exam 2 -- EOC questions and answers

chap 10: #3 = In 2018, a wind farm developer was ordered to dismantle its newly constructed wind turbines after adjacent residents filed a lawsuit complaining that they never consented to the loud noise and visual obstructions of the turbines. How could the wind farm developer have utilized insights from the Coase Theorem to avoid its legal troubles and ultimately wasting millions of dollars on wind turbines it never got to operate? Select all situations that would apply. - The developer could have paid people living near the wind farm a stipend for putting up with the noise and the restricted views. - The developer could have petitioned the local and state government to fund the wind farm. - The developer could have invested in improved infrastructure for power generation to lower residents' electricity costs as well as to promote the use of wind farms. - The developer could have asked the government to set a quota on electricity generation for the wind farm so there would be down time from the noise.

- The developer could have paid people living near the wind farm a stipend for putting up with the noise and the restricted views. - The developer could have invested in improved infrastructure for power generation to lower residents' electricity costs as well as to promote the use of wind farms.

chap 5: #1 = Place the items in the appropriate box based on whether the price elasticity of demand is more likely to be elastic or inelastic. - movie tickets - pizza - gas - insulin - electricity - water

elastic: - movie tickets - pizza inelastic: - gas - insulin - electricity - water

chap 5: #4 = Classify each pair of goods as substitutes, complements, or independent. - beef and chicken - wine and cheese - peanut butter and lumber - tables and chairs - shoes and sandals - shampoo and conditioner

substitutes: - shoes and sandals - beef and chicken independent: - peanut butter and lumber complements: - wine and cheese - tables and chairs - shampoo and conditioner

chap 6: #1 = Suppose you are planning a summer vacation and book a hotel room online for $149 a night. However, when you get to the reservation screen, you are informed that you will be charged an additional $30 a night in various taxes that you have to pay to the hotel. a. Indicate whether each of the given factors is likely to raise the economic burden of the tax for you or for the hotel. - there are many other hotels in the area - hotel has unique architecture and is considered a historical landmark - a hurricane recently ravaged the area, resulting in many vacancies at competing hotels - it is the peak of tourist season b. Ultimately, who pays the majority of the economic burden of the tax is dependent upon - the marginal tax rate. - the cost-benefit priniciple. - the relative supply and demand elasticities. - the marginal principle.

raises economic burden for the hotel: - there are many other hotels in the area - a hurricane recently ravaged the area, resulting in many vacancies at competing hotels raises economic burden for you - hotel has unique architecture and is considered a historical landmark - it is the peak of tourist season ans: the relative supply and demand elasticities.

chap 7: #2 = A recent post being shared on Facebook suggests that consumers boycott self‑service checkout lines because they destroy jobs and are not very convenient to use. Consider this post from the perspective of economic analysis. Which response best illustrates economic reasoning? - You should avoid self‑service checkout lines if some people are harmed by the popularity of self‑service lines. - You should use self‑service checkout lines if they increase your economic surplus. - You should avoid self‑service checkout lines because they create unemployment which is very harmful to the economy. Self‑serve checkout lines are beneficial to consumers because they represent a technological breakthrough, and all technological breakthroughs benefit the economy.

- You should use self‑service checkout lines if they increase your economic surplus.

chap 20: #6 = Carfax is a web‑based service that supplies vehicle history reports to individuals on used cars: ownership history, vehicle mileage, accident reports, and other information. The existence of Carfax as a third‑party verifier in the used car industry can result in which of the following? Carfax could lead to - a reduction in the variance in the quality of cars in the used car market. - an increase in the number of cars available in the used car market. - an efficient outcome in the used car market.

- an increase in the number of cars available in the used car market. - an efficient outcome in the used car market.

chap 10: #1 = a. Joe decides to build a chicken coop in his suburban backyard. He has several hens and one rooster. The rooster wakes up his neighbor each morning at 5:00 am. - Joe's chicken coopcreates a negative externality if his chickens do not lay eggs. - creates a positive externality if the neighbor wants to sleep longer but accepts free eggs in exchange for the inconvenience. - creates a positive externality if Joe sells his chickens' eggs at the local farmers' market. - creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awaken early each day.

- creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awaken early each day.

chap 10: #1 = c. An urban farmer decides to build a bee hive to help pollinate the rooftop gardens in his neighborhood. The beehive - generates a positive externality if the farmer creates a successful online business that sells products made from the bees' honey. - generates a positive externality if the rooftop gardens benefit from the pollination and a negative externality if the neighbors get stung by bees. - generates a negative externality if the bees are killed by a colony of wasps. - generates a negative externality if the farmer spends nearly all his time tending the bees and rarely leaves his home.

- generates a positive externality if the rooftop gardens benefit from the pollination and a negative externality if the neighbors get stung by bees.

chap 10: #6 = The Nobel Prize‑winning economist Oliver Hart once said, "If we know the marginal social cost [of pollution] emissions, a tax is better, but if we know the optimal quantity, cap and trade is better." Given this statement and the knowledge of ways governments can intervene in markets, evaluate the following statement: Any outcome that can be achieved by taxing can also be accomplished by establishing a quota. This is because - if we know the marginal social cost, we can set the tax so that price is equal to the optimal price. As a result, the optimal quantity will be achieved. If we know the optimal quantity, we can set a quota and the market will find the optimal price. - if we know the marginal social cost, we can set the optimal quantity equal to the optimal price. If we know the optimal quantity, we can set a quota equal to the optimal price. - knowing the marginal social cost allows companies to know how much to increase their prices and make more profits. This is better for the economy as a whole because then companies can create more jobs. Cap and trade restricts quantity, which lowers profits. - if we know the optimal quantity, cap and trade can be used to set the price. If we know the marginal social cost, a tax can be used to set the quantity.

- if we know the marginal social cost, we can set the tax so that price is equal to the optimal price. As a result, the optimal quantity will be achieved. If we know the optimal quantity, we can set a quota and the market will find the optimal price.

chap 5: #1 = Which of these items is most likely to have perfectly inelastic price elasticity of demand? - oranges - your economics textbook - lifesaving medical treatment - cup of coffee

- lifesaving medical treatment

chap 20: #1 = Consider the market for used homes. In many cases, the seller of a home may be aware of defects or maintenance concerns that may not be readily noticeable to potential buyers. a. In this scenario, potential buyers base their offers on their perceptions of the proportion of homes on the market that have been properly maintained. Potential buyers may see a large proportion of homes that require maintenance. In this case buyers will likely offer _______________________________ than they would if they were certain that homes have been properly maintained. At the same time, sellers of well‑maintained homes may _____________________________ because buyers will not be willing to offer what sellers feel the homes are worth. b. This situation is known as __________________________.

