EC 202 Midterm 1

Which of the following would be considered in a cost-benefit analysis to decide if a person should cycle to work or ride the subway? (i) The air pollution that the cyclist has to breathe.(ii) The cost of subway tickets.(iii) The time it takes to cycle to work versus the time it takes to ride the subway to work.(iv) The cost per gallon of gasoline.

(i), (ii) and (iii)

The United Kingdom plans to end the use of gas-powered and diesel-powered cars by the year 2040. At the same time, car manufacturers, such as General Motors and Nissan, are increasing the number of electric car models they produce. Based on this information, which of the following statements is/are correct?(i) If the supply of new electric cars is greater than the demand for new electric cars, then the price of electric cars will fall in the future.(ii) The demand for gasoline will fall in the future.(iii) The demand for electricity will rise in the future.(iv) The demand for diesel will rise in the future.

(i), (ii), and (iii)

Which of the following are correct about fixed costs?(i) They do not change with the level of production in the short run.(ii) They include variable costs.(iii) They are present even when the firm is producing zero units.(iv) They are irrelevant to marginal cost.

(i), (iii), and (iv)

Which of the following events would lead to a shift of the supply curve from Old supply to New supply? (to the right) A) increased taxation of raw materials used by producers B) a natural disaster that causes a shutdown of production C) technological advance in production techniques D) a decrease in the size of the market

A) technological advance in production techniques

When demand decreases what happens to price and quantity?

Both price and quantity move together with demand.

When there is a shortage of highly skilled workers in a particular region, the: A) demand for skills education decreases. B) supply of jobs for highly skilled workers increases. C) demand for skills education increases. D) demand for highly skilled workers increases.

C) demand for skills education increases.

When there is a shortage of highly skilled workers in a particular region: A) unemployment rises among highly skilled workers. B) there is a corresponding surplus of low-skilled workers in the region. C) highly skilled workers can negotiate higher salaries. D)the incomes of highly skilled workers fall.

C) highly skilled workers can negotiate higher salaries.

examples of perfectly competitive market?

Clothing, Ebay (many buyers and many sellers)

what is when buying an additional item yields a smaller marginal benefit than the previous item.

Diminishing marginal benefit

A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate?

Diminishing marginal product

What does not depend on quantity?

Fixed costs

if I increase the price of a good..

I increase quantity supplied (NOT supply)

Factors That Shift Demand:

Income Preferences Price of complements and substitutes Expectations Congestion and network effects Type and number of buyers

what shifts individual and market supply curves:

Input prices Productivity and technology Prices of related outputs Expectations

When supply increases what happens to price and quantity?

Lower equilibrium price and higher equilibrium quantity

Consumer surplus =

Marginal benefit - price

When you calculate marginal costs they should include?

ONLY variable costs

Produce Surplus =

Price - Marginal cost

Law of Demand

Quantity demanded is higher when the price is lower, holding everything constant.

if the prices of complements-in-production fall.

Supply will decrease (shift to the left)

if the prices of substitutes-in-production rise what will happen?

Supply will decrease (shift to the left)

if the prices of complements-in-production rise what will happen?

Supply will increase (shift to the right)

if the prices of goods that are substitutes-in-production fall what will happen?

Supply will increase (shift to the right)

Producer Surplus

The benefit you get from selling something

Consumer Surplus

The economic surplus you get from buying something

Efficient Outcome

The efficient outcome yield the largest possible economic surplus.

Which of the following is NOT a factor that can shift supply?

The market price of a product.

You eat M&Ms every day. When you go to the store to buy some, you find that M&Ms are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive?

The supply of cacao beans, used to produce chocolate, has fallen around the world.

You're shopping online, and you place an item in your virtual cart. Two days later, you return to the virtual cart to check out and find that the item is now more expensive. Assuming that the market is competitive, what could explain the price increase?

There is a shortage of the item.

Do variable costs depend on quantity?

Yes

A rise in input prices; a decrease in the number of sellers in the market; a rise in the price of a substitute-in-production would cause what?

a decrease in the supply of an item

A normal good is:

a good for which higher income causes an increase in demand.

A seller at a farmer's market wants $10 for a bag of 10 apples. You think his price is too high, so you counter with an offer of $6 for the bag. The seller then offers you a much smaller bag of five apples for $6. You bargain again, and the seller lets you buy the 10 apples for $8. This scenario is an example of:

a market in action.

