Final Flashcards
(325 cards)
1
Q
Which of the following are reasons that explain why the division of labor increases an economy’s level of production?
Select one or more:
a.
Workers learn to be more efficient
b.
Businesses take advantage of economies of scale
c.
Specialization
A
a.
Workers learn to be more efficient
b.
Businesses take advantage of economies of scale
c.
Specialization
2
Q
Macroeconomics focuses of individual actors within an economy, whereas microeconomics focuses on the economy as a whole, or the sum of all individual actions.
Question 2 Select one:
True
False
A
False
3
Q
Which of the following is a way that society can organize themselves economically?
Question 3 Select one or more:
a.
Market economy
b.
Mixture of market and command economy
c.
Command economy
A
Command economy, Market economy, Mixture of market and command economy
4
Q
Globalization allows small economies to take fuller advantage of the division of labor.
Question 4 Select one:
True
False
A
True
5
Q
Which of the following are true statements regarding the relationship between division of labor, specialization and trade?
Question 5 Select one or more:
a.
With trade, by specializing on what the individual does best, he can maximize product and income and trade for whatever else he wants to consume.
b.
Without trade, each individual must produce all the goods and services he wants to consume. Therefore, by definition, he cannot specialize and so he cannot obtain the benefits of specialization.
c.
Division of labor, specialization, and trade results in a net gain in production rather than a net loss.
A
Without trade, each individual must produce all the goods and services he wants to consume. Therefore, by definition, he cannot specialize and so he cannot obtain the benefits of specialization.,
With trade, by specializing on what the individual does best, he can maximize product and income and trade for whatever else he wants to consume.
, Division of labor, specialization, and trade results in a net gain in production rather than a net loss.
6
Q
Which of the following are true statements regarding trade?
Question 6 Select one or more:
a.
Some consumers have benefitted from a more diverse set of goods (more variety of goods to choose from) made available through trade.
b.
Some consumers have benefitted from cheaper goods made available through trade.
c.
Some people may have lost jobs due to competition from producers in foreign countries because of trade.
d.
Trade makes everyone better off
A
Some consumers have benefitted from cheaper goods made available through trade.,
Some consumers have benefitted from a more diverse set of goods (more variety of goods to choose from) made available through trade.,
Some people may have lost jobs due to competition from producers in foreign countries because of trade.
7
Q
Which of the following is a true statement made in the Star Wars video?
Question 7 Select one or more:
a.
Economics is essentially the study of the stock market.
b.
Economists assume that everyone makes choices based on their own self-interests.
c.
Economics is essentially the study of scarcity and choices.
d.
People make decisions based on their own self-interest by looking at incentives.
e.
The concept where you can make choices that help yourself but they end up helping everyone else is called the invisible hand.
A
Economics is essentially the study of scarcity and choices.,
Economists assume that everyone makes choices based on their own self-interests.,
People make decisions based on their own self-interest by looking at incentives.,
The concept where you can make choices that help yourself but they end up helping everyone else is called the invisible hand.
8
Q
Consider an economy that contains only ten apples and ten people. Everyone likes apples. Which of the following is a true statement?
Question 8 Select one:
a.
An efficient distribution of apples would be for each person to receive one apple.
b.
An efficient distribution would be for one person to decide which people get an apple with the result that some people receive no apples.
c.
An efficient distribution would be if one person was required to give another person their apple to make them happier and the remaining 8 kept their apples.
A
An efficient distribution of apples would be for each person to receive one apple.
9
Q
Select all that are examples of a scarce good.
Question 9 Select one or more:
a.
Labor
b.
Money
c.
Water in the ocean
d.
Sand on a desert
A
Labor
Money
10
Q
You decide to attend class. If you had not attended class, you ranked your alternatives in the following way: work at your job, sleep, go to the gym. What is the opportunity cost of attending class?
Question 10 Select one:
a.
Go to work.
b.
Go to the gym.
c.
Go to work, sleep, and go to the gym.
d.
Sleep
e.
There is no opportunity cost.
A
Go to work.
11
Q
You should specialize in something in which you have a low opportunity cost.
Question 11 Select one:
True
False
A
True
12
Q
Max is selling a toy for $40. No one wants to buy the toy at this price. Is this an example of an equilibrium price?
Question 12 Select one:
a.
Yes, the seller does not have an incentive to change the price.
b.
No, the seller has an incentive to lower their price.
c.
Yes, the seller will make a lot of money.
d.
No, the seller has an incentive to raise their price.
A
No, the seller has an incentive to lower their price.
13
Q
When markets fail and need correction, economists think government intervention can improve society’s welfare.
Question 13 Select one:
a.
True
b.
False
A
True
14
Q
Which of the following best describes water scarcity?
Question 14 Answer
a.
The supply of water is effectively infinite, given current preferences and technology.
b.
At current prices, the water supply exceeds how much people want.
c.
At current prices, people want more than the available supply of water.
d.
The supply of water is finite and cannot be simultaneously used for all of society’s potential uses.
A
d.
The supply of water is finite and cannot be simultaneously used for all of society’s potential uses.
15
Q
Because of trade, a country may:
Question 1 Select one:
a.
find its production possibility frontier shifting outward.
b.
avoid opportunity costs.
c.
consume outside its production possibility frontier.
d.
consume inside its production possibility frontier.
A
consume outside its production possibility frontier.
16
Q
If an economy has to sacrifice only one unit of good X for each unit of good Y produced throughout the relevant range, then its production possibility frontier has:
Question 6 Select one:
a.
a zero slope.
b.
a constant negative slope.
c.
a decreasing negative slope.
d.
an increasing negative slope.
A
b.
a constant negative slope.
17
Q
The production possibility frontier will shift outward because of:
Question 8 Select one:
a.
a decrease in the unemployment rate.
b.
an upgrade of capital to the best available technology.
c.
a decrease in the labor force.
d.
better technology that improves worker productivity.
A
better technology that improves worker productivity.
18
Q
Although freshwater is very abundant in most places, it is scarce because:
Question 9 Select one:
a.
scarce goods in general are not all that costly.
b.
it has no alternative uses.
c.
it is a free good.
d.
there is not enough of it to meet all needs
A
there is not enough of it to meet all needs
19
Q
You are planning to study eight hours this week for your economics final and are considering studying a ninth hour. You should:
Question 10 Select one:
a.
compare the benefits of one more hour of study with the cost of one less hour of sleep.
b.
make your decision based on the cost of the next best alternative use of your time compared to the benefit of one more hour of study.
c.
compare the benefits of one more hour of study with the cost of one less hour of studying calculus.
d.
compare the benefits of one more hour of study with the cost of one less hour of work at your part-time job.
A
make your decision based on the cost of the next best alternative use of your time compared to the benefit of one more hour of study
20
Q
You buy a movie ticket and you start watching the movie. The movie is terrible. Would an economist suggest that you stay until the end of the movie?
Question 13 Select one or more:
a.
No. The fact that you bought a movie ticket is in the past.
b.
No. It does not matter how much you paid for the ticket. It is a sunk cost.
c.
No. The only thing that matters is what is the best way to spend the next hour of your life.
d.
Yes. You paid for the ticket and sunk costs should always be taken into account.
A
: No. It does not matter how much you paid for the ticket. It is a sunk cost., No. The only thing that matters is what is the best way to spend the next hour of your life. , No. The fact that you bought a movie ticket is in the past.
21
Q
Which of the following is true about the law of diminishing returns?
Question 15 Answer
a.
A small bagel shop decides to hire more people to help during the busiest shift. The first new person they hire fills ten new orders an hour. The second person they hire fills six new orders an hour. The third person they hire fills two new orders an hour. The fourth person they hire bumps into the other three person and starts a fire. This scenario demonstrates the law of diminishing returns.
b.
A small bagel shop decides to hire more people to help during the busiest shift. The first new person they hire fills ten new orders an hour. The second person they hire fills 12 new orders an hour. The third person they hire fills 14 new orders an hour. This scenario demonstrates the law of diminishing returns.
c.
A small bagel shop decides to hire more people to help during the busiest shift. The first new person they hire fills ten new orders an hour. The second person they hire fills 10 new orders an hour. The third person they hire fills 10 new orders an hour. This scenario demonstrates the law of diminishing returns.
A
A small bagel shop decides to hire more people to help during the busiest shift. The first new person they hire fills ten new orders an hour. The second person they hire fills six new orders an hour. The third person they hire fills two new orders an hour. The fourth person they hire bumps into the other three person and starts a fire. This scenario demonstrates the law of diminishing returns
22
Q
Which of the following statements are normative?
Question 16 Answer
a.
Taxes will increase by 4% each year.
b.
The inflation rate is too high.
c.
This policy will not deliver on its promises.
d.
The inflation rate is currently 2.5%.
A
b.
The inflation rate is too high.
c.
This policy will not deliver on its promises.
23
Q
Which of the following best describes why countries and individuals engage in trade?
Question 17 Answer
a.
By specializing in the good that can be produced at the lowest opportunity cost, we can maximize production and minimize time and resource expenditures.
b.
By specializing in the good that we produce more of relative to trading partners, we can exert influence over international markets.
c.
We can produce a bit of everything to avoid low opportunity costs.
d.
None of these are reasons for trade.
A
a.
By specializing in the good that can be produced at the lowest opportunity cost, we can maximize production and minimize time and resource expenditures.
24
Q
An announcement that smoking will harm your ability to think clearly will most likely result in:
Question 1 Select one:
a.
an increase in the price of cigarettes.
b.
no change in smoking habits.
c.
an increase in the quantity of cigarettes demanded.
d.
a decrease in the demand for cigarettes.
A
d.
a decrease in the demand for cigarettes.
25
In much of the country, homeowners choose to heat their houses with either natural gas or heating oil. Which of the following would cause an increase in the demand for natural gas?
Question 2 Select one:
a.
an increase in consumer incomes
b.
a decrease in the price of heating oil
c.
a decrease in the price of natural gas
d.
an increase in the price of natural gas
a.
an increase in consumer incomes
26
The demand for meals at a local Applebee's will shift to the left if:
Question 3 Select one:
a.
the price of a meal at Applebee's rises.
b.
the Olive Garden offers a 10 percent discount coupon in the local newspaper.
c.
the price of gasoline falls in the area.
d.
local incomes increase and Applebee's is a normal good.
the Olive Garden offers a 10 percent discount coupon in the local newspaper.
27
Which of the following is TRUE of a normal good?
Question 4 Select one:
a.
When income increases, the demand for the good increases.
Correct
b.
When income increases, the demand for the good decreases.
c.
Income and the demand are unrelated.
d.
When income increases, the demand for the good remains unchanged.
a.
When income increases, the demand for the good increases.
28
A decrease in the price of eggs will result in an increase in the:
Question 5 Select one:
a.
supply of eggs.
b.
demand for eggs.
c.
quantity of eggs demanded.
d.
quantity of eggs supplied.
c.
quantity of eggs demanded.
29
A shift of the demand curve for thin-crust pizza would NOT be caused by a change in:
Question 6 Select one:
a.
the price of thin-crust pizza.
b.
buyers' incomes.
c.
the popularity of thin-crust pizza.
d.
the price of thick-crust pizza.
a.
the price of thin-crust pizza.
30
Assume that corn is an input in the production of beef but not in the production of pork. Further, beef and pork are substitutes in consumption. A decrease in the price of corn will _____ the supply of beef and _____ the demand for pork.
Question 7 Select one:
a.
decrease; decrease
b.
decrease; increase
c.
increase; increase
d.
increase; decrease
increase; decrease
31
Consider the market for corn. What happens if there is an increased demand for corn tortillas and at the same time a new corn seed becomes available that dramatically increases the yield per acre?
Question 8 Select one:
a.
Price increases; the change in quantity is indeterminate.
b.
Price and quantity decrease.
c.
The change in price is indeterminate; quantity increases.
d.
The change in price is indeterminate; quantity decreases.
c.
The change in price is indeterminate; quantity increases.
32
In the market for corn tortilla chips, what would cause a price increase?
Question 11 Select one:
a.
The price of salsa triples.
b.
A fungus kills much of the corn crop in Nebraska.
c.
Doctors tell their patients that tortilla chips are unhealthy.
d.
There is a technological advance in tortilla chip production.
A fungus kills much of the corn crop in Nebraska.
33
In the market for grass-fed beef, what would cause a price increase?
Question 12 Select one:
a.
Doctors tell patients that beef is full of saturated fat that causes heart attacks.
b.
The price of chicken decreases.
c.
The prices of grass and corn increase.
d.
There is a movement in the United States toward vegetarianism.
