Micro HW questions exam 1

Betty Lou has a car washing and detailing business. She charges​ $20 to wash a​ car, a process that takes her 20 minutes and requires no help or materials. For car​ detailing, a process requiring 1​ hour, she charges​ $50 net of materials.​ Again, no help is required. What do you suggest Betty Lou do to make the most efficient use of her​ resources?

Betty Lou should raise the price of car detailing or concentrate on washing cars.

Analyzation of the relationship between two variables while holding the values of other variables unchanged is a device known as

Ceterus paribus

Households​ ________ in output markets and​ ________ in input markets.

Demand, supply

The rent for​ 2-bedroom apartments in Detroit has fallen from an average of​ $796 in September 2014 to​ $717 in March 2015. Demand for​ 2-bedroom apartments in Detroit was falling during this period as well. This is hard to explain because the law of demand says that lower prices should lead to higher demand.

Disagree. A leftward shift of the demand curve would result in a lower price and a lower quantity demanded.

Do any economic systems in the world reflect the purest forms of command or​ laissez-faire economies?

No, all countries have at least some government involvement or a lot of involvement

When a price ceiling is​ imposed, the price system is prohibited from rationing the product in the market in which the ceiling was imposed. What other alternative rationing methods are available to determine who receives the scarce​ commodity?

Queuing, favoring​ customers, and ration coupons

If the current price of a product is above the market equilibrium​ price, there is​ ________ of this product.

Surplus

Taxicab fares in most cities are regulated. Several years​ ago, taxicab drivers in Boston obtained permission to raise their fares 10​ percent, and they anticipated that revenues would increase by about 10 percent as a result. They were​ disappointed, however. When the commissioner granted the 10 percent​ increase, revenues increased by only about 5 percent. What can you infer about the elasticity of demand for taxicab​ rides?

Taxicab rides are more elastic than anticipated by taxicab drivers.

In an effort to​ "support" the price of some agricultural​ goods, the Department of Agriculture pays farmers a subsidy in cash for every acre that they leave unplanted. The Agriculture Department argues that the subsidy increases the​ "cost" of planting and that it will reduce supply and increase the price of competitively produced agricultural goods. Critics argue that because the subsidy is a payment to​ farmers, it will reduce costs and lead to lower prices.

The Department of​ Agriculture's argument is correct. The subsidy does increase the​ "cost" of​ planting, but there is now an opportunity cost. By​ planting, the farmers must give up the subsidy. The subsidy will clearly lead to fewer acres of production and higher farm prices.

If you expect the price of gold to increase in the near​ future, your demand for gold today will increase.

True

The collection and use of data to test economic theory is called empirical economics.

True

When quantity supplied exceeds quantity​ demanded, price tends to fall.

True

What two important functions does a market system perform?

It provides an automatic mechanism for distributing scarce goods and services and determines both the allocation of resources among producers and the final mix of outputs.

Which of the formula is used to calculate income elasticity of​ demand?

% change in quantity Y demanded / % change in price of X

Determine whether each of the following is covered by microeconomics or macroeconomics . 1)Number of employees in the steel​ industry: 2)Changes in the aggregate price level​ (inflation): 3)The price of gasoline 4) The unemployment rate

1)Micro 2)Macro 3)Micro 4)Macro

If the value of X changes from 16 to 24 when the value of Y changes from 12 to​ 8, the slope of the line between those two points is

8-12/24-16 = -0.5

A laissez−faire economy is one in​ which:

Individuals and firms pursue their own self interests without any governmental interference

One of the scarce resources that constrain our behavior is time. Each of us has only 24 hours in a​ day, and we must allocate our time in a given day among competing alternatives. How do you go about allocating your time in a given day among competing​ alternatives? How do you go about weighing the​ alternatives? Once you choose a most important use of​ time, why do you not spend all your time on that​ activity?

As more and more time is spent on one​ activity, the opportunity cost of that activity in terms of other activities rises.

If an excise tax is imposed on a​ product, more tax revenue will be raised if demand for the product is relatively elastic instead of relatively inelastic.

False

Explain whether each of the following statements describes a change in demand or a change in quantity​ demanded, and specify whether each change represents an increase or a decrease. Julio believes the price of tires will rise next month, so he purchases a set of 4 for his pickup truck today.

The demand for tires increases

An analysis of a​ large-scale survey of consumer food purchases by Mark Aguiar and Erik Hurst indicates that retired people spend less for the same market basket of food than working people do.

The opportunity cost of time for retired people is lower than the opportunity cost of time for working​ people, so retirees choose to spend more time shopping for​ lower-priced items compared to people who are still working.

The supply of pineapples in Hawaii​ increases, causing pineapple prices to fall. Lower prices mean that Hawaiian households will increase​ what?

The quantity of pineapples demanded

Price elasticity of demand is defined​ as:

The ratio of the percentage of change in quantity demanded to the percentage of change in price.

Suppose price increases and demand is elastic. What happens to total​ revenue?

Total revenue will fall

Demand is likely to become more elastic as we move from the short run to the long run.

True

If price is increasing as quantity​ increases, the slope of the line representing different prices and their corresponding quantities will be positive.

True

Suppose that households in Hawaii begin to buy more pineapples. This change will have _______ affect on the supply of pineapples.

no direct

A price floor​ is:

a minimum price below which exchange is not permitted.

The total loss of producer and consumer surplus from underproduction or overproduction​ is:

deadweight loss

Demand is inelastic​ if:

demand responds​ somewhat, but not a great​ deal, to changes in price. It always has a numerical value between zero and 1.

producer surplus

is the difference between the current market price and the cost of production for the firm

An increase in the price of a good causes a decline in demand for:

it's compliments

Firms​ ________ in output markets and​ ________ in input markets.

supply, demand

a minimum price below which exchange is not permitted is...

the difference between the maximum amount a person is willing to pay for a good and its current market price

Demand is elastic​ if:

the percentage change in quantity demanded is larger than the percentage change in price in absolute value​ (a demand elasticity with an absolute value greater than​ 1).