ECON 201 exam 2

17.C. Which of the following statements regarding​ normative/positive analysis of the minimum wage is​ true

-Positive​ analysis, as represented by the results of this​ study, contribute to the debate on economic policy but in many​ cases, such as the minimum​ wage, it cannot resolve the debate. -Supporters of increasing the minimum wage may consider its​ trade-off to be​ acceptable, while opponents of increasing the minimum wage may consider its​ trade-off to be a bad one. -The result of this study reinforces the​ trade-off involved with the minimum​ wage: Some workers​ gain, while other workers lose.

8.A. Economic efficiency

-is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. -is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum

8.B. Economists define economic efficiency in this way

-to help policymakers understand the negative consequences of price ceilings. -to help policymakers understand the negative consequences of price floors. -to help policymakers understand the negative consequences of taxes. -to illustrate the benefits of a competitive market equilibrium.

10. According to a news​ story, in early​ 2019, sales of beef and pork in Venezuela had declined by 60 percent since​ 2012, and sales of chicken had declined by 74 percent. The government had imposed price ceilings on​ beef, pork, and chicken. ​Source: Juan​ Forer, "Hyperinflation Shatters Venezuelan​ Manufacturing," Wall Street Journal​, March​ 5, 2019. With prices kept low by price​ controls, shouldn't consumers in Venezuela have been buying more​ beef, pork, and​ chicken, (meat) not​less?

A price ceiling set below the equilibrium price will cause consumers to increase their quantity​ demanded, but the quantity of meat farmers supply decreases. Consumers can only buy the quantity of meat farmers offer for​ sale, so the quantity of meat they consume declines.

2.C. Briefly discuss what might account for this result and why it differs from the answer you gave to part​ (a). ​(​Hint: Why was the finding of increased sales of physical books particularly strong for less popular​ books?)

As more books become available as free​ downloads, readers of these books recommend them to other​readers, causing an increase in the demand for both the print and the digital versions of the​ book, particularly among readers who prefer to read a physical book.

4. From 1979 to​ 2015, China had a policy that allowed couples to have only one child.​ (Since 2016, couples have been allowed to have two​ children.) The​ one-child policy caused a change in the demographics of China. Between 1980 and​ 2017, the share of the population aged 14 and under decreased from 36 percent to 18 percent.​ And, as parents attempted to ensure that the lone child was a​ son, the number of male children relative to female children increased. ​Sources: World​ Bank, World Development Indicators​, February​ 2019; and Steven Lee​ Myers, Jin​ Wu, and Claire​ Fu, "China's Looming​ Crisis: A Shrinking​ Population," New York Times​, January​ 21, 2019. How has the​ one-child policy changed the relative demand for goods and services in​ China?

It has undoubtedly shifted away from goods and services appealing to youthful​ buyers, particularly youthful female buyers.

7.A. Consider the following two uses of the word​ "demand" in news​ articles: i. An article in the Wall Street Journal noted that an​ "increase in the price of oil quickly reduces demand for​ oil." ii. A different article in the Wall Street Journal​ noted: "Electric cars are poised to reduce U.S. gasoline demand by​5% over the next two​ decades...." ​Sources: Josh​ Zumbrun, "Oil's Plunge Could Help Send Its Price Back​ Up," Wall Street Journal​, February​ 22, 2015; and Lynn Cook and Alison​ Sider, "U.S. Gasoline Demand Is Likely to​ Slide," Wall Street Journal​, June​ 20, 2016. Do you agree with how the first Wall Street Journal article uses the word​ "demand"?

No, a change in the price of oil affects the quantity of oil​ demanded, not the demand for oil.

8. In late​ 2018, malnutrition was widespread in Venezuela. Writing in an opinion column in the New York Times​, Javier Corrales​ argued, "The government is making the crisis worse by...imposing more price​ controls." ​Source: Javier​ Corrales, "The Venezuelan Crisis Is Part of​ Maduro's Plan," New York Times​, September​ 25, 2018. ​Shouldn't price controls help reduce malnutrition by lowering the price of food so more people can afford​ it?

No. Imposing a price control below the equilibrium price in a market causes the quantity of the good available to consumers to fall because sellers will supply a smaller​ quantity, thereby causing some consumers to go without food that they would have been able to buy in the absence of the price control.

17.A. Ekaterina​ Jardim, Jacob​ Vigdor, and colleagues at the University of Washington concluded that when Seattle raised its minimum​ wage, the effect was to lower​ "the amount paid to workers in​ low-wage jobs by an average of​$74 per month per job in​ 2016." ​Source: Ekaterina​ Jardim, Mark C.​ Long, Robert​ Plotnick, Emma van​ Inwegen, Jacob​ Vigdor, and Hilary​ Wething, "Minimum Wage​ Increases, Wages, and​ Low-Wage Employment: Evidence from​ Seattle," National Bureau of Economic Research Working Paper​ 23532, revised May 2018. a.​ Shouldn't an increase in the minimum wage​ raise, rather than​ lower, the amount paid to​ low-wage workers?