- lower prices for high‑quality homes - not offer their homes for sale - adverse selection of sellers

chap 20: #4 = When you are considering renting an apartment or house, almost all landlords will require that you pay a refundable security deposit. The need for landlords to charge a security deposits reflects _______________. In particular, since tenants do not own the property in which they live, they may not feel obligated to maintain the property as well as someone who incurs the full cost of ownership.

- moral hazard - they may not feel obligated to maintain the property as well as someone who incurs the full cost of ownership

chap 5: #15 = In 2022, Netflix increased its monthly price for new subscribers by $1. In response, one individual tweeted the following: "So tired of being a college student. Can't wait until I have a stable job and won't have to give up Netflix cause they raised their price by $1". What does this statement indicate about the income elasticity of demand for Netflix? - Netflix violates the law of demand. - Netflix is an inferior good. - Netflix is a perfectly inelastic good. - Netflix is a normal good.

- netflix is a normal good

chap 10: #8 = A policy maker argues that congestion on the roads can be solved by private ownership of the roads. He argues that if the roads were privately owned, then the externality of congestion would be fully internalized and solved by the market. Discuss this by first explaining the externality problem that leads to congestion, and then explain whether the private market would deliver the efficient level of roads. The externality is caused by drivers considering the ________ benefit of using the road, but not the _________ cost. More and more drivers pull onto the road, not recognizing the __________ other drivers experience as a result. Private roads, or publicly operated toll roads, can reduce congestion because now the right to use the road is ______________. On the other hand, turning the public good into a club good poses other problems. Now the external ________________ will not be fully considered. When there is a ______________ externality, private markets will underproduce the good.

- private - social - cost - excludable - benefits - positive

chap 10: #1 = b. Jostin is ill and goes to the doctor. The doctor diagnoses him with a bacterial infection and prescribes an antibiotic. Jostin's visit to the doctor - produces a positive externality if his medical insurance pays for the visit and a negative externality if Jostin has to pay out of pocket. - produces a negative externality if the doctor was hoping to leave early that day and a positive externality if the doctor was hoping to boost her income. - produces a negative externality if he was supposed to be home studying for his classes. - produces a positive externality if it prevents other people from getting sick and a negative externality if the bacterial infection becomes resistant to antibiotics.

- produces a positive externality if it prevents other people from getting sick and a negative externality if the bacterial infection becomes resistant to antibiotics.

chap 5: #14 = You may have observed that items such as different brands of aspirin, tomato sauce, or gasoline are typically priced the same as each other. This is particularly true when consumers can find these goods in close proximity to each other. For example, prices are often the same at gas stations that are on opposite sides of the street. Prices are also generally the same for products next to each other on the same grocery store shelf. The aforementioned examples are goods that are likely to be ____________. You would expect the value of the cross-price elasticity to be ________, because the opportunity cost of getting information on price is low.

- substitutes - large

chap 5: #5 = Congratulations! You have just landed your first job out of college as an economic analyst at the Bureau of Labor Statistics. Your starting salary is $55,000 per year; an increase of 250% per year over the salary you made at the local coffee shop. The corresponding table gives the percentage change in your purchases of each good after your income increases. Use this information to estimate your income elasticity of demand for each of the items. percentage change in quantity table: - meals at restaurants = 500 - cups of coffee = 80 - instant noodles = -75 1. What is the income elasticity for meals at restaurants? 2. What is the income elasticity for cups of coffee? 3. What is the income elasticity for instant noodles? Based on the calculations of income elasticity, meals at restaurants are ____________, coffee is ____________, and ramen noodles are ______________.

1. 2 2. 0.32 3. -0.3 a. a normal good b. a necessity --> because 0.32 is relatively small AKA inelastic c. an inferior good

chap 5: #6 = Almonds are a crop that grows on trees. Farmers do not need to replant trees every year to produce a crop of almonds. It takes at least five years after planting for trees to bear fruit. Several factors such as weather, disease, and long term projections about price impact the supply of almonds available. Barley is a grass that must be planted each year to produce a crop. The growing season is short, about three to four months. Several factors influence farmers' decisions to plant barley each year, including price, weather, and disease. - Based on this information, a. almonds have a more inelastic supply in the short run because little can be done to change production in the short run. b. the crops have the same price elasticity of supply because they are both agricultural commodities. c. barley has a more inelastic supply in the short run because barley is more dependent on price in the short run. d. it is impossible to infer anything about the price elasticity of supply for these two crops. - look at the graph in chap 5, question 6 --> determine which would be almonds and which would be barley; and why. - Select each factor which helps determine the price elasticity of supply for a product. a. flexibility of inputs or resources used to make a product b. the ability to store product c. ease of firms to enter or exit the market

1. almonds have a more inelastic supply in the short run because little can be done to change production in the short run. 3. a, b, and c

chap 5: #8 = The EpiPen is a lifesaving device used by individuals with severe allergies. The U.S. manufacturer of the EpiPen raised its price by nearly 25% per year for nearly a decade. For each 25% increase in the price, quantity demanded would _________ by __________ 25%.

1. decrease 2. less than

chap 5: #2 = Consumers now have easy access to internet shopping because of smartphones. Technology has caused demand to become more _________ for goods you can purchase at stores like Barnes and Noble and Best Buy. This is because the cost of getting price information from other retailers is now ________. To stay competitive, Best Buy uses a strategy called _________________ where they offer to sell items at competitor prices.

1. elastic 2. lower 3. price matching

chap 5: #9 = Europe has eight different companies selling devices similar to the EpiPen. If these devices were available for use in the U.S. market, you would expect price elasticity of demand to become __________. This would also lead Mylan to charge a _________ price.

