over a century ago. The average tariff charged on imports into the United States: - currently has no tariff. - tends to increase over time. - tends to decrease over time. - has been stable most of the time.
Tends to decrease over time
When there are negative externalities, what is the role of bystanders in determining the equilibrium outcome? - The costs imposed on them appear on the supply curve. - The costs imposed on them are on the marginal private cost curve. - They play no role in determining the equilibrium outcome. - Private bargaining allows them to figure out the equilibrium outcome.
They play no role in determining the equilibrium outcome
What way does the supply curve shift when supply is more elastic for a tax on sellers?
Upwards - Price paid by buyers increases - Remainder is paid by sellers - Buyer bears most of the economic burden
Free-rider problem
When a good is nonexcludable, people will often choose to consume without paying - Difficult for private companies to profitably provide the good
With a quota on sellers, the resulting price will be determined by what _____ are willing to pay for the _____. - Sellers; unlimited quantity available - Sellers; limited quantity available - Buyers; unlimited quantity available - Buyers; limited quantity available
buyers; limited quantity available
Public goods
Goods that are both nonrival and nonexcludable - Fireworks, national defense, clean air
Is it positive or normative economics if: "If we increase taxes, government revenue will increase by $100 billion dollars"
Positive
Producer surplus
Difference between the price producers receive for a good or service and the minimum price they are willing to accept - Area between supply curve and price
International trade has been a growing share of the U.S. economy throughout the entire postwar period. This trend, which has transformed the economy, is sometimes called _____. - globalization - tariffs - imports - exports
Globalization
A wireless service market consists of few service providers, each with a substantial share of the market. After one firm raises the price, consumers buy fewer services than the efficient quantity. This is an example of _____, which lead(s) to the market failure. - Market power - Irrationality - Private information - Externalities
Market power
When people fail to factor in _____ externalities, they are less likely to engage in activities that are beneficial to _____. - positive; society - negative; themselves - negative; society - positive; themselves
Positive; society
Which statement is NOT true about the government's decisions to fund a public good? - The funding decisions depend on the good and community. - The government will provide a public good if social benefits exceed the social cost. - The policy makers apply the cost-benefit principle for their funding decision. - All communities should receive the same amount of each public good per person.
All communities should receive the same amount of each public good per person
In the presence of externalities, market forces ignore the interests of _____, resulting in _____. - consumers; underproduction - the government; too little tax income - businesses; overproduction - bystanders; an inefficient outcome for society
Bystanders; an inefficient outcome for society
Which of these best explains why an increase in economic efficiency seldom makes everyone happy? - Increased efficiency always makes everyone better off, but some people are not satisfied with the economic benefits they receive. - Increased efficiency usually makes everyone worse off instead of better off. - While increased efficiency usually makes society better off, there is never the potential for it to make everyone better off. - Efficiency increases as long as the gain in economic surplus to those who are helped is larger than the loss in economic surplus to those who are harmed.
Efficiency increases as long as the gain in economic surplus to those who are helped is larger than the loss in economic surplus to those who are harmed.
When people make choices that benefit others, they create _____, which lead to a _____ quantity than the socially optimal quantity. - private benefits; larger - external benefits; smaller - external benefits; larger - private benefits; smaller
External benefits; smaller
Ofira and Firuze want to find out who has a comparative advantage in cooking a meal. Ofira spends 2 hours cooking a meal and 1 hour cleaning the kitchen. Firuze spends 2 hours cooking a meal and 2 hours cleaning the kitchen. Who has a comparative advantage in cooking a meal, and what is the opportunity cost? - Firuze; one round of cleaning - Ofira; 2 rounds of cleaning - Firuze; two rounds of cleaning - Ofira; one round of cleaning
Firuze; one round of cleaning
New education funding designed to make college more affordable will shift the labor supply curve to the left because it - changes the market wage. - decreases the opportunity cost of working. - decreases the benefit of not working. - increases the benefit of not working.
Increases the benefit of not working
Red tape ultimately has the same effect as a tariff; that is, red tape: - increases trade costs and thus raises the price of imports. - reduces the quantity supplied by domestic sellers. - raises the price of imports and thus increases imports. - raises revenue for the government like tariffs.
Increases trade costs and thus raises the price of imports
How does the supply curve shift when demand is more elastic?
