ECO 2314 EXAM 2
When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of
Moral hazard
If the tariff was replaced by a quota which limited rice imports to 16 million pounds, the amount of revenue received by rice importers would equal
$16 million
When output level is 100, what is the total cost of production
$2,000
Figure 11-7 When the output level is 100 units average fixed cost is
$8
Calculate the income elasticity if an 8% increase in income leads to a 4% increase in quantity demanded for organic produce
0.5
Suppose a 4% increase in price results in a 2% increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.
0.5; the product is inelastic
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Midpoint formula
1.62
With the tariff in place, the united states produces
15 million pounds of rice
The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10%. What was the percentage change in price that brought about this change in quantity demanded?
2.5%
Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand?
2.69
The price of soup is $2 per cup and the price of a sandwich is $3. Keita has $18 to spend on these two goods. If Keita maxims her utility, how many units of each good should she buy?
3 cups of soup and 4 sandwiches
With the tariff in place, the united states consumes
31 million pounds of rice
Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now?
4 cups of soup and 5 sandwiches
Without the tariff in place, the united states consumes
42 million pounds of rice
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is
5 utility units
If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is
57 utility units
As a result of the tariff, domestic producers increase their quantity supplied by
6 million pounds of rice
Without the tariff in place, the united states produces
9 million pounds of rice
What is the area of consumer surplus after the imposition of the quota?
A + G + H
Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?
A 1% increase in the price of grapefruit leads to a 6% increase in orange juice consumption
Suppose the value of the price elasticity of demand is -3. What does this mean?
A 1% increase in the price of the good causes quantity demanded to decrease by 3%
Suppose the value of the price elasticity of supply is 4. What does this mean?
A 1% increase in the price of the good causes quantity supplied to increase by 4%
Which of the following is a factor of production that generally is fixed in the short run
A factory building
The tariff revenue collected by the government equals the area
E
A characteristic of the long run is
All inputs can be varied
The law of diminishing marginal returns
Applies only in the short run
A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called?
Asymmetric information
What is the area of domestic producer surplus after the imposition of a quota?
B + C
What is the area that represents the deadweight loss as a result of the quota?
E + M
The increase in domestic producer surplus as a result of the tariff is equal to the area
C
the loss in domestic consumer surplus as a result of the tariff is equal to the area
C + D + E + F
A. shampoo and conditioner B. iPhones and earbuds c. a laptop computer and desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have cross-price elasticity of zero?
E only
If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could
Change price a little bit and observe what happens to total revenue
Diminishing marginal product of labor occurs when adding another unit of labor
Changes output by an amount smaller than the output added by the previous unit of labor
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
Demand is likely to be relatively inelastic
Figure 11-3 For what quantity of labor does production start to display diminishing returns
For more than 4 units of labor
A demand curve that is horizontal indicates that the commodity
Has a large number of substitutes
Price elasticity of demand measures
How responsive quantity demanded is to a change in price
With the tariff in place, the united states
Imports 16 million pounds of rice
If demand is inelastic, the absolute value of the price elasticity of demand is
Less than one
Last year, sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and sefton purchased 80 pounds of potatoes. All else constant, sefton's income elasticity of demand for potatoes is
Negative, so sefton considers potatoes to be an inferior good
Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?
Network externalities
Long-run cost curves are u-shaped because
Of economies and diseconomies of scale
Cross-price elasticity of demand is calculated as the
Percentage change in quantity demanded of one good divided by percentage change in price of a different good
Represents demand for ice cream. Which of the following statements is true?
Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream
Marginal utility can be
Positive, negative, or zero
The relationship between the inputs employed by a firm and the maximum output that it can produce with those inputs is the firm's
Production function
If a 35% increase in price of golf balls led to a 42% decrease in quantity demanded, then the demand for golf balls is
Relatively elastic
When there's few close substitutes available for a good, demand tends to be
Relatively inelastic
One reason why adverse selection problems arise in health insurance markets is that
Sick people are more likely to want health insurance than healthy people
The marginal product of labor is defined as
The change in output that a firm produced as a result of hiring one more worker
If the absolute value of the price elasticity of demand for aspirin equals 0.8 then
The demand for aspirin is inelastic
When the price of ice cream cones increases from $2 to $3, quantity demanded decreases from 4 ice cream cones to 3 ice cream cones. This change in quantity demanded is due to
The income and substitution effects
When demand is elastic, a fall in price causes total revenue to rise because
The increase in quantity sold is large enough to offset the lower price
If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
The law of diminishing marginal utility
Fancy footwear's marginal product of labor and average product of labor curves in the short run Which of the following statements correctly describes the curves in the figure?
The marginal product of labor cure is represented by curve B and the average product of labor curve is represented by curve A
Most people would prefer to drive a luxury car that has the options, but more people buy less expensive cars even though they could afford the luxury car because
The marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars
The slope of a demand curve is NOT used to measure the price elasticity of demand because
The measurement of slope is sensitive to the units chosen for price and quantity
Avner is maximizing total utility by buying sports magazines and protein supplements. For him to buy more sports magazines
The price of sports magazines has to fall
A network externality occurs when
The usefulness of a good is affected by how many other people use the good
Significant downside to network externalities is that
There may be large switching costs to consumers of changing products so that consumers end up using products with inferior thecnologies
The tariff causes domestic consumption of rice
To fall by 11 million pounds
the basic activity of a firm is
To use inputs to produce outputs of goods and services
Perfectly inelastic demand is represented by a demand curve which is , and relatively inelastic demand is represented by a demand curve which is .
Vertical; downward sloping
Which of the following is an example of a long-run adjustment
WalMart builds another supercenter
If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she
Wants to consume more ankle socks and fewer bandanas
If the slope of a demand curve is equal to -0.1 then
We don't know whether the demand is elastic or inelastic
If the percentage increase in price is 15% and the value of the price elasticity of demand is -3, then quantity demanded
Will decrease by 45%
All of the following products are likely to have significant network externalities except
cat food
If the cross-price elasticity of demand for computers and software is negative, this means the two goods are
complements
Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is
inelastic
Economists assume that the goal of consumers is to
make themselves as well off as possible
The processes a firm uses to turn inputs into outputs of goods and services is called
technology