1. less inelastic 2. lower

chap 5: #7 = In 2017, Hurricane Irma had a significant, negative impact on the orange harvest in the state of Florida. The U.S. Department of Agriculture predicted that the quantity of oranges produced would be 21% lower than the previous year. If the price elasticity of demand for oranges is -1.5, what impact would Hurricane Irma have on the price of oranges? - change in the prices of oranges = ___%

14

chap 5: #3 = You are a pricing manager at a generic pharmaceutical distributor. The CEO of the company calls a meeting of all the managers and states that it is critical to increase revenue soon or you may have to start laying off employees. You know that the price elasticity of demand for your leading generic drug is 1.5 and you sell it for three times what it costs. As the pricing manager, you should 1. suggest laying off employees because elasticity of the leading generic drug is unit elastic, so there is no way to increase revenue by changing price. 2. suggest decreasing the price on the leading generic drug to increase revenue. 3. argue that the numbers must be off because the company is charging three times the cost of the leading generic drug and therefore must be making a profit. 4. suggest increasing the price on the leading generic drug to increase revenue.

2. suggest decreasing the price on the leading generic drug to increase revenue.

chap 7: #9 = Suppose there is one ticket left for tonight's performance of Hamilton on Broadway. The ticket costs $700. Sean is a community college student and has been saving his tips from his waiting job for months to see the show. He is willing to pay $705 for the ticket. Anca has seen Hamilton five times already but wants to see it again before heading to Europe for a month. She is willing to pay $1,250 for the ticket. ______ buying the ticket leads to a more economically efficient outcome.

Anca

chap 7: #11 = look at graph in question Suppose the daily demand curve for gasoline is as provided in the accompanying graph. a. Calculate the consumer surplus in the market for gasoline if the market price is $3.50. Consumer surplus = _________ million b. Now suppose the price decreases to $2.50 per gallon. Move the price line on the graph to reflect this change, then calculate the new consumer surplus. New consumer surplus = _____ million

a. $250 b. $490

chap 6: #6 = look at graph in question The U.S. government provides subsidies for a variety of agricultural products. Suppose the demand for and supply of corn is as indicated in the accompanying graph. a. In the absence of government involvement in the market, the equilibrium price is _____ per bushel, and the equilibrium quantity is ____ billion bushels. b. Suppose the government provides a $2 per unit subsidy for suppliers of corn. In the graph, shift one or both curves to show the effect of the subsidy. c. As a result of the subsidy, consumers will pay ____ per bushel, and sellers will receive ____ per bushel.

a. $5, 24 b. supply curve shifts to the right c. $4, $6

chap 6: #8 = look at graph in question The accompanying graph depicts the market for labor. a. In this labor market, the equilibrium wage is _____, and the equilibrium quantity of workers hired is ________. b. If the government imposes a minimum wage of $4, the equilibrium quantity of workers employed will be ______. ______ workers will be unemployed. c. If the government imposes a minimum wage of $10, the equilibrium number of workers employed will be ______. ________ workers will be unemployed. d. In the graph, place the minimum wage line at whichever minimum wage, $4 or $10, is binding.

a. $6, 350 b. 350, 0 c. 150, 400 d. minimum wage bar is above the equilibrium point at $10

chap 6: #5 = look at graph in question Consider the market for movie theater tickets shown in the accompanying graph. a. The initial equilibrium price is ____ per ticket, and the initial equilibrium quantity is ______ tickets. b. Suppose the government imposes a $2 per ticket tax on moviegoers. In the graph labeled Tax on moviegoers, shift one or both curves to show the effect of the tax. c. Moviegoers now pay a price of _____, and movie theaters keep _______ out of each ticket sale. _________ tickets are now sold. The economic burden of the tax __________________________________________. d. Now suppose the government, instead of levying the $2 per ticket tax on moviegoers, levies it on movie theaters. In the graph labeled Tax on movie theaters, shift one or both curves to show the effect of the tax. e. Moviegoers now pay a price of ______ , and movie theaters keep _____. ________ tickets are now sold. The change in the statutory burden of the tax ____________ on the economic burden of the tax.

a. $7 , 7,000 b. demand curve shifts to the left c. $8, $6, 6,000, is evenly split between moviegoers and movie theaters. d. supply curve shifts to the left e. $8, $6, 6,000, has no effect

chap 7: #3 = Hugo decides to buy his Christmas gifts on Black Friday. To simplify his life, he is giving his 10 closest friends scarves for Christmas and everyone else Christmas cards. Hugo is willing to pay up to $20 each for 10 scarves. When he arrives at Macy's at 5:00 A.M. on Black Friday, he discovers that scarves are on sale for $12 each. Hugo buys 10 scarves and uses the remaining $80 to buy himself some clothes. How much consumer surplus did Hugo receive from the tenth scarf he purchased? a. Consumer surplus from the tenth scarf: ______ b. Assuming Hugo follows the Rational Rule for Buyers, why did Hugo only purchase 10 scarves when they were on sale? Shouldn't he have purchased more since they were such a good deal compared to what he was willing to pay? At a price of $12, Huge determined that - buying an eleventh scarf gave him more than $12 in benefit. - the price exceeded his marginal cost. - buying an eleventh scarf gave him less than $12 in benefit. - buying an eleventh scarf gave him less than $8 in consumer surplus. Now suppose the manager at Macy's had 100 scarves in inventory. She decided to put the scarves on sale for $10, but an employee accidentally listed the sales price as $12. To the manager's surprise, the store sold all 100 scarves at the $12 sales price. How much producer surplus did Macy's receive from the hundredth scarf sold? c. Producer surplus from the hundredth scarf sold is equal to: ______

a. $8 b. buying an eleventh scarf gave him less than $12 in benefit. c. $2

chap 20: #3 = Veronica manages a team of medical transcribers, who all work from home and are paid hourly. a. What are some potential problems she may encounter in getting the most productivity possible out of her employees?Workers: - who are remotely located cannot be fully monitored to ensure they do not shirk their duties. - know their own capabilities better than she does, so only the most unsuitable workers will seek jobs with her company. - paid hourly have an incentive to do no more than the minimum work necessary. b. What are some possible solutions? Veronica could: - have individuals work in teams and reward teams for their performance. - mandate that individuals work a set number of hours to ensure that a sufficient amount of work is completed. - introduce a profit‑sharing arrangement, with commissions based on the amount of work completed.

a. - who are remotely located cannot be fully monitored to ensure they do not shirk their duties. - paid hourly have an incentive to do no more than the minimum work necessary. b. - have individuals work in teams and reward teams for their performance. - introduce a profit‑sharing arrangement, with commissions based on the amount of work completed.