Leftwards - Paid by buyers - Remainder paid by sellers - Seller bears most of economic burden
You and a competitor are the only two producers in a market. You have produced 2,000 items, and your marginal cost is $4.25. Your competitor has produced 3,000 items and now has a marginal cost of $4.00. Marginal benefit is $4.15 at the efficient quantity of 5,500. You should have produced _____, your competitor should have produced _____, and collectively the two of you should have produced _____. - More; less; more - Less; more; more - Less; more; less - More; less; less
Less; more; more
Which of these BEST explains what markets do? - Markets use central planning to make people better off. - Markets reallocate stuff to its best uses, which make people better off. - Markets cause people to specialize in what they have an absolute advantage in. - Markets are where payoffs are linked to whether an uncertain event occurs.
Markets reallocate stuff to its best uses, which make people better off
America's voters have agreed, through the laws passed by their elected officials, that businesses must meet certain _____. - minimum standards - antiâ€dumping laws - national security - infant industry
Minimum standards
Technological changes increased the productivity of drivers in ride-sharing businesses; they spend _____ time driving people and _____ time looking for people to drive. - More; less - Less; more - Less; less - More; more
More; less
What kind of collusion is required in competitive markets for there to be efficient allocation? - Collusion among buyers is required. - Collusion between buyer and seller is required. - No collusion is required. - Collusion among sellers is required.
No collusion is required.
Is it positive or normative economics if: "We should increase taxes because the top 1% of earners make too much money"
Normative
The government sets a quota to solve _____ caused by _____. - overproduction; negative externalities - overproduction; positive externalities - underproduction; negative externalities - underproduction; positive externalities
Overproduction; negative externalities
Government failure often arises because: - politicians make choices that aren't in the best interest of the public. - politicians are too concerned with improving efficiency. - the efficient quantity in a market can be too difficult to determine. - the cost of market failure cannot be determined.
Politicians make choices that aren't in the best interest of the public
While international trade doesn't affect the average wage earned by workers very much, it does_____, even within the United States. - raise some wages while lowering others - increase wages in the manufacturing sector - lower wages in all sectors - lower income inequality
Raise some wages while lowering others
Governments have different reasons for setting binding price floors. Sometimes they are trying to _____ prices in order to help _____. - Raise; sellers - Reduce; sellers - Raise; buyers - Reduce; buyers
Raise; sellers
How do Chinese tea farmers learn about a rise in the popularity of tea in the West? - They observe internal tea markets. - They communicate with buyers through price. - They send messages about the benefits of tea. - They learn that Westerners love tea products.
They communicate with buyers through price
Which is NOT considered a goal of the government in setting a quota instead of imposing a corrective tax? - To increase the marginal private cost to equal the marginal social cost - To have the maximum quantity of good close to the socially optimal quantity - To limit the maximum quantity of a good or service that can be sold - To reduce the negative externalities that each firm creates
To increase the marginal private cost to equal the marginal social cost
When Congress passes an immigration bill restricting the number of foreigners with computer science degrees who can move to the United States, what happens to the labor market for computer programmers? - Wage will increase, and fewer jobs will be available. - Wage will increase, and more jobs will be available. - Wage will decrease, and more jobs will be available. - Wage will decrease, and fewer jobs will be available.
Wage will increase, and fewer jobs will be available
As baby boomers age, more people seek in-home elder care for their aging parents. What happens to the labor market for home-health aids? - Wage will decrease, and more jobs will be available. - Wage will decrease, and fewer jobs will be available. - Wage will increase, and fewer jobs will be available. - Wage will increase, and more jobs will be available.
Wage will increase, and more jobs will be available
Consumer surplus trends on a graph
- Demand curve = willingness to pay - Largest point = longest line = most value - No consumer surplus on the last point as MB = MC - Area between demand curve and the price (area of a triangle)
How firms are affected by increased globalization
- Greater competition (limits firms' abilities to increase prices) - Outsourcing (firms reallocate some tasks overseas) - Larger global market (creating a market for specialized products, increasing variety of goods) - Interdependence increases (benefit from economic growth in other countries)
Negative effects of rent control
- Reduction in supply - Less likely to move - Deterioration and lack of investment
Roles in gains from trade
- Role 1: Price is a signal (how much buyers value their products) - Role 2: Price is an incentive (people respond to price signals because of incentives) - Role 3: Price aggregates information (Make better decisions)
As two housemates divide chores between them, they have to decide who should sweep the floor and who should mow the lawn. In this case, the opportunity cost of sweeping the floor is the _____. - amount of lawn that could have otherwise been mowed - number of hours spent mowing the lawn - number of hours spent sweeping the floor - amount of the house that could have otherwise been swept
Amount of lawn that could have otherwise been mowed
Taxes on buyers decrease _____ to reflect the new _____ marginal benefit, shifting the demand curve to the left. - Supply; lower - Demand; lower - Demand; higher - Supply; higher
Demand; lower
Economic surplus formula
ES = total benefits - total costs
T/F: When price increases, MRP decreases
False - Increases with the formula
When the government imposes a magazine tax of $0.10 per magazine on buyers, the tax reduces the _____ for buyers. Now, buyers are willing to buy a given quantity of magazines only if the sale price before tax is _____. - Prices; lower by $0.10 per magazine - Prices; similar to the price without a magazine tax - Marginal benefits; similar to the price without a magazine tax - Marginal benefits; lower by $0.10 per magazine
Marginal benefits; lower by $0.10 per magazine
The Rational Rule for Society indicates that markets should trade at a level where: - marginal social benefit = marginal social cost. - marginal social benefit = marginal private benefit. - marginal social cost = marginal private cost. - marginal external cost = marginal private cost.