The prices of grass and corn increase
34
Suppose you manage a corner grocery store. If peanut butter is an inferior good, what do you suppose would happen to the price and quantity sold of peanut butter as incomes fell during a recession?
Question 13 Select one:
a.
The price and quantity would both decrease.
b.
The price would increase and the quantity would decrease.
c.
The price and quantity would both increase.
d.
The price would decrease and the quantity would increase.
c.
The price and quantity would both increase.
35
Which of the following best exemplifies the law of demand?
Question 14 Select one:
a.
As income taxes rise, fewer new cars are purchased.
b.
As the price of a car rental rises, fewer cars are rented.
c.
As the population rises, more electricity is consumed.
d.
As the price of corn rises, more acres of corn are planted.
b.
As the price of a car rental rises, fewer cars are rented.
36
Which of the following describes two goods that are most likely substitutes in consumption?
Question 15 Select one:
a.
loaves of bread and sticks of butter
b.
loaves of bread and gasoline
c.
loaves of bread and hamburger buns
d.
loaves of bread and toasters
c.
loaves of bread and hamburger buns
37
Which of the following will NOT cause an increase in the supply of cornflakes?
Question 17 Select one:
a.
an increase in the price of cornflakes
b.
a cost-saving improvement in the technology of corn production
c.
the expectation by producers that the price of cornflakes will fall in the future
d.
a reduction in the price of corn
a.
an increase in the price of cornflakes
38
Assume that Good X is an inferior good and incomes fall as a result of a recession. If input prices for Good X increase at the same time that incomes fall, select all of the following that could be true. Please draw this scenario on a supply and demand graph to analyze the possible scenarios.
Question 18 Select one or more:
a.
The quantity will remain the same and price will fall if both curves shift the same amount.
b.
The quantity could remain the same and prices will rise if both curves shift the same amount.
c.
The quantity and price could increase if the demand curve shifts more than the supply curve.
d.
The quantity could fall while the price rises if the supply curve shifts more than the demand curve.
b.
The quantity could remain the same and prices will rise if both curves shift the same amount.
c.
The quantity and price could increase if the demand curve shifts more than the supply curve.
d.
The quantity could fall while the price rises if the supply curve shifts more than the demand curve.
39
Suppose that the government subsidizes the operating costs of rail companies to encourage the availability of trains for travel. Meanwhile, a pandemic has finally ended and consumers want to travel again. If the equilibrium price of train tickets increases, what must be true about the relative sizes of the supply and demand shifts?
Question 19 Answer
a.
The supply shift was the same magnitude as the demand shift.
b.
There is not enough information to know why the equilibrium price increased.
c.
The demand shift is larger than the supply shift.
d.
The supply shift is larger than the demand shift.
c.
The demand shift is larger than the supply shift.
40
If consumers expect prices for gas to increase next week, what will happen to the demand curve this week?
Question 20 Answer
a.
Both the DC and SC will shift right.
b.
The DC will shift left.
c.
The SC will shift left.
d.
The SC will shift right.
e.
The DC will shift right.
e.
The DC will shift right.
41
When producers anticipate higher future increases in the prices of their products, how does this influence the current equilibrium price and quantity?
Question 21 Select one:
a.
Equilibrium price will rise due to reduced current supply as producers withhold goods because they anticipate higher profits in the future, leading to a decrease in equilibrium quantity.
b.
Both equilibrium price and quantity will decrease due to an anticipated reduction in demand.
c.
Equilibrium price remains unchanged as future expectations don't affect current decisions, but equilibrium quantity increases in anticipation.
d.
Equilibrium price will decrease because of the anticipation of more production, but equilibrium quantity remains unchanged.
a.
Equilibrium price will rise due to reduced current supply as producers withhold goods because they anticipate higher profits in the future, leading to a decrease in equilibrium quantity.
42
Suppose that a binding price floor is in place in a particular market. If the market is deregulated and the price floor is removed:
Question 3 Select one:
a.
the quality of the good supplied will improve.
b.
the quality of the good supplied will decrease.
c.
the quantity demanded will decrease and the quantity supplied will increase.
d.
excess demand will develop.
b.
the quality of the good supplied will decrease.
43
The total consumer surplus for good X can be calculated in all ways EXCEPT as:
Question 4 Select one:
a.
the area below the demand curve for X and above the price of X.
b.
the sum, for all buyers of X, of the difference between what each buyer is willing to pay for X and the amount actually paid.
c.
the area bounded by the demand curve for X and the two axes.
d.
the sum of the individual consumer surpluses for all buyers of X.
the area bounded by the demand curve for X and the two axes.
44
What is the difference between a shortage and scarcity?
Question 5 Select one:
a.
Scarcity is a result of two or more alternative uses, and quantities of supply and demand adjusting to flexible prices will create shortages.
b.
Scarcity will almost always exist, but a shortage will exist only if the price is kept below the equilibrium level.
c.
There is no distinction between the two. They are the same thing.
d.
A shortage will exist when a good is scarce.
b.
Scarcity will almost always exist, but a shortage will exist only if the price is kept below the equilibrium level.
45
An agricultural market price support policy establishes a binding price floor, which:
Question 6 Select one:
a.
increases the price received by farmers.
b.
does not change the price paid by consumers.
c.
decreases the price received by farmers.
d.
decreases the price paid by consumers.
a.
increases the price received by farmers.
46
If the minimum wage is a binding price floor:
Question 10 Select one:
a.
the equilibrium wage will increase.
b.
there will be a job for everyone who is willing to work.
c.
business owners will hire more workers.
d.
those who want to work will outnumber the jobs available.
those who want to work will outnumber the jobs available.
47
If the supply curve of ice cream is upward-sloping and demand for it decreases, there will be _____ in producer surplus.
Question 22 Select one:
a.
an increase
b.
no change
c.
a decrease
d.
It's impossible to tell what will happen to producer surplus.
c.
a decrease
48
If there is a decrease in supply, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus:
Question 23 Select one:
a.
will decrease.
b.
will remain the same.
c.
will increase.
d.
may change, but we can't tell how.
a.
will decrease.
49
Due to price supports, the minimum price of dairy is above equilibrium. Deadweight loss occurs. Why?
Question 29 Answer
a.
The price of dairy is pushed above the willingness to pay for some consumers. These consumers no longer buy from willing sellers, so transactions are cancelled.
b.
The price of dairy is pushed below the willingness to accept for some producers. These producers no longer sell their inventory to willing consumers, so transactions are cancelled.
c.
Consumer surplus increases.
d.
Producer surplus decreases.
The price of dairy is pushed above the willingness to pay for some consumers. These consumers no longer buy from willing sellers, so transactions are cancelled.
50
Suppose quantity supplied equals quantity demanded at $14. Choose an effective price control.
Question 30 Answer
a.
Price floor of $8
b.
Price ceiling of $16
c.
Price floor of $10
d.
Price ceiling of $8
d.
Price ceiling of $8
51
Which welfare measure increases due to a binding price floor?
Question 31 Answer
a.
Consumer surplus
b.
Excess demand
c.
Producer surplus
d.
Government revenue
c.
Producer surplus
52
"A recent report from UBS estimates that global car production will exceed sales by 6% this year, leaving an excess of 5 million vehicles..." Based on your understanding of the supply/demand model and the quote above, which of the following statements best describes the current state of the global car market? It is recommended to draw the graph to help you visualize the question.
Question 1 Answer
a.
The market is facing a shortage, indicating that the price of cars is likely to rise until production increases to meet the higher consumer demand for vehicles.
b.
The market is operating at equilibrium currently because the excess production of cars will eventually adjust to match consumer demand, reflecting efficient market dynamics.
c.
The excess production signifies that the price of gasoline may have dropped, suggesting that the demand for cars is declining, potentially leading to a future decrease in production.
d.
The market is experiencing a surplus, as evidenced by production exceeding sales, which could lead to a decrease in car prices if producers aim to clear the excess inventory.
The market is experiencing a surplus, as evidenced by production exceeding sales, which could lead to a decrease in car prices if producers aim to clear the excess inventory.
53
A company decides to invest in advertising to boost its sales. Initially, the first few campaigns lead to significant increases in customer awareness and sales. Seeing this success, the company pours more and more money into advertising. However, after a certain point, the effectiveness of each additional campaign begins to decline, and eventually, the oversaturation of ads irritates customers, leading to a drop in sales. What economic principle does this best represent?
Question 2 Answer
a.
Law of Diminishing Returns: Reflects the decreasing effectiveness of additional advertising spending, leading to a point where further investment negatively impacts customer engagement and sales.
b.
Gains from Trade: Since the company collaborated with international partners for advertising, they initially experienced substantial benefits from trade, but eventually reached a point where the returns plateaued as they approached the limits of market expansion
c.
Absolute Advantage: If the company had an absolute advantage in producing and selling its products, they wouldn’t have experienced a decrease in sales despite the increased advertising efforts.
d.
Law of Diminishing Returns: Suggests that each additional advertising campaign doubles sales compared to the previous campaign, indefinitely increasing revenue, which contradicts the principle of diminishing returns.
e.
Law of Diminishing Returns: Indicates that continued advertising consistently increases customer awareness, but the incremental benefit decreases over time and eventually becomes negligibl
a.
Law of Diminishing Returns: Reflects the decreasing effectiveness of additional advertising spending, leading to a point where further investment negatively impacts customer engagement and sales.
54
A Gallup poll revealed that "as of 2023, 52% of people between the ages of 21 and 34 believed moderate drinking is bad for your health." What is a likely impact of this changing preference in the market for spirits?
Question 3 Answer
a.
Supply decreases, causing higher prices and lower quantity.
b.
Demand increases, causing higher prices and quantity.
c.
Consumer surplus decreases.
d.
Demand decreases, causing lower prices and quantity
d.
Demand decreases, causing lower prices and quantity
55
Assume agricultural employers pay their H-2A workers the Adverse Effect Wage Rate. Which of the following statements is correct?
Question 4 Answer
a.
The farmworkers are producers and the farm owners are consumers. This means consumer surplus decreases. The producer surplus increases because the workers get more money.
b.
The farmworkers are producers and the farm owners are consumers. The policy generates no deadweight loss because they are operating at equilibrium
c.
The farmworkers are consumers and the farm owners are producers. This means there can be no deadweight loss because everyone is getting paid.
d.
The farmworkers are consumers and the farm owners are producers. This means consumer surplus increases because the farmworkers are getting paid more. The producer surplus decreases because the farm owners have to pay their workers more than they did before.
a.
The farmworkers are producers and the farm owners are consumers. This means consumer surplus decreases. The producer surplus increases because the workers get more money.
56
Assume the following is true: when the price is $100, a seller is willing to produce 10,000 units. If you observe that sellers produce 15,000 units, what is a plausible price associated with that quantity of output? It is recommended to draw the graph to help you visualize the question.
Question 5 Answer
a.
$150
b.
$30
c.
$80
d.
$50
150
57
Assume the market for barley is in equilibrium at a price of $10 per bushel. If the government imposes a price ceiling in the market at a price of $8 per bushel, select all answers that are true:
Question 6 Answer
a.
The price control is ineffective
b.
Deadweight loss occurs
c.
Producer surplus will increase
d.
There will be a surplus of barley
b.
Deadweight loss occurs
58
Consumers expect the price of wine to increase next quarter. What happens to the current equilibrium price and quantity? It is recommended to draw the graph to help you visualize the question.
Question 8 Answer
a.
Price increases; quantity increases
b.
Price decreases; quantity decreases
c.
Price increases; quantity decreases
d.
Price decreases; quantity increases
a.
Price increases; quantity increases
58
At current prices, producers are selling more than consumers want to buy. Which of the following could be true?
Question 7 Answer
a.
There is an effective price ceiling.
b.
There is an ineffective price floor.
c.
Current prices are above the equilibrium and they must fall.
d.
Current prices are below the equilibrium and they must rise.
c.
Current prices are above the equilibrium and they must fall.
59
Economic sanctions against Russia reduce the supply of natural gas available to Western countries. Markets adjust to the reduced supply by increasing prices. How would you demonstrate these changes in a model of supply and demand for the natural gas market?
Question 9 Answer
a.
None of these descriptions are correct.
b.
The supply curve shifts left due to the sanctions. The demand curve shifts left due to the higher prices. The equilibrium is determined by the new intersection.
c.
The supply curve shifts left due to the sanctions. The demand curve does not shift. Instead, we observe a movement along the existing demand curve due to the price increase. The equilibrium is determined by the new intersection.
d.
The supply curve shifts right due to the sanctions. The demand curve shifts left due to the higher prices. The equilibrium is determined by the new intersection.
c.