chap 5: #16 = Suppose the accompanying table contains data on how many Veggie Delite sandwiches Subway is willing to sell each day at two different prices. - Calculate the daily price elasticity of supply when the price increases from $5.00 to $7.50. Please round to the nearest hundredth. a. Daily price elasticity of supply for Veggie Delite sandwiches = b. The daily price elasticity of supply for Veggie Delite sandwiches is relatively ___________. - Now consider how responsive Subway's supply of Veggie Delite sandwiches is to changes in price on an annual basis instead of a daily basis. c. Compared to the daily value, the annual price elasticity of supply for Veggie Delite sandwiches is likely to be more __________ and the annual supply curve is likely to be _________ than the daily supply curve.

a. 0.122 b. inelastic c. elastic, flatter

chap 5: #11 = An experiment is conducted that provides the data in the accompanying table. Toll rate. # of vehicles using the tollway per day 8. 10,000 6. 12,000 a. What is the absolute value of price elasticity when the toll rate decreases from $8 to $6 (use the midpoint method)? Round to the nearest hundredth. b. b. Price elasticity of demand for the toll road is considered to be ___________. c. What is the change in total revenue when the toll is decreased from $8 to $6? d. In order to maximize revenue, the toll rate should be

a. 0.636 b. inelastic c. -8000 d. increased

chap 5: #13 = According to the U.S. Department of Energy, the average price of gasoline in the U.S. fell by 14% in 2015. The number of hybrid electric vehicles (HEV) sold in the U.S. fell by 36% in the same year. Calculate the cross-price elasticity of demand for HEVs and gasoline. Round answer to one place after the decimal. a. Cross-price elasticity = b. Based on your answer in part a, gasoline and HEVs are

a. 2.6 b. substitutes

chap 5: #12 = Individuals differ in their willingness to pay for air travel, and airlines would like to charge different prices to different individuals based on their willingness to pay. Airlines typically attempt to divide passengers into two types: leisure travelers and business travelers. Suppose that an airline is charging $400 per ticket for all passengers on flights between New York and Washington D.C. The accompanying tables provide information on quantity demanded for air travel for leisure travelers and business travelers. price (per ticket). quantity leisure travelers (tickets per flight) $400 100 $500 50 price (per ticket). quantity business travelers (tickets per flight) $400 100 $500 90 a. What is the absolute value of price elasticity for leisure travelers if the airline increases the price to $500? Round your answer to the nearest whole number. b.What is the change in total revenue for leisure travelers when the price increases to $500? c. What is the absolute value of price elasticity for business travelers if the airline increases the price to $500? Round your answer to the hundredths place. d. What is the change in total revenue for business travelers when the price increases to $500? e. To maximize total revenue, the airline should charge - $500 to both groups. - $400 to leisure travelers and $500 to business travelers. - $500 to leisure travelers and $400 to business travelers. - $400 to both groups.

a. 3 b. -15000 c. 0.474 d. 5000 e. $400 to leisure travelers and $500 to business travelers. --> because business travellers is inelastic, price should be increased. because leisure travellers are elastic, price should remain the same (stay low) to maximize revenue)

chap 7: #17 = look at graph in question Consider the national market for in-home childcare, depicted in the accompanying graph. a. At 8 million hours, what is the size of the total economic surplus in this market? Place the shape on the graph to label total economic surplus in this market at 8 million hours, and calculate the value of the economic surplus. Economic surplus at 8 million hours: $ ________ b. Now, suppose that the actual quantity of childcare hours in the market is 4 million. Place points A and B on the graph to label the actual hours, and calculate the new value of the economic surplus in the market at 4 million hours. Economic surplus at 4 million hours: $_________ c. Place the shape on the graph to label the deadweight loss that occurs in the market at 4 million hours. d. At 4 million hours, the marginal benefit to households is _________ the marginal cost to child care providers. e. The efficient quantity of hours in this market is ____ million hours.

a. 32 million b. 24 million d. greater than e. 8

chap 7: #10 = look at table in question a. You are moving across town. Doing your research, you find that the average rate of a moving company is $250 per hour for a moving crew (moving truck included). The marginal benefit you receive from each hour of the movers' time (and truck) is listed in the accompanying table. Based on this information, you should hire movers for ___ hours, and you will receive _______ in consumer surplus. b. Now suppose that instead of paying per hour, a moving company offers a flat rate of $1,200 for movers plus a truck for an eight hour day. If you hired this moving company and used them for the entire eight hours, how much consumer surplus would you gain? consumer surplus: _______

a. 4, $1,220 b. $1270

chap 7: #16 = A study by University of Minnesota economist, Joel Waldfogel, estimated the difference in the actual monetary value of gifts received and how much the recipients would have been willing to pay to buy them on their own. The study suggested that the average recipient's valuation was approximately 90% of the actual purchase price. a. In 2017, it was estimated that the average amount spent on winter holiday gifts in the United States was $906. Based on the estimate from the Waldfogel study, how much of this would be deadweight loss? b. In 2017, approximately 250 million people in the United States were above the age of 18. Assuming that each individual purchased $906 worth of gifts, what was the total deadweight loss associated with gift-giving in the United States?

a. 90.6 b. 23 billion

chap 7: #1 = a. Consider the difference between positive and normative policy analysis. Use this knowledge to complete the passages. ___________ economics involves describing what is happening or predicting what will happen. _____________ economics concerns what should occur and involves value judgments. b. Classify each statement as reflecting either positive or normative analysis. - medicine is a necessary expensive, and should therefore be exempt from sales tax laws - sales tax on cigarettes reduces the amount of cigarettes sold in an year - sales tax is often higher on goods considered to be luxury goods, such as expensive watches and yachts - sales tax should be higher on restaurant meals than on groceries because eating out is a luxury - the government should impose tariffs on imports to protect american jobs - tariffs on imports increase the prices Americans pay for foreign made goods

a. Positive, Normative b. positive: - sales tax on cigarettes reduces the amount of cigarettes sold in an year - sales tax is often higher on goods considered to be luxury goods, such as expensive watches and yachts - tariffs on imports increase the prices Americans pay for foreign made goods normative: - medicine is a necessary expensive, and should therefore be exempt from sales tax laws - sales tax should be higher on restaurant meals than on groceries because eating out is a luxury - the government should impose tariffs on imports to protect american jobs

chap 7: #7 = a. ______________________ is/are often cited as a cause of market failure in the market for used cars. b. Government intervention is one possible solution for market failure. What is one possible reason why a government-controlled used car market may not provide an efficient outcome? - The government does not have the resources to control the used car market. - There is no remedy for market failure in this market. - Government actors may have their own incentives that might not align with market efficiency. - Consumers do not buy products from government-controlled markets.

