Microeconomics Midterm 1

Which of the following statements is true? I. Quantity controls drive a wedge between the demand price and the supply price of the good. II. The difference between the demand and supply price at the quota limit is referred to as consumer surplus. III. Quantity controls have no undesirable side effects. a. Statement I is true. b. All statements are true. c. Statement II is true. d. Statements II and III are true.

I. Quantity controls drive a wedge between the demand price

What two markets are represented in the circular-flow diagram? A. The markets for households and firms. B. The market for goods and services and the market for factors. C. The market for money and the market for goods and services. D. The market for factors and the market for money.

The market for goods and services and the market for factors.

Suppose the price of gasoline increases 10% and the quantity demanded in Santa Cruz drops 5% per day. The price elasticity of demand for gasoline in Santa Cruz is a. Price elastic b. Price inelastic c. Price unit-‐elastic d. Perfectly price inelastic

b. Price inelastic

The United States and the European Union impose price floors on many agricultural products. These price floors lead to unwanted suprluses. To deal with a surplus: a. The U.S. government typically pays farmers to produce as much as possible. b. The U.S. government, in some cases, has destroyed the surplus production. c. The European Union pays farm exporters to sell products for a profit overseas. d. The U.S. government holds auctions to sell the surplus to the highest bidder.

b. The U.S. government, in some cases, has destroyed the surplus production.

4. Which of the following is true at equilibrium? a. The supply schedule is identical to the demand schedule at every price. b. The quantity demanded is the same as the quantity supplied. c. The quantity is zero. d. Every consumer who enjoys the good can consume it. e. Producers could not make any more of the product regardless of the price.

b. The quantity demanded is the same as the quantity supplied.

You can either spend $1000 on a new iMac or a trip to Europe. If you choose to buy the new iMac, the opportunity cost is: a. $1000 b. The trip to Europe c. Both the $1000 and the trip to Europe d. Impossible to determine

b. The trip to Europe

1. The other things equal assumption allows economists to a. avoid making assumptions about reality. b. focus on the effects of only one change at a time. c. oversimplify. d. allow nothing to change in their model. e. reflect all aspects of the real world in their model.

b. focus on the effects of only one change at a time.

8. (Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty Burger Palace. If the price of a hamburger is $1.20 and 300 hamburgers are supplied, producer surplus will equal: A) $60. B) $65. C) $135. D) $360.

c) $135

Which of the following with increase the market supply of bicycles? a. An increase in the price of bicycles b. An increase in people's preferences for physical activity c. An increase in the number of bicycle producers d. None of the above

c. An increase in the number of bicycle producers

Suppose ramen noodles are an inferior good. All else equal, what is the effect on the price and quantity of ramen noodles if consumer incomes fall? a. Both price and quantity decrease b. Price decreases but quantity increases c. Both price and quantity increase d. Price increases but quantity decreases

c. Both price and quantity increase

When the government imposes a price floor below the equilibrium price in a market consumer surplus _______________ and total surplus _____________ relative to the market equilibrium. a. May fall; may fall b. Will fall; will fall c. Does not change; does not change d. May rise; does not change

c. Does not change; does not change

2. Which of the following is true? The simple circular-flow diagram I. includes only the product markets. II.includes only the factor markets. III.is a simplified representation of the macroeconomy. a. I only b. II only c. III only d. I and III only e. none of the above

c. III only

If the price of good B decreased, you would expect the a. Demand of good B to increase b. Quantity demanded of good B to decrease c. Quantity demanded of good B to increase d. Demand curve of good B to shift to the left

c. Quantity demanded of good B to increase

3. A technological advance in textbook production will lead to which of the following? a. a decrease in textbook supply b. an increase in textbook demand c. an increase in textbook supply d. a movement along the supply curve for textbooks e. an increase in textbook prices

c. an increase in textbook supply

3. A firm is necessarily a. an employer of lawyers or accountants. b. a service provider. c. an organization. d. a corporation. e. manufacturer of goods.

c. an organization.

3. If an increase in income leads to a decrease in demand, the good is a. a complement. b. a substitute. c. inferior. d. abnormal. e. normal.

c. inferior.

2. Egg producers know that the elasticity of demand for eggs is 0.1. The hens went crazy and laid 5% more eggs than usual. To sell all those additional eggs, they will have to lower price by: A) 0.1% B) 1% C) 5% D) 50%

d) 50%

5. Suppose apartments rent for $1,600 in Boston. If the City of Boston forces each landlord to charge $1,200, there will be: A) a decrease in producer surplus for each landlord. B) a shortage of new apartments in Boston. C) an increase in consumer surplus for Bostonians who can find apartments for $1,200. D) all of the above.

d) all of the above

6. The demand for textbooks is price inelastic. Which of the following would explain this? A) Many alternative textbooks can be used as substitutes. B) Students have a lot of time to adjust to price changes. C) Textbook purchases consume a large portion of most students' income. D) The good is a necessity.

d) the good is a necessity

In the market for tacos, you observe that the equilibrium price AND quantity have increased. This can only be caused by: a. An increase in the price of beef. b. An increase in the wages of taco shop workers. c. Fewer taco shops. d. An increase in the incomes of people who eat tacos.

d. An increase in the incomes of people who eat tacos.

If your income increase and your consumption of bagels decrease, bagels are considered a. A positive good b. A normal good c. A negative good d. An inferior good

d. An inferior good

If goods A and B are complements, an increase in the price of good A will a. Decrease the demand for good A b. Decrease the demand for good B c. Not change the demand for good B d. Both (a) and (b)

d. Both (a) and (b)

Which of the following will NOT decrease demand for French fries? a. An increase in the cost of potatoes, the main input into the French fry production process b. An increase in the price of French fries c. A shift in consumer preferences toward eating healthier foods d. Both (a) and (b)

d. Both (a) and (b)

Which of the following will not shift the demand curve for coffee a. A change in the price of coffee b. An announcement from the U.S. government, saying that there is now evidence which shows that drinking coffee is good for your health c. A change in the technology of producing coffee d. Both (a) and (c)

d. Both (a) and (c)

If goods A and B are substitutes, a decrease in the price of good B will a. Increase the demand for good A b. Increase the quantity demanded of good B c. Decrease the demand for good A d. Both (b) and (c)

d. Both (b) and (c)

4. Which of the following will occur if consumers expect the price of a good to fall in the coming months? a. The quantity demanded will rise today. b. The quantity demanded will remain the same today. c. Demand will increase today. d. Demand will decrease today. e. No change will occur today.

d. Demand will decrease today.

In China, which of the following would not be a resource in the production of rice? a. Fertile land b. Labor c. Capital equipment d. Money

d. Money

Suppose the government imposes rent control of apartments in Milwaukee, Wisconsin, which of the following may occur? a. There will be an excess supply of apartments in Milwaukee b. Landlords will compete by providing inefficiently high quality of apartments in Milwaukee c. There will be deadweight loss d. None of the above

d. None of the above

Suppose sushi is an inferior good. When income increases, but the number of producers in the market decreases a. The equilibrium price of sushi falls and the equilibrium quantity of sushi rises b. The equilibrium price of sushi falls and the equilibrium quantity of sushi falls c. The equilibrium price of sushi falls and the change to the equilibrium quantity of sushi is ambiguous d. The change to the equilibrium price of sushi is ambiguous and the equilibrium quantity of sushi falls

d. The change to the equilibrium price of sushi is ambiguous and the equilibrium quantity of sushi falls

2) State whether each of the following events will result in a movement along the demand curve for Jack in the Box Sourdough Cheeseburger or whether it will cause the curve to shift. If the demand curve shifts, indicate whether it will shift to the left or the right and draw a graph to illustrate the shift. Indicate what happens to equilibrium price and quantity.

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3) Explain AND graph the effect of the following developments on equilibrium price and quantity in the market for steak.

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4) Answer true or false. For each part, draw a graph to explain your answer.

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a) A binding price floor will result in a shortage.

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a) The equilibrium price for movie tickets at the UCSC Cinema is $___________ and the equilibrium quantity is ________________ tickets per week.

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a) The price of McDonald's Big Mac hamburger increases

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a) The price of chicken, a substitute for steak, falls

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b) Because of a shortage of potatoes, the price of French fries increases

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b) Due to a severe drought, the price of corn feed for cattle increases

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b) Excise taxes create deadweight loss

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b) Show the demand and supply schedule in a graph. Make sure to label the equilibrium price and quantity. Show and explain what happens if the government imposes a price ceiling of $5.00/movie ticket.

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c) The technology for steak production improves. At the same time, consumer incomes rise. Assume that steak is a normal good.

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A. 80 thousand-unit shortage B. 200 thousand-unit shortage C. 40 thousand-unit surplus D. 40 thousand-unit shortage

A. 80 thousand-unit shortage

If a quota is set above the equilibrium quantity, which of the following statements are true? A. There will be no effect from the quota. B. The quota will provide an incentive for illegal activities. C. The quota will result in missed opportunities in the form of mutually beneficial transactions that don't occur. D. As a result the supply price for the quantity transacted will exceed the demand price of the quantity transacted.

A. There will be no effect from the quota.

What name is given to the form of exchange in which individuals trade goods and services directly, without money serving as a medium of exchange? A. barter B. comparative advantage C. circular exchange D. market exchange

A. barter

If consumers expect that the price of coffee will be higher in the future A. demand will increase and the demand curve will shift to the right B. the quantity demanded of coffee will increase C. the demand for coffee will decrease and the demand curve will shift to the left D. the quantity demanded of coffee will decrease, causing a movement along the same demand curve

A. demand will increase and the demand curve will shift to the right

Which of the following is not a likely result of a quantity control in the form of a binding quota? A. economic inefficiency arising from missed opportunities B. illegal providers of the good or service who attempt to evade the quantity control C. a wedge between the demand price and the supply price D. a surplus of the good or service

A. economic inefficiency arising from missed opportunities

A surplus in the market place for cocoa beans will occur if: A. the price of cocoa beans is above the equilibrium price. B. the price of cocoa beans is below the equilibrium price. C. there is an excess of demand at the current price. D. quantity demanded is greater than quantity supplied at the current price.

A. the price of cocoa beans is above the equilibrium price.

Which of the following could account for the fact that ice cream prices have recently increased and that consumption of ice cream has declined? A. the supply of ice cream has decreased B. the supply of ice cream has increased C. the demand for ice cream has increased D. the demand for ice cream has decreased

A. the supply of ice cream has decreased

10. (Figure: Market for Hamburgers) The accompanying figure shows the weekly market for hamburgers at the Tasty Burger Palace. The maximum total surplus for the market for the Palace burgers is ______ and it occurs at a price equal to ______. A) $550; $1.50 B) $640; $1.50 C) $1050; $2 D) Not enough information is provided to answer this question, since the maximum total surplus could occur at a price that is not marked in the figure.

B) $640; $1.50

A group of dairy farmers are trying to raise milk prices by 10%. If the price elasticity of demand for is 0.75, and the price elasticity of supply for milk is 0, then by how much should farmers reduce their milk production to obtain the 10% increase?

B) 7.5%

12. If they produce only hamburgers, then in a single day Sarah can produce 10 hamburgers while Abe can produce 5 hamburgers. If they only make milkshakes, then in a single day Sarah can produce 10 milkshakes while Abe can produce 4 milkshakes. We then know that: A) Sarah has an absolute advantage and a comparative advantage in making hamburgers. B) Sarah has an absolute advantage and a comparative advantage in making milkshakes. C) Abe has an absolute advantage and a comparative advantage in making hamburgers D) Abe has an absolute advantage and a comparative advantage in making milkshakes

B) Sarah has an absolute advantage and a comparative advantage in making milkshakes.

16. Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. The airlines raise their prices on the assumption that: A) consumer demand becomes more price elastic as departure time approaches. B) consumer demand becomes less price elastic as departure time approaches. C) consumers are not aware of airline prices. D) consumer demand is unrelated to prices.

B) consumer demand becomes less price elastic as departure time approaches.

11. You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that:

B) your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic.

A. 20 thousand workers B. 30 thousand workers C. 50 thousand workers D. 100 thousand workers

B. 30 thousand workers

Assume that both auto and jet fuel prices increase significantly due to a war in the Middle East, the impact on Federal Express will be? A. A rightward shift in the Federal Express supply curve. B. A leftward shift in the Federal Express supply curve. C. A rightward shift in the Federal Express demand curve. D. A leftward shift in the Federal Express demand curve.

B. A leftward shift in the Federal Express supply curve.

Which of the following is a result of the imposition of a quota imposed in a market when the quota is set below the equilibrium quantity? A. The demand price equals the supply price at the quota limit. B. The seller that is licensed to sell in the market earns a quota rent. C. A wedge exists between demand price and the supply price such that the supply price is greater than the demand price. D. The quota rent is an amount equal to the deadweight loss.

B. The seller that is licensed to sell in the market earns a quota rent.

A price ceiling is presented graphically as: A. a price at equilibrium. B. a price below equilibrium. C. a price above equilibrium. D. an inefficiently low quality of the good provided.

B. a price below equilibrium.

If the quantity demanded of cocoa beans is greater than the quantity supplied of cocoa beans, then: A. the equilibrium price of cocoa beans will fall in the market. B. the equilibrium price of cocoa beans will rise in the market. C. the demand for cocoa beans will shift to the right. D. the supply for cocoa beans will shift to the right.

B. the equilibrium price of cocoa beans will rise in the market.

7. A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "Due to the increase in tuition, how many of you will transfer to another university?" One student out of about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is:

C) highly inelastic.

If Microsoft cuts the price of its Zune mp3 player by 30%, how would we show the impact of this action on the demand curve for iPods? A. It would cause a movement up along the current iPod demand curve. B. It would cause a movement down along the current iPod demand curve. C. It would shift the current iPod demand curve to the left. D. It would shift the current iPod demand curve to the right.

C. It would shift the current iPod demand curve to the left.

If the price of Sharffen Berger Chocolate rises, what will happen in the market for Dagoba Chocolate? (Both are high quality specialty artisan chocolates.) A. The demand for Dagoba Chocolate should fall. B. The supply of Dagoba Chocolate should rise. C. The price of Dagoba Chocolate should rise. D. The quantity supplied of Dagoba Chocolate should fall.

C. The price of Dagoba Chocolate should rise.

A price floor is presented graphically as: A. a price at equilibrium. B. a price below equilibrium. C. a price above equilibrium. D. an inefficiently high quality of the good provided.

C. a price above equilibrium.

A quota is: A. a lower limit on the quantity of some good that can be bought or sold. B. an upper limit on the price of some good that can be bought or sold. C. an upper limit on the quantity of some good that can be bought or sold. D. a lower limit on the price of some good that can be bought or sold.

C. an upper limit on the quantity of some good that can be bought or sold.

If tennis rackets and tennis balls are complements, an increase in the price of tennis rackets will cause the equilibrium price of tennis balls to ________ and the equilibrium quantity of tennis balls to _____ . A. increase; increase B. increase; decrease C. decrease; decrease D. decrease; increase

C. decrease; decrease

Suppose the U.S. government imposes a quota on the amount of Irish cheese allowed into the United States. Assume that the quota is set at a quantity below equilibrium. Given this information, we can expect that the price of Irish cheese in the United States will ________ while the price of U.S.-produced cheese will ________. A. increase; decrease B. decrease; increase C. increase; increase D. decrease; decrease

C. increase; increase

A binding price ceiling is designed to: A. increase efficiency. B. raise the price above the equilibrium price. C. keep the price below the equilibrium price. D. generate a surplus.

C. keep the price below the equilibrium price.

Consider two competing gas stations located on opposite corners: BP and Shell. If BP lowers the price per gallon that it charges customers, and Shell does not reduce its price, the effect on Shell is a: A. rightward shift in Shell's supply curve and a lower price for Shell's gas. B. decrease in the quantity demanded for Shell and a higher price. C. leftward shift in demand for Shell's gas and a lower price for Shell's gas. D. rightward shift in demand for Shell's gas and a higher price for Shell's gas.

C. leftward shift in demand for Shell's gas and a lower price for Shell's gas.

The two flows represented in the circular-flow diagram are: A. the flow of goods and services and the flow of factors. B. the flow of households and firms. C. the flow of money and the flow of goods and services. D. the flow of commerce and the flow of money.

C. the flow of money and the flow of goods and services.

9. (Figure: Market for Hamburgers) The accompanying figure shows the weekly market for hamburgers at the Tasty Burger Palace. If the Palace sells 400 hamburgers, producer surplus will equal: A) $650. B) $400. C) $510. D) $240.

D) $240.

15. The publisher of an economics textbook finds that when the book's price is lowered from $70 to $60, sales rise from 10,000 to 15,000. The price elasticity of demand is: A) 500. B) 50%. C) 3.5. D) 2.6.

D) 2.6.

14. The total surplus generated in a market is: A) the excess supply due to the imposition of a price floor. B) the surplus that exists when a good is not scarce, defined as the total amount (if any) by which quantity supplied exceeds quantity demanded at a zero price. C) the net benefit to consumers, defined as the excess of consumer surplus over producer surplus. D) the sum of consumer surplus and producer surplus.

D) the sum of consumer surplus and producer surplus.

A bank increased its fees for processing personal checks from' cents to 24 cents per check. In a statement accompanying the announcement, the bank said that customers who could find ways to reduce the number of checks they write would see no increase in their overall account fee. What is the implication of this statement? A. The price elasticity of demand for check writing is less than one. B. The price elasticity of demand for check writing is greater than one. C. Account holders are indifferent to the check writing fee. D. Some account holders have a unit-elastic demand for check writing.

D. Some account holders have a unit-elastic demand for check writing.

What situation would make the demand for new cars relatively more price elastic? A. Auto manufacturers have a difficult time hiring skilled workers. B. Auto manufacturers find it easy to hire skilled workers. C. Car buyers are prosperous, and they are seeking luxury cars. D. There is a plentiful supply of used cars.

D. There is a plentiful supply of used cars.

6. Assume that corn is an input in the production of beef, but not in the production of pork. Further, beef and pork are substitutes. A decrease in the price of corn will: A. increase the supply of beef and increase the demand for pork B.decrease the supply of beef and increase the demand for pork C. decrease the supply of beef and decrease the demand for pork D. increase the supply of beef and decrease the demand for pork.

D. increase the supply of beef and decrease the demand for pork.

What is the difference between a shortage and scarcity? a) Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level. b) Scarcity is a result of two or more alternative uses and will always exist, and quantities of supply and demand adjusting to flexible prices will create shortages. c) A shortage will exist when a good is scarce. d) There is no distinction between the two. They are the same thing.

a) Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level.

3. Nations can gain from trade with other nations even if they are less productive in all industries than the nations they trade with. A) True B) False

a) True

4. If demand is perfectly inelastic, the deadweight loss caused by a tax will be zero. A) True B) False

a) True

Each month Jessica buys exactly 4 Big Macs regardless of price. Jessica's price elasticity of demand for Big Macs is a. 0 b. 1 c. greater than 1 d. less than 1, but greater than 0

a. 0

Scarcity in economics means: a. Not having sufficient resources to produce all the goods and services we want. b. The wants of people are limited. c. There must be poor people in rich countries. d. Shortages exist in nearly all markets.

a. Not having sufficient resources to produce all the goods and services we want.

A quota is essentially a: a. Quantity restriction. b. Price control. c. Consumer surplus. d. Means to combat black markets.

a. Quantity restriction.