The supply curve shifts left due to the sanctions. The demand curve does not shift. Instead, we observe a movement along the existing demand curve due to the price increase. The equilibrium is determined by the new intersection.
60
In 2023, consumers were willing to buy more rice than was available on global markets. Which term describes this situation?
Question 10 Answer
a.
Equilibrium
b.
Shortage
c.
Scarcity
d.
Surplus
b.
Shortage
61
In 2023, the French government paid wine producers $215 million to destroy their inventories as part of a plan to offset falling wine prices. This intervention relates most closely to which economic concept related to price controls?
Question 11 Answer
a.
A price ceiling, where the government sets a maximum allowable price above which a good cannot be sold.
b.
A price floor, where the government guarantees a minimum price for producers by purchasing excess supply.
c.
A price ceiling that proved ineffective because it reduced the consumer surplus.
d.
A situation where producer surplus fell due to market oversaturation, resulting in lower prices.
b.
A price floor, where the government guarantees a minimum price for producers by purchasing excess supply.
62
In a given period, Argentina can produce 1000 barrels of oil and 800 pounds of beef. Japan can produce 200 barrels of oil and 100 pounds of beef. A policymaker in Argentina argues that, since they are better at producing both goods, they have no incentive to trade with Japan. Is the policymaker correct?
Question 12 Answer
a.
No; while Argentina can produce more, they can still minimize their opportunity costs by producing according to their comparative advantage.
b.
We do not have enough information to assess the policymaker’s argument without prices.
c.
Yes; since Argentina's production possibility frontier (PPF) is more efficient than Japan's, their opportunity cost of producing both goods is zero, so there's no need to trade with Japan.
d.
Yes; countries produce goods for which they have absolute advantages. Since Argentina has an absolute advantage in both goods, they have no incentive to trade.
a.
No; while Argentina can produce more, they can still minimize their opportunity costs by producing according to their comparative advantage.
63
On Saturday, you could choose to go shopping or see a movie with your friends. You decided to go to the mall, where you spent $200 on a rice cooker. What is the opportunity cost in this situation?
Question 13 Answer
a.
$200
b.
The price of the movie ticket
c.
The satisfaction of using the rice cooker
d.
The satisfaction of seeing a movie with your friends
d.
The satisfaction of seeing a movie with your friends
64
Pork and chicken are substitutes in consumption. New animal welfare regulations cause pork producers to export their products instead of selling them to domestic consumers. At the same time, avian influenza greatly diminishes the population of broiler chickens. What happens in the market for chicken in the domestic market?
Question 14 Answer
a.
The quantity of chicken decreases and the price change is ambiguous
b.
The price of chicken rises and the quantity increases
c.
The price of chicken increases and the quantity change is ambiguous
d.
The price of chicken decreases and the quantity change is ambiguous
c.
The price of chicken increases and the quantity change is ambiguous
65
Real incomes are on the rise due to competitive markets and increased labor productivity. Which of the following would lead to an ambiguous change in the equilibrium price of movie tickets (a normal good) if it occurred at the same time?
Question 15 Answer
a.
More consumers begin to prefer watching movies at the theater over at home.
b.
The government assigns a per-unit tax to sellers of tickets.
c.
Producers expect the price of movie tickets to decrease next month.
d.
Several theaters in the market are closed due to damage from a storm.
c.
Producers expect the price of movie tickets to decrease next month.
65
Suppose I am willing to pay $200 for a pair of sunglasses. The price is $250. What is my consumer surplus?
Question 16 Answer
a.
$200
b.
0
c.
-$50
d.
$50
0
66
Suppose the U.S. government offers farmers a subsidy to help purchase fertilizer, which directly lowers the cost of this key input for wheat production. At the same time, consumers of wheat (e.g., breakfast cereal producers) expect a price increase in the near future due to rising geopolitical tensions in the Black Sea. What do you know for certain?
Question 17 Answer
a.
The equilibrium quantity of wheat will decrease
b.
The equilibrium price of wheat will decrease
c.
The equilibrium quantity of wheat will increase
d.
The equilibrium price of wheat will increase
c.
The equilibrium quantity of wheat will increase
67
Suppose you observe a country that can produce either 50 units of good X or 100 units of good Y. What can be said about a bundle that tries to produce 150 units of good Y?
Question 18 Answer
a.
The bundle is infeasible
b.
The bundle is inefficient
c.
The bundle is efficient
d.
The bundle is feasible
a.
The bundle is infeasible
68
The Production Possibilities Frontier (PPF) has a negative slope. Why?
Question 19 Answer
a.
Because it indicates that as we produce more of one good, we have to produce less of another due to limited resources.
b.
The slope of the PPF is negative because marginal analysis has shown that sunk costs increase as we produce more of one good over another.
c.
Because demand curves are downward sloping.
d.
Because prices for goods always decrease as production increases.
a.
Because it indicates that as we produce more of one good, we have to produce less of another due to limited resources.
69
Which of the following best describes the concept of deadweight loss in economics?
Question 20 Answer
a.
The lost revenue for firms when they produce more than the equilibrium quantity.
b.
The loss experienced by consumers when prices increase due to supply shortages.
c.
The financial burden placed on producers when there's an imposition of taxes or tariffs.
d.
The total loss of producer and consumer surplus when a market is not operating at its efficient equilibrium.
d.
The total loss of producer and consumer surplus when a market is not operating at its efficient equilibrium.
70
Which of the following factors would increase demand for natural gas?
Question 21 Answer
a.
Consumers develop a preference for smaller minimalist homes
b.
The government offers a subsidy to natural gas producers
c.
The price of natural gas decreases
d.
The price of electricity generated by solar energy increases
d.
The price of electricity generated by solar energy increases
71
You are alone on an island. You can gather 60 coconuts or catch 10 fish in a given day. Suppose you decide to gather 30 coconuts and 0 fish. Your production decision is best described as:
Question 23 Answer
a.
Shortage
b.
Allocatively inefficient
c.
Pareto optimal
d.
Productively inefficient
d.
Productively inefficient
72
The price of guava increased by 30 percent. What happens in the market for guava? Select all that apply.
Question 24 Answer
a.
Quantity demanded decreases to the amount corresponding to the new price.
b.
At every price, guava farmers sell more inventory.
c.
At every price, guava consumers want to buy less.
d.
Quantity supplied increases to the amount corresponding to the new price.
a.
Quantity demanded decreases to the amount corresponding to the new price.
Quantity supplied increases to the amount corresponding to the new price.
73
An important determinant of the price elasticity of demand is the:
Question 1 Select one:
a.
extent of government regulation.
b.
quantity of the good supplied.
c.
proportion of the household budget spent on the good.
d.
level of technology.
c.
proportion of the household budget spent on the good.
74
If a good is a necessity with few substitutes, all others things equal, then demand will tend to:
Question 3 Select one:
a.
have price elasticity equal to 1.
b.
be less price-elastic.
c.
be more price-elastic.
d.
be the same as that of a luxury good.
b.
be less price-elastic.
75
If the demand for golf is price-inelastic and your local public golf course increases the greens fees for using the course, you expect:
Question 4 Select one:
a.
a decrease in total revenue received by the course.
b.
no change in the amount of golf played on the course.
c.
an increase in total revenue received by the course.
d.
an increase in the amount of golf played on the course.
c.
an increase in total revenue received by the course.
75
Sonik, a wireless phone company, tested the effect of a price reduction for text messaging. It lowered prices from $0.08 to $0.04 per message and found that the number of messages sent doubled. Use the Midpoint Method. This means:
Question 5 Select one:
a.
the demand for text messaging is elastic in this price range.
b.
the demand for text messaging is inelastic in this price range.
c.
the demand curve for text messaging shifted to the right.
d.
the supply curve for text messaging shifted to the left.
e.
the demand for text messaging is unit elastic in this range.
e. the demand for text messaging is elastic in this price range.
d. the demand for text messaging is unit elastic in this range.
76
Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:
Question 6 Select one:
a.
1.50.
b.
0.85.
c.
1.17.
d.
1.00.
1.17
77
Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is:
Question 7 Select one:
a.
price elastic.
b.
price inelastic.
c.
price unit-elastic.
d.
perfectly price inelastic.
price inelastic.
78
The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will have _____ prices, _____ quantities sold, and _____ incomes.
Question 8 Select one:
a.
lower; greater; lower
b.
lower; lower; lower
c.
lower; greater; higher
d.
higher; higher; higher
a.
lower; greater; lower
79
The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil.
Question 9 Select one:
a.
not comparable to
b.
less than
c.
equal to
d.
greater than
d.
greater than
80
The price elasticity of demand along a demand curve with a constant slope:
Question 10 Select one:
a.
decreases in absolute value as quantity demanded rises.
b.
is equal to the slope.
c.
is less than the slope.
d.
is greater than the slope.
decreases in absolute value as quantity demanded rises.
81
he price elasticity of demand measures the responsiveness of the change in the:
Question 11 Select one:
a.
slope of the demand curve to a change in the price.
b.
quantity demanded to a change in the price.
c.
slope of the demand curve to a change in the quantity demanded.
d.
price to a change in the quantity demanded.
b.
quantity demanded to a change in the price.
82
Which of the following is most likely to have a vertical supply curve?
Question 12 Select one:
a.
oil
b.
salt
c.
paintings by Van Gogh
d.
insulin
c.
paintings by Van Gogh
83
Which of the following is NOT a factor in determining the price elasticity of demand?
Question 13 Select one:
a.
the slope of the supply curve
b.
time
c.
the proportion of the budget spent on the item
d.
the number of available substitutes
a.
the slope of the supply curve
84
Yovanka has diabetes, and she will pay any amount of money for insulin. What is likely the best characterization of Yovanka's demand for insulin?
Question 14 Select one:
a.
price-inelastic
b.
perfectly price-inelastic
c.
perfectly price-elastic
d.
price-elastic
b.
perfectly price-inelastic
85
Suppose the input prices for Good X fall. Total revenue also fell. What must have happened?
Question 18 Answer
a.
Supply increased, causing prices to fall. The supply curve must have shifted right to an inelastic part of the demand curve. Consumers were not very responsive to the price decrease. The price fell by more than the increase in quantity demanded.
b.
Supply decreased, causing prices to increase. The supply curve must have shifted left to an elastic part of the demand curve. Consumers were responsive to the price increase. The price rose by less than the decrease in quantity demanded.
c.
Supply increased, causing prices to decrease. Demand increased in response to the price reduction. However, supply increase was greater than the demand increase. This caused total revenues to fall.
d.
Supply increased, causing prices to rise. The supply curve must have shifted right to an elastic part of the demand curve. Consumers were not very responsive to the price decrease. The price rose by more than the increase in quantity demanded.
a.
Supply increased, causing prices to fall. The supply curve must have shifted right to an inelastic part of the demand curve. Consumers were not very responsive to the price decrease. The price fell by more than the increase in quantity demanded.
86
The podcast relates most closely to which concept in this unit?
Question 19 Answer
a.
Cross-price elasticity of demand
b.
Income elasticity of demand
c.
Unitary elasticity
d.
Tax incidence
d.
Tax incidence
87
The short-run price elasticity of supply for gasoline in the United States is:
Question 20 Answer
a.
Highly elastic
b.
Highly inelastic
b.
Highly inelastic
88
How does seasonality affect the PES for fruits and vegetables?
Question 22 Answer
a.
Decreases PES due to the limited time frame for production.
b.
Makes PES perfectly elastic as demand matches supply seasonally.
c.
Increases PES because of the predictable nature of seasons.
d.
Has no impact on PES as prices adjust to seasonal changes.
a.
Decreases PES due to the limited time frame for production.
89
How does the introduction of new irrigation technologies affect the PES for crops?
Question 23 Answer
a.
Reduces the PES as it makes farming more dependent on technology.
b.
Increases the PES by allowing quicker response to price changes.
c.
Has no effect on the PES.
d.
Makes the supply more inelastic due to increased costs.
b.
Increases the PES by allowing quicker response to price changes.
90
If the percentage change in quantity demanded is -10% and the percentage change in price is 5%, what is the price elasticity of demand for the product?
Question 24 Answer
a.
-1.5
b.
-2
c.
-1
d.
-0.5
b.
-2
91
Which of the following would increase the price elasticity of supply for corn?
Question 25 Answer
a.
Longer growing seasons due to climate change.
b.
High costs of transportation and storage.
c.
A fixed amount of arable land.
d.
Patents on genetically modified corn seeds.
a.
Longer growing seasons due to climate change.
92
If the price of Good X drops 10% and the Price Elasticity of Supply is equal to 3, what do you anticipate will happen to the percentage change in the quantity supplied? Round your answer to 3 decimal places. If you think the answer is 1%, then enter 1 as your answer instead of 0.01.
