econ questions
Which of the following results in an external cost?
A factory emits air pollution while producing paper.
The price of mini-vans has increased substantially over the last 10 years. What signal does this high price send?
A high price lets producers know that consumers want more mini-vans.
parallelogram between the private cost, the social cost, the vertical axis, and the quantity Q2
Area represents the total external cost
A new farming technology decreases the cost of producing peanuts, which causes the price of peanut butter to decrease. What happens to the equilibrium price and equilibrium quantity of jelly?
Both the equilibrium price and equilibrium quantity increase.
If a good has a low price, what does that mean?
Buyers don't value it very much.
Which statement regarding taxation is incorrect?
Commodity taxation always reduces total spending by consumers.
Mahal works in an industry where above-normal profits are being earned. What can she expect to happen if too few firms move to this industry?
Firms in that industry will continue to earn above-normal profits.
Yan's company is currently making a loss. What can he expect to happen in the industry?
Firms will exit the industry.
Why might Kris, an entrepreneur, face a contraction or bankruptcy in today's market?
He may fail to compete with his competitors' lower costs.
Which statement is TRUE if the soybeans futures price is much higher than the spot or current price of soybeans?
It is a sign that smart people with their own money on the line think that supply disruptions may soon occur.
Which statement is TRUE if the wheat futures price is $6.75/bushel and the spot or current price of wheat is $5.15/bushel?
It is a sign that smart people with their own money on the line think that supply disruptions may soon occur.
Which statement is TRUE if the wheat futures price is $7.25/bushel and the spot or current price of wheat is $5.15/bushel?
It is a sign that smart people with their own money on the line think that supply disruptions may soon occur.
Suppose the elasticity of demand for good A is −2 and the elasticity of supply for good A is 0. If demand were to decrease by 4 percent, what would happen to the price?
It would fall by 2 percent.
Suppose the elasticity of demand for good A is −0.40, and the elasticity of supply for good A is 1.00. If supply were to decrease by 4 percent, what would happen to the price?
It would rise by 2.86 percent.
The market equilibrium price for two-bedroom apartments in Birmingham is $1,400. What will happen to the apartment market in this city if the city government decides to set the price for two-bedroom apartments at $1,100 in an attempt to make apartment living more affordable for local families?
Landlords' revenues will fall, and fewer families will live in apartments.
What will happen to the apartment market in Chicago if the city government decides to set the price for two-bedroom apartments below the market equilibrium price in an attempt to make apartment living more affordable for local families?
Landlords' revenues will fall, and fewer families will live in apartments.
What will happen to the apartment market in Kansas City if the city government decides to set the price for three-bedroom apartments below the market equilibrium price in an attempt to make apartment living more affordable for local families?
Landlords' revenues will fall, and fewer families will live in apartments.
Suppose Mark's market activity generates $100 worth of benefits for Mark but imposes a $20 cost on Karen, who is external to the market. What is the socially efficient outcome?
Mark should continue the activity.
Which is NOT true of wage subsidies?
No one has to pay for subsidies
Jordan's company is currently making normal profits. What can he expect to happen in the industry?
Nothing will happen.
Keiko works in the cotton industry, which has seen many suppliers enter the market. What will she see happen to price and profits as these firms enter?
Price falls and profits decline.
Rebecca works in the steel industry, which has seen many firms exit. What will she see happen to profits as supply decreases and price increases?
Prices will increase
Joel works in the cotton industry. He notices that many suppliers are entering the market. What can he expect to happen to profits as price declines?
Profits will decline.
Salih works in the steel industry. He notices that many suppliers are entering the market. What can he expect to happen to profit as price declines?
Profits will decline.
Tadzi works in an industry that is earning above-normal profits. He notices that although some firms did move into the industry, not enough resources relocated. What will happen?
Profits will not be eliminated.
Keisha's company is currently making below-normal profits. What can she expect to happen in the industry?
Supply will decrease, prices will rise, and profits will increase.
Miranda is currently earning below-normal profits in the landscaping market. What can she expect to happen?
Supply will decrease, prices will rise, and profits will increase.
Jordan's company is currently earning above-normal profits. What can he expect to happen in the industry?
Supply will increase, and prices will fall.
Chimamanda's landscaping business is currently making a profit. What can she expect to happen in the industry?
