ECON 2010 Midterm 2 Study Guide

SEE TABLE- Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $1.00 and $0.75? A) 0.54 B) 0.66 C) 0.75 D) 1.00

A) 0.54

USE TABLE (Table: Market for Pizza) If income changes from $1,000 to $1,400 per month, by the midpoint method, the income elasticity of demand at a price of $10 per pizza is: A) 1.2 B) -1.2 C) 0.825 D) 0.40

A) 1.2

19. SEE CHART (Figure: Domestic Market for Digital Cameras) Look at the figure The Domestic Market for Digital Cameras. Assume that PA is the autarky price and PW is the world price. Total surplus before international trade is equal to the area: A) A + B + C. B) A + B. C) A + B - D - E. D) A.

A) A + B + C.

Which of the following is an example of an import quota? A) A limit on the total number of shoes imported from Italy. B) Regulations specifying that each imported toy from China must meet certain safety guidelines. C) A tax of $100 on each Suzuki motorcycle produced in the United States. D) A tax of 10% of the value of each Suzuki motorcycle imported from Japan.

A) A limit on the total number of shoes imported from Italy.

If the estimated price elasticity of demand for foreign travel is 4: A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. B) the demand for foreign travel is inelastic. C) a 10% increase in the price of foreign travel will increase quantity demanded by 40%. D) a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

A higher rate is most likely to decrease the amount of revenue that the government collects from an excise tax if demand is _____ and supply is _____. A) elastic; elastic B) elastic; inelastic C) inelastic; elastic D) inelastic; inelastic

A) elastic; elastic

According to the Heckscher-Ohlin model, Brazil will have a comparative advantage in oranges if the factors _____ in the production of oranges are _____. A) intensive; abundant B) intensive; imported C) that are scarce; imported D) intensive; inexpensive

A) intensive; abundant

The Quota rent is : A) the difference between the demand price and the supply price at the quota limit. B) the rent received by landlords who own rent-controlled apartments. C) the opportunity cost of using a quota-controlled service or of buying a good that is subject to an import quota. D) the minimum rent that the owner of a building must receive before he or she is willing to rent out the building.

A) the difference between the demand price and the supply price at the quota limit.

17. SEE CHART Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What is the deadweight loss? A) $1,000 B) $500 C) $250 D) $1,250

B) $500

SEE TABLE 16 (Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify tax revenue? A) a + b + c B) b + d C) c + e D) d + e + f

B) b + d

As part of an antiobesity program, the government levies an excise tax on high-fat foods. We expect consumers to pay almost all of this tax if demand is _____ and supply is _____. A) inelastic; inelastic B) inelastic; elastic C) elastic; elastic D) elastic; inelastic

B) inelastic; elastic

The amount by which an additional unit of an activity increases total benefit is: A) net benefit. B) marginal benefit. C) marginal cost. D) utility.

B) marginal benefit.

When a public transit system (such as a subway or bus line) raises its fares, its total revenue may increase. This suggests that demand is: A) unstable. B) price-inelastic. C) price-elastic. D) price unit-elastic.

B) price-inelastic.

Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross-price elasticity for water and lemons is -0.13. This means that butter and margarine are _____, while water and lemons are _____. A) complements; substitutes B) substitutes; complements C) inelastic goods; elastic goods D) elastic goods; complements

B) substitutes; complements

If at a given quantity MB = MC, the decision maker should do _____ of the activity. A) less B) that amount C) more D) none

B) that amount

You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business? A) wages paid to part-time employees B) the job offer you did not accept at a local catering service C) bread, meat, and vegetables used to produce the items on your menu D) your monthly utility bill

B) the job offer you did not accept at a local catering service

SEE CHART 26 (Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts. The marginal cost of the second sweatshirt is: A) $9. B) $20. C) $11. D) $29.

C) $11.

SEE CHART 28 (Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of Sweatshirts. The marginal benefit of producing the fourth sweatshirt is: A) $58. B) $14. C) $13. D) $12.

C) $13.

SEE CHART 20 Figure: Domestic Market for Digital Cameras) Look at the figure The Domestic Market for Digital Cameras. Assume that PA is the autarky price and PW is the world price. Consumer surplus after international trade is equal to the area: A) A. B) A + B. C) A + B + D + E. D) A + B + D + E - C.

C) A + B + D + E.

USE CHART (Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged, when a good or service is characterized by a relatively elastic demand, as shown in panel _____, the greater share of the burden of an excise tax on it is borne by _____. A) D; buyers B) D; sellers C) C; sellers D) C; buyers

C) C; sellers

If a 20% price increase generates a 20% decrease in quantity demanded, then this is _____ response. A) an inelastic B) an elastic C) Unit elastic D) a perfectly elastic

C) Unit elastic

Producers may supply a good with inefficiently high quality if the government imposes: A) a price ceiling set above the equilibrium price. B) a price floor set below the equilibrium price. C) a binding price floor. D) a binding price ceiling.

C) a binding price floor.

Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government imposes a $5 excise tax on leather shoes and collects the tax from the suppliers, the price of leather shoes will: A) increase by $5. B) increase by more than $5. C) increase by less than $5. D) increase, but we cannot determine by how much.

C) increase by less than $5.

A "how much" decision is best made by comparing the _____ of an action to the _____ of that action. A) explicit costs; implicit costs B) accounting profit; economic profit C) marginal benefits; marginal costs D) present value; net present value

C) marginal benefits; marginal costs

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the supply curve is upward-sloping: A) the price of sweaters will increase by $10. B) consumers of sweaters will bear the entire burden of the tax. C) the price of sweaters will increase by less than $10. D) the price of sweaters will decrease by $10.

C) the price of sweaters will increase by less than $10.

If the price of chocolate-covered peanuts decreases from $1.10 to $0.95 and the quantity demanded increases from 190 bags to 215 bags, then the price elasticity of demand (by the midpoint method) is: A) 1.25. B) 0.5. C) 0.8. D) 2.

C). 0.8

You decide to quit your $60,000-per-year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, you have earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the first year as an illustrator is: A) $15,000. B) $20,000. C) -$40,000. D) -$45,000.

D) -$45,000.

SEE CHART 18 (Figure: The Market for Tea in Sri Lanka) Look at the figure The Market for Tea in Sri Lanka. In autarky, the price is P1, consumer surplus equals _____, and producer surplus equals _____. A) F + G + H + I; J + K B) F; G + H + I + J + K C) F + I; J + K D) F + G + H; J + K

D) F + G + H; J + K

Which of the following is a systematic mistake that leads to irrational decisions? A) risk aversion B) bounded rationality C) maximizing profit rather than minimizing costs D) overconfidence

D) overconfidence

The price elasticity of demand is computed as the percentage change in the _____ divided by the percentage change in _____. A) quantity demanded; the quantity supplied. B) price; the quantity demanded. C) quantity demanded; income. D) quantity demanded; the price.

D) quantity demanded; the price.