ECON 201 Final (Phil Heap)

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $30 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?

$30

Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish