Microeconomics

If the trade takes place at $4, how much producer surplus goes to Vincent? How much consumer surplus goes to Jules?

$1 goes to Vincent, $4 goes to Jules.

Given that Maria and Juan find a price suitable to both of them, how much total surplus would be generated?

$15.

Suppose that Maria is willing to pay $40 for a haircut, and her stylist Juan is willing to accept as little as $25 for a haircut. What possible price for the haircut would be beneficial to both Maria and Juan?

$30.

Your roommate just bought an iPod for $200. She would have been willing to pay $500 for a machine that could store and replay that much music. How much consumer surplus does your roommate enjoy from the iPod?

$300

If the trade takes place at $7, how much producer surplus goes to Vincent? How much consumer surplus goes to Jules?

$4 goes to Vincent, $1 goes to Jules.

Jules wants to purchase a Royale with cheese from Vincent. Vincent is willing to offer this tasty burger for $3. The most Jules is willing to pay for the tasty burger is $8. How large are the potential gains from trade if Jules and Vincent agree to make this trade? In other words, what is the sum of producer and consumer surplus if the trade happens?

$5

If the sales tax was 5 percent on this product, how much revenue did the government raise when Bryan bought his arch supports?

50 cents.

What's the best way to think about the rise in oil prices in the 1970s, when wars and oil embargoes wracked the Middle East?

A fall in supply.

If the price in a market is above the equilibrium price, this creates..

A surplus

How does a free market eliminate a shortage?

By letting the price rise.

When the price of a good increases, the quantity demanded..

Decreases.

Along a supply curve, if the price of oil falls, what will happen to the quantity of oil supplied?

It will decrease.

Suppose that Maria is willing to pay $40 for a haircut, and her stylist Juan is willing to accept as little as $25 for a haircut. If the state where Maria and Juan live instituted a tax on services that included a $5 per haircut tax on stylists and barbers, what will happen to the $15 of economic benefit?

It will decrease.

Given your answer on the previous question, how much revenue did it raise when it increased its gasoline tax?

Less revenue than was hoped for.

Business leaders often say that there is a "shortage" of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article entitled "New York farmers fear a shortage of skilled workers," pointing out that a special U.S. visa program, the H-2A program, "allows employers to hire foreign workers temporarily if they show that they were not able to find U.S. workers for the jobs." (Source: Thompson, Carolyn. May 13, 2008. N.Y. farmers fear a shortage of skilled workers Associated Press.) How do unregulated markets cure a "labor shortage" when there are no immigrants to boost the labor supply?

Let the price of labor increase.

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville?

Meterville.

One town will tend to attract shoppers who hate driving around looking for parking. Which one?

Meterville.

Which town will likely attract shoppers with higher incomes?

Meterville.

Suppose that Maria is willing to pay $40 for a haircut, and her stylist Juan is willing to accept as little as $25 for a haircut. If a previous $5 tax increases to $20, will the haircut transaction still happen?

No

The cost of the next most valuable opportunity is known as a

Opportunity cost.

When demand decreases, what happens to price and quantity in equilibrium?

Price and quantity both decrease.

When demand increases, what happens to price and quantity in equilibrium?

Price and quantity both increase.

A review of the jargon: Is rent control a "price ceiling" or a "price floor?"

Price ceiling.

When the price is above the equilibrium price, self-interest tends to..

Push the price down.

Who is impacted most by a change in the minimum wage?

Teenagers.

When the price of Apple computers goes down, what probably happens to the demand for Windows-based computers?

The demand for Window-based computers decreases.

When the price of olive oil goes up, what probably happens to the demand for corn oil?

The demand for corn oil increases.

When the price of petroleum goes up, what probably happens to the demand for natural gas?

The demand for natural oil increases.

What should happen to the "demand for speed" (measured by the average speed on highways) once airbags are included on cars?

The demand for speed increases.

If everyone thinks that the price of tomatoes will go up next week, what is likely to happen to demand for tomatoes today?

The demand for tomatoes increases.

If oil executives read in the newspaper that new solar-power technologies have been discovered but will likely only become useful in 10 years, what is the likely equilibrium impact on the price and quantity of oil today?

The price of oil will decrease, the quantity of oil will increase.

If oil executives read in the newspaper that massive new oil supplies have been discovered under the Pacific Ocean but will likely only be useful in 10 years, what is likely to happen to the supply of oil today?

The supply of oil will rise today.

Imagine that a technological innovation reduces the costs of producing high-quality steel. What happens to the supply of steel?

The supply of steel increases.

When is a pharmaceutical business more likely to hire highly educated, cutting-edge workers and use new, experimental research methods?

When the business expects the price of its new drug to be high.

When will people search harder for substitutes for oil?

When the price of oil is high.

Harry is lucky enough to get a rent-controlled apartment for $300 per month. The market rent on such an apartment is $3,000 per month. Harry himself values the apartment at $2,000 per month, and he'd be quite happy with a regular, $2,000 per month New York apartment. If he stays in the apartment, how much consumer surplus does he enjoy?

$1,700 per month.

If the government could have taxed Bryan based on his willingness to pay rather than on how much he actually paid, how much sales tax would Bryan have had to pay?

$5,000

Michael is an economist. He loves being an economist so much that he would do it for a living even if he only earned $30,000 per year. Instead, he earns $80,000 per year. (Note: This is the average salary of new economists with a Ph.D. degree.) How much producer surplus does Michael enjoy?

$50,000

The economist Bryan Caplan recently found a pair of $10 arch supports that saved him from the pain of major foot surgery. As he stated on his blog, he would have been willing to pay $100,000 to fix his foot problem, but instead he only paid a few dollars. How much consumer surplus did Bryan enjoy from this purchase?

$99,990

Imagine that you can hire four low-skilled workers to move dirt with shovels at $5 an hour, or you can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. Who will you hire if the minimum wage increases from $5 per hour to $6.50 per hour?

1 high-skilled worker.

What's the best way to think about the rise in oil prices in the last 10 years, as China and India have become richer: Was it a rise in demand, a fall in demand, a rise in supply, or a fall in supply?

A rise in demand.

Decades ago, Washington, DC, a fairly small city, wanted to raise more revenue by increasing the gas tax. Washington, DC, shares borders with Maryland and Virginia, and it's very easy to cross the borders between these states. How elastic is the demand for gasoline sold at stations within Washington, DC? In other words, if the price of gas in DC rises, but the price in Maryland and Virginia stays the same, will gasoline sales at DC stations fall a little, or will they fall a lot?"

Elastic-gasoline sales would fall a lot.

Junk food has been criticized for being unhealthy and too cheap, enticing the poor to adopt unhealthy lifestyles. Suppose that the state of Oklakansas imposes a tax on junk food. For the tax to actually deter many people from eating junk food, should junk food demand be elastic or inelastic?

Elastic.

As long as supply and demand curves have their normal shape (the demand curve has a negative slope while supply curves have appositive slope), if there is a tax, the equilibrium quantity must _______ and the price that sellers receive must _______.

Fall; Fall.

As long as supply and demand curves have their normal shape (the demand curves have a negative slope while supply curves have a positive slope), if there is a tax, the equilibrium quantity must _______ and the price that buyers pay must _______.

Fall; Rise.

If the price of cars falls, carmakers are likely to make..

Fewer cars

If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance?

Fewer people will be covered because health insurance companies will supply less.

If DC, Maryland, and Virginia all agreed to raise their gas tax simultaneously, how much revenue could the gas tax raise? Note: These states have heavily populated borders with each other, but they don't have any heavily populated borders with other states.

More revenue than was hoped for.

Now, Jon is in Japan, trying to get a job as a full-time translator; he wants to translate English TV shows into Japanese and vice versa. He notices that the wage for translators is very low. Who is the "competition" that is pushing the wage down?

Other translators.

Suppose you're doing some history research on shoe production in ancient Rome, during the reign of the famous Emperor Diocletian. Your records tell you how many shoes were produced each year in the Roman Empire, but it doesn't tell you the price of shoes. You find a document that says that in the year 301, Emperor Diocletian issued an "edict on prices," but you don't know whether he imposed price ceilings or price floors. However, you can clearly tell from the documents that the number of shoes actually sold in markets fell dramatically, and that both potential shoe sellers and potential shoe buyers were unhappy with the edict. With the information given, can you tell whether Diocletian imposed a ceiling or a floor? If so, which is it?

Price ceiling.

When supply increases, what happens to price and quantity in equilibrium?

Price decreases, quantity increases.

A review of the jargon: Is the minimum wage a "price ceiling" or a "price floor?"

Price floor.

When supply decreases, what happens to price and quantity in equilibrium?

Price increases, quantity decreases.

With these price controls on bread, would you expect bread quality to rise or fall?

Quality falls.

When supply falls, what happens to quantity demanded in equilibrium?

Quantity demanded decreases.

If the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price, what would happen to the quantity supplied of bread?

Quantity supplied decreases.

The competitive market equilibrium maximizes gains from trade. Taxes and subsidies, by altering the market outcome, reduce the gains from trade. Does this happen primarily because of the impact of taxes and subsidies on prices, or the impact of taxes and subsidies on quantities?

The impact of quantities.

Jon is on eBay, bidding for a first edition of the influential Frank Miller graphic novel Batman: The Dark Knight Returns. In this market, who is Jon competing with?

The other bidders.

The industrial areas in northeast Washington, DC, were relatively dangerous in the 1980s. Over the last two decades, the area has become a safer place to work (although there are still seven times more violent crimes per person in these areas compared with another DC neighborhood, Georgetown). When an area becomes a safer place to work, what probably happens to the "supply of labor" in that area?

The supply of labor increases.

When oil companies expect the price of oil to be higher next year, what happens to the supply of oil today?

The supply of oil decreases.