Decrease in demand:

a shift of the demand curve to the left

Increase in demand:

a shift of the demand curve to the right

Producer Surplus is the area?

above the supply curve and below the price

Quantity demanded is on the horizontal axis when you plot a demand curve and shows the:

amount of a good that a person is willing to buy at each price.

Graphically, shortages will always occur:

at prices below the equilibrium price.

why are supply curves upward sloping? due to what?

bc of rising marginal cost due to diminishing marginal product and rising input costs

Consumer surplus is the area?

below the demand curve and above the price line.

The rational rule for buyers

buy more of an item if its marginal benefit is greater than (or equal to) the price.

demand think like a?

buyer

Changing price will?

cause movement along the demand curve

Higher prices next year?

decrease your supply currently

marginal benefit

demand

inferior good

demand decreases when income rises

normal good

demand increases when your income is higher

An equilibrium price is:

determined by the intersection of the demand and supply curves.

As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will:

fall, due to a rise in supply.

complementary goods (and example:)

goods that go together (hot dogs and hot dog buns)

substitute goods (and example:)

goods that replace each other (coke and pepsi)

The interdependence principle:

implies that buyers decisions are affected by many factors other than the price of an item.

A rational buyer will:

keep buying a product until marginal benefit equals price.

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:

multiply the individual supply of one of the suppliers by ten.

Changing price will _____ shift demand curve, It will cause _______ along

never and movement

how to find equilibrium quantity in a market?

point where quantity demanded is the same as quantity supplied

demand curve vertical (y)axis?

price

Keep buying until

price = marginal benefit

Movement along the demand curve caused by?

price changes ONLY

(Figure: Market for Luxury SUVs) Which of the following graphs shows what will happen to the supply curve for luxury SUVs, if economists predict an increase in demand for these vehicles?

price would go up and quantity supplied would increase

Graphically, the equilibrium quantity can be identified as the:

quantity corresponding to the intersection of the demand and supply curves.

Demand curve horizontal (x)axis?

quantity demanded

A shortage occurs when:

quantity demanded exceeds quantity supplied.

When price is below equilibrium

quantity demanded exceeds the quantity supplied (shortage)

When price is above equilibrium price:

quantity supplied exceeds the quantity demanded (surplus)

Law of Supply

quantity supplied to be higher when the price is higher

Rational rule for sellers:

sell one more item if the price is greater than (or equal to) the marginal cost.

supply think like a?

seller

A coffee shop opens next to an existing coffee shop. Which of the following graphs shows the effect of this new coffee shop on the market supply curve for coffee in this area?

shift in supply curve to the right (increase in supply)

decrease in supply?

shifts supply curve to the left

increase in supply?

shifts supply curve to the right

marginal cost

supply

Equilibrium is achieved when

supply and demand are equal

when input prices rise?

supply decrease (shifts to the left)

What happens to supply when businesses shut down

supply decreases

What happens to supply when new businesses enter the market?

supply increases

Downward-sloping demand means:

that as the price gets lower, the quantity demanded gets larger.

An individual demand curve is a graph:

that plots the quantity of an item that someone plans to buy, at each price.

Paint and paintbrushes are complements. If the price of paint rises, we can expect:

the demand for paintbrushes to decrease.

Kathleen eats more steak when the price is low, and less when the price is high illustrates what?

the law of demand

diminishing marginal benefit:

the marginal benefit of each additional item is smaller than the marginal benefit of the previous item.

diminishing marginal product

the marginal product of an input declines as you use more of that input

How can equilibrium price be found in a market?

the price where quantity demanded = quantity supplied

what is the only thing that shifts the market supply curve.

the type and number of sellers

if prices and quantities move in the same direction?

then the demand curve has shifted (it's possible that supply may have also shifted.)

If prices and quantities move in opposite directions?

then the supply curve has definitely shifted. (it's possible that demand may have also shifted.)

A downward-sloping demand curve implies:

there is an inverse relationship between price and quantity demanded.

If a store runs a sale on a product to clear out its stock, we can conclude that:

there was a surplus of the product in the store.

True or False: Equity is simply going to maximize the total benefit?

true

Variable costs are the costs that

vary with the quantity of output produced.

An equilibrium in a market occurs:

when the quantity supplied equals the quantity demanded.

Diminishing marginal benefit explains

why your demand curve is downward-sloping.

A change in the price ______ cause a shift in demand.

will not

is equity ignored by efficiency?

yes