ECON exam 2
Negative externalities have what kind of costs for third parties?
"Too much" of the good is consumed and produced and in turn negatively affects third parties. (smoking cigs)
Lisette is the owner of a bakery that earns zero economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her other monetary expenses were $25,000. From this information, we know that her explicit costs were _______________________ .
$102,000?? could be wrong
If a firm has total costs of $535,000, and its implicit costs are $165,000, how much are its explicit costs?
$370,000
If a firm generates $280,000 in revenue, earns $120,000 in economic profit, and its explicit costs are $80,000, how much are its implicit costs?
$80,000
The cross-price elasticity is determined by what formula?
% Change in quantity demanded of one item / % change in price of another item
What is price elasticity of supply? .
% Change in quantity supplied / % change in price
Consider a market where production of a good generates a positive externality. In the market equilibrium, what happens to the quantity of good being produced
(For example a vaccine) Too little of the good is being produced
Assume there are no externalities. The market works efficiently if the good is rival or nonrival? Excludable or non-excludable?
---
What is the external cost per unit?
---
At a price of $2, the quantity demanded for pens is 16. When the price increases to $3, the quantity demanded for pens is 14. Using the midpoint method, the price elasticity of demand for pens is ___________________________.
-0.3325
If the percentage change in quantity demanded of Good B is 2% and the percentage change in the price of Good A is -10%, what is the cross-price elasticity of demand?
-1/5
Suppose that when the price of cereal rises by 10%, the quantity demanded of cereal falls by 20%. Based on this information, what is the approximate price elasticity of demand for cereal?
-20%/10%=-2
For a market where external costs exist to work efficiently the external costs must be .
0
If the supply of a good is perfectly inelastic, then the price elasticity of supply will equal __________________.
0
A local bakery gives information on consumer purchasing habits for muffins and cupcakes. It says that when the price of a muffin is $1, people buy 55 cupcakes. When the price of a muffin is raised to $2, cupcake purchases increase to 65 cupcakes. The cross-price elasticity of demand using the midpoint method is _________________ .
0.25
When her income increases from $10,000 to $20,000, Juanita wants to buy more sushi rolls (see table below). From the midpoint method, the income elasticity of demand for sushi when it is priced at $3 is__________________ .
1.2 Percent change in quantity demanded over percent change in income. If not given percent then use midpoint.
If the price elasticity of supply is 1.5, we know that supply is __________________ elastic.
2.29
Remi owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients averages $500 per month. Remi could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His explicit costs last year were .
3k x 12 + 2k x 12 + 500 x 12 = $66,000
What is the relationship between AVC, ATC, and Total fixed cost?
??
Why can implicit costs be difficult to measure for business owners?
Because they are opportunity costs, business owners cannot observe or manage them. Explicit costs on the other hand can be easily seen on paper with a $ value.
Which inputs are often assumed to be fixed in the short run? Variable in the short run?
Capital is assumed to be fixed in the short run, and labor is variable in the short run
Free public parking spaces is an example of what kind of good?
Common resource good
If the cross-price elasticity of demand is -3, Goods A and B are _______________.
Complementary
Give examples of a common-resource good.
Congested roads and beaches, Alaskan king crab, fishing lakes open for everyone
For a market with a negative externality, what will happen to the market good quantity when the market participants tend to ignore external cost of their decision?
Demand will go down?
The challenge of public good provision and the tragedy of the commons are two problems associated with which characteristic of good?
Excludability (nonexcludable
For a business that manufactures bicycles, wages paid to employees are an example of what type of cost?
Explicit cost
Determine whether each of the following statements is true or false with respect to explicit costs: They are not included when measuring accounting profit. They are not included when measuring economic profit They are tangible out-of-pocket expenses They are not measured in terms of dollars. They are more difficult to calculate and easier to miss than implicit costs.
F, F, T, F, F
Over time, the price elasticity of supply becomes more inelastic. True or False?
False, it becomes more elastic
Common-resource goods are nonrival, like public goods, and nonexcludable, like private goods. T or F?
False, they are rival.
What is the responsiveness of quantity consumers buy to price changes, If a business finds that demand for its good is very price elastic?
If price decreases then quantity increases. If price increases quantity decreases.
What is the relation between social costs, internal costs and external costs?
Internal costs are only paid by an individual participant, external costs are imposed on people not participating in the market, and social costs are the sum of internal costs and external costs of a market activity.
