Econ 102 test 2 hw / clicker / pt questions
Similar to market economies, internal markets help companies:
EFFICIENTLY ALLOCATE SCARCE RESOURCES TO THE BEST USES
The Rational Rule for Buyers tells you to keep buying until price _____ marginal benefit. This means that you earn no consumer surplus on the _____ item(s) you purchase, but you will earn consumer surplus from all _____ purchases.
EQUALS ; LAST ; PREVIOUS
The problem of _____ arises whenever the choices that buyers and sellers make have side effects on others.
EXTERNALITIES
If a new tax on sellers of $0.20 per 20-ounce bottle of soda is introduced, the supply curve shifts _____ until it lies $_____ higher.
LEFT ; 0.20
If a new tax on sellers of $0.35 per 20-ounce bottle of soda is introduced, the supply curve shifts _____ until it lies $_____ higher.
LEFT ; 0.35
When a tax on sellers increases by $0.10, the quantity of gas sold will be _____, and sellers will receive a _____ price after tax.
LOWER ; LOWER
A binding price ceiling can lead to all of the following EXCEPT:
MORE QUANTITY SUPPLIED
Two manufacturers of t-shirts are selling shirts for $10 each. The marginal cost for the first firm is $11, and the marginal cost for the second firm is $9. What should the companies do to increase economic surplus?
8.50
At a price of $20, a restaurant sells 12 pasta dishes. When they lower the price to $12, sales increase to 28 dishes sold. Compute the price elasticity of demand for pasta using the midpoint formula.
= -1.6 , so it is elastic
With price regulation, the new price will be the regulated price, and the quantity sold is determined by the:
FORCES OF SUPPLY AND DEMAND
Economic surplus is also known as:
GAINS FROM TRADE
Reallocation generates _____ because we reallocate tasks to the _____ producer.
GAINS FROM TRADE ; LOWEST COST
Suppose the cross-price elasticity between skis and snowboards in +0.8. If the price of skis were to increase by 20%, we expect the quantity demanded of snowboards to change by ____ because skis and snowboards are ____.
+16% ; substitutes
If the average income in the United States rises by 10%, housing expenditures by homeowners will increase by 5%. Based on this information, what is the income elasticity of demand for housing?
0.5
If the average income in the United States rises by 7%, housing expenditures by homeowners will increase by 4%. Based on this information, what is the income elasticity of demand for housing?
0.57
Calculate the absolute value of the price elasticity of demand if the percentage change in price is 45% and the percentage change in quantity is −27%.
0.6
If the average income in the United States rises by 5%, then housing expenditures by homeowners increase by 3%. Based on this information, what is the income elasticity of demand for housing?
0.6
On weeknights an Uber driver can expect to earn $110 driving a six-hour shift. Surge pricing on Saturday nights means that Uber drivers can expect to earn $140 driving a six-hour shift. On weeknights, there are 200 drivers on the road, which rises to 300 on Saturdays. Calculate the price elasticity of supply of Uber drivers using the midpoint formula.
1.67
Two manufacturers of t-shirts are selling shirts for $10 each. The marginal cost for the first firm is $11, and the marginal cost for the second firm is $9. What should the companies do to increase economic surplus?
1ST FIRM SHOULD PRODUCE LESS ; SECOND MORE
You buy a pair of sunglasses from a manufacturer for $55. You would have been willing to pay $70 for them; it cost the manufacturer $30 to make them. What is the economic surplus created by this exchange?
40
An internal market allows people to buy and sell resources within a company because it leads to the:
BEST USE OF SCARCE RESOURCES
Many buyers use futures contracts to agree to purchase a commodity at a specific time in the future. A futures contract will allow:
BUSINESSES TO OBTAIN USEFUL INFORMATION ABOUT POSSIBLE FUTURE DISRUPTIONS TO INPUT COSTS
Taxi fares, which are often set by the local government, are a form of price _____.
CEILING
Government policy can shape the most personal of decisions, such as whether to get married and how many kids to have, by:
CHANGING THEIR COSTS AND BENEFITS
Which of the following is an example of a market failure due to negative externalities?