a. Private information b. Government actors may have their own incentives that might not align with market efficiency.

chap 20: #7 = Sophia operates her own accounting practice and is looking to hire two entry‑level accountants. A high‑productivity worker will generate $90,000 in revenue per year and a low‑productivity worker will generate $60,000. Tasia is a high‑productivity worker and wants a salary of at least $80,000. Rick is a low‑productivity worker and wants at least a $55,000 salary. a. If Sophia can easily identify the type of worker and the lowest wage each worker will accept, she should hire __________________. Sophia's total profit will be _____________. b. It's more likely that Sophia can't tell who will be a high‑ or low-productivity worker from an interview. But based on her experience, she believes that 65% of workers are low productivity and 35% of workers are high productivity. Find the maximum salary that she would be willing to pay and determine who will accept her job offer. Does this change the maximum she is willing to pay for an accountant of unknown quality? The maximum salary that she would be willing to pay is _________. In this case, ____________ will accept her offer at that salary. Sophia will offer more only if ____________________________________________.

a. both Tasia and Rick, $15,000 b. $70,500, only Rick, she finds a way to distinguish low‑ and high‑productivity workers

chap 10: #17 = a. A popular national forest known for having dozens of access points for its well-used hiking trails located along public roads and highways is ______________ and ___________. b. An even more popular national park, which charges an entrance fee, is ______________ and _________. c. National defense is _______________ and _____________. d. A seat on a subway train is _____________ and ____________.

a. nonexcludable, rival b. excludable, rival c. nonexcludable, nonrival d. excludable, rival

chap 10: #18 = look at graph in question For centuries, Alaskans relied on salmon and other freshwater fish for protein, oil, and other nutrients. But when jetliners began flying tourists who love fishing from Seattle to Anchorage in the 1950s, the stock of Alaskan salmon began falling. The Alaska Department of Fish and Game had concerns about the high fraction of young salmon caught before they could reproduce. Following the advice of environmental scientists and economists, the Alaska Department of Fish and Game introduced restrictions on the minimum size (28 inches) and the number of salmon caught (5 per day). Among their concerns was the high fraction of young salmon caught before they could reproduce. a. Alaskan salmon are a ________________________. b. In the graph, place point A on the market equilibrium and place point B on the socially optimal outcome. c. In addition to restricting the number of salmon caught and imposing minimum size limits, which of following are suitable policy interventions to deal with this market failure? The government could - decrease the number of fish allowed for commercial fishers. - limit the fishing season to only certain times of the year, i.e., prohibit fishing during spawning. - increase the cost of fishing permits for sport fishers. - allow only Alaska residents to purchase fishing permits.

a. common resource b. - decrease the number of fish allowed for commercial fishers. - limit the fishing season to only certain times of the year, i.e., prohibit fishing during spawning. - increase the cost of fishing permits for sport fishers. - allow only Alaska residents to purchase fishing permits.

chap 7: #4 = There are dozens of laptop manufacturers around the world. According to the idea of efficient production, - a competitive market will drive most manufacturers out of business, leaving just a few firms to produce at the lowest possible cost. - each firm independently decides how many laptops to produce, and the marginal cost of the last unit produced will be the same for all firms. - there should only be one laptop manufacturer, making laptops at the lowest marginal cost. - government regulation will ensure that every firm produces at the lowest marginal cost.

a. each firm independently decides how many laptops to produce, and the marginal cost of the last unit produced will be the same for all firms.

chap 7: #6 = a. When the forces of supply and demand lead to an inefficient outcome - economists call this a deadweight loss. - the economic surplus is maximized. - economists call this a market failure. - it is a signal that the government needs to take ownership of that market including all the resources involved. b. Classify each scenario as to whether it is likely to result in an efficient or inefficient market outcome. - a market dominated by a few powerful businesses - a market transaction in which one party has information and the other party doesn't - a market in which economic surplus is maximized - a market transaction in which buyers and sellers behave irrationally - a market in which government regulation creates distortions

a. economists call this a market failure. b. efficient: - a market in which economic surplus is maximized inefficient: - a market dominated by a few powerful businesses - a market transaction in which one party has information and the other party doesn't - a market transaction in which buyers and sellers behave irrationally - a market in which government regulation creates distortions

chap 7: #5 = At the equilibrium quantity, marginal benefit is _______ marginal cost. Consuming ______ means that some mutually beneficial exchanges do not take place, and producing ________ means that some goods go unsold.

a. equal to b. less c. more

chap 10: #7 = a. An audiobook is an example of a club good because it is _____________ and _______________ in consumption. b. In some states, it is illegal to pick certain kinds of wildflowers by the side of the road. This is because wildflowers are a _____________. Without these laws, wildflowers are both ________ in consumption and __________________. In passing these laws, the states are hoping to avoid a tragedy of the commons.

a. excludable, nonrival b. common resource, rival, nonexcludable

chap 6: #4 = a. A quota will impact the market if the maximum quantity it allows __________ the equilibrium quantity. b. Which of the following are quantity regulations? - zoning laws - taxi quotas - health insurance mandates - rent control

a. falls short of b. zoning laws, taxi quotas, health insurance mandates

chap 10: #2 = The median earnings for a 25 to 34 year old, full-time, year round worker with a high school education was about $31,830 in 2016, while similar workers with a bachelor's degree (but no further education) earned $49,990, and as a result, they pay more income tax. a. There _____ a private benefit for individuals who attend college and earn a bachelor's degree. b. Does an individual's attainment of a bachelor's degree generate an externality? - A negative externality exists because individuals who receive a bachelor's degree could have spent the time working instead of attending college. - A positive externality exists because college educated individuals pay higher taxes and are often considered more valuable to employers than individuals without college diplomas. - There is no way to determine whether there is an externality in this case. - No externality exists because all of the benefits of a college education are private. c. The private market for college education results in ______ individuals going to college to earn bachelor's degrees relative to the socially efficient outcome. d. To achieve the socially efficient outcome in the market for bachelor's degrees, the government should - not interfere with the market for college education. - tax college education. - encourage private bargaining. - subsidize college education.