Supply will increase, prices will fall, and profits will decline.
Keisha's company is currently making above-normal profits. What can she expect to happen in the industry?
Supply will increase, prices will fall, and profits will decline.
Yan's company is currently making a profit. What can he expect to happen in the industry?
Supply will increase, prices will fall, and profits will decline.
Mahal works in an industry that is earning below-normal profits. She notices that although some firms did leave the industry, losses are still being incurred. Why did this happen?
There was not enough pressure from the competitive process.
Micah works in an industry that is earning below-normal profits. She notices that although some firms did leave the industry, losses are still being incurred. Why did this happen?
There was not enough pressure from the competitive process.
_____include the costs of identifying and bringing buyers and sellers together.
Transaction costs
A government subsidy does not:
increase market efficiency.
If consumers want more bananas, prices of bananas will:
increase, signaling producers to grow more.
If consumers want more sweet potato pies, prices of sweet potato pies will:
increase, signaling producers to make more.
If African diamond mine workers are expected to form a union and strike, the market price of diamonds will:
increase.
Julia is an industry auditor and notices that the industry faces an upward-sloping supply curve. This industry is a(n):
increasing cost industry.
Kim, an industry auditor, notices that as industry output increases, the firms move up the supply curve. This industry is a(n):
increasing cost industry.
Suppose the income elasticity of demand for store brand potato chips is −1.9. Store brand potato chips would be classified as:
inferior
The absolute value of the elasticity of demand for a "necessity" with few close substitutes is:
less than 1
If the conditions of the Coase theorem are met, then a free market will:
minimize deadweight loss.
The _____ the demand curve, the greater the deadweight loss in the market resulting from a tax.
more elastic
If the price of gold is expected to rise, speculators will buy:
more gold today and sell it in the future, driving the future price of gold down.
If speculators believe there will be supply disruptions in the cattle market, the futures price will be:
much higher than the spot or current price.
The elasticity of demand is generally _____ because there is an inverse relationship between price and quantity demanded for most goods.
negative
Suppose that honey and sugar are substitutes in consumption, but sugar is an input in certain cereals. All else equal, if the supply of honey decreases, the equilibrium price:
of certain cereals will increase, but the equilibrium quantity of those cereals will decrease.
Suppose that goods A and B are complements in consumption, but good B is an input into the production of good C. All else equal, if the supply of good A decreases, the equilibrium price:
of good C will decrease, but the equilibrium quantity of good C will increase.
Suppose that goods A and B are substitutes in consumption, but good B is an input to good C. All else equal, if the supply of good A increases, the equilibrium price:
of good C will decrease, but the equilibrium quantity of good C will increase.
Suppose that goods A and B are complements in consumption, but good B is an input into the production of good C. All else equal, if the price of good A decreases, the equilibrium price:
of good C will increase, but the equilibrium quantity of good C will decrease.
Every year Sally vaccinates her dog against rabies. Who receives the external benefits of Sally's decision to vaccinate her dog?
other dogs at the dog park that Sally and her dog visit
An external cost is borne by:
people other than the consumer or the producer.
A horizontal supply curve represents a(n) _____ supply.
perfectly elastic
A _____ is a maximum price permitted by law.
price ceiling
A subsidy wedge is the difference between the:
price received by sellers and the price paid by buyers.
If there are externalities, the competitive process may not work well because:
prices will not accurately signal costs and benefits.
If the demand for oil decreased, then:
quantity supplied would decrease.
When sellers have more customers than goods and cannot profit by raising prices because of price ceilings, they can still profit by:
reducing the quality of their goods.
Kirsten opened a charming bookstore in a shopping plaza. Business in other shops in the plaza has increased because of the customers whom Kirsten's bookshop has attracted. Given the external benefits that her bookshop generates, if Kirsten is selling the market equilibrium quantity of books, she is:
selling too few books.
If the marginal revenue from the sale of a No. 2 pencil is 15 cents and Peter's Pencils produces pencils at a marginal cost of 12 cents, Peter's Pencils:
should increase output.
If the price is less than the average variable cost, operating revenue is not even sufficient to cover variable costs.
shut down
If the cattle futures price is much higher than the spot or current price for cattle, that is a sign that:
smart people with their own money on the line think that supply disruptions may soon occur.