Carbon emissions are continuing to increase due to people not sufficiently accounting for the environmental costs their consumption imposes on others
Two firms have marginal costs of $5.75 and $6.75. The marginal benefit to consumers is $5.65. To increase economic surplus the firms should _____ production, and the firm with the marginal cost of _____ should see a greater change in marginal cost.
DECREASE ; 6.75
If the price of eggs were to rise by 12%, and if the price elasticity of demand for eggs is around −0.5, will the quantity demanded for eggs increase or decrease, and by what percent?
DECREASE BY 6%
Taxes on buyers decrease _____ to reflect the new _____ marginal benefit, shifting the demand curve to the left.
DEMAND ; LOWER
Tax incidence describes the:
DIVISION OF ECONOMIC BURDEN OF TAX BETWEEN CONSUMERS AND PRODUCERS
It _____ whether the buyer or seller is assigned by the government to send in the tax; the end result is _____.
DOESN'T MATTER ; THE SAME
What is required in competitive markets for efficient allocation of goods?
EACH BUYER PURSES THEIR SELF-INTEREST
Which of these is NOT one of the three critiques of economic efficiency?
ECONOMIC EFFICIENCY DOES NOT MAXIMIZE ECONOMIC SURPLUS
Whitney and Houston want to find out who has a comparative advantage in washing the car. Whitney spends three hours washing the car and three hours cleaning the house. Houston spends one hour washing the car and three hours cleaning the house. Who has the comparative advantage in washing the car and what is the opportunity cost?
HOUSTON ; 1/3
At home, you decide who should clean the house or shop for groceries. At work, you, as a manager, decide who should run a new advertising campaign, or who should analyze the market trend. What is the underlying question that is similar to both scenarios?
HOW BEST CAN I ALLOCATE THESE TASKS
The price elasticity of supply measures:
HOW RESPONSIVE SELLERS ARE TO PRICE CHANGES
Suppose that puzzles become more popular. The resulting _____ will lead the price of puzzles to rise.
INCREASE IN DEMAND
In a well-functioning market, for quantities to the right of the equilibrium quantity, marginal benefit _____ marginal cost and economic surplus would _____ if sellers produced less.
IS LESS THAN ; INCREASE
Which of these is NOT true of the opportunity cost principle?
IT ALLOWS PEOPLE TO DO A TASK IN WHICH THEY HAVE AN ABSOLUTE ADVANTAGE
Which is the effect of consumer search on demand?
IT MAKES DEMAND MORE ELASTIC
San Diego was recently ranked as one of the least affordable cities in terms of housing costs. The median monthly rent is about $3,000 and the average home price is over a million dollars. You are hired by the city council to explore ways to reduce housing costs. Which of the following ideas would you choose?
Impose price controls on apartment rentals to be set at the national median rent (SD is currently more than twice this price)
Which of the following items is likely to have the least elastic demand?
Insulin, a medicine needed by diabetics to survive
Suppose the government imposes a $4 per pack tax on cigarettes, paid by producers. Assume that the demand for cigarettes is much more inelastic than supply. Given this information, we would expect the price consumers pay to increase by ___ than $2 and they will pay a ___ share of the tax.
More ; larger
Which of these is NOT a correct demand elasticity factor
NECESSITIES HAVE MORE ELASTIC DEMAND
Rank the following goods and services in terms of their elasticity, going from the most inelastic to the more elastic - oranges, cell service, t-mobile cell service, gasoline in short-run
Oranges, t-mobile cell service, cell service, gasoline in short-run
Government failure often arises because:
POLITICIANS MAKE CHOICES THAT AREN'T IN THE BEST INTEREST OF THE PUBLIC
When the government sets a quota on goods sold, the gap between _____ creates an incentive for potential _____ to find a way around the regulation.
PRICE AND MC ; SELLERS
The _____ measures how responsive buyers are to price changes.
PRICE ELASTICITY OF DEMAND
If you rearrange the formula for price elasticity of demand mathematically (in order to express the equation in terms of another variable), the percent change in quantity demanded is equal to:
PRICE ELASTICITY OF DEMAND X PERCENT CHANGE IN PRICE
Governments typically set minimum wages in order to raise the wages received by the lowest wage workers. The minimum wage is a _____.