Marginal social benefit = marginal social cost
Market failure
Market achieves an efficient outcome even though no market participant is trying to achieve that goal
A company's success in winning international business will depend on _____ that foreign governments put in place to help protect their domestic businesses from competition. - enforcing minimum wages - competing against unfair trade - protecting national security - navigating the complex government policies
Navigating the complex government policies
What determines wage?
Supply and demand
How does a fall in the price of machinery affect the demand for low-skilled workers and does the substitution effect or the scale effect dominate in this scenario? - The scale effect dominates and leads to a decrease in the demand for low-skilled workers. - The scale effect dominates and leads to an increase in the demand for low-skilled workers. - The substitution effect dominates and leads to an increase in the demand for low-skilled workers. - The substitution effect dominates and leads to a decrease in the demand for low-skilled workers.
The substitution effect dominates and leads to a decrease in the demand for low-skilled workers.
Because free-riders are bystanders who receive benefits from goods, these types of goods tend to be: - underproduced. - overproduced. - more expensive for the free-riders. - less expensive for the free-riders.
Underproduced
Across countries, a study about international trade sought for a relationship between how much a country imports (share of income spent on imports) and the unemployment rate, and found that: - a high unemployment rate causes a country to import. - imports decrease the unemployment rate. - imports increase the unemployment rate. - unemployment is not related to imports.
Unemployment is not related to imports
There are at least two ways to make cars: building them in Detroit, and growing them in Iowa. Growing cars in Iowa actually means that: - we can import corn in exchange for cars. - we can grow corn and export it overseas, in return for new cars. - we can build new manufacturing facilities in Iowa. - we can ship cars to an Iowa distribution center.
We can grow corn and export it overseas, in return for new cars
When sellers and buyers bear the economic burden of a tax, the tax _____ the price buyers pay and _____ the price sellers receive. - Increases; increases; - Decreases; increases - Increases; decreases - Decreases; decreases
Increases; decreases
Enthusiastic to finish your college education, you sign up for six classes for next semester. Halfway through the semester, you realize that you really only had time to invest in four of the classes. This is an example of _____ that lead(s) to market failure. - Externalities - Irrationality - Private information - Market power
Irrationality
Domestic buyers earn consumer surplus when they get to buy a shirt at a price that: - is higher than their marginal benefit. - exceeds their marginal costs. - is lower than their marginal benefit. - equals domestic price.
Is lower than their marginal benefit
Which of the following is NOT in a three-step recipe for evaluating taxes? - How will prices and quantities change in the new equilibrium? - Is the tax affecting other substitutes? - Is the supply or demand curve shifting? - Is that shift an increase or a decrease in taxes?
Is the tax affecting other substitutes?
Which is NOT true about the solutions to externality problems? - Regulations can often blunt the forces of competition. - A cap-and-trade system raises the opportunity cost of creating externalities. - A corrective tax raises the direct financial cost of creating externalities. - Regulations result in the most efficient resolution of externalities.
Regulations result in the most efficient resolution of externalities
Laws, rules, and regulations can be used to remove the externalities in all the following situations, EXCEPT: - the government charging a cigarette tax of around $2.50 per pack. - the law that makes unsolicited "spam" calls to your cell phone illegal. - school rules that require students to be up-to-date on their vaccines. - laws banning smoking in public places.
The government charging a cigarette tax of around $2.50 per pack
The import quota is different from the tariff in that: - the import quota limits the quantity demanded for imported goods. - the government does not gain tax revenue from the import quota. - the import quota is a trade agreement to reduce trade barriers. - the import quota sets the price limit on imported goods.
The government does not gain tax revenue from the import quota
When a company like Google, which allows its workers to widely distribute information, sets up its own prediction market, what is the outcome? - This refers to using internal analysts to do the forecasts. - The internal prediction markets yield less accurate forecasts than analysts do. - The internal prediction markets used yield better, more accurate forecasts. - This creates a knowledge problem due to the abundance of information.
The internal prediction markets used yield better, more accurate forecasts
Advocates of fair trade claim fair trade would yield _____ and higher incomes for foreign workers at _____ in the United States. - better working conditions; the cost of higher prices - better working conditions; the benefit of lower prices - better trade deals; the cost of higher prices - better trade deals; the benefit of lower prices
Better working conditions; the cost of higher prices
International trade has been a growing share of the U.S. economy throughout the entire postwar period. This trend has transformed the economy largely due to: - increased trade barriers. - declining trade costs. - increasing tariffs. - high opportunity costs.
Declining trade costs
Fair trade would yield better working conditions and better income for foreign workers, which would lead to _____ prices and _____ in the United States. - higher; lower quantity demanded - lower; higher quantity supplied - lower; higher quantity demanded - higher; lower quantity supplied
Higher; lower quantity demanded
For goods with negative externalities, do we want quantity to be higher or lower?
Lower
Equilibrium occurs where supply equals demand, or in other words, where: - marginal benefit equals price. - marginal benefit equals marginal cost. - marginal cost equals price. - consumer surplus equals producer surplus.
Marginal benefit = marginal cost
Goods that are _____ and _____ are known as common resources. - excludable; nonrival - excludable; rival - nonexcludable; nonrival - nonexcludable; rival
Nonexcludable; rival
Which of these is NOT one of the curves that provide bounds for deadweight loss? - Marginal benefit - Marginal cost - Actual quantity - Price
Price
_____ is a maximum price that sellers can charge. - Price floor - Price ceiling - Marginal cost - Price-taker
Price ceiling
Overfishing in lakes and oceans produces a(n) _____ benefit to those who consume or sell the fish, but this creates a _____ externality by reducing the number of fish left in those areas. - private; negative - private; positive - external; negative - external; positive
Private; negative
The argument about _____ has a broader interpretation that suggests that we also need to protect domestic sources of food, so that we can eat if today's trading partners become tomorrow's enemies. - saving jobs - enforcing minimum standards - preventing unfair competition - protecting national security
Protecting national security
_____ is a price regulation to set an upper limit on the amount that landlords can charge in monthly rent; this price is the _____ in the rental market. - Mandate; price ceiling - Rent control; price floor - Rent control; price ceiling - Mandate; price floor
Rent control; price ceiling
If a new tax on buyers of $0.20 per book is introduced, the demand curve _____ until it lies $0.20 _____, as measured on the vertical axis. - Shifts left; lower - Shifts right; lower - Shifts left; higher - Shifts right; higher
Shifts left; lower
Which example does NOT apply a subsidy to solve negative externalities? - Your car insurance pays for your car alarm installation. - The insurance company covers your cost of a flu shot. - The government charges a cigarette tax of around $2.50 per pack. - The government pays you for installing solar panels.
The government charges a cigarette tax of around $2.50 per pack
Which best explains when economic surplus should not be measured as the area between the supply and demand curves and left of the efficient quantity? - When any market failure exists - When the government has intervened with taxes - When overproduction occurs - When underproduction occurs
When any market failure exists
Does the global market determine the world price?
Yes, with the world price as given
MPL Examples
You own a barber shop. Hiring a worker will increase the number of haircuts your shop can give from 30 per day to 35. What is the marginal product of labor of that worker? - 5 haircuts Haircuts cost $40 each. What is the marginal revenue product of that worker? - 5 haircuts * $20 = $100
The United States has relatively abundant capital. What abundant inputs drive its comparative advantage? - High cost of living - High labor cost - Labor-intensive mass production - Highly skilled workers
Highly skilled workers
Are hourly wages or hours of work quantities in the labor market?
Hours of work
What does deadweight loss measure?
How far economic surplus falls below the efficient outcome - Measures costs of inefficiency
MRP formula
MPL * Price of good you're selling
Which of these is TRUE regarding how deadweight loss can be created? - Overproduction, not underproduction, creates deadweight loss. - Underproduction, not overproduction, creates deadweight loss. - Both overproduction and underproduction create deadweight loss. - Neither overproduction nor underproduction creates deadweight loss.
