MIDTERM 2
The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. What is the value of the deadweight loss after the imposition of the ceiling?
$100,000
The figure shows Arnold's demand curve for burritos. If the market price is $1.00, what is the consumer surplus on the third burrito?
$0.50
As output increases, average fixed costs
decrease
As outputs increase the difference between ATC and AVC
decreases
The Marginal Cost Curve will always intersect
the ATC and AVC lowest points
In the long run
there are no fixed costs.
Refer to the diagram to the right. What area represents producer surplus at a price of P2?
A+B+C
Average Fixed Cost (AFC) Formula
FC/Q
Average Total Cost (ATC) Formula
TC/Q or AFC + AVC
Variable costs are
costs that change as output changes.
Demand is more elastic in the
long run than it is in the short run.
The figure to the right shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. What is the value of PRODUCER SURPLUS at the equilibrium price of $15?
$160
The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. With rent control, the quantity supplied is 200 apartments. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get per month?
$2,000
The figure shows the market for beer. The government plans to impose a unit tax in this market. For each unit sold, the price sellers receive after the tax (net of tax) is
$20.
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?
$220
The figure to the right shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. What is the value of CONSUMER SURPLUS at the equilibrium price of $15?
$240
The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. What is the value of consumer surplus after the imposition of the ceiling?
$250,000
The figure shows the market for beer. The government plans to impose a unit tax in this market. How much of the tax is paid by buyers?
$5
The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. What is the value of producer surplus after the imposition of the ceiling?
$50,000
Paul goes to Dick's Sporting Goods to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is
$75
Elasticity Formula
% change in quantity demanded / % change in price
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
0.5
The figure to the right illustrates the longminus−run average cost curve for a firm that produces picture frames. The graph also includes shortminus−run average cost curves for three firm sizes: ATCa, ATCb and ATCc. The minimum efficient scale of output is reached at what rate of output?
10,000 picture frames
Refer to the diagram to the right. The marginal product of the 3rd worker is
15.
If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is
2 chairs.
The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. Suppose that instead of a rent ceiling, the government imposed a price floor of $2,000 per month for apartments. What is the quantity of apartments demanded at the new price?
200
Refer to the diagram to the right which shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. What area represents consumer surplus after the imposition of the price floor?
A
Linesha, a college student working part-time received a wage increase. An avid movie buff, she increased her purchases of DVDs and reduced her purchases of Blu-ray discs. Based on this information,
DVDs are normal goods and Blu-ray discs are inferior goods.
refers to the reduction in economic surplus resulting from not being in competitive equilibrium.
Deadweight loss
Assume that you own a small boutique hotel. In an attempt to raise revenue you reduce your rates by 20 percent. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?
Demand is inelastic.
What is the difference between "diminishing marginal returns" and "diseconomies of scale"?
Diminishing marginal returns which applies only in the short run, when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average cost increases.
If the price elasticity of demand for canned soup is estimated at minus−1.62. What happens to sales revenue if the price of canned soup rises?
It falls.
Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio". Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?
The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.
Average Variable Cost (AVC) Formula
VC/Q
Which of the following is an example of a long-run adjustment?
Walminus−Mart builds another Supercenter.
Refer to the diagram to the right. Curve G approaches curve F because
average fixed costs falls as output rises.
Elegant Settings manufactures stainless steel cutlery. The table to the right shows the company's cost data. Elegant Settings experiences
economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.
Assume that you observe the longminus−run average cost curve of ACME Bookstores, a national chain. Starting from the point on the curve where output is zero and moving to the right, which of the following lists the behavior of longminus−run average costs in the correct sequence (that is, which will be observed first, second, etc.)?
economies of scale; minimum efficient scale; constant returns to scale; diseconomies of scale
The difference between the ________ and the ________ from the sale of a product is called producer surplus.
lowest price a firm would have been willing to accept; price it actually receives
When a firm lowers its price its total revenue
may either increase or decrease.
To affect the market outcome a price ceiling
must be set below the equilibrium price.
In order to be binding, a price ceiling
must lie below the free market equilibrium price.
Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which
the sum of consumer surplus and producer surplus is at a maximum.
In the short run:
total cost = fixed cost + variable cost
The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. What is the value of the portion of producer surplus transferred to consumers as a result of the rent ceiling?
$100,000
Total Cost (TC)
TC= FC + VC
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 in expenses on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs for the first year?
$41,500
The figure shows the market for beer. The government plans to impose a unit tax in this market. What is the size of the unit tax?
$7
Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.
0.5; the product is price inelastic
Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee and Peets' Coffee.
Peets' Coffee, coffee, hot beverages
The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.
above; below
Refer to the diagram to the right which shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?
B
Which of the following is an example of positive technological change? A. A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. B. A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day. C. A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases. D. A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards.
B. A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.
Refer to the diagram to the right. Identify the curves in the diagram.
E=marginal cost curve; F=average total cost curve; G=average variable cost curve; H=average fixed cost curve.
Midpoint Formula/Calculate Elasticity
See Photo
Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. airminus−travel and weed killer. Which of the pairs listed will have a negative crossminus−price elasticity?
a and b only
If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is
a luxury.
income elasticity of demand and how its calculated
a measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in the quantity demanded divided by the percentage change in income
Marginal Cost (MC) Formula
change in TC/change in Q
If the crossminus−price elasticity of demand for goods X and Y is negative, this means the two goods are
complements.
In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ________ and get a ________.
crossminus−price elasticity; positive number
Crossminus−price elasticity of demand is calculated as the
percentage change in quantity demanded of one good divided by percentage change in price of a different good.
The actual division of the burden of a tax between buyers and sellers in a market is called
tax incidence
The processes a firm uses to turn inputs into outputs of goods and services is called
technology.
In general, a "big ticket item" such as a house or new car will
tend to have a more elastic demand than a lower-priced good.
The law of diminishing marginal returns states
that at some point, adding more of a variable input to a given amount of a fixed input, will cause the marginal product of the variable input to decline.
All of the following cost curves are U-shaped except
the average fixed cost curve
Suppose a decrease in the supply of bottled water resulted in a decrease in revenue. This indicates that
the demand for bottled water is price elastic in the price range considered.
The figure to the right illustrates the long−run average cost curve for a firm that produces picture frames. The graph also includes short−run average cost curves for three firm sizes: ATCa, ATCb and ATCc. For output rates greater than 20,000 picture frames per month
the firm will experience diseconomies of scale.
When demand is price elastic, a fall in price causes total revenue to rise because
the increase in quantity sold is large enough to offset the lower price.
The price elasticity of supply is equal to
the percentage change in quantity supplied divided by the percentage change in price.