No. The decrease in the quantity of hours worked as a result of the wage increase had to have been relatively large to reduce the total amount workers in​ low-wage jobs received.

11.B. the actual division of the burden of a tax.

No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.

17.B. Does this result mean that no​ low-wage workers in Seattle benefited from the increase in the minimum​ wage?

No. Workers who continued to work the same or slightly fewer hours than they worked before the increase in the minimum wage are better off because their total income increased.

7.C. Because economic surplus is the ____ of the benefit to firms and the benefit to​ consumers, it is the best measure we have of the benefit to society from the production of a particular good or service. For this​ reason, it is appropriate to label economic surplus as ___ surplus.

Sum, Social

7.B. Do you agree with how the second Wall Street Journal article uses the word​ "demand"?

Yes, the article is correct in its use of the word​ "demand."

5.B.The article also explained that New York City experienced an increase in the number of tourists during 2018 and that during the​ year, the Met offered several exhibitions that received good reviews. Does this additional information help you answer the question in part ​(a​)?

Yes, this additional information reinforces the increase in demand for visits to the Met in part​ (a).

12. According to an article in the Wall Street Journal in early​ 2019, the price of oil produced in the United States had increased by 25 percent since the beginning of the year. At the same​ time, U.S. oil production was at a record high. ​Source: Dan​ Molinsky, "Oil Prices Decline as U.S. Crude Production Hits​ Record," Wall Street Journal​, February​ 21, 2019. a. Are these two facts​ alone, holding everything else​ constant, consistent with a movement along the supply curve for​ oil?

Yes. A higher price of oil causes an increase in the quantity of oil​ supplied, which we show by a movement upwards along the supply curve for oil.

18. A black market is

a market in which buying and selling take place at prices that violate government price regulations.

3. On a shopping​ trip, Sofia decided to buy a light blue coat that had a price tag of​ $79.95. When she brought the coat to the​ store's sales​ clerk, Sofia was told that the coat was on​ sale, and she would pay 20 percent less than the price on the tag. After the discount was​ applied, Sofia paid​ $63.96, $15.99 less than the original price. The value of​ Sofia's consumer surplus from this purchase is

at least​ $15.99 since this is the difference between the price Sofia is willing to pay for the coat and the actual price she​ pays, but she could have be willing to pay more than​ $79.95 for the coat.

2.B. The goal of the Google Books project is to produce a digital version of every book ever written. An academic paper by Abhishek Nagaraj of University of​ California, Berkeley and Imke Reimers of Northeastern University analyzed the effect of Google Books on the market for​ print, or​ physical, books. They concluded that for their sample of​ books, "Digitization...increased sales of physical editions by about​ 35%, especially for less popular​ works." ​Source: Abhishek Nagaraj and Imke​ Reimers, "Digitization and the Demand for Physical​ Works: Evidence from the Google Books​ Project," February​ 21, 2019. Does this paper indicate that digital books and print books are substitutes or​ complements? The findings of Nagaraj and Reimer show that digital and print copies of books are

complements because the decrease in the price of digital books to zero is causing an increase in the quantity demanded for print copies of the same book.

14. Economic surplus in a market is the sum of​ _____ surplus and​ _____ surplus. In a competitive​ market, with many buyers and sellers and no government​ restrictions, economic surplus is at a​ _____ when the market is in​ _____.

consumer; producer;​ maximum; equilibrium

1.B. How does consumer surplus change as the equilibrium price of a good rises or​ falls? As the price of a good​ rises, consumer surplus ____, and as the price of a good​ falls, consumer surplus ____

decreases, increases

10. After World War II in​ 1945, the United States experienced a​ "baby boom" as birthrates rose and remained high through the early 1960s. In​ 2011, the first members of the baby boom generation became older than 65. What effect will this have on the market for doctors​? As the first baby boomers become older than​ 65, the

demand curve for doctors will shift to the right.

​2. It's possible to buy many books either as​ print, or​ physical, books or as digital books. A. If the price of digital books​ rises, what would you expect to happen to the demand for print​ books? If many book readers consider print books and digital books to be​ substitutes, then an increase in the price of digital books will

increase the demand for print​ books, shifting the demand curve for print books to the right.

2.B. How does producer surplus change as the equilibrium price of a good rises or​ falls? As the price of a good​ rises, producer surplus ____, and as the price of a good falls, producer surplus ____

increase, decreases

12.B. Is it possible that the supply curve for oil also​ shifted? Suppose you were told that managers at oil firms were convinced that oil prices in the future were going to be significantly lower than they are today. Would this fact help you answer the​ question? Given that managers at oil firms were convinced that oil prices in the future were going to be significantly lower than they are​ today,

it is likely that the supply curve for oil shifted to the right because firms will be more likely to increase the supply of oil today when prices are higher.