Both overproduction and underproduction create deadweight loss
Many buyers use futures contracts to agree to purchase a commodity at a specific time in the future. What is one benefit of looking at the prices of such futures contracts to businesses that produce these commodities? - Businesses can obtain useful information about possible future disruptions to input costs. - Businesses can buy and sell commodities in the internal markets. - Businesses can use opportunity costs to calculate their absolute advantage. - It allows businesses to fully eliminate risk.
Businesses can obtain useful information about possible future disruptions to input costs
On average, U.S. manufacturing workers earn $39 per hour, compared to $3.96 in Mexico. Wages aren't going to be equalized anytime soon, because: - countries with higher wages have higher productivity. - Businesses are willing to pay American workers 10 times more. - higher trade costs do translate into higher wages. - globalization may not force U.S. wages down.
Countries with higher wages have higher productivity
Many people worry that globalization may force U.S. wages down to the low levels seen in countries like China or India. Fortunately, wages aren't going to be equalized anytime soon, because workers in each country have: - different productivity. - trade barriers. - different cultures. - immigration policies.
Different productivity
Which of these is NOT one of the three critiques of economic efficiency? - Judgments based on economic efficiency focus only on the outcome, not the process. - Willingness to pay is affected by ability to pay, not just marginal benefit. - The distributional consequences of policies should be analyzed. - Economic efficiency does not maximize economic surplus.
Economic efficiency does not maximize economic surplus
"Fair-trade" advocates argue that we should pay higher prices for imports—high enough to: - pay for taxes required by trading partners in order to make it fair. - cover the trade cost incurred from international trade. - ensure a reasonable standard of living for the workers involved. - closely match wages in high-wage countries.
Ensure a reasonable standard of living for the workers involved
According to the cost-benefit principle, you should only export a good if the price you'll get for it overseas is sufficiently _____ your local price as to offset _____. - far above; import-related trade costs - well below; import-related trade costs - well below; exportâ€related trade costs - far above; exportâ€related trade costs
Far above; export related trade costs
Price ceilings on prescription drugs in Canada result in: - More generic drugs being available in Canada - Fewer generic drugs - More new drugs being available in Canada - Fewer new drugs
Fewer new drugs being available in Canada
When buyers are worried that sellers know more about a product than they do, buyers tend to make _____ purchases, which in turn creates _____. - More; deadweight loss - Fewer; economic surplus - More; economic surplus - Fewer; deadweight loss
Fewer; deadweight loss
A manager of an advertising company just receives a new project to create a website and produce a video presentation. She must assign these tasks to her team. Alexis can write the content in 4 hours and edit a video presentation in 3 hours. Hoshi can do the content writing in 3 hours and the video editing in 1 hour. Who should do the video editing and why? - Alexa, because she has a comparative advantage in video editing - Hoshi, because he has a comparative advantage in video editing - Hoshi, because he has an absolute advantage in writing content - Alexa, because she has the lowest opportunity cost at 4/3 content production
Hoshi because he has a comparative advantage in video editing
Comparative advantage example
Jamie takes 4 hours to vacuum the house 1 hour to prepare a meal. It takes Helen 4 hours to vacuum the house and 2 hours to prepare a meal. Who has the comparative advantage at vacuuming? - Jamie: 4 hours/1 hour per meal = 4 meal - Helen: 4 hours/2 hours per meal = 2 meals - Helen has comparative advantage at vacuuming
Lakisha and Zara are partners in a small suburban law office. They want to determine who should deal with employment contracts. Lakisha can write a will in 3 hours, or an employment contract in 4 hours. Zara is slower, and it takes her 4 hours to write a will, and 8 hours to write an employment contract. Who has a comparative advantage in writing an employment contract, and what is their opportunity cost? - Lakisha; 4/3 - Lakisha; 3/4 - Zara; 1/2 - Zara; 2
Lakisha; 4/3
Well-functioning markets produce: - the largest possible economic surplus. - the largest possible producer surplus. - the largest possible consumer surplus. - the most equitable outcome.
The largest possible economic surplus
A century ago, it was common for children to work and many people worked until they died. Overtime as wages have risen and the length of the typical workweek has declined, people consume a lot more leisure today. What does this evidence suggest? - The supply curve is backward-bending. - The supply curve is downward-sloping. - The supply curve is upward-sloping. - The supply curve is a vertical line at low wages.
The supply curve is downward-sloping