The amount an individual pays for gasoline for his or her car is an example of what type of cost?
Internal costs are the costs of a market activity paid only by an individual participant.
When does the tragedy of the commons occur?
It occurs when a rival and nonexcludable good becomes depleted or ruined
Government can correct for the positive externality associated with vaccines by subsidizing consumers. What will be the effect of this on the demand curve for vaccines?
It will shift to the right, as there will be more demand as it is subsidized.
When a firm is required to internalize the pollution costs associated with production, what will be the subsequent causes of this?
Less pollution
Change in total output divided by the change in input equals .
Marginal Product
When a firm hires another employee, and as a result, total output increases, the change in total output is known as .
Marginal Product
What kind of externality exists when production of a good creates an external cost?
Negative externality
Is entertainment television a public good?
No, people still need to pay for it, so it is excludable, but non-rival, meaning that it is a club good
Can a club good be defined as rival or nonrival? Excludable or non-excludable?
Nonrival, excludable
Which characteristics best define a public good? Rival or nonrival? Excludable or non- excludable?
Nonrival, nonexcludable
Lester owns a candy equipment store that produces, among other things, chocolate fountains. With his current 5 employees, his candy equipment store can produce 8 chocolate fountains per day. If he hired a sixth employee, he'd be able to produce 9 chocolate fountains per day. What is the marginal product of the sixth employee in terms of chocolate fountain(s)?
One
What kind of externality exists whenever production of good creates an external benefit?
Positive externalities (vaccines for example)
Clean air is a ____________________ good.
Public
__________________ goods can be jointly consumed by more than one person, and nonpayers are difficult to exclude.
Public
GRAPH: The average total cost of production is minimized at what level of output?
Quarter four where MC=ATC
The tragedy of the commons occurs for goods that are rival or nonrival? Excludable or nonexcludable?
Rival, nonexcludable
If the cross-price elasticity of demand is 4, Goods A and B are _________________.
Substitute
What are external costs?
The costs of an activity imposed on people not participating in that market
What are internal costs?
The costs or benefits of a market activity that affects a third party. Externalities are one type of market failure.
When pollution (a negative externality) is created by firms who produce good X, what are the valid ways for the government to restore the social optimum?
The government must tax the company, or put in strict pollution regulations and limitations.
The city decides to offer a subsidy to each homeowner's association that plants flowers in their common areas. In the market for flowers, what will be its effect on the demand curve?
There will be a shift in the demand curve to the right, as more people will plant flowers.
Are Shoes and Socks likely to have a negative or positive cross-price elasticity of demand? Why?
They are likely to have a negative cross price elasticity, because they are complementary
Are Pepsi and Coke likely to have a positive or negative cross-price elasticity of demand? Why?
They are likely to have a positive cross price elasticity, because they are substitutes
What is the relationship between total costs, fixed costs, and variable costs?
Total cost is the sum of total fixed cost and total variable cost
Global warming (filling the air with CO2) is an example of what economic concept?
Tragedy of the commons (Air version of the cow grazing example in the lecture quiz)
For a negative externality, some costs are borne by a third party. T or F?
True
Demand is almost always more price-elastic in the long run. T or F? Why?
True. More options become available and people can make different choices
What does MC says about marginal product?
When the MC curve goes upward, the costs are going up due to diminishing marginal product.
What is the relationship between MC and specialization?
When we see the marginal cost curve go down, the costs are going down to due specialization.
GRAPH: What do MC, ATC, AVC tell you about economic profits? In other words, given MC, ATC, AVC, how do you determine if firms are earning economic profits?
Where the ATC crosses the MC on a chart for the firm.
As we move downward along the demand curve, the price elasticity of demand _________________.
becomes more inelastic
Downloadable music that you can buy is a _______________good.
club
When you measure the change in the quantity demanded of one good because of a change in the price of another good, you are measuring ___________________ .
cross price elasticity
Price elasticity of demand measures the change in _______________ due to change in _______________.
demand, and price
As price elasticity of supply becomes ___________________over time, the overall shape of the supply curve becomes___________________________. (more horizontal, more vertical, or completely vertical)
elastic
An___________cost is best defined as the cost of an activity imposed on third party.
external
The pollution emitted by a car is an example of a(n) _____________________ cost.
external cost
Between a five-star hotel, a doctor's visit, used clothing, and toilet paper, which of these goods would most likely have an income elasticity of demand equal to 8? Why?
five-star hotel, because it isn't a necessity and if it is greater than 1, then it is a luxury
A perfectly elastic supply curve is ___________________ . (vertical or horizontal)
horizontal
When can a firm lower price and still increase revenue?
if demand is elastic
A 15% increase in the price of cookies results in a 9% decrease in the quantity of cookies sold. The revenue received by cookie suppliers will _________________ because the price elasticity of demand for cookies is____________________.
increase, inelastic.
