ecc exam 2

1. When the marginal cost of producing sweet potatoes equals the marginal benefit, the sweet potato producer has:

b. reached the optimal quantity to produce.

12. Which area on a graph showing a firm's supply curve represents producer surplus?

b. the area above the supply curve up to a line indicating price

5. When demand is perfectly elastic:

b. the demand curve is horizontal.

8. Regardless of the price of ice cream, Charlie spends $5 a week on ice cream. What can we conclude about Charlie's demand for ice cream?

a. His income elasticity of demand for ice cream is equal to one.

10. Mario is willing to mow one lawn for $18; he will mow a second for $22, and a third for $28. Assume that the market rate for lawn mowing is $24. How many lawns will Mario mow? What will be his total revenue? What will be his producer surplus?

a. Mario will mow two lawns for a total revenue of $48, and his producer surplus will be $8.

8. Economic theory asserts that:

b. both producers and consumers gain from trade.

13. The graphical result of a price floor is:

b. quantity supplied exceeds the amount at the equilibrium price and quantity demanded is less than the amount at the equilibrium price.

6. A binding price floor is designed to:

b. raise the price above the equilibrium price.

3. During a drought, the price elasticity of demand for water is less than one. During a flood, the price elasticity of demand for water is greater than one. This means that the:

b. demand for water is inelastic during a drought and elastic during a flood.

1. Which of the following is not a predictable result of a price ceiling?

b. exorbitant profits for producers of the good

8. When the implicit cost of capital is positive, then the:

b. firm's economic profit will be less than its accounting profit.

8. A binding minimum wage is a type of:

b. price floor.

5. Graciela is willing to sell 1 dozen roses for $50, while Giuseppe is willing to sell 1 dozen roses for $60. Carlos is willing to buy 1 dozen roses for $60, while Yuriko is willing to pay $50. If the market price is $52, how many roses are sold and what is the sum total of consumer and producer surplus after the transaction(s)?

a. One dozen roses will be sold, and the total consumer and producer surplus will be $10.

4. Which of the following is a likely result of a price floor imposed on providers of a particular service?

a. The service providers will offer an inefficiently high quantity.

11. Market failure arises when the market fails to:

a. achieve an efficient outcome.

2. Why did the U.S. experience a gasoline shortage in 1979?

a. because the price of gas was legally prevented from rising to its equilibrium level

9. Economic theory asserts that:

a. both implicit costs and explicit costs are relevant in decision making.

2. What do you have to know to calculate the price elasticity of demand?

a. how much of the good was purchased at each of two different prices

11. To the extent that a firm incurs an implicit cost of capital:

a. its economic profit will be less than its accounting profit.

12. The graphical result of a price ceiling is:

a. quantity demanded exceeds the amount at the equilibrium price and quantity supplied is less than the amount at the equilibrium price.

10. The demand for a good becomes relatively more elastic as:

a. substitutes for the good become more available.

3. Samia is willing to pay $10 for one bracelet and $5 for a second. Isabella is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, what is the total consumer surplus after Samia and Isabella make their purchases?

b. $6

3. Matt estimates the marginal benefit of eating one slice of pizza at $3. The marginal benefit of the 2nd slice is $2, the marginal benefit of the third slice is $1, and the marginal benefit of the 4th slice is $0. If the price is $1.50 per slice, to maximize his net benefit Matt should eat:

b. 2 slices.

5. Which group would be most likely to benefit from a binding price floor imposed on wheat?

b. Sellers of wheat who are seeking higher prices.

6. A bank increased its fees for processing personal checks from 18 cents to 24 cents per check. In a statement accompanying the announcement, the bank said that some customers who reduce the number of checks they write would see no change in their overall account fee. What is the implication of this statement for these customers?

b. The price elasticity of demand for check writing is greater than one.

7. If the price elasticity of demand for an annual magazine subscription is 1.6 in the range between $26 and $30, what happens in the market when the subscription price rises from $26 to $30?

b. There will be a decrease in the total revenue the magazine collects on its subscriptions.

10. A price ceiling is presented graphically as:

b. a price below equilibrium.

6. Which of the following is a marginal decision, rather than an either-or decision?

c how much money to invest in your savings account

4. Javier and Pierre each want to buy an ice cream cone. Javier is willing to pay $2.50 and Pierre is willing to pay $4.00. If the ice cream cone costs $2.25, what is the total consumer surplus after Javier and Pierre make their purchases?

c. $2.00

7. Which of the following is not an instance of market failure?

c. A bad harvest increases the price of oranges.

9. If a price floor is imposed above the equilibrium price in a market, what is the effect?

c. A surplus results.

2. Ahmed, Boris, Roberto, and Sunil all want to attend a football game. The admission price is $48. Ahmed is willing to pay $59 for the ticket. Boris is willing to pay $39. Roberto is willing to pay $45 and Sunil is willing to pay $55. Based on this information, who will go to the game?

c. Ahmed and Sunil

11. A price floor is presented graphically as:

c. a price above equilibrium.

4. In order to maximize the net gains from an activity, a Maeva should choose the quantity at which the marginal:

c. benefit is equal to the marginal cost.

10. How do people maximize net gains from the decisions they make?

c. by pursuing an activity until marginal cost equals marginal benefit

7. In economic analysis marginal analysis is used to:

c. decide how much of something is the optimal amount.

9. If the price elasticity of demand (calculated using the mid-point method) for -eBooks is 2.5, and the price of e-Books rises from $18 to $22, then the quantity demanded will:

c. decrease by 50%.

2. Jesse wants to maximize her net gains from working. She estimates that the 12th hour of work per week yields $10 of additional monetary and nonmonetary benefits, but involves $9 in additional costs. She should:

c. definitely work the 12th hour since doing so raises her net gain from working.

1. The price elasticity of demand measures the responsiveness of the quantity:

c. demanded to changes in price.

4. Bar owners often offer lower beer prices to women than they do to men. This will increase bar revenues:

c. if women have an elastic demand for beer.

7. A binding price ceiling is designed to:

c. keep the price below the equilibrium price.

5. The principle of marginal analysis is useful when trying to:

c. make decisions that maximize net gains.

11. What determines the price elasticity of supply?

c. the ease with which suppliers can expand production of the good

15. Producer surplus is positive when:

c. the price the producer is willing to charge is less than the market price.

3. Which of the following statements regarding price floors is true?

d. Price floors are intended to help certain people, but they have side effects that may harm others in predictable ways.

12. What situation would make the demand for new cars relatively more price elastic?

d. There is a plentiful supply of used cars.

6. In a voluntary exchange:

d. both the producer and the consumer can experience a net benefit.

9. An efficient outcome is one in which:

d. no individual can be made better off without making someone else worse off.

1. Consumer surplus is:

d. the difference between the price that consumers are willing to pay for a good and the amount they actually pay.

13. Producer surplus is:

d. the difference between the price that producers receive and the amount for which they are willing to sell the good.

14. Consumer surplus is positive when:

d. the price the consumer is willing to pay is more than the market price.