a. is b. A positive externality exists because college educated individuals pay higher taxes and are often considered more valuable to employers than individuals without college diplomas. c. too few d. subsidize college education.

chap 20: #5 = Jack is considering selling his elliptical machine, which he never really used, is high quality, and has been taking up space in his spare bedroom. He lists it on Facebook Marketplace for "$1,200 or best offer" but in reality won't sell it for less than $1,000 . Lina is looking to purchase a used elliptical machine. For a high‑quality elliptical, she is willing to pay up to $1,300, and for a low‑quality elliptical, she is willing to pay $600. Lina is risk neutral but she cannot tell if the elliptical machine is high quality or low quality. a. If she believes that 60% of used elliptical machines are high quality and 40% are low quality, what is the maximum price that Lina would be willing to pay? b. Would Jack agree to this price? Since it is ____________than his lowest acceptable price, he ___________.

a. lina's max price: $1020 b. higher, would

chap 10: #9 = a. Jerome has a beautifully landscaped front lawn with lots of colorful flowers. Landscaped lawns produce a _____________ externality. _____________ landscaped lawns exist relative to the socially efficient quantity. b. Dave takes advantage of the low price of gas to purchase a sports utility vehicle. Sports utility vehicles generate a _____________ externality. ____________ sports utility vehicles are produced relative to the socially efficient quantity. c. Susan decides to walk to work instead of driving. Walking to work creates a _________ externality. ___________ walks to work exist relative to the socially efficient quantity. d. Anita decides to smoke a cigarette while she is waiting at a busy bus stop. Cigarettes create a ___________ externality. __________ cigarettes are produced relative to the socially efficient quantity.

a. positive, Too few b. negative, Too many c. positive, Too few d. negative, Too many

chap 10: #15 = In order to curb CO2 emissions, the government creates a cap‑and‑trade system for freight companies that use semi‐trailer trucks to move freight. Some freight companies have already spent lots of money investing in low‑emission trucks or even developing battery technologies to decrease emissions. Other companies have invested nothing to decrease their emissions. Answer the following questions to explain how the cap‑and‑trade program, if implemented successfully, will decrease emissions. a. Using cap‑and‑trade, the government could restrict pollution by placing a __________ on the amount of emissions each company may emit through the issue of permits. b. One feature of the cap‑and‑trade policy is that permits can be traded between the "greener" companies that have already invested in emission lowering technologies and those that have not. Greener companies will most likely - purchase more permits because it allows them to expand output by a far greater amount than a "dirty" company, thus they are worth more to a green company. - use the minimum amount of permits they need but refuse to trade the remaining permits to other companies to punish them for not cleaning up their act. - not get to purchase many permits because the less efficient companies will need to purchase more in order to keep their output at the initial level. - use as few permits as possible and sell their remaining permits to the "dirty" companies that need more permits to produce the same amount of output.

a. quota b. purchase more permits because it allows them to expand output by a far greater amount than a "dirty" company, thus they are worth more to a green company.

chap 6: #9 = look at graphs in question The United States produces a little more than nine million barrels of oil per day. Suppose the supply of and demand for oil are indicated in the accompanying graph. a. Suppose the government is concerned about the impact of oil consumption on the environment and imposes a maximum quota of 6 million barrels per day on the supply of oil. In the graph, adjust the line labelled "Quota" to illustrate the effect of this quantity restriction. b. Given the quota, the price of oil will be ____ per barrel. c. Suppose that electric cars become significantly more prevalent in the market. In the graph, shift the appropriate curve to show the effect of this change. d. Given the entry of electric cars into the market, the quantity restriction imposed by the government on oil could potentially become irrelevant. True or false?

a. quota bar at 6 million barrels b. $70 c. demand curve shifts to the left d. true

chap 20: #8 = You are working at a marketing firm in ad sales. Your manager announces that the company is starting a new incentive program to increase the number of potential customers, or leads, for salespeople to contact. For every lead submitted by an employee, the employee will receive $10$10 in their next paycheck. a. Which of the five solutions to hidden action problems is the manager attempting to use? The manager is trying to - pick the right kind of agents. - make hidden actions observable by monitoring. - use government rules and social norms to align incentives. - reward things that go along with the actions you want. - give the actor "skin in the game," or a stake in the outcome. b. After a week, the sales manager realizes that her staff is simply submitting lists of names of everyone they know for $10$10 a name, resulting in a net loss to the company because the vast majority of the leads are useless. Which of the following changes to the incentive program would likely result in the outcome the manager wants? Instead of - paying $10 for each lead, offer to pay employees a percentage of revenue actually earned from leads they submit. - the sales manager reading all of the suggestions, hire a consultant to sift through the leads and only pass along useful leads to the sales team. - offering $10 for each lead, offer $25 instead. - offering $10 for each lead, offer $5 instead.

a. reward things that go along with the actions you want. b. paying $10 for each lead, offer to pay employees a percentage of revenue actually earned from leads they submit.

chap 6: #7 = look at table in question a. Suppose that, to assist tenants, the government of Ann Arbor imposes a price ceiling (rent control) on apartments at $1,200 per unit. This would create a __________ of __________ units. b. What are some potential consequences of such a price ceiling? - housing discrimination - a decline in housing availability - a decline in housing quality - the development of a black market in housing

a. shortage, 8000 b. - housing discrimination - a decline in housing availability - a decline in housing quality - the development of a black market in housing

chap 6: #2 = a. Price ceilings create __________ if they are set _________ the equilibrium price. b. Which of the following are price ceilings? - price controls on prescription drugs - rent control - the minimum wage - an agricultural price support

a. shortages b. below c. price control on prescription drugs, rent control

chap 5: #4 = a. If the price of a good falls and this causes the quantity demanded of another good to fall, then the items are considered to be _______________ and the cross-price elasticity is ______________. If the price of a good falls and this causes the quantity demanded of another good to increase, then the items are considered to be ____________ and the cross-price elasticity is _______________.