If the wheat futures price is much higher than the spot or current price for wheat, that is a sign that:
smart people with their own money on the line think that supply disruptions may soon occur.
The Coase theorem:
states that if transaction costs are low and property rights are clearly defined, private bargains will ensure that the market equilibrium is efficient even when there are externalities.
If two products have a cross-price elasticity of demand of 2, they would be classified as: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices
substitutes
Central planning:
suffers from lack of incentives.
If the supply of oil decreased, the:
supply curve would shift to the left.
The main difference between the Earned Income Tax Credit (EITC) and economist Edmund Phelps's proposed wage subsidies is that:
the EITC is targeted only at families with children.
Social costs is the name given to:
the costs incurred by everyone.
Which of the following is NOT an example of a sunk cost?
the costs of buying the wrong printer ink cartridges at Staples
Dillon's Dairy is a profit-maximizing supplier in a market with a horizontal demand curve. What price will Dillon's Dairy charge for its goods?
the market price
Dillon's Dairy is a profit-maximizing supplier in a market with perfectly elastic price elasticity of demand. What price will Dillon's Dairy charge for its products?
the market price
Assume the price elasticity of demand for a firm's product is perfectly elastic. The price this profit-maximizing firm will charge is:
the market price.
Dillon's Dairy is a profit-maximizing supplier in a market with perfectly elastic price elasticity of demand. The price Dillon's Dairy will charge for its products is:
the market price.
When there is a shortage of a product:
the price will rise.
Who receives more of the benefits of a subsidy?
the same side of the market that would bear more of the burden of a tax
According to the textbook, what is the great economic problem?
to arrange people's limited resources to satisfy as many of their unlimited wants as possible
"Unexploited gains from trade exist when at least one potential buyer places a value on a good that is higher than the cost of producing the good to at least one potential seller." This statement is:
true.
If revenue from the sale of a certain good remains constant despite a change in price, demand for that good is:
unit elastic
If the value of the elasticity of demand is −1.00, demand is:
unit elastic
When will firms enter a market?
whenever above-normal profits are being made
Firms will enter a market:
whenever above-normal profits are being made.
The Environmental Protection Agency (EPA) allocates a limited amount of sulfur dioxide credits to polluting firms but allows firms to buy and sell the credits. The EPA is controlling pollution:
with a type of command-and-control approach and a system of tradable permits.
Kristen opened a charming bookstore in a shopping plaza. Business in other shops in the plaza has increased because of the customers whom Kristen's bookshop has attracted. Given the external benefits that her bookshop generates, if Kristen is selling her books at the market equilibrium price for books, she:
would eliminate a deadweight loss in the market for her books if she sold books at the efficient equilibrium price and quantity.
Bankruptcy is bad for _____ but can be good for capitalism.
businesses
The firms in an industry experience no change in costs when output increases from 1 million units to 1.2 million units. This industry is a(n):
constant cost industry.
Lin is an industry auditor and notices that the industry faces a downward-sloping supply curve. This industry is a(n):
decreasing cost industry.
Yuki, an industry auditor, notices that as industry output increases, the firms move down the supply curve. This industry is a(n):
decreasing cost industry.
sellers will bear more of the burden of the tax because:
demand is more elastic than supply.
If the demand for oranges is more elastic than the supply of oranges, then the burden of a tax on oranges will:
fall mainly on suppliers.
Odin is the owner and sole employee of Odin's Gadget Repair. As it happens, the market for gadget repairs is highly competitive. If Odin wants to make an above-normal profit repairing gadgets, he should:
find an innovative way to provide service to customers that is better than the service his competitors can offer.
As an example of blat in the former Soviet Union, if the manager of a factory that made cars decided that he wanted a television, he would have to:
find someone who had televisions but wanted and couldn't find a car.
Commodity taxes are taxes on:
goods
What would happen if the supply of oil decreased?
The market price would rise.
A consumer buys a good in a market where people act in their own interests, and actions are cooperative and voluntary. What type of market is this?
a free market
Janet is a buyer in a market where people act in their own interests and actions are cooperative and voluntary. What type of market is this?
a free market
If you observe an extensive and sustained shortage of a particular good, the explanation for the shortage probably involves:
a price control.
Assume the price elasticity of demand for a firm's product is perfectly elastic. How many units will the firm sell if it charges the market price for its product?
all of the units it wants to sell