PRICE FLOOR
Prediction markets are different from other markets in that:
PRICES ARE BASED ON THE FUTURE
E-books are highly price-elastic. For every copy of an e-book sold at $16.00, 75% more copies would have been purchased if the price had been $10.00. If customers would buy 10,000 copies of a particular e-book when priced at $16.00, which price point produces lower revenue?
THE $16 PRICE POINT YIELDS $15K LESS IN REVENUE THAN AT $10
Which of these BEST describes the effect of government regulations on market forces?
THEY CAN ASSIST OR IMPEDE MARKET FORCES
How do Chinese tea farmers learn about a rise in the popularity of tea in the West?
THEY COMMUNICATE WITH BUYERS THROUGH PRICE
The shaded area of a graph represents :
TOTAL REVENUE
Which of the following statements is a normative statement ?
The US should increase tariffs on imports from China to support local firms
Suppose the government imposes a $0.50 per pound tax on sellers of beef. For every pound they sell, beef producers must sent $0.50 to the government. Suppose also that the supply of beed is relatively more inelastic than beef demand. Which of the following best describes the impact of this tax?
The tax will shift the supply curve up and sellers will bear a larger burden of taxation
In which of the following scenarios would you find the highest elasticity of supply (i.e. the seller is most able to respond to price changes with quantity changes?)
The video game industry has backlog of new products in inventory, idle staff/equipment, and low entry costs
The price elasticity of demand for rice, pasta, and/or eggs is _____.
VERY INELASTIC
Why is it sometimes problematic for economists to equate marginal benefits with willingness to pay?
WILLINGNESS TO PAY REFLECTS ABILITY TO PAY IN ADDITION TO MARGINAL BENEFITS
When a regulation is binding, which of these is NOT true?
WITH A QUOTA ON BUYERS, THE GOVERNMENT LIMITS THE PRICE PEOPLE PAY
Do internal markets work the same way as market economies do?
YES, BOTH EFFICIENTLY ALLOCATE SCARCE RESOURCES TO THE BEST USES
You and your roommate are decorating for Halloween. It takes you 3 hours to put up decorations and 2 hours to install lighting. It takes your roommate 4 hours to put up decorations and 4 hours to install lighting. How should you divide up decorating tasks? (compute opp cost)
You should install lighting, your roommate should put ip decorations
Which of the following best describes the gains from trade?
You should specialize in producing the good for which you have the lowest opportunity cost
The government imposes a $2,000 per month price ceiling on two-bedroom apartment rentals in San Diego. This is will above the market price of $3,000. Which of the following would we expect to occur after this binding price ceiling is imposed?
housing shortage, quality of apartment rentals will decline, and consumers will pay higher search costs
When the sign of the cross-price elasticity of demand is positive, it means that you buy _____ of a good when the price of another good goes up.
more
The _____ measures by what percent the quantity demanded will change following a 1% price increase.
price elasticity of demand
The _____ measures how responsive sellers are to price changes.
price elasticity of supply
which of these has the lowest value of the price elasticity of demand?
rice and pasta
Which of the following is most likely due to a binding quota restriction on sellers?
the price increases because a shortage leads to competition among consumers
Suppose the government is offering a $2,000 per unit subsidy to producers of electric cars. For each car they produce, producers will get $2,000 from the government. Suppose further that the supply of electric cars is more elastic than demand. Which of the following best characterizes the effects of this subsidy?
the subsidy will shift supply up and sellers will benefit more
Taxes, price regulations, and quantity restrictions can all be used to:
ACHIEVE THE SAME POLICY OBJECTIVES
When you know how to interpret the price, you can make better decisions. This is another role of price, that it:
AGGREGATES INFORMATION
Feeding America has discovered that the forces of supply and demand can _____ than their managers can.
ALLOCATE THE DONATED FOOD MORE EFFICIENTLY
What is an outcome of using comparative advantage to reallocate tasks to the lowest-cost producer?