It is true that equilibrium quantity will always rise if: a. Supply and demand both increase. b. Supply increases and demand decreases c. Supply and demand both decrease. d. Supply decreases and demand remains unchanged.

a. Supply and demand both increase.

When the government imposes a price floor in a market, which of the following inefficiencies may occur? a. The good may be offered for sale with inefficiently high quality b. The good may be offered for sale with inefficiently low quality c. A shortage of the good may occur d. A black market may develop, where the good or service is exchanged at a price higher than the price floor

a. The good may be offered for sale with inefficiently high quality

When the government imposes a binding price ceiling in a market, which of the following may occur? a. The good may be offered for sale with inefficiently low quality b. The good may be offered for sale with inefficiently high quality c. A black market may develop where the good is exchanged at a price lower than the price ceiling d. A surplus of the good may occur

a. The good may be offered for sale with inefficiently low quality

5. Which of the following will increase the demand for disposable diapers? a. a new "baby boom" b. concern over the environmental effect of landfills c. a decrease in the price of cloth diapers d. a move toward earlier potty training of children e. a decrease in the price of disposable diapers

a. a new "baby boom"

2. A decrease in the price of butter would most likely decrease the demand for a. margarine. b. bagels. c. jelly. d. milk. e. syrup.

a. margarine

1. Each month Jacquelyn spends exactly $50 on ice cream regardless of the price. Jacquelyn's price elasticity of demand for ice cream is: A) zero. B) one. C) greater than one. D) less than one, but greater than zero.

b) one

Suppose the economy of Santa Cruz produces two goods: strawberries and bongos. If Santa Cruz only produces strawberries, they can make 50 units of strawberries; if they only produce bongos, they can make 25 units of bongos. What is the opportunity cost of producing one additional bongo? Assume constant opportunity costs. a. 1⁄2 a unit of strawberries b. 2 units of strawberries c. 50 units of strawberries d. None of the above

b. 2 units of strawberries

How will the market for bicycles be affected by an increase in the price of gasoline and an increase in the desire for exercise? a. The equilibrium price and quantity of bicycles will increase b. The equilibrium price of bicycles will fall and the equilibrium quantity will increase c. The equilibrium price of bicycles will rise but we do not have enough information to determine the change in equilibrium quantity d. The equilibrium quantity of bicycles will rise but we do not have enough information to determine the change in equilibrium price

d. The equilibrium quantity of bicycles will rise but we do not have

1. Which of the following will decrease the supply of good "X"? a. There is a technological advance that affects the production of all goods. b. The price of good "X" falls. c. The price of good "Y" (which consumers regard as a substitute for good "X") decreases. d. The wages of workers producing good "X" increase. e. The demand for good "X" decreases.

d. The wages of workers producing good "X" increase.

When minimum wage increases: a. Unemployment among skilled workers decreases b. Fewer workers are willing to work "off the books." c. Employment of unskilled workers increases. d. Unemployment among unskilled workers increases.

d. Unemployment among unskilled workers increases.

4. In the United States, we can think of the factors of production as being owned by a. firms. b. the government. c. factor markets. d. households. e. economists.

d. households.

5. The market price of a good will tend to rise if a. demand decreases. b. supply increases. c. it is above the equilibrium price. d. it is below the equilibrium price. e. demand shifts to the left.

d. it is below the equilibrium price.

2. An increase in the demand for steak will lead to an increase in which of the following? a. the supply of steak b. the supply of hamburger (a substitute in production) c. the supply of chicken (a substitute in consumption) d. the supply of leather (a complement in production) e. the demand for leather

d. the supply of leather (a complement in production)

5. Economists are drawn to models by their a. good looks b. realism c. high level of detail d. snap-on parts e. simplicity

e. simplicity

1. Which of the following would increase demand for a normal good? A decrease in a. price. b. income. c. the price of a substitute. d. consumer taste for a good. e. the price of a complement.

e. the price of a complement.