econ 1014 final study guide (parsons) (just old exam questions)

Which of the following factors causes a demand curve to become more elastic over time?

New substitutes for the product are discovered

The quantity supplies is the:

amount of a good that firms are willing and able to sell at a particular price during a given period of time.

At quantities above the equilibrium quantity:

it costs suppliers more to produce the good than its value to buyers.

If the elasticity of supply is 2.0, what happens to quantity supplied following a 7 percent increase in price? Quantity supplied increases:

14 percent.

Use the midpoint method to answer this questions. When a good's price increases from $20 to $25 and its quantity demanded decreases from 100 to 75, the elasticity of demand for that good is:

(-25/87.5)/(5/22.5) = -1.3, elastic

Suppose you are at a theme park waiting in a very long line to ride a roller coaster. You can either stay in this line and wait to ride the roller coaster, or you can go next door to ride the carousel which has no line. You should:

only choose to stay if the additional benefits gained from riding the roller coaster exceed the cost of waiting extra time in line.

Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:

$48,900

Brazilian rosewood is renowned for its tonal qualities and gorgeous figuring on acoustic guitars. However, Brazilian rosewood is now banned from use in the construction of new guitars. What will likely happen to the price of used Brazilian rosewood guitars over time?

The price for used Brazilian rosewood guitars will increase because there will be smaller supply of those guitars on the used market.

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increases in productivity will _______ revenue for the computer chip industry and make computer chips a _________ share of the American economy.

increase; larger

If Columbia's mayor decided to begin heavily regulating student apartments, the supply of student apartments:

would decrease because the regulations are like a tax on the apartments; they make it more expensive to produce.

Suppose the United States government wants to encourage individuals to save more of their income. The most economically efficient way for the government to realize this goal is to:

develop incentives such as tax breaks on savings in order to encourage more savings.

Which of the following is a positive statement?

A reduction in unemployment benefits will improve the incentives of the unemployed to find work. (The other options were: It is important to subsidize healthcare because markets do not offer "fair" prices; Income inequality is the biggest economic issue we face today, and; The government should focus on rewriting tax laws to stimulate the economy.)

In markets for manufactured goods, a new form of 3-D printing that lowers production costs will lead to:

an increase in supply, and increase in quantity demanded, and a decrease in price.

If a new technology develops that makes drilling for oil faster and lest costly, we would expect

supply of oil to become more elastic.

A decrease in expected future supply of a good will lead to:

a change in the demand for the good even before the supply actually decreases.

Marge sells artisan bread. If she raises rates, her revenues increase. Brad sells picture frames. If he lowers rates, his revenues increase. Which of the following is TRUE?

Marge's demand is inelastic, and Brad's demand is elastic.

If the elasticity of demand for oil is -0.5 and the elasticity of supply for oil is 0.3, then a 1 percent increase in the supply oil would cause the price of oil to:

decrease by 1.25 percent.

The price of chicken increases by 4 percent, causing the quantity demanded of flour to decrease by 6 percent. The cross-price elasticity of demand is _________, and the goods are ________.

-1.5; complements (-6/4)

After Amanda graduates from college, she earns a large salary. During college Amanda ate a lot of Ramen Noodles and rarely went out to the movies; after college she rarely consumes Ramen Noodles and often goes out to movie theaters. Based on the given information, and assuming nothing except the change in income. Amanda considers:

Ramen Noodles to be an inferior good and movie tickets to be a normal good.

Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000, and became a street food vendor. She used $8,000 out of her savings account that paid a 4% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $10,000 on food and supplies and earned total revenue of $45,000. Marcie's accounting profit is __________ and economic profit is _________.

$35,000; $6,680

Which statement is TRUE in a market with a binding ceiling?

Buyers and sellers experience unexploited gains from trade.

John and Tom enter into a futures contract in which John agrees to deliver 500 crates of coffee to Tom one year from now. Tom agrees to pay a price of $200 per crate. A year from now, John and Tom find that the market price of coffee is $210 per crate. How might they make a cash settlement on the contract?

John will off $5,000 to Tom and not deliver any crates of coffee.

A natural monopoly occurs when:

there are economies of scale over the relevant range of output.

If the minimum wage is lowered and closer to the market level, the:

gains from trade would increase, compared to a higher minimum wage.

Consider the following statements:

I. Relative to a no-trade situation, if the United States exported wheat, the U.S. domestic wheat price would rise and domestic production of wheat would expand.

II. Relative to a no-trade situation, international trade causes the prices of all goods to rise.

I is true; II is false.

A plague called The Black Death swept Medieval Europe. At the time, people believed cats spread the plague and started killing them to prevent the spread of disease. In reality, rats spread the plague and the slaughter of their natural predators only hastened the disease's proliferation. With this in mind, a market for cats would have had a _____ externality because the cats __________.

positive; killed rats regardless of who those rats would infect

The locavore movement encourages eating locally produced food to reduce the greenhouse gases emitted from transporting food long distances, placing upward pressure on local land prices as farmland becomes more valuable. Which statement reflects what will likely occur as a result?