a. substitutes b. positive c. complements d. negative

chap 6: #3 = a. Price floors create _______ if they are set ______ the equilibrium price. b. Which of the following are price floors? - price controls on staples, e.g., bread - an agricultural price support - a minimum unit price on alcohol - rent control

a. surpluses b. above c. - an agricultural price support - a minimum unit price on alcohol

chap 7: #15 = look at table in question Fei, Morgan, and Lakesha are all in the market for new Levi's jeans. The marginal benefit for each pair of jeans for each of them is provided in the accompanying table. a. If the price of a pair of Levi's jeans costs $32, Fei will purchase _____________, Morgan will purchase _______________, and Lakesha will purchase ____________. b. b. The consumer surplus from the last pair of jeans purchased is - largest for Lakesha. - largest for Fei. - largest for Morgan. - the same for Fei, Morgan, and Lakesha. c. How much total consumer surplus will each of them receive at a price of $32? Fei's total consumer surplus is $_____ Morgan's total consumer surplus is $______ Lakesha's total consumer surplus is $______ d. How much consumer surplus do they receive collectively? Collective consumer surplus is $_____

a. three pairs, two pairs, four pairs b. the same for Fei, Morgan, and Lakesha. c. Fei = 81, Morgan = 8, Lakesha = 124 d. 213

chap 20: #9 = For each scenario, indicate whether it is an example of adverse selection of sellers, adverse selection of buyers, or moral hazard. - your local seafood shop advertises fresh seafood, but you are not certain if the seafood is actually fresh or if its been frozen - people with asthma are more likely to buy health insurance - you hire your neighbor to check on your cat everyday while you are gone for the week. The neighbor checks on your cat every other day instead

adverse selection of sellers: - your local seafood shop advertises fresh seafood, but you are not certain if the seafood is actually fresh or if its been frozen adverse selection of buyers: - people with asthma are more likely to buy health insurance moral hazard: - you hire your neighbor to check on your cat everyday while you are gone for the week. The neighbor checks on your cat every other day instead

chap 6: #9 = look at graphs in the question The Centers for Disease Control and Prevention (CDC) estimates that cigarette smoking causes more than 480,000 deaths each year in the United States. Cigarette smoking also carries a significant financial burden, with an estimated $170 billion of direct medical expenses and another $156 billion lost from lower worker productivity annually. Suppose the market demand and supply for cigarettes in the U.S. is represented in the accompanying graph. a. Place point A on the initial equilibrium in the market with no government intervention. b. Suppose the government wants to reduce cigarette consumption to 200 billion packs per year. The government could achieve this by imposing a per-unit tax on cigarettes of _____ per pack. c. Suppose that, instead of a per-unit tax, the government imposes a price control on cigarettes. To achieve its goal, it could impose a price ceiling of ____ per pack or a price floor of ____per pack. d. Now suppose that, instead of a tax or a price control, the government imposes a quantity restriction, or quota, on producers. Consumers will end up paying _____ per pack as a result.

b. $3 c. $6, $9 d. $9

chap 10: #13 = look at graph in problem Consider the accompanying graph of the market for cigarettes. a. Place point A at the equilibirum outcome. Place point B at the socially efficient outcome. Suppose the government wants to eliminate inefficiency in this market by imposing a per-pack tax on cigarettes. b. What is the amount of the per-pack tax that would result in the socially optimal level of consumption in this market? A quota can also be used to solve the externality problem. c. What quantity should the government choose for the quota limit if the goal is to achieve the socially efficient outcome? d. The socially efficient quantity of cigarettes - occurs when the price of cigarettes is as high enough to discourage smoking. - occurs when the marginal private benefits equal the marginal private costs. - is zero. - occurs when the marginal social benefits equal the marginal social costs.

b. $3 c. 120 million packs d. occurs when the marginal social benefits equal the marginal social costs.

chap 7: #14 = look at graph in question Consider two people in the market for tilapia, Reagan and Cheryl. The marginal benefit curves for both individuals are shown in the accompanying graph. a. Suppose the market price of tilapia is $2.00 per pound. Move point A to Cheryl's quantity purchased. Move point B to Reagan's quantity purchased. b. How many pounds of tilapia do they collectively purchase?_____ pounds c. To achieve an efficient allocation, Cheryl should purchase ________________________ as she is currently purchasing, and Reagan should purchase ________________________ as she is currently purchasing.

b. 7 c. the same amount of tilapia, the same amount of tilapia

chap 7: #13 = look at graph in question Consider the market for tilapia. Ripple Rock Fish Farms, a small family fishery in Ohio, and The Fishin' Company, a large corporate supplier, are both producers of tilapia. The marginal cost curves for both firms are shown in the accompanying graph. a. Suppose the market price of tilapia is $2.50 per pound. Move point A to Ripple Rock's quantity sold. Move point B to The Fishin' Company's quantity sold. b. How many pounds of tilapia do they collectively supply? ________ thousand pounds c. To achieve efficient production, The Fishin' Company should supply ____________________ it is currently producing, and Ripple Rock should supply ____________________ it is currently producing.

b. 800 c. the same amount of tilapia, the same amount of tilapia

chap 10: #4 = look at graph in problem A local school administrator observes an increase in the number of flu cases in the public schools over the last two years. She is concerned that some families cannot afford flu vaccine and are therefore not having children vaccinated. She is also concerned that the failure to vaccinate some children is putting other children at risk, so she proposes that the state subsidize vaccines to increase coverage rates. a. Determine whether children getting a flu vaccine carries an external benefit or an external cost. If an external cost is present, move point A and point B to show the marginal social cost curve. If an external benefit is present, move point A and point B to show the marginal social benefit curve. Place point C at the equilibrium outcome. Place point D at the socially optimal outcome. b. From an efficiency perspective, subsidizing vaccines _________ make sense because without the subsidy, the equilibrium quantity is __________ the socially optimal quantity. The school nurse suggests publishing a list of which kids did not get a flu vaccine, in the hope that public shaming will lead people to vaccinate their children. c. The school nurse is hoping that public shaming would act like a _____________ and lead the market to a ________________ outcome. Social recognition, such as a party for vaccinated children, could function as a _________________ to encourage more parents to vaccinate their children. d. What flaws might the school nurse's suggestion have? Select all that apply. - Parents with immunocompromised children will know which students are not vaccinated and can take precautions to keep their kids safer by knowing if a student in their child's class is a potential carrier. - The school would potentially face a lawsuit because sharing protected health information (PHI), like immunization records, without parents' consent could be a violation depending on regulations of the state. - People that feel passionate about not vaccinating are typically doing so for medical or religious reasons and will not sway to social norms or peer pressure.