When Heavenly Cookies prices its sugar cookies at $1.00, it sells 75 cookies. It lowers the price to $0.50 and sells 200 cookies. Its total revenue _________________ because the price elasticity of demand for sugar cookies is ____________________.
increased, elastic
A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good must have been ________________________ _.
inelastic
Salima is a devoted Coca-Cola consumer, whereas Antonia will drink either Coca-Cola or Pepsi products. Salima's demand for Coca-Cola will be_________________________, while Antonia's demand will be relatively more ________________________.
inelastic, elastic
What good amongst gourmet pizza, steak, designer/fancy clothing or instant noodles is most likely to have a negative income elasticity of demand?
instant noodles, as it is an inferior good
Suzanne drives to work each day. The amount Suzanne pays to maintain her car is an example of what type of cost?
internal
Over time, the price elasticity of supply for sunglasses will become __________________. (more elastic, more inelastic, or unchanged)
more elastic
When the price of a basketball is $15, the quantity supplied is 5,000. When the price increases to $20, the quantity supplied is 10,000. Using the midpoint method, the price elasticity of supply is _______________________ .
more horizontal
Does the cost of producing a good affect the good's price elasticity of demand?
no
Common resources are _______________ _. (overused or underused)
overused
A vertical supply curve can be described as _________________ inelastic.
perfectly
When the demand curve is perfectly horizontal, the price elasticity of demand is ___________________.
perfectly elastic
If a friend says, "I am never going to buy another Dua Lipa remix again!" his or her price elasticity of demand for Dua Lipa remixes is __________________ _.
perfectly inelastic
"No matter the price, I will always buy five gallons of ice cream a week. I love ice cream!" This statement reflects a price elasticity of demand that is ________________ _.
perfectly inelastic.
Lila shares a house with two other people. She is a concert pianist and often practices at home. One roommate enjoys listening to her practice, but the other does not. For the roommate who enjoys listening to Lila play, this is an example of ; for the other roommate, it is an example of .
positive externality, negative externality
Total revenue minus total cost equals _______________ .
profit or loss
Because any passerby can enjoy the show without paying, street performances can be considered a_____________good.
public
When the price elasticity of demand is - 0.36, a decrease in price will _______________________________________.
reduce total revenue
What are externalities?
relatively
If the percentage change in the quantity consumed of pizza is 6% and the percentage change in income is 2%, what is the income elasticity of demand for pizza?
relatively elastic
Suppose that the price elasticity of demand is -0.80 for aspirin. We could then say that the demand for aspirin is_________________________________.
relatively inelastic
When the price of scooters drops by 5%, the quantity demanded changes by 15%. We know that the price elasticity of demand for scooters is_________________ elastic
relatively, -3
Fatima owns a car shop that repairs, among other things, spoilers. She currently has 6 employees; with 6 employees, her repair shop can repair 9 spoilers per day. If she hired a seventh employee, she'd be able to repair 11 spoilers per day. Therefore, the marginal product of the seventh employee is ________ car spoilers.
two
A price change does not affect the firm's total revenue when the price elasticity of demand is_____________________ _.
unitary
When the price increases by 20% and the quantity demanded drops by 20%, the price elasticity of demand is_______________________elastic.
unitary
Nicolette raised her quantity demanded of hockey pucks from 100 to 150 when the price fell from $6 to $4 per puck. Using the midpoint method, her price elasticity of demand is __________________________.
unitary ((150-100)/((150+100)/2))/((4-6)/((6+4)/2) = 4/-4 = -1
In a typical demand curve, the price-elastic portion of demand is found in the _______________ region and the price-inelastic portion of demand is found in the _______________ region of the graph.
upper, lower
When the demand curve is vertical, the price elasticity of demand is _____________ _. (positive, negative or zero?)
zero