Local forests become less common.

The Coase theorem posits that externality problems can be solved without government intervention:

when transaction costs are low and property rights are clearly defined.

Which of the following statements is TRUE?

In a competitive market, above-normal profits will be eliminated by entry of new firms.

In the short run, if price is less than average cost, a firm:

might shut down, but might stay open.

Which of the following statements is TRUE?

I. Taxes may reduce consumption by exactly the same amount as government regulations.

II. Taxes typically cost more than government regulations because taxes raise prices whereas regulations limit quantity.

III. Command and control policies effectively reduce consumption, but they may not be the lowest cost method for doing so.

I and III only

Suppose that a monopolist can sell five units of output at a price of $5 or six units of output at a price of $4. What is the marginal revenue of the sixth unit?

-$1

Which of the following statements if TRUE?

I. A $0.50 tax on each fishing lure sold always raises the price per lure by $0.50.

II. A tax on sellers is equivalent to a tax on buyers.

III. A tax on buyers is analyzed by shifting the demand curve by the amount of the tax.

II only

Why are private security guards in Iraq paid more than private security guards in the United States?

The security guards in Iraq receive a compensating differential to offset the increased risk of death.

A possible source of why cartels break down is the growth potential of the industry. Although industries with a lot of potential are more wiling to invest in the time to form a collusive agreement, such growth potential also deters them from making this investment. Why would that be?

High-growth industries are more likely to have lots of entrants.

Which of the following is an example of the tragedy of the commons?

Tuna in the ocean are being over harvested because it is difficult to prevent anyone from fishing for tuna. (The other options were: Personal computers have become a commonplace appliance in many homes, causing an expedited tragedy of technology; The garment industry in the U.S. has largely shifted overseas, leaving many U.S. workers unemployed, and; Television's popularity has become a common tragedy in our society.)

Public ignorance is generally high in less democratic countries because:

the public is not well-informed as a result of government control or censorship of the media.

Which of following statement(s) is/are TRUE?

I. Because monopolistically competitive firms sell differentiated products, their demand curves are downward sloping.

II. Monopolistically competitive firms earn above-normal profits because of high entry barriers.

III. As firms enter a monopolistically competitive industry, the demand curves of the existing firms shift down and to the left.

I and III only

Which increases the contestability of a market?

I. low fixed costs of entry

II. no legal barriers to entry

III. consumers are willing to try substitute goods

I, II, and III

Firms that expect their products to be successful:

have more of an incentive to advertise.

Which of the following statements is FALSE?

I. If the demand curves are different, it is more profitable to set a single price than different prices in markets.

II. to maximize profit the firm should set a lower price in markets with more elastic demand.

III. The presence of arbitrage makes it easy for a firm to price discriminate.

I and III only

Ten farmers, in a society with 100 people, would collectively gain $100,000 from a farm subsidy. All 100 people would pay the $300,000 cost of the subsidy program. Are the farmers willing to lobby the government in support of the subsidy?

Yes, the benefits of $10,000 per farmer exceed the costs of $3,000 per person.

Which of the following is TRUE?

I. The market supply curve for labor can be upward sloping or downward sloping.

II. As wages increase, the market labor supply curve slopes upward because some people are willing to work more hours.

III. As wages increase in the health care industry, the market labor supply curve slopes upward because some workers from other industries decide to get jobs in health care.

II and III only

Which of the following is an example of rational ignorance?

Glenda chooses to purchase a new CD at the store 1 mile from her home instead of driving all over town to see if she can find a lower price. (The other options were: ABC Corporation chooses to hire local workers instead of outsourcing jobs to another country; Jane decides not to study for her test tomorrow even though studying could raise her grade significantly, and; Bob choses not to vote since his vote will never swing the outcome of an election.)

Which of the following has generally been the most successful way to solve tragedy of the commons problems?

tradable allowances that allow for flexible responses

Which of the following statements is NOT correct?

Unions are the fundamental reason why wages are high in the wealthy countries. (The other (true) options were: Unions earn higher wages for their members either by restricting labor supply or creating a labor monopoly and negotiating higher wages with firms; Unions can raise the wages of particular classes of workers, and; High wages of physicians are partially due to the restriction of physician supply.)

Which of these entities is most likely to be able to practice perfect price discrimination?

colleges; they have lots of information on consumers, and the product can't be arbitraged

Which of the following is an example of statistical discrimination?

You assume your next-door neighbor Louise is a slow driver because she is 89 years old.

Cellular phone service is an example of a good that is generally:

excludable and nonrival.

Which statement is TRUE?

Companies producing network goods might lose their dominance over time.

Which of the following is a list on nonexcludable and nonrival goods only?

national defense, a lighthouse, smog reductions, mosquito spraying

Economic theory suggests that one reason why college graduates receive high wages than those with only a high school education is because:

college graduates are more productive.