30
93
Given the concepts in the unit, which of the following statements is true?
Question 1 Answer
a.
You receive 2 utility from watching a movie while your sister receives 3 utility from reading a book. Therefore, your sister enjoys reading a book more than you enjoy watching a movie.
b.
You receive 2 utility from meeting with your friends and your mom receives 2 utility from meeting with her friends. You and your mom both receive the same level of satisfaction from meeting with friends.
c.
You receive 2 utility from watching a movie and 4 utility from meeting with your friends. Therefore, you enjoy meeting with your friends more than watching a movie.
d.
You receive 5 utility from watching a TV show while your friend receives 10 utility from watching a TV show. You both receive the same level of satisfaction from watching a TV show.
c.
You receive 2 utility from watching a movie and 4 utility from meeting with your friends. Therefore, you enjoy meeting with your friends more than watching a movie.
94
If watching movies follows the law of diminishing marginal utility, then marginal utility is maximized when
Question 2 Answer
a.
diminishing marginal returns begins, typically with the first movie being consumed.
b.
total utility is also maximized
c.
when the person decides not to watch another movie
d.
total utility starts to fall
a.
diminishing marginal returns begins, typically with the first movie being consumed.
95
One difference between total utility and marginal utility is that
Question 3 Answer
a.
total utility is more accurate than marginal utility.
b.
total utility is cumulative, and marginal utility is not.
c.
total utility measures happiness and marginal utility measures unhappiness
d.
total utility is objective and marginal utility is not.
b.
total utility is cumulative, and marginal utility is not.
96
Yesterday, you purchased 5 pens and 12 folders. What if the price of pens rose by $3 and the price of folders declined by $2? With your income unchanged and prices for other goods remaining the same, what actions would you most likely take?
Question 4 Answer
a.
Buy more folders and less pens.
b.
Continue to purchase the same amount of pens and folders
c.
Buy more pens and less folders
d.
By fewer pens and folders
a.
Buy more folders and less pens.
97
What is true for consumers when they choose how much to consume of a good?
Question 5 Answer
a.
As the quantity consumed rises, total utility falls.
b.
As the quantity consumed of a product rises, total utility rises, but marginal utility falls.
c.
As the quantity consumed of a product rises marginal utility rises.
d.
As the quantity consumed of a product rises total utility falls, but marginal utility rises.
b.
As the quantity consumed of a product rises, total utility rises, but marginal utility falls.
98
You like candy and cake. After using your entire $30 budget at the sugar store you find that the marginal utility from the last candy you consumed was 60 and the last piece of cake was 30. Assuming you have maximized your utility, what could be true about the prices of cake and candy?
Question 6 Answer
a.
Candy must cost twice as much as cake.
b.
Both goods have prices that are equal.
c.
Cake must cost twice as much as candy.
a.
Candy must cost twice as much as cake.
99
Which of the following is a true statement regarding consumer behavior and total utility?
Question 8 Answer
a.
Utility will increase with each additional purchase, but at a decreasing rate.
b.
Utility will steadily decrease with each additional purchase.
c.
Utility will increase with each additional purchase, at an increasing rate.
d.
Utility will continue to increase at a steady rate with every additional purchase.
a.
Utility will increase with each additional purchase, but at a decreasing rate.
100
here are only two brands of cereal that you purchase: “Captain Crunch” and “Grape Nuts.” The more boxes of cereal you purchase, the lower the marginal utility of that box of cereal. You spend all of your income and your marginal utility of a box of “Captain Crunch” is 9 and your marginal utility of a box of “Grape Nuts” is 15. The price of “Captain Crunch” ball is $3 and the price of “Grape Nuts” is $5. Which of the statements is true based on the above information?
Question 9 Answer
a.
In equilibrium, you must give up two boxes of Grape Nuts for 1 box of Captain Crunch.
b.
You are maximizing your utility with your current choice of cereal.
c.
You could increase your satisfaction by trading Captain Crunch for Grape Nuts.
d.
You would be willing to give up 1.67 boxes of Grape Nuts for 1 box of Captain Crunch.
b.
You are maximizing your utility with your current choice of cereal.
101
Your two favorite shows are Ted Lasso and Stranger Things. On a normal week, you purchased 3 episodes of Ted Lasso and 3 episodes of Stranger Things. After the price of Ted Lasso increases, you buy only 2 episodes of Ted Lasso and 2 episodes of Stranger Things in a week. This can be explained by
Question 10 Answer
a.
the substitution effect and the income effect.
b.
Stranger Things is an inferior good.
c.
The substitution effect only.
d.
the fact that Stranger Things is a normal good.
a.
the substitution effect and the income effect.
102
A budget line for your mom shows her consumption choices between combat boots (on the vertical axis) and knife throwing (on the horizontal axis). If the price of knife throwing goes up
Question 11 Answer
a.
It will have no impact on the budget line since she can substitute one good for the other.
b.
Her budget line rotates outward as if on a hinge from the vertical intercept, reducing the amount of knife throwing she buys.
c.
Her budget line rotates inward as if on a hinge from the vertical intercept, reducing the amount of knife throwing she buys.
s.
d.
Her budget line makes a parallel shift inward, reducing her ability to purchase everything.
c.
Her budget line rotates inward as if on a hinge from the vertical intercept, reducing the amount of knife throwing she buys.
103
Which of the following statements are true at all the points on a demand curve?
i. Consumer’s budget has been allocated to maximize total utility
ii. Quantity is the quantity demanded at each price when total utility is maximized
iii. Changes in quantity demanded due to changes in income are accounted for
Question 12 Answer
a.
At all the points on a demand curve, changes in quantity demanded due to changes in income are accounted for.
b.
At all the points on a demand curve, quantity is the quantity demanded at each price when total utility is maximized.
c.
At all the points on a demand curve, a consumer’s budget has been allocated to maximize total utility
b.
At all the points on a demand curve, quantity is the quantity demanded at each price when total utility is maximized.
c.
At all the points on a demand curve, a consumer’s budget has been allocated to maximize total utility
104
Which of the following statements is true? Select all that are true.
Question 13 Answer
a.
Utility is the satisfaction people extract from consumed services or goods and those derived from pursued activities.
b.
Total utility can be calculated by adding up the marginal utilities of each unit consumed.
c.
Utility an individual receives from consuming a good is determined by the demand curve for that good.
d.
Utility is personal and subjective.
Utility is personal and subjective.,
Utility is the satisfaction people extract from consumed services or goods and those derived from pursued activities.,
Total utility can be calculated by adding up the marginal utilities of each unit consumed.
105
f you consume candy every day of the week, the marginal utility of candy is likely to ________ at the end of the week, ceteris paribus, and this demonstrates the law of ________.
Question 14 Answer
a.
increasing; diminishing marginal utility
b.
decrease; total utility
c.
decline; diminishing marginal utility
d.
increase; increasing marginal utility
c.
decline; diminishing marginal utility
106
Your enjoyment of peppermint patties follows the principle of diminishing marginal utility. You calculate your total utility after consuming the first patty at 10, second patty at 15, third patty at 20, and fourth patty at 19. By the fourth patty you start to feel sick. When is your marginal utility maximized?
Question 15 Answer
a.
When you consume the first patty
b.
When you consume the third patty
c.
When you consume the fourth patty
a.
When you consume the first patty
107
hat is the total utility at 3 units and the marginal utility when you go from consuming two cokes to three cokes?
Table
Quantity Marginal Utility
1 20
2 15
3 10
4 5
5 0
6 -5
Question 16 Answer
a.
Total Utility = 45; Marginal Utility = 5
b.
Total Utility = 50; Marginal Utility = 5
c.
Total Utility = 45; Marginal Utility = 10
c.
Total Utility = 45; Marginal Utility = 10
108
You buy only two brands of shampoo: “Nexxus” and “Olaplex” The more of any one you buy, the lower the marginal utility of that shampoo. In spending all your income, your marginal utility of a “Nexxus” is 50 and your marginal utility of an “Olaplex” is 100. The price of a “Nexxus” bottle of shampoo is $20 and the price of an “Olaplex” bottle of shampoo is $30. Given this information, which of the statements is true?
Question 17 Answer
a.
You could increase your satisfaction by trading "Nexxus" for "Olaplex".
b.
In equilibrium, you must give up three "Olaplex" bottles for two "Nexxus" balls.
c.
You would be willing to give up two "Olaplex" bottles for one "Nexxus" bottle.
a.
You could increase your satisfaction by trading "Nexxus" for "Olaplex".
109
Which of the following signals that the consumption choice with the maximum total utility has been selected?
Question 18 Answer
a.
The marginal utility is the same for both goods.
b.
The marginal utility is maximized for both goods.
c.
The marginal utility per dollar is the same for both goods.
c.
The marginal utility per dollar is the same for both goods.
110
ou have a budget of $125 to spend on pizza or wings. Pizza costs $20 while wing orders cost $15. Use the table below to identify the utility maximizing quantity of pizza and wings given your budget constraint.
Table
Pizza Total Utility Wings Total Utility
1 100 1 50
2 180 2 90
3 240 3 120
4 280 4 140
5 300 5 150
6 310 6 155
Question 19 Answer
a.
3 pizzas and 4 wing orders
b.
5 pizzas and 3 wing orders
c.
4 pizzas and 3 wing orders
c.
4 pizzas and 3 wing orders
111
In September, you spent all your entertainment budget on football tickets and nachos. Each football ticket cost $75. At your optimal choice, your marginal utility from the last football ticket purchased is 300 and your marginal utility from the last nacho order purchased is 100. This means that each nacho order must cost ________.
Question 20 Answer
a.
100
b.
50
c.
25
c.
25
112
Suppose that as a consumer you have $34 per month to spend for entertainment, either on movies which cost $6 each or on ice cream which cost $4 each. Placing movies on the vertical axis and ice cream on the horizontal axis, what is the intercept of the vertical axis of the budget constraint?
Question 21 Answer
a.
$8.50
b.
$6
c.
$34
d.
$5.67
d.)5.67
113
Suppose that as a consumer you have $34 per month to spend for entertainment, either on movies which cost $6 each or on ice cream which cost $4 each. Placing movies on the vertical axis and ice cream on the horizontal axis, what is the best interpretation of the slope of the budget line?
Question 22 Answer
a.
For every movie I consume, I must give up ~2/3 of an ice cream.
b.
For every movie I consume, I must give up ~3/2 of an ice cream.
c.
For every ice cream I consume, I must give up ~2/3 of a movie.
d.
For every ice cream I consume, I must give up ~3/2 of a movie.
e.
Both B and C
e.
Both B and C
114
What is the process for finding consumer equilibrium from a table of total utilities and the prices of two goods?
Question 25 Answer
a.
For each unit of consumption, pick the good that offers the higher marginal utility. Repeat this process until your budget is exhausted.
b.
For each unit of consumption, pick the good that offers the higher marginal utility per dollar spent. Repeat this process until your budget is exhausted.
c.
For each unit of consumption, pick the good that offers the higher total utility. Repeat this process until your budget is exhausted.
d.
For each unit of consumption, pick the good that offers the higher consumer surplus. Repeat this process until your budget is exhausted.
b.
For each unit of consumption, pick the good that offers the higher marginal utility per dollar spent. Repeat this process until your budget is exhausted.
115
What is the utility maximization rule?
Question 26 Answer
a.
Choose the bundle where marginal utility per dollar spent is the same for both goods and your expenditure is less than your budget.
b.
Choose the bundle where marginal utility is highest for both goods and your expenditure equals your budget.
c.
Choose the bundle where marginal utility per dollar spent is the same for both goods and your expenditure equals your budget.
d.
Choose the bundle where total utility is highest for both goods and your expenditure equals your budget.
c.
Choose the bundle where marginal utility per dollar spent is the same for both goods and your expenditure equals your budget.
116
Why is total consumer surplus NOT calculated by "adding up" the individual utilities of every consumer in the market?
Question 27 Answer
a.
Utility is an objective measure of individual satisfaction.
b.
Utility is a personal and subjective measure of satisfaction that cannot be compared across individuals. Furthermore, utility values are ordinal measures with no purpose aside from ranking alternatives.
c.
Consumer surplus is the difference between the price and the minimum selling price.
d.
None of these options are correct.
b.
Utility is a personal and subjective measure of satisfaction that cannot be compared across individuals. Furthermore, utility values are ordinal measures with no purpose aside from ranking alternatives.
117
The law of diminishing returns to labor suggests that as more of the variable input (labor) is added:
Question 1 Answer
a.
The MPL will first rise, then fall.
b.
The MPL will eventually become zero.
c.