17.A. An article discusses the market for autographs by Mickey​ Mantle, the superstar centerfielder for the New York Yankees during the 1950s and​ 1960s: ​"At card​ shows, golf​ outings, charity​ dinners, Mr. Mantle signed his name over and​ over." One expert on sport autographs is quoted as​ saying: ​"He was a real good signer ... He is not​ rare." Yet the article quotes another expert as​ saying: ​"Mr. Mantle's autograph ranks No. 3 of​ most-popular autographs, behind Babe Ruth and Muhammad​ Ali." A baseball signed by Mantle is likely to sell for the relatively high price of​ $250 to​ $400. By​ contrast, baseballs signed by Whitey​ Ford, a teammate of​ Mantle's on the​ Yankees, typically sell for less than​ $150. ​Source: Beth​ DeCarbo, "Mantle Autographs Not​ Rare, but Collectors​ Don't Care," Wall Street Journal​, August​ 4, 2008. Explain how the price of baseballs signed by Mantle could be higher than the price of baseballs signed by Ford. The supply curve for baseballs signed by Mantle should be an​ upward-sloping line that is to the ______ of the supply curve for baseballs signed by Ford.

right

17.B. In order for the price of baseballs signed by Mantle to be higher than the price of baseballs signed by​ Ford, the demand curve for baseballs signed by Mantle must be a​ downward-sloping line that is

significantly to the right of the demand curve for baseballs signed by Ford.

11.A. Tax incidence indicates

the actual division of the burden of a tax.

1.A. Consumer surplus is

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

2.A. Producer surplus is

the difference between the lowest price a firm would be willing to accept and the price it actually receives.

1.A. The law of demand is the assertion that

the quantity demanded of a product is inversely related to its price.

9.A. Cities like San Francisco and New York that require a driver to buy a​ city-issued taxi medallion before the driver can legally operate a taxi are shifting the supply curve for taxis to the left relative to where it would be without the requirement for a medallion. Briefly explain why the supply curve for taxi rides shifts to the left. What is the effect on the market price of taxi rides from the medallion​requirement? The supply curve for taxi rides shifts to the left because

the quantity of taxis available is lower because the city issues only a limited number of medallions. The equilibrium price for taxi rides will increase.

7.B. Deadweight loss is

the reduction in economic surplus resulting from a market not being in competitive equilibrium.

1.B. An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More​ specifically,

the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​consumers' purchasing power.

7.A. Economic surplus is

the sum of consumer surplus and producer surplus.

9.B. According to a news​ report, in​ 2008, medallions in San Francisco were selling for​ $250,000. In late​ 2018, "the market for taxi medallions in San Francisco is now totally frozen. No one has bought or sold one in over two​ years." ​Source: Sam​ Harnett, "Cities Made Millions Selling Taxi​ Medallions, Now Drivers Are Paying the​ Price," npr.org, October​ 15, 2018. Why would taxi medallions have been worth​ $250,000 in​ 2008? Why was it apparently impossible to sell them at any price in​ 2018? In​ 2008,

the taxi business was very profitable in San​ Francisco, and given the small supply of the​ medallions, the equilibrium price skyrocketed. By​ 2018, the increased popularity of rideshare companies like Uber and Lyft made it possible for individuals to provide taxi service without purchasing a medallion.

7. A columnist writing for crainsnewyork.com observes that​ "the central conclusion of the vast majority of economic work on the subject is that rent regulation leads to a deterioration of housing​ stock." ​Source: Greg​ David, "How​ Rent-regulation Changes Will Hurt Housing​ Stock," crainsnewyork.com, April​ 12, 2019. What does the columnist mean by​ "deterioration of the housing​ stock"? Why might rent control lead to a deterioration of the housing​stock? The​ "deterioration of the housing​ stock" means that

what the​ apartments' landlords offer for rent will become rundown and in need of repairs. Rent control reduces the frequency of turnover at a particular​ property, thereby reducing the​ landlord's incentive to properly maintain that property.

9. The distinction between a normal and an inferior good is

when income​ increases, demand for a normal good increases while demand for an inferior good falls.

5. According to an article on​ crainsnewyork.com, in​ 2018, the Metropolitan Museum of Art​ (the Met) in New York City had record attendance of 7.36​ million, an increase of 5 percent over the previous year. During​ 2018, the Met had also increased the price of attendance. ​Source: Miriam Kreinin​ Sinclair, "Met Museum​ Attendance, Revenue up a Year After Imposing​ Fee," crainsnewyork.com, January​ 4, 2019. A. Can we conclude from this information that the demand curve for visiting the Met is upward​ sloping?

​No, it is much more likely that during 2018 there was an increase in demand for visits to the Met.