b. does, smaller than c. corrective tax, socially optimal, corrective subsidy d. - The school would potentially face a lawsuit because sharing protected health information (PHI), like immunization records, without parents' consent could be a violation depending on regulations of the state. - People that feel passionate about not vaccinating are typically doing so for medical or religious reasons and will not sway to social norms or peer pressure.

chap 10: #10 = look at graph in problem a. Place point A at the equilibrium outcome. Place point B at the socially efficient outcome. b. Determine the equilibrium price and quantity in this market. c. Determine the socially efficient price and quantity in this market. d. The graph implies that cigarettes produce a _____________ externality. The marginal external _______ of smoking is ______.

b. eq price = $7, eq quantity = 180 million packs c. SEP = $8, SEQ = 120 million packs d. negative, cost, $3

chap 10: #16 = look at graph in problem Some economists argue that early child care generates an external benefit to society. Consider the following demand and supply graph for early childhood education. a. Place point A at the market equilibrium outcome. Place point B at the socially efficient outcome. b. The market equilibrium price is _________ the price that is best for society, and the market equilibrium quantity is _________ the quantity that is best for society. c. The government should provide a per unit subsidy of _________ to achieve the socially optimal outcome. This subsidy would cost the government ___________ million in total each month.

b. less than, less than c. $250, $6,500

chap 10: #11 = look at graph in problem a. Place point A at the equilibirum outcome. Place point B at the socially efficient outcome. b. The graph implies that house‑painting services produce _________ externalities. c. Determine the equilibrium price and quantity in this market. d. Determine the socially efficient price and quantity in this market. e. e. The market produces _____________ ______________ painted houses relative to the socially efficient outcome.

b. positive c. eq price = $1400, eq quantity = 80,000 houses d. SEP = $1600, SEQ = 120,000 houses e. 40,000, too few

chap 5: #10 = An article in Forbes noted that the Intercounty Connector toll road that connects two counties in Maryland was not generating as much toll revenue as predicted. At that time, the toll rate was $8 for a passenger car making a round trip from end to end on the tollway during rush hour. What additional information would you need to know in order to determine if the toll should be increased or decreased? a. The income elasticity of drivers using the tollway b. The number of vehicles using the tollway per day c. The price elasticity of demand d. The price elasticity of supply

c. The price elasticity of demand

chap 7: #12 = look at graph and table in question Last year the average price for an airline ticket was $450, but the average price dropped to $375 this year due to a decrease in the demand for airplane travel. The accompanying table contains information on the supply of air travel. a. Using the information in the table, move the points on the graph to sketch a supply curve. b. Shade the area on the graph that represents producer surplus from the previous year when the price was $450. Also shade the area that represents producer surplus this year after the price has dropped to $375. c. Producer surplus this year is _____ than producer surplus last year.

c. less

chap 10: #12 = look at graph in problem People experiencing a medical emergency experience better outcomes if someone near them has first aid training and can immediately begin providing assistance. As a result, first aid training and certification is required for jobs working with the elderly and with children. First aid training also benefits the trained person's friends and family. It even benefits strangers who live in the same community since it increases the chances that there is someone near them with first aid training when a medical emergency occurs. a. Illustrate the hypothetical market for first aid training by placing the labels for each curve (supply, marginal private benefit, marginal social benefit) on the graph. b. Next, place point A on the equilibrium outcome and place point B on the socially optimal outcome. c. The market for first aid training involves a __________________ for society, therefore ___________ people will get first aid training than the socially optimal level without intervention in the market.

c. positive externality, fewer

chap 10: #5 = Acceptable social norms and social recognition act like corrective taxes and subsidies. Social norms act as a corrective tax by discouraging people from partaking in an action that will cause a negative externality by fear or shame of being judged harshly by others in society. Likewise social recognition can act as a corrective subsidy and cause people to partake in more activities that will create positive externalities. Classify the following examples of social norms by whether the behavior is undertaken to avoid society's judgement, i.e., working as a corrective tax, or to receive social recognition, i.e., working as a corrective subsidy. - deciding to throw your trash in a garbage bin - deciding to donate blood at a local blood drive - picking up after your dog when you're out for a walk - taking your toddler out to the car instead of letting them throw a tantrum in the grocery store - holding the door open for the elderly woman entering the store behind you

corrective tax: - deciding to throw your trash in a garbage bin - picking up after your dog when you're out for a walk - taking your toddler out to the car instead of letting them throw a tantrum in the grocery store corrective subsidy: - holding the door open for the elderly woman entering the store behind you - deciding to donate blood at a local blood drive

chap 10: #14 = Each of the given scenarios involves an externality. Classify each scenario based on whether or not it is likely that private bargaining could be used to achieve a socially optimal outcome in each case. - opening an apple store in a mall causes overall sales in the mall to increase by 10% - the production of steel results in pollution that affects millions of residents in the surrounding area - LaShawn's neighbor mows his lawn during the night

likely: - opening an apple store in a mall causes overall sales in the mall to increase by 10% - LaShawn's neighbor mows his lawn during the night unlikely: - the production of steel results in pollution that affects millions of residents in the surrounding area

chap 7: #8 = Classify each statement as either a positive or a normative statement. - raising the federal minimum wage will cause some workers to lose their jobs - the federal minimum wage should be increased to assist low income households - an increase in the gasoline tax will reduce the amount that people drive and will therefore cause a reduction in air pollution - if the federal income tax is increased, workers will increase the number of hours they work each year

positive: - raising the federal minimum wage will cause some workers to lose their jobs - an increase in the gasoline tax will reduce the amount that people drive and will therefore cause a reduction in air pollution - if the federal income tax is increased, workers will increase the number of hours they work each year normative: - the federal minimum wage should be increased to assist low income households

chap 20: #2 = For each measure listed below, identify why it may serve as a solution to the private information problem in the used‑home market. - hiring a home inspector - a home warranty contract - disclosure laws

use of a third party verifier: - hiring a home inspector sellers signaling their quality: - a home warranty contract use of government to increase information: - disclosure laws