Total output will eventually fall.
d.
The MPL will continue to rise but at a decreasing rate.
e.
The MPL will always rise.
a.
The MPL will first rise, then fall.`
118
Consider a production function in which the output always doubles when the input doubles and no diminishing returns to any input. What would the shape of this production function look like when graphed with output on the vertical axis and inputs on the horizontal axis?
Question 2 Select one:
a.
A downward-sloping line, indicating that output decreases as inputs increase.
b.
A curve that flattens as inputs increase, showing initial increases in output at a decreasing rate.
c.
A straight line through the origin.
c.
A straight line through the origin.
119
The primary reason for diminishing returns to labor is:
Question 3 Answer
a.
Decreasing quality of the variable input.
b.
External market factors.
c.
Falling demand for the product.
d.
Inefficiencies in production processes.
e.
The fact that some inputs are fixed.
e.
The fact that some inputs are fixed.
120
Jenny runs a bakery that specializes in artisan bread. Recently, the price of flour, her primary input, has significantly decreased due to a surplus in wheat production. Assuming all other factors remain constant, how is this change expected to affect the bakery's average total cost (ATC) curve?
Question 4 Select one:
a.
The ATC curve will shift downwards, reflecting lower costs per unit of bread produced as the primary input cost has decreased.
b.
The ATC curve will remain unchanged because the decrease in flour prices is offset by an equal increase in the prices of other inputs.
c.
The ATC curve will shift upwards, indicating higher costs per unit of bread produced due to increased expenses in other areas of production.
d.
The ATC curve will become steeper, as the decrease in flour prices leads to an increase in variable costs relative to fixed costs.
a.
The ATC curve will shift downwards, reflecting lower costs per unit of bread produced as the primary input cost has decreased.
121
The principle of diminishing returns implies that total production decreases when more units of a variable input are added.
Question 5 Answer
True
False
false
122
Consider a firm that produces toys. Calculate the Marginal Product of Labor (MPL) when the third worker is hired.
Toys Workers
0 0
1 50
2 120
3 180
60
123
Given the data in the table above, at which point do we first witness diminishing returns to labor?
Toys
Workers Toy Production
0 0
1 50
2 120
3 180
4 230
Question 7 Answer
a.
When you hire the 2nd worker.
b.
When you hire the first worker.
c.
There are no diminishing returns observed
d.
When you hire the 3rd worker.
e.
When you hire the 4th worker.
d.
When you hire the 3rd worker.
124
A farm produces wheat, and its production varies with the number of workers due to the law of diminishing returns. You are given the Marginal Product of Labor (MPL) for each worker added to the production process. Your tasks are to calculate the total wheat production after hiring a certain number of workers and identify the point at which diminishing returns begin.
The table below represents the MPL for each additional worker. Assume the farm starts with zero production (0 bushels of wheat) when no workers are hired.
Worker Number MPL (bushels)
1 100
2 90
3 80
4 70
5 60
6 50
7 40
8 30
Calculate the total wheat production after all 8 workers have been hired, using the MPL values provided.
Answer: Question 8
520
125
A farm produces wheat and is looking to maximize its profits by efficiently hiring workers. Each worker is paid a fixed wage, and the farm has a specific production target for wheat.
The table below represents the MPL for each additional worker and the fixed wage paid to each worker.
Worker MPL (bushels) Wage ($ per day)
1 100 50
2 90 50
3 80 50
4 70 50
5 60 50
6 50 50
7 40 50
8 30 50
Assume the farm's production target is 400 bushels of wheat.
Determine the minimum number of workers needed to meet or exceed the production target of 400 bushels.
Calculate the total wage cost for hiring the minimum number of workers required to meet the production target.
5, 250
126
Select all of the following statements that are correct.
Question 10 Select one or more:
a.
When marginal cost is above average total cost, average total cost must be rising.
b.
When marginal cost is above average total cost, average total cost must be falling.
c.
Given a production process with at least one fixed input, if the marginal product (MP) of labor is decreasing, then, all else being equal, the marginal cost (MC) of production will invariably rise, because each additional unit of labor contributes less to output than the preceding unit.
d.
An increase in fixed cost increases marginal cost.
a.
When marginal cost is above average total cost, average total cost must be rising.
c.
Given a production process with at least one fixed input, if the marginal product (MP) of labor is decreasing, then, all else being equal, the marginal cost (MC) of production will invariably rise, because each additional unit of labor contributes less to output than the preceding unit.
127
The table below shows data for Good X for Firm A. Round to 2 decimal places where necessary.
Quantity of X Variable Costs (VC) Total Costs (TC)
0 0 80
1 117 197
2 252 332
3 ? 485
4 ? 656
5 765 845
6 ? 1052
7 1197 ?
8 1440 1520
1. Given this data, what are fixed costs? Answer 1 Question 11
2. Given this data, what are variable costs when quantity is 3?Answer 2 Question 11
3. Given this data, what are total costs when quantity is 7?Answer 3 Question 11
80, 405, 1277
128
Given the rising cost of cocoa, what might happen to Hershey's and Mondelez's production decisions regarding chocolate?
Question 14 Answer
a.
Increase production to lower costs
b.
Keep production constant but reduce prices
c.
Decrease production to maintain quality
d.
Increase prices to manage higher production costs
.
Increase prices to manage higher production costs
129
How does the El Niño weather phenomenon affect cocoa production costs and subsequently chocolate manufacturing costs?
Question 15 Answer
a.
Increases production costs due to reduced cocoa supply
b.
Decreases production costs due to improved weather conditions
c.
Reduces chocolate quality, thus decreasing costs
d.
Has no impact on production costs
a.
Increases production costs due to reduced cocoa supply
130
If a chocolate company's average fixed cost (AFC) is $2 per chocolate bar at a production level of 500 bars, how will AFC change if production is increased to 1,000 bars without changing the total fixed cost?
Question 16 Answer
a.
AFC becomes variable cost
b.
AFC increases to $4 per bar
c.
AFC remains at $2 per bar
d.
AFC decreases to $1 per bar
d.
AFC decreases to $1 per bar
131
The price of a bushel of wheat increases from $10 to $12. Quantity demanded of wheat decreases from 1000 bushels to 800 bushels. Calculate the price elasticity of demand using the midpoint method. Type your answer, rounding to two decimal places if necessary.
-1.22
132
The government offers a subsidy to corn farmers. However, farmers across the market discover that their revenues fell. What must have happened? Select all that apply. Hint: Subsidies typically encourage more production.
I. Supply shifted to an inelastic part of the demand curve
II. Supply shifted to an elastic part of the demand curve.
III. In percentage terms, the change in price exceeded the change in quantity demanded.
IV. In percentage terms, the change in price was less than the change in quantity demanded.
Question 3 Answer
a.
I
b.
II
c.
III
d.
IV
a and c
133
The Oklahoma state government recently offered a tax credit to parents who enroll their children in private schools under the Parental Choice Tax Credit Program. However, it turns out that the private schools dramatically increased their tuition rates after the tax credit was implemented. Which of the following economic explanations explains why tuition increased?
Question 4 Answer
a.
Private schools responded to the tax credit by increasing their class sizes, resulting in a supply increase.
b.
The tax credit program increased demand for private schools. Private schools (the suppliers of education) have inelastic supply curves, so they did not adjust enrollment openings enough to keep up with the demand increase.
c.
The tax credit program increased costs for private schools, resulting in a supply decrease.
d.
The tax credit program increased demand for private schools. Private schools (the suppliers of education) have highly elastic supply curves, so they increased the number of enrollment openings too.
b.
The tax credit program increased demand for private schools. Private schools (the suppliers of education) have inelastic supply curves, so they did not adjust enrollment openings enough to keep up with the demand increase.
134
A recent news article stated that Costco has successfully lowered the prices of its products while increasing the price of its membership. What can you infer about the elasticity of Costco consumers?
Question 5 Answer
a.
Demand for products is highly inelastic, meaning that lowering prices won't significantly change the quantity demanded, but Costco is lowering prices anyway to appear competitive.
b.
Demand for products is relatively elastic, meaning that consumers are sensitive to price changes, so lowering prices will increase the quantity of products sold. Meanwhile, demand for memberships is relatively inelastic, allowing Costco to raise fees without losing many members.
c.
Demand for products and memberships are both perfectly elastic, meaning even small price changes would cause significant shifts in the quantity demanded for both products and memberships.
d.
Demand for memberships is unit elastic, meaning the percentage increase in membership fees will be matched by a corresponding percentage decrease in the number of members, which Costco hopes to offset by lowering product prices
b.
Demand for products is relatively elastic, meaning that consumers are sensitive to price changes, so lowering prices will increase the quantity of products sold. Meanwhile, demand for memberships is relatively inelastic, allowing Costco to raise fees without losing many members.
135
Consider the following table showing the total utility (TU) a student derives from studying for different hours:
Hours Studied
Total Utility
1
10
2
25
3
40
4
50
5
55
Suppose the student just finished their fifth hour of study. Based on the table, what should the student conclude about their study habits?
Question 6 Answer
a.
The student should study less, as the increase in total utility is diminishing.
it.
b.
The student should stop studying, as additional study hours are not worth the effort.
c.
The student should continue to study, as total utility is still increasing.
d.
We cannot conclude anything because we need additional information, such as the marginal utility.
c.
The student should continue to study, as total utility is still increasing.
136
You are playing a game with your friends. The first hour is very fun, adding 20 utils to your total utility. The second hour adds 18 utils to your total utility. The fifth hour adds 0 utils to your total utility. Which of the following marginal utilities could be associated with the sixth hour of play?
Question 8 Answer
a.
50
b.
-5
c.
5
d.
There is not enough information to determine the next marginal utility.
-5
137
The table below shows the total cost associated with each unit of production. What is the fixed cost of this operation?
Units Produced
Total Cost ($)
0
1000
1
1200
2
1500
3
1900
4
2400
5
3000
6
3700
1000
138
The price of eggs decreases by 9 percent. Meanwhile, the quantity supplied of cheese decreases 27 percent. What is the price elasticity of supply for cheese? Type your answer, rounding to two decimal places if necessary.
3.00
139
A consumer is maximizing utility by purchasing two goods, X and Y. The marginal utility of good X is 39, and the price of good X is $3. The marginal utility of good Y is 30. What must be the price of good Y for the consumer to maximize their utility? Round to 2 decimal place if necessary.
2.31
140
Suppose the price of corn decreases. Farmer revenues increase. Consumer demand for corn must be…
Question 12 Answer
a.
Inelastic
b.
Elastic
c.
Increasing
d.
Monopolistic
b.) elastic
141
The table below shows the total cost associated with each unit of production. DO NOT USE DOLLAR SIGNS!
Units Produced Total Cost
0 500
1 750
2 1050
3 1400
4 1800
5 2250
6 2750
What is the fixed cost of this operation? Answer 1 Question 13
Find the average variable cost associated with the first unit of production. Answer 2 Question 13
Find the marginal cost of producing the fifth unit. Answer 3 Question 13
500, 250, 450
142
If the demand for cage-free eggs increases significantly in the short run, leading farmers to increase their production, what is likely to happen to the marginal cost of producing those eggs?
Question 14 Answer
a.
Marginal costs will decrease due to economies of scale.
b.
Marginal costs will increase as additional production requires more resources, such as feed and housing.
c.
Marginal costs will remain constant regardless of production changes.
d.
Marginal costs will fluctuate randomly without any relationship to production levels.
b.
Marginal costs will increase as additional production requires more resources, such as feed and housing.
143
If two consumers have different utility functions for the same good, how would their individual demand curves differ?
Question 15 Answer
a.
Their demand curves would be identical, as utility functions do not affect demand.
b.
One consumer would have a steeper demand curve, indicating a stronger preference for the good at every price.
c.
Both consumers would always demand the same quantity at every price point.
d.
The demand curves would be flatter if both consumers maximized utility at lower price points.
b.
One consumer would have a steeper demand curve, indicating a stronger preference for the good at every price.
144
In economics, why are interpersonal comparisons of utility considered scientifically impossible?
Question 16 Answer
a.
Because utility can only be measured using quantitative data, which is not available for individual preferences.
b.
Because utility is a subjective measure that varies from person to person, making it impossible to compare happiness levels directly between individuals.
c.
Because economists have found that utility remains constant regardless of individual circumstances.
d.
Because utility can only be compared between different groups, not within the same individual.
b.
Because utility is a subjective measure that varies from person to person, making it impossible to compare happiness levels directly between individuals.
145
In the context of farmers switching to egg production, which of the following is an example of a variable cost associated with this transition?
Question 17 Answer
a.
The costs of upgrading barns to accommodate laying hens.
b.