AN EXTRAORDINARY DEGREE OF SPECIALIZATION
_____ occurs when goods are distributed to buyers in the way that creates the largest economic surplus from those goods.
EFFICIENT ALLOCATION
Which concept is most relevant to the question, "Which businesses should produce a lot, and which should produce only a little?"
EFFICIENT PRODUCTION
If the government effectively limits the quantity sold, the quantity consumed will _____ and the price will _____.
FALL ; RISE
Whenever two demand curves pass through the same point, the _____ demand curve is the _____ elastic demand curve.
FLATTER ; MORE
Of the following goods that are subject to per unit taxes, which do you think will impose the largest burden on consumers. Stated differently, the burden of taxation is split between sellers and consumers. Which of the following would impost most of the burden on consumers?
Gasoline
What happens to the elasticity of demand as we move down the demand curve (increase quantity demanded)?
It increases (upper part of demand curve elastic, bottom inelastic)
Supply is elastic if the price elasticity of supply is:
LARGER THAN ONE
The efficient quantity is the quantity that produces the:
LARGEST POSSIBLE ECONOMIC SURPLUS
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 _____.
LESS ; MORE ; MORE
Internal markets refer to:
MARKETS WITHIN A COMPANY TO BUY AND SELL SCARCE RESOURCES
Elasticity is mainly about:
MEASURING HOW RESPONSIVE PEOPLE ARE TO CHANGING CONDITIONS
If you use comparative advantage to assign tasks, you can produce _____. Each task should be assigned to the person with the _____ opportunity cost.
MORE ; LOWEST
Specific brands typically have _____ close substitutes, and therefore demand for these goods is typically _____ elastic than demand for categories of goods.
MORE ; MORE
An example of gains from trade is that people sell their labor for money and spend that money on food because:
MORE BENEFITS CAN BE HAD BY SPECIALIZING IN ONE TASK AND THEN TRADING FOR OTHER GOODS AND SERVICES THAN DOING EVERY TASK BY ONESELF
Easy entry into and exit from a market makes the supply _____.
MORE ELASTIC
The extraordinary symphony of productive effort that led to the production of Milton Friedman's pencil was conducted by the _____. This provides a message and an incentive to act and aggregates the information needed to decide how to act.
PRICE SYSTEM
We measure the income elasticity of demand as the ratio of the percent change in _____ to the percent change in _____.
QUANTITY DEMANDED ; INCOME
Governments may restrict the quantity of alcohol supplied by limiting the:
QUANTITY OF BUSINESSES THAT CAN SELL ALCOHOL BY REQUIRING LIQUOR LICENSES
Governments typically set minimum wages in order to _____ the wages received by the lowest-wage workers. The fact that the quantity _____ declines is an undesirable side effect.
RAISE ; DEMANDED
When prices _____, new businesses may enter the market. When prices _____ some businesses may exit.
RISE ; FALL
Which of the following policies would be considered economically efficient ?
Raising taxes on the 1% and using this revenue to invest in education and infrastructure hurts the top 1% and benefits the bottom 50%. Overall economic surplus increases
Put the following goods in order of their income elasticity of demand from the smallest to the largest
Rent, check-cashing services, concert tickets
Suppose that after you increase price by 10%, quantity demanded falls by 15%. Given this information...
Revenue decreased due to you raising prices when demand was relatively elastic
The price elasticity of supply may be quite small in the _____, but it is typically much larger over the _____.
SHORT RUN ; LONG RUN
A supercenter provides more variety of goods than a small store does. You will find that you are more price sensitive when you shop at a _____ because _____.
SUPERCENTER ; IT WILL PROVIDE CLOSE SUBSTITUTES TO SOMETHING YOU WANT
Quotas set by the government limit taxis in many cities. A quota that restricts _____ leads to higher prices and a _____ quantity sold.
SUPPLY ; LOWER
In a particular market, 3,000 products are sold every month. A new government policy restricts the quantity sold to 2,500. This allows sellers of the product to raise prices, increasing producer surplus in the market by $7,000, but decreasing consumer surplus by $9,000. What is the deadweight loss associated with the policy?
2000
You make boba tea for $4 and sell it to a customer for $8. The customer would have been willing to pay $11 for the boba tea. What is the total economic surplus?
7