econ 201 exam 2
Consider the market for gasoline illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium. Now suppose the government imposes a gasoline tax of $1.50 to be paid for by producers. The effect of this tax is illustrated in the figure to the right. Who bears the burden of the tax? Consumers pay -----of the $1.50 tax (enter a numeric response using a real number rounded to two decimal places) and producers pay -----of the tax
$1; $.50
Consider the information given in the table on four consumers in the market for orange juice. Consumer Highest Price Willing to Pay Jill $4 Jose 3 Josh 2 Jordan 1 If the price of a bottle of orange juice is $0.75, the total consumer surplus received by these consumers is Suppose the price of a bottle of orange juice rises to $1.50. Once the price of a bottle of orange juice rises to $1.50, the total consumer surplus received by these consumers is If the price of a bottle of orange juice is $0.75, then consumer surplus is an amount equal to the area If the price of a bottle of orange juice is $1.50, then consumer surplus is an amount equal to the area
$7; $4.50; under the demand curve and above the $.75 price for each individual who buys and consumes orange juice; under the demand curve and above the $1.50n price for each individual who buys and consumes orange juice
The figure illustrates the market for apples in which the government has imposed a price floor of $13 per crate. How many crates of apples will be sold after the price floor has been imposed? -----million crates of apples per year. Will there be a shortage or surplus? If there is a shortage or surplus, how large will it be? There will be a ----- of --- million crates of apples per year. (Enter your response as an integer.) Will apple producers benefit from the price floor
16; surplus of 18; all of the above
Consider the market for gasoline, illustrated in the figure to the right. The equilibrium quantity of gasoline is 1------million gallons (enter a numeric response using a real number rounded to two decimal places) and the equilibrium price is ---- per gallon. If instead the market price were $1.75, then there would be a shortage of ----- million gallons.
17.5, $2.50, 10.5
Assume the figure to the right illustrates the market for houses for sale in a small city. Suppose the market price of houses is $175,000. How large will the resulting surplus be? At a price of $175,000, there will be ----- surplus houses. (Enter your response as a whole number.) What is the equilibrium price of houses? The equilibrium price is $----- (Enter your response as a whole number.)
200; $150,000
To take advantage of high prices for snow shovels during a snowy winter, Alexander Shovels, Inc., decides to increase output. b. The success of Nike and Adidas athletic shoes leads more firms to begin producing athletic shoes. c. In the six months following the Japanese earthquake and tsunami in 2011, production of automobiles in Japan declined by 20 percent.
4, 3, 1
The United States produces beef and also imports beef from other countries. The graph to the right shows the supply and demand for beef in the United States, under the assumption that the United States can import as much as it wants at the world price of beef without causing the world price of beef to increase. a. How much beef does the United States import at the world price(WP)? Now suppose that the United States imposes a tariff on beef of $0.50 a pound. How much beef is now imported? Do domestic producers of beef gain or lose when the United States imposes a tariff on beef? Does the government gain or lose when the United States imposes a tariff on beef? Do domestic consumers of beef gain or lose when the United States imposes a tariff on beef?
500; 200; gain; gain; lose
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.
The graph shows the effect on consumer surplus, producer surplus, government tariff revenue, and economic surplus of a tariff of $1 per unit on imports of plastic combs into the United States. Use the areas denoted in the graph to answer the following questions. Which area(s) shows the total loss to U.S. consumers as a result of the tariff on combs? Which area(s) shows the amount of surplus transferred from consumers to producers as a result of the tariff on combs? Which area(s) show the deadweight loss to the U.S. economy as a result of the tariff on combs?
A+B+C+D; A; B+D
In the diagram to the right, illustrating a binding price floor at P1, the amount of consumer surplus transferred to producers is represented by area ---and the deadweight loss is equal to areas--
B; C and E
Using the graph to the right, determine the effect on consumer surplus and producer surplus of a shift in the supply curve from S1 to S2. Consumer surplus increases by areas; producer surplus changes from areas; economic surplus changes from areas
BCD; BE to areas EFG; ABE to areas ABCDEFG
Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the diagram, deadweight loss is equal to the area(s):
C & E
As illustrated in the diagram, when a nation moves from autarky to free trade, economic surplus increases by the areas represented by
C and D
The diagram on the right represents a tariff imposed on an individual market. The total deadweight loss (loss in economic surplus) from this tariff is illustrated by areas
C and D
In the diagram to the right, illustrating a binding price ceiling at P3, the amount of producer surplus transferred to consumers is represented by area --- and the deadweight loss is equal to areas---
C; B and D
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.
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.
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? Does this result mean that no low-wage workers in Seattle benefited from the increase in the minimum wage? Which of the following statements regarding normative/positive analysis of the minimum wage is true?
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; 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.; All of the above are true
do the people who are legally required to pay a tax always bear the burden of tax?
No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government
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."
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).
Indicate which of the following could cause a movement from point A to C. (Check all that apply.)
a fall in buyer incomes and a rise in vegetarianism
A black market is
a market in which buying and selling take place at prices that violate government price regulations
economists define economic efficiency in this way
all of the above.....to help policymakers understand the negative consequences of price floors.; to help policymakers understand the negative consequences of taxes.; to help policymakers understand the negative consequences of price ceilings.; to illustrate the benefits of a competitive market equilibrium.
Imagine that the curves shown in the accompanying figure represent two demand curves for traditional wings (basket of six) at Buffalo Wild Wings. Further assume that wings are a normal good. The movement from point A to B on D1 is caused by
an increase in the price of baskets of traditional wings
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.
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 been willing to pay more than $79.95 for the coat
On the diagram to the right, a movement from A to C represents a
change in demand
On the diagram to the right, a movement from A to B represents a
change in quantity supplied
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
--------surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram by area ------
consumer; A
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
Consider the market for sugar illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of p2 and a quantity of Q2. Now suppose the government applies a price floor of p3. Compared with the market-clearing equilibrium, consumer surplus would
decrease by area E
As the price of. good rises, consumer surplus ---------, and asa the price of a good falls, consumer surplus----
decreases; increases
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 medicine? As the first baby boomers become older than 65, the
demand curve for medicine will shift to the right
Consider the market for eggs illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of 5 cents and a quantity of 50 (thousand). If the price were 3 cents instead of 5 cents, then consumer surplus would In turn, producer surplus would Consequently, at a price of 3 cents, deadweight loss would equal
increase by area C and decrease by E; decrease by C and F; areas E and F
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
As the price of a good rises, producer surplus -----, and as the price of a good falls, producer surplus ----
increases; decreases
Consider the market for the Nissan Xterra. Suppose the price of metal, which is an input in automobile production, decreases. Use the line drawing tool to show how this affects the supply of Nissan Xterras by drawing a new supply curve. Properly label this line. Carefully follow the instructions above, and only draw the required objects. According to the graph, when the price of metal decreases, the quantity of Nissan Xterras supplied at any particular Xterra price ------- Instead, consider the future price of Xterras. If Nissan believes the future price of Xterras will be lower, then Nissan may -------supply today.
increases; increases
economic efficiency
is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum & 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 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,
its 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
The graph to the right shows the market demand and supply for eggs. Assume that the market for eggs is perfectly competitive. Suppose the egg producers organize themselves and establish a system of quotas. Each farmer's output is restricted by an amount indicated in the graph. Compared with the market-clearing equilibrium, is the quota system efficient?
no; deadweight loss is triangle to the left of the black point and right of quota
According to an article in the New York Times, the Venezuelan government "imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find." Source: William Neuman, "With Venezuelan Cupboards Bare, Some Blame Price Controls," New York Times, April 20, 2012. Imposing price controls on goods would make them hard to find because
producer would not want to supply as much as they did before the price controls;
According to an article in the New York Times, the Venezuelan government "imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find." Source: William Neuman, "With Venezuelan Cupboards Bare, Some Blame Price Controls," New York Times, April 20, 2012. Imposing price controls on goods would make them hard to find because
producers would not want to supply as much as they did before the price controls
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. 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
right; significantly to the right of the demand curve for baseballs signed by ford
Consider the market for gasoline, depicted in the figure to the right. Suppose a price ceiling of p1 is imposed by the government. As a result of the price ceiling, there is a -------of gasoline.
shortage; deadweight loss is triangle between Q2 and Q1
Consider the market for natural gas, depicted in the figure to the right. Suppose a price ceiling of p1 is imposed by the government. As a result of the price ceiling, there is a ------ of natural gas. Compared with the market-clearing equilibrium, is the price ceiling efficient? ----
shortage; no
An article on bloomberg.com notes that "for candy makers who use ... sugar, high prices prompted an exodus of manufacturing to places outside the U.S., where it's possible to buy the sweet stuff far more cheaply." The article also states that "while estimates vary, it's thought that consumers pay between $2.4 billion and $4 billion more a year [for sugar] than they would under a free-trade regime." Source: Stephen Mihm, "Sugar Industry Is Exhibit A of Tariff Favoritism," bloomberg.com, December 18, 2018. a. Why are sugar prices high in the United States?
sugar prices are high in the united states because the united states has placed a tariff on imports of sugar
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
In the diagram to the right, when the price is $71 per player, the amount of the ----- is -----million players per month.
surplus; 56
Consider the market for wheat, depicted in the figure to the right. Suppose a price floor of p3 is imposed by the government. As a result of the price floor, there is a -------- of wheat. Compared with the market-clearing equilibrium, is the price floor efficient? ---- What area represents the loss in efficiency in terms of consumer and producer surplus resulting from the price floor?
surplus; no; deadweight loss is triangle to left of black point and to right of Q1
tax incidence indicates
the actual division of the burden of a tax
Consumer Surplus is
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives
The law of demand is the assertion that
the quantity demanded of a product is inversely related to its price.
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. a. 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.
deadweight loss is
the reduction in economic surplus resulting from a market not being in competitive equilibrium
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.
economic surplus is
the sum of consumer surplus and producer surplus
In The Wealth of Nations, Adam Smith discussed what has come to be known as the "diamond and water paradox": "Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it." LOADING... Click in the icon for a reference diagram. It is possible for the price of water to be much lower than the price of diamonds if which of the following is true?
the supply of water is greater than the supply of diamonds
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.
According to the law of supply,
there is a positive relationship between price and quantity supplied. as the price of a product increases, firms will supply more of it to the market.
According to the law of demand,
there is an inverse relationship between price and quantity demanded.
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.
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.
Consider the market for sugar in the United States depicted in the figure to the right. Assume the world price of sugar is $0.10 per pound, and at that price the United States can buy as much sugar as it wants without causing the world price to rise. Now suppose a quota imposed by the government completely eliminates trade. As a result of the quota, consumers will be ----- off in terms of consumer surplus, and producers will be ------off in terms of producer surplus.
worse; better; deadweight loss is triangle under meeting point and above world price
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.
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
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.