The monthly utility bills for running the farm.
c.
The cost of purchasing feed for the laying hens.
d.
The initial investment in new egg production facilities.
c.
The cost of purchasing feed for the laying hens.
146
Several Tyson broiler chicken plants were recently shutdown, creating a wave of layoffs. Former broiler growers have attempted to switch to egg production, likely encouraged by the above normal egg prices. At scale, they are facing millions of dollars of costs to acquire the capital required for egg production. Which factors reduce the price elasticity of supply the most?
Question 18 Answer
a.
High switching costs
b.
More access to credit and financing
c.
Short production cycle for eggs
d.
Minimal infrastructure requirements
a.
High switching costs
147
uppose the price elasticity of supply for eggs is 1.6. The price elasticity of demand is -1.6. If an egg tax is imposed, who will absorb most of the price increase?
Consumers
Producers
Neither; they will share the tax equally
Neither; both parties can totally escape the tax
Question 19 Answer
a.
Consumers
b.
Producers
uppose the price elasticity of supply for eggs is 1.6. The price elasticity of demand is -1.6. If an egg tax is imposed, who will absorb most of the price increase?
Consumers
Producers
Neither; they will share the tax equally
Neither; both parties can totally escape the tax
Question 19 Answer
a.
Consumers
b.
Producers
c.
Neither; they will share the tax burden equally.
d.
Neither; both parties can totally escape the ta
d.
Neither; both parties can totally escape the tax
]
c.
Neither; they will share the tax burden equally.
148
Suppose the price of egg production equipment increases. How would this impact the cost curves associated with egg production?
Question 20 Answer
a.
Average variable cost curve shifts up
b.
Average total cost curve shifts up
c.
Average fixed cost curve shifts down
d.
Marginal cost curve shifts up
b.
Average total cost curve shifts up
149
Suppose you are a farmer who leases several plots from a landowner prior each year. A solar energy company offered the landowner a higher rate than what you typically pay. The farmer is still willing to lease the plots to you, but you must now match the rate offered by the solar energy company. How would your cost curves be affected by this situation? Select all that apply.
I. The average total cost of production would increase
II. The average variable cost of production would increase
III. The marginal cost of production would increase
IV. The average fixed cost of production would increase
Question 21 Select one or more:
a.
I
b.
II
c.
III
d.
IV
a and d
150
Suppose you can consume two goods: X and Y. The price of good X increases. Your consumption of both goods decreases. What must be true?
Question 22 Answer
a.
The income effect was larger than the substitution effect
b.
The substitution effect was larger than the income effect
c.
The supply of good X decreased
d.
X and Y are both inferior goods
a.
The income effect was larger than the substitution effect
151
The law of diminishing marginal utility helps explain why the demand curve slopes downward because:
Question 23 Answer
a.
Consumers get more satisfaction as they buy more of a good, so the price they are willing to pay increases.
b.
The additional satisfaction from consuming more units of a good decreases, so consumers are willing to pay less for additional units.
c.
Consumers face higher utility when they consume fewer goods.
d.
Consumers’ preferences for the good increase as its price increases.
b.
The additional satisfaction from consuming more units of a good decreases, so consumers are willing to pay less for additional units.
152
A drought in early 2024 reduced water levels in the Panama Canal such that shipments of grain could not sufficiently reach markets in East Asia The Panama Canal is the quickest and most cost-effective way to transport goods from the Atlantic to the Pacific. The drought contributed to a short-term spike in the price of grain in East Asia. Which description most likely characterizes the price elasticity of supply for grain?
Question 24 Answer
a.
The price elasticity of supply for grain is likely inelastic because grain producers cannot quickly adjust to the price increase due to growing times and shipping constraints.
b.
The price elasticity of supply for grain is likely elastic because consumers can increase their consumption of grains from Asian markets.
c.
The price elasticity of supply for grain is likely elastic because grain can be quickly rerouted through alternative shipping routes without significant delays.
d.
The price elasticity of supply for grain is perfectly elastic grain reserves can immediately satisfy any change in demand, regardless of shipping delays.
a.
The price elasticity of supply for grain is likely inelastic because grain producers cannot quickly adjust to the price increase due to growing times and shipping constraints.
153
When a farmer calculates their total costs after switching to egg production, which components contribute to this total cost?
Question 25 Answer
a.
Only fixed costs incurred during the barn renovations.
b.
Both fixed costs and variable costs associated with the egg production process.
c.
Only variable costs based on the number of hens being raised.
d.
Total costs remain constant regardless of the number of eggs produced.
b.
Both fixed costs and variable costs associated with the egg production process.
154
Which of the following factors would make demand for chocolate candies more elastic?
Question 26 Answer
a.
Candy producers can easily switch between chocolate and other types of confections due to shared inputs.
b.
A chocolate-like candy bar made from hazelnuts becomes more readily available in supermarkets.
c.
Consumer incomes increase such that the price of chocolate is trivial relative to the total budget.
d.
A serious drought disrupts cacao producti
b.
A chocolate-like candy bar made from hazelnuts becomes more readily available in supermarkets.
155
You calculate your economic profits to be zero at a profit-maximizing output. Which of the following is the best conclusion given this information?
Question 1 Select one:
a.
You should exit the industry immediately because you could be earning more in another industry.
b.
You should decrease your production until you earn more profit.
c.
You are operating at a short-run equilibrium.
d.
You could not earn more profit in another industry.
d.
You could not earn more profit in another industry
156
Select all possible accounting and economic profit combinations that could be true. (Select TWO)
Question 2 Select one or more:
a.
Accounting Profit = $100 Economic Profit = $200
b.
Accounting Profit = $200 Economic Profit = $100
c.
Accounting Profit = $100 Economic Profit = $0
d.
Accounting Profit = $100 Economic Profit = $100
b.
Accounting Profit = $200 Economic Profit = $100
c.
Accounting Profit = $100 Economic Profit = $0
157
Compared to a commodity like wheat, beef is much more _____.
Question 3 Answer
a.
differentiated
b.
homogeneous
c.
stochastic
d.
standardized
a.
differentiated
158
In a perfectly competitive agricultural market, which statement describes a situation that goes against the core characteristics of perfect competition? (Select TWO)
Question 4 Select one or more:
a.
In the short run, firms may earn super-normal profits or incur losses, but in the long run, due to free entry and exit, firms earn only normal profits (do not earn any extra profit beyond that).
b.
Consumers are indifferent between purchasing the product from one firm over another because they view them as identical.
c.
A technologically advanced firm develops a new harvesting method that slightly reduces its costs, but it keeps its output price consistent with the market.
d.
Due to unforeseen weather events, some firms temporarily reduce their output, but the market price remains largely unchanged.
e.
Most firms in the market form a coalition to set a minimum selling price for their products, higher than the equilibrium price.
e.
Most firms in the market form a coalition to set a minimum selling price for their products, higher than the equilibrium price.
159
Why do all tomatoes of the same type cost the same price in a farmer’s market?
Question 5 Select one:
a.
Farmers are colluding among themselves.
b.
Prices cannot change in the short-run.
c.
If one seller charged a higher price, none of the customers would do business with that seller, since they could get an identical product from another seller at the lower price.
d.
Economic profit must be zero in the short-ru
c.
If one seller charged a higher price, none of the customers would do business with that seller, since they could get an identical product from another seller at the lower price.
160
Perfect competition is the model of efficiency by which we will compare other models (monopoly, oligopoly, etc.).
Question 6 Answer
True
False
true
161
A characteristic of a perfectly competitive market that is inconsistent with a high four-firm concentration ratio is:
Question 7 Answer
a.
The presence of barriers to entry.
b.
There is one dominant consumer that affects market prices.
c.
Firms earn high profits in the long run.
d.
There are many buyers and sellers.
e.
Firms are price makers.
d.
There are many buyers and sellers.
162
Suppose the four-firm concentration ratio for the meat processing industry was found to be 87%. This would suggest:
Question 9 Answer
a.
The four largest meat processors dominate a significant portion of the market.
b.
Perfect competition prevails since 87% is a low concentration ratio.
c.
There is high product differentiation in the industry.
d.
Only 13% of the market is controlled by the top four firms.
e.
The industry is approaching characteristics of a perfectly competitive market.
a.
The four largest meat processors dominate a significant portion of the market.
163
If a perfectly competitive industry produces 10 units and charges $4 per unit, a monopolist is likely to produce _____ and charge _____.
Question 1 Select one or more:
a.
9; 5
b.
8; 9
c.
10; 7
d.
11; 4
a.
9; 5
b.
8; 9
164
How can you differentiate between a monopolist and a perfectly competitive firm solely by examining a table of data with quantity and price?
Question 3 Select one:
a.
A perfectly competitive firm will have an inverse relationship between price (P) and quantity (Q) sold, while a monopolist will have a constant price because they are a price maker.
b.
A monopolist will have an inverse relationship between price (P) and quantity (Q) sold, while a perfectly competitive firm will have a constant price regardless of the quantity sold because they are a price taker.
c.
A monopolist will have a PED equal to infinity, while a perfectly competitive firm will have a PED that varies as you move along the demand curve.
d.
You cannot because both monopolist and perfectly competitive firms will have a direct relationship between price and quantity sol
b.
A monopolist will have an inverse relationship between price (P) and quantity (Q) sold, while a perfectly competitive firm will have a constant price regardless of the quantity sold because they are a price taker.
165
If a firm operating in monopolistic competition is producing a quantity that generates MR>MC, then the marginal decision rule tells us that profit:
Question 4 Select one:
a.
is maximized only if MC = P.
b.
can be increased by increasing production.
c.
can be increased by decreasing production.
d.
can be increased by increasing the pric
b.
can be increased by increasing production.
166
If there are two gas stations in a very small town, then the gas station business there is probably BEST characterized as:
Question 5 Select one:
a.
monopolistic.
b.
perfectly competitive.
c.
monopolistically competitive.
d.
oligopolistic.
d.
oligopolistic.
167
In a monopolistically competitive industry:
Question 6 Select one:
a.
a firm maximizes profits when MR = MC yet P > MC.
b.
to maximize profits, firms set MR = MC, and people would be better off if output were reduced.
c.
output could be increased without an increase in total cost.
d.
people would be better off if output were reduced.
a.
a firm maximizes profits when MR = MC yet P > MC.
168
In a small town with only one farmer who grows and sells a unique variety of blue tomatoes not found anywhere else, the market for these blue tomatoes is MOST illustrative of:
Question 7 Select one:
a.
perfect competition
b.
oligopoly
c.
monopolistic competition
d.
monopoly
d.
monopoly
169
one:
a.
the entire MR curve.
b.
above the MR curve.
c.
the MR curve above the AVC curve.
d.
the MR curve above the horizontal axis.
b.
above the MR curve.
170
A company is the only electricity provider in a large city because the infrastructure required is so vast and expensive that it's impractical for new entrants to compete. This situation is MOST illustrative of:
Question 12 Select one:
a.
ownership of scarce inputs.
b.
ownership of scarce inputs
c.
economies of scale.
d.
differentiated products
c.
economies of scale.
171
The table below presents the four-firm concentration ratios for various industries. Based on this data, which industry is MOST likely to be an oligopoly?
Industry Four-Firm Concentration Ratio (%)
A 12
B 40
C 75
D 20
Question 13 Select one:
a.
A
b.
B
c.
C
d.
D
c.
C
172
Which scenarios BEST describes an industry characterized by monopolistic competition?
Question 14 Select one:
a.
A single cable company serves customers in a small town.
b.
Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.
c.
A college has one bookstore selling textbooks to students.
d.
Dozens of coffee shops in a city, each with their own unique branding and flavor profiles.
d.
Dozens of coffee shops in a city, each with their own unique branding and flavor profiles.
173
Select all statements that are correct.
Question 15 Select one or more:
a.
Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run.
b.
A monopoly will charge a higher price and produce a smaller quantity than will a competitive market with the same demand and cost structure.
c.
Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than does a comparable perfectly competitive industry.
d.
Consumer surplus in a monopoly is smaller than it is for a perfectly competitive industry.
Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run.,
Consumer surplus in a monopoly is smaller than it is for a perfectly competitive industry.,
A monopoly will charge a higher price and produce a smaller quantity than will a competitive market with the same demand and cost structure.
174
Which statement is TRUE?
Question 16 Select one:
a.
A monopoly firm is a price taker.
b.
MR > P if the demand curve is downward sloping.
c.
In monopoly, P = MC when profits are maximized.
d.
MR = MC is a profit-maximizing rule for any firm.
d.
MR = MC is a profit-maximizing rule for any firm.
175
Among the various market structures studied this semester, which one is considered to be the most efficient in terms of resource allocation and overall market performance?
Perfect Competition
176
familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times. The most likely reason that this does NOT happen is that:
Question 1 Select one:
a.
most students are unfamiliar with the Coase theorem.
b.
agreements arising from such negotiations could not be enforced.
c.
the transaction costs associated with identifying and establishing communication with students would be high.
d.
most students don't view loud music as a negative externality.
c.
the transaction costs associated with identifying and establishing communication with students would be high.
177
Activities that generate external costs will likely be carried out at levels that _____ those that would be efficient.
Question 2 Select one:
a.
exceed
b.
are less than
c.
are equal to
d.
compete with
a.
exceed
178
An externality is said to be internalized:
Question 3 Select one:
a.
when individuals successfully petition the government to ban or restrict activities that generate negative externalities.
b.
when individuals learn to adapt to negative externalities through introspection or internal acceptance of what are viewed as unchangeable facts of life.
c.
when individuals take external costs and benefits into account in their decision making.
d.
when the Coase theorem is irrelevant or cannot be applied.
c.
when individuals take external costs and benefits into account in their decision making.
179
Which of the following is an activity generating a negative externality?
Question 4 Select one:
a.
After Jane bought health insurance, she began racing motorcycles on the weekends.
b.
You buy a new car, then discover it needs a new transmission.
c.
The only two coffee shops in town conspire to raise prices.
d.
Your next-door neighbor mows the lawn at 6 A.M.
d.
Your next-door neighbor mows the lawn at 6 A.M.
180
According to the lead author of the study, what is one reason wind companies should address shadow flicker?
Question 5 Answer
a.
To minimize aesthetic impacts on local scenery
b.
To increase public support for wind energy projects
c.
To reduce noise levels associated with wind turbines
d.
To avoid legal restrictions on wind farm siting
Feedback
b.
To increase public support for wind energy projects
181
If an emissions tax is too low:
Question 10 Select one:
a.
there will be too little pollution.
b.
there will be too much pollution.
c.
there could be either too much or too little pollution.
d.
the marginal social cost of pollution will be less than the marginal social benefit of pollution.
b.
there will be too much pollution.
182
Most neighborhood streets are illuminated at night by streetlights. The streetlights are _____ and _____. Therefore, they are likely to be _____ by the competitive market.
Question 11 Select one:
a.
nonrival; excludable; underprovided
b.
nonrival; nonexcludable; overprovided
c.
nonrival; nonexcludable; underprovided
d.
rival; excludable; efficiently provided
c.
nonrival; nonexcludable; underprovided
183
The free-rider problem is a direct result of:
Question 12 Select one:
a.
horizontally summed supply curves.
b.
full-cost pricing.
c.
marginal-cost pricing.
d.
the inability to exclude nonpayers
d.
the inability to exclude nonpayers
184
There are benefits resulting indirectly from pollution because:
Question 13 Select one:
a.
businesses and consumers receive a perverse satisfaction from polluting.
b.
it can often be beneficial to wildlife.
c.
we obtain goods and services we enjoy even though in the process we pollute.
d.
firms pollute the environment only if it allows them to provide people with goods and services they desire at a higher cost.
c.
we obtain goods and services we enjoy even though in the process we pollute.
185
Which of the following generates a positive externality?
Question 14 Select one:
a.
You buy a new car and find $5,000 in the door panel.
b.
Joe buys health insurance but decides not to take the time to get a flu shot.
c.
Your next-door neighbor installs a bat house and the bats eat mosquitoes.
d.
Your next-door neighbor mows the lawn at 6 A.M.
c.
Your next-door neighbor installs a bat house and the bats eat mosquitoes.
186
Your community requires the sewage treatment plant to process raw sewage so that it is safe to return the water to the environment. This is:
Question 15 Select one:
a.
the Coase theorem.
b.
an environmental standard.
c.
an emissions tax.
d.
a tradable emissions permit.
b.
an environmental standard.
187
If the marginal social cost of pollution exceeds the marginal social benefit, which of the following is true?
Question 17 Select one:
a.
A Pigouvian subsidy can be implemented to reduce the amount of pollution to the socially optimal level.
b.
A Pigouvian tax can be implemented to reduce the amount of pollution to the socially optimal level.
c.
Since polluters don't have to compensate those who bear the costs, polluters will have no incentive to limit the amount of emissions and will pollute until the marginal social benefit of an additional unit of pollution is zero.
d.
Both B and C
d.
Both B and C
188
"If we calculate the amount of money a firm can save it were allowed to pollute an additional unit, that saving is the _____ of emitting an extra until of pollution."
Which of the following could be used to fill in the blank above?
Question 18 Select one:
a.
None of the above
b.
marginal social cost
c.
marginal benefit
d.
optimal level of pollution
c.
marginal benefit
189
If a good has a higher marginal social benefit than marginal private benefit; what kind of good is it?
Question 19 Answer
a.
A good with a positive externality
b.
A good with a negative externality
c.
An inferior good
d.
A social good
b.
A good with a negative externality
190
How can the free-rider problem for a good be fixed?
Question 20 Answer
a.
It cannot be fixed
b.
Create a monopoly for it
c.
Have the government fund it through taxes
d.
The free market and perfect competition can fix it
c.
Have the government fund it through taxes
191
Public sanitation would normally represent a market failure; what solution do we have for it?
Question 21 Answer
a.
Everyone cleans up after themselves
b.
We let the free market handle it
c.
A government funded natural monopoly
d.
Monopolistic competition
c.
A government funded natural monopoly
192
What is one reason why is it important for the government to fund public goods?
Question 22 Answer
a.
Public goods are rival goods and people will fight over them
b.
They should let the market make them instead
c.
They require a lot of money to make
d.
The market cannot efficiently produce goods with large externalities
d.
The market cannot efficiently produce goods with large externalities
193
Countries that engage in trade will tend to specialize in goods in which they have a(n) _____ and will _____ those goods.
Question 1 Select one:
a.
comparative advantage; export
b.
comparative advantage; import
c.
absolute advantage; export
d.
economic profit; import
a.
comparative advantage; export
194
What is likely to be a long-term effect of a country consistently maintaining high tariffs on most imports?
Question 3 Select one or more:
a.
Encouragement of inefficiency in domestic industries
b.
Increased prices for consumers
c.
Tariffs lead to long-term decreases in the cost of production for domestic industries.
d.
Greater variety of products for consumers
a.
Encouragement of inefficiency in domestic industries
b.
Increased prices for consumers
195
A pair of running shoes sold at a retail store is an example of a private good because it is…
Question 1 Answer
a.
Rivalrous and non-excludable in consumption
b.
Non-rivalrous and non-excludable in consumption
c.
Non-rivalrous and excludable in consumption
d.
Rivalrous and excludable in consumption
d.
Rivalrous and excludable in consumption
196
A swimming pool is large enough to accommodate everyone in the community. However, the pool owner sells a limited number of passes to prevent non-payers from using the pool. The swimming pool is an example of which kind of good?
Question 2 Answer
a.
Common
b.
Artificially scarce
c.
Private
d.
Public
b.
Artificially scarce
197
An economist calculated the cost structure for a large pork producer. They found that the minimum average variable cost = $90 at 100 units and the minimum average total cost = $130 at 150 units. The price of the pork is currently $120. What can you conclude about the producer’s optimal production decision?
Question 3 Answer
a.
It is optimal to continue production, but the producer will suffer a loss in profits.
b.
It is optimal to continue production because the producer will earn positive profits.
c.
It is optimal to halt production because the price is below the shutdown price.
d.
It is optimal to halt production because the producer will suffer a loss in profits.
a.
It is optimal to continue production, but the producer will suffer a loss in profits.
198
Economists represent market power in models of imperfect competition with the…
Question 4 Answer
a.
Downward sloping demand curve
b.
Marginal cost curve
c.
Perfectly elastic demand curve
d.
Price markup
a.
Downward sloping demand curve
199
Good X is highly desired by consumers. However, it is impossible to prevent non-payers from using the good once it is purchased by someone else. Therefore, good X is _____ and suffers from the _____ problem.
Question 5 Answer
a.
Non-rivalrous; over-consumption
b.
Non-excludable; free-rider
c.
Non-excludable; negative externality
d.
Excludable; private good
b.
Non-excludable; free-rider
200
If a good has a higher marginal social cost than marginal private cost; what kind of good is it?
Question 6 Answer
a.
Pollution
b.
Public good
c.
Negative externality
d.
Positive externality
c.
Negative externality
201
If a perfectly competitive industry produces 40 units and charges $2 per unit, a monopolist is likely to produce _____ and charge _____.
Question 7 Answer
a.
60 units; $3
b.
20 units; $4
c.
20 units; $0.50
d.
100 units; $1
b.
20 units; $4
202
Which of the following is the Pigouvian solution to a positive externality?
Question 8 Answer
a.
Leave it up to private bargaining
b.
Subsidize the company
c.
Environmental standards
d.
Tax the company
b.
Subsidize the company
203
In the perfectly competitive market for wheat, a farmer optimally sells a bushel for $10. A different farmer tries to sell wheat for $12 per bushel. What is a likely outcome of this decision?
Question 9 Answer
a.
Since the demand curve for wheat is perfectly elastic, the price increase will result in the farmer who increased prices to lose all consumers.
b.
It is not clear what will happen without first observing the marginal cost curve.
c.
Since the demand curve for each farmer’s wheat is downward sloping, the price increase will result in a loss of some, but not all, consumers.
d.
Since the demand curve for wheat is perfectly inelastic, the price increase will result in the farmer who increased prices to lose all consumers.
a.
Since the demand curve for wheat is perfectly elastic, the price increase will result in the farmer who increased prices to lose all consumers.
204
Suppose the US government imposes tariffs against imports from China. Which of the following parties pays the tariff?
Question 10 Answer
a.
Chinese companies that export to the United States
b.
The Chinese government
c.
The US government
d.
US companies and consumers that buy inputs and final products from China
d.
US companies and consumers that buy inputs and final products from China
205
Suppose you are the manager of a firm in a perfectly competitive market. You use the optimal production rule to determine that selling 100 units at $10 would maximize profits. Your total cost at 100 units is $500. What can you conclude?
Question 11 Answer
a.
You should produce more because total revenue exceeds total cost at 100 units
b.
This scenario describes a firm in the long run
c.
You should decrease production to increase profits
d.
This scenario describes a firm in the short run
d.
This scenario describes a firm in the short run
206
Suppose you operate a farm that requires just three inputs: land, labor, and fertilizer. The price of fertilizer increases. The amount of fertilizer you apply to your crop depends on how much you intend to produce. Fertilizer is a _____ input, so the _____ curve will shift _____.
Question 12 Answer
a.
fixed; average fixed cost; up
b.
variable; average total cost; down
c.
fixed; average total cost; down
d.
variable; average variable cost; up
d.
variable; average variable cost; up
207
The perfectly competitive firm faces a ______ demand curve for its products. Therefore, it must…
Question 13 Answer
a.
downward sloping; take market prices as given
b.
perfectly elastic; take market prices as given
c.
downward sloping; reduce prices to sell more output
d.
perfectly elastic; reduce prices to sell more output
b.
perfectly elastic; take market prices as given
208
The price set by a monopolist is $13. Which of the following prices would allow the monopolist to sell more output?
Question 14 Answer
a.
15
b.
20
c.
10
d.
13
c.10
209
Which of the conditions of perfect competition is violated in the model of monopolistic competition?
Question 15 Answer
a.
Standardized products
b.
Differentiated products
c.
Perfect information
d.
Free entry and exit
e.
Many buyers and sellers
a.
Standardized products
210
Which of the following conditions of perfect competition prohibits long-run profits?
Question 16 Answer
a.
Many buyers and sellers
b.
Free entry and exit
c.
Standardized products
d.
Differentiated products
e.
Perfect information
b.
Free entry and exit
211
Which of the following features of the perfect competition model demonstrates the firm’s lack of market power?
Question 17 Answer
a.
Perfectly elastic demand curve
b.
Marginal cost curve
c.
Price markup
d.
Downward sloping demand curve
a.
Perfectly elastic demand curve
212
The accounting profit of your firm is $40,000. Which of the following values could be your firm’s economic profit? Select all that apply.
Question 18 Answer
a.
0
b.
20,000
c.
50,000
d.
30,000
a.b.d
213
oppurtunity cost
the value of the next best alternative that the people did not choose
214
Resource
something that can satisfy humans wants or can be used to produce something
215
Scarcity
means something is not enough. A resource is scarce when there is not enough of it available to satisfy all the various ways the society wants to use it.
216
Microeconomics
studies the behaviour of individual units of the economy Example: demand and supply of a particular good
217
Macroeconomics
Studies the behaviour of aggregates of the economy as a whole.
Example: aggregate demand and aggregate supply of the economy
218
Traditional economics
Organize their economic affair the way they have always done. Occupations stay in family like: family farms . Economic decisions taken by the family and are not much different from past.
219
Command Economies
Ruler or lord (aka government) provides land and in return citizens provide labor and soldier. Economic decisions taken by the govt.
220
Market Economies
Decision making is decentralized(determined by buyers and sellers and their demand and supply. )
221
Market
an institution that brings together buyers and sellers for exchange of goods or services
222
Equilibrium
an economic situation where no individual would be better off doing something else; no one has an incentive to change their behaviour
223
Efficency
taking all opportunities to make some people better off without
making other people worse off
224
Inneficent production
is where there is a scope to increase production using the same amount of resources.
225
Efficent production
means using all your resources to produce the maximum amount of goods/services that is possible.
226
Specialization
the situation in which each person performs/specializes a task that he or she is good at performing; division of labor
227
Trade
exchange of goods and services between buyers and sellers
228
Globalization
increase of flow of goods and services across national borders
229
Production Possibility Frontier
shows the combination of two goods that an economy can produce using its available resources and technology.
230
Absolute advantage
One can produce both the goods more than the other
231
Comparative advantage
A state has comparative advantage in producing that good for which its opportunity cost is less than the other state.
232
Law of diminishing marginal returns
increasing one factor of production keeping other factors of production constant generates lower and lower additional returns
233
factors that shift demand curve
Changes in tastes of people
Changes in people's expectation about the future Changes in total number of consumers
Changes in price of related goods
Changes in income
234
Factors that change supply curve
Input prices
Price of related goods or service Technology
Expectations
Number of producers
weather
235
Consumer surplus
the difference between market price and what consumers ( as individuals or the market) would be willing to pay.
236
How to find consumer surplus on a graph
CS is the area beneath the demand curve and above the price
237
Producer Surplus
the difference between the market price and the price at which the producers are willing to supply the product
238
How to find total producer surplus on a graph
sales of a given good at a given point is the area above the supply curve but below the price
239
Consumer surplus relationship with price
rises with fall in price
240
Producer surplus relationship with price
PS surplus increases when price increases
241
Price ceiling
a maximum price sellers are allowed to charge for a good or service(usually BELOW equilibrium price)
242
Price Floor
a minimum price buyers are required to pay for a good or service (usually set ABOVE equilibrium price)
243
Inneffective price ceiling
f price ceiling is set above equilibrium, will have no effect(called nonbinding)
244
Deadweight loss
The loss in total surplus(consumer surplus and producer surplus) that occurs whenever an action or a policy reduces the quantity transacted below the efficient quantity transacted below the efficient market equilibrium quantity
245
Price Floors vs Price Ceilings
Price floors: above the equilibrium price Price ceilings : below the equilibrium price Both decreases the amount traded
Both leads to deadweight loss
246
Side effects of price ceilings
inefficiently low quantity Inefficient allocation to customers Wasted resources
Inefficiently low quality
Black markets
247
Side effects of price floors
Deadweight loss from inefficiently low quantity Inefficient allocation of sales among sellers Wasted resources
Inefficiently high quality
Temptation to break the law by selling below the legal price
248
When is a demand curve elastic
demand curve is ELASTIC when an increase in price reduces the quantity demanded A LOT and decrease in price increases the quantity demanded A LOT
249
When is a demand curve inelastic
A demand curve is inelastic when the same increase in price decreases the quantity demanded but not that much and vice versa.
250
Price elasticity of demand
the percentage change in quantity demanded by the percentage change in price
251
Availability of close substitutes effects on PED
More available substitute implies more elastic demand
252
Necessity or luxury affect of PED
Quantity demanded is more responsive to luxury goods. Hence, Luxury goods have higher elasticity.
253
Incomes effect on PED
Goods that take up more fraction of income are more elastic.
254
Time effect on price change
More elastic in the long run compared to short run
255
Category of good effect on PED
More general the good is, lesser is elasticity
256
Do elastic or inelastic good respond more to price change
Elastic goods respond more to price change than inelastic goods.
257
Pefectly inelaslstic
Vertical curve
PED=0
When prices fall or rise demand doesn't change because there are no other options
258
Perfectly elastic PED
PED=infinity
horizonral demand curve
Pefectly competitive market where if one person raises the price too much their demand will fall to 0 if it exceeds the equilibrium price
259
Total revenue
Total revenue: price times quantity demanded
260
Elasticity in relation to total revenue
elastic if increase in price decreases total revenue and a decrease in price increases total revenue
261
Inelasticity in relation to total revenue
Inelastic if increase in price increases total revenue and decrease in price decreases total revenue
262
Price elasticity of supply
Price elasticity of supply= % change in quantity supplied / % change in price
263
Elasicity of the supply curve in relation to quantity
A supply curve is elastic if a rise in price increases the quantity supplied A LOT
A supply curve is inelastic if a rise in price increases quantity supplied just a LITTLE
264
Avalibility of inputs effect of PES
So PES is lesser for products whose inputs are not easily available
265
Effect of time on PES
When producers get more time, they can produce more. So PES is higher in the long run
266
Tax incidence
how the economic burden of the tax is divided between the buyers and the sellers
267
Utility definition
he satisfaction or happiness a person gets from consuming a good or a service Its an abstract concept...
We cannot count how many units of happiness we can get if we drink a cup of coffee.
268
Total utility graphing traits
Increases at increasing rate Increases at decreasing rate
Decreases
269
Marginal Utility
change in total utility from consuming one more(or one less) unit of a good
270
How to calculate marginal utility
Change in total utility / change in units consumed
271
Law of diminishing marginal utlity
Marginal utility decreases as consumption of a good increase
272
Subsititution effect
when price of movie increases and price of tshirt is unchanged, the consumer has an incentive to SWITCH its consumption of movie to consumption of tshirts. (That is, replace consumption of one good to another)
273
Income effect
When price of movie increase, the buying power of the same income has reduced now(even though actual income has not changed), which leads to buying less of the good. (Assume normal good)
274
Diminishing returns to an input
diminishing returns to an input when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.
275
Fixed Inputs
hings that are required in fixed amount irrespective of the quantity of production
276
Variable inputs
Things whose amount required depends on the quantity of production
277
Marginal Cost
Arginal cost is the change in the total cost generated by one additional unit of output
MC= Change in TC divided by change on output
278
How to calculate marginal cost
Change in cost divided by change in quantity
279
Relatiuonship between FC, VC and TC
FC is straight line
VC and TC is upward sloping line
TC is VC shifted upward
Vertical distance between VC and TC is FC
280
Graphical relationship between MC and ATC
MC always intersects ATC at ATC’s minimum point
If MC is below ATC, ATC is falling
If MC is above ATC, ATC is rising
281
Graphical relationship between of ATC, AVC and MC
ATC always bigger than AVC
MC intersects AVC and ATC at their minimums
ATC and AVC are both U-shaped
Difference between ATC and AVC keeps getting smaller
Vertical distance between ATC and AVC is AFC
282
Charecterisitcs of Perfect Competition
-standardized product
-many buyers and sellers
-full information about market opportunitues and production technology
-easy entrance and exit
-mobile resources
-small market share-each firm comprises a small part of the overall market share
283
Outcomes of perfect competition
1.) no control over price
2.) no non price competition
3.) Limited oppurtunity for economic profit
284
Four firm concentration ration
market share of the four largest firms. Markets are less competitive when CR4 is more than 40%
285
Negative effects of market concentration in ag
Market concentration decreases competition among businesses: can be bad for consumers
● Has driven production of livestock to concentrated animal feeding style: living style of animals are poor
● Hard for independent farmers who are not contracted to the large vertically integrated companies
● Large companies dictate
286
Optimal output rule
Produce at the largest output in which MR = MC
287
How to calculate profit
Profit = TR-TC = (TR/Q - TC/ Q) x Q, or Profit = (P- ATC) x Q
Break even price of a price taking firm is the market price at which it earns zero economic profit.
Also, the minimum value of the ATC curve
288
When is production profitable
It is normal for a firm’s economic profit to be zero If TR> TC, the firm is profitable(P > ATC)
If TR= TC, the firm breaks even(P = ATC)
If TR< TC, the firm incurs a loss(P< ATC)
289
Long run market equilibrium
New firms enter and exit as long as there is economic profit or losses (p greater than or less than min ATC)
290
MR in a imperfectly competitive demand curve
● Price is not constant
● Marginal revenue is not equal to price
● Price is greater than MR
291
Monopolistic competition
Many sellers
● Ability to differentiate product by advertising and sales promotion
● Profits can exist in the short run, but others bid them away in the long run
● Equate MC with MR, but read the price off the downward sloping demand curve
292
Perferct and Monopolistic Competiion similarities
Quantity determined where MC = MR Zero economic profit in LR
293
Oligopolies
Few number of sellers , each of which is large enough to have influence in market volume and price
● Non-price competition between oligopolies
● Match price cuts but not price increase by fellow oligopolies
● Like monopolistic competitors, they have some ability to set market prices
● Oligopoly firms are interdependent in decision -making
294
Monopoly
One seller in the market
Entry of other firms is restricted by patents etc Have absolute power over setting market price Produce a unique product
Can make economic profits in the long run because they can set price without competition
295
Economies of scales
when average total cost is lower for bigger companies. That is, operating on large scale is more efficient. Reasons for economies of scale: Specialization, bulk purchasing, more efficient use of resources etc
296
Nonexludable goods
People who don’t pay cannot be easily prevented from using a good.
297
Nonrival goods
More than one person can consume the same unit of the good at the same time
298
Excludable goods
People who don’t pay can be easily prevented from using a good. Example: burger, movie... usually things with a price tag
299
Rival Goods
The same unit of the good cannot be consumed by more than one person at a time ( ar at all)
Example: burger
300
Private goods
excludable and rival
301
Public good
non-excludable and non-rival
302
Artficially scarce goods
are excludable but non rival
Markets can provide these goods but do so at an inefficient level
303
Common resources
are goods that are non-excludable but rival
Consumers cannot be excluded from consuming these goods, but when anyone
consumers it, there is one less from everyone else
Example: fishing
304
Free Rider Problem
Many individual are unwilling to pay for their own consumption and unwilling to pay for their own consumption and instead will take a free ride on anyone who does pay
305
Common resources overuse solution
tax or a regulation on the use of the common resource
Making it excludable and assigning property rights to it
Creating a system of tradable licenses for the right to use the common reousrce
306
Externalities
When somebody else's activity affect you indirectly
307
Positive externality
If it imposes costs others, it is an external cost
308
Positive externality
If the third party benefits, it is external benefit
309
Market failure
free market equilibrium is not socially optimal.
With negative externality additional costs are imposed on third parties
310
Coarse theorem
even in the presence of externalities an economy can always reach an efficient solution provided that the transaction costs are sufficiently low
311
Environmental Standards
impose restriction on maximum permissible emission by a firm
312
An emissions tax
cost depends on the amount of pollution a firm produces
313
Pigouvian taxes
axes designed to reduce external costs. Example: an emissions tax
designed to reduce coal production
314
Tradeable emission permits
license to emit limited quantities of pollutants;
the licenses can be bought and sold by polluters
315
Per unit subsidy
per-unit subsidy aims to raise the perceived MB, aligning it closer to the true social MB and thereby increasing consumption to a socially optimal level. If it's a positive externality, then adjusting the MB curve (e.g., through subsidies or public awareness campaigns) is a common approach to mitigate the DWL and achieve a more socially desirable outcome.
316
Reduction in Per unit tax rate
reduces the marginal cost
317
Autarky
a situation in which a country does not trade with other countries.
318
What happends when the world price is lower than the domestic price
Transactions at world price now.
quantity demanded is more than quantity supplied at the world price
The difference is the import
319
What happens when world price is higher than domestic price
quantity demanded is less than quantity supplied at the world price
The difference is the export
320
Effects of tariffs
1. Increase domestic production and decrease domestic consumption
The good is now produced by the higher-cost country
2. Less is consumed, implies lower gains from trade
Measuring the losses and wasted resources
Can we measure the value of the wasted resources? Yes!
321
National security
n the times of national crisis or war, US must be able to rely on key domestic industries like oil, steel, defense and food
Protection is required even during peacetime to ensure stability
322
Trade and domestic employment
Globalization will force some firms to layoff workers.
Even so, increased trade usually increases jobs in other industries(exporters) BUT for workers who lost their jobs, switching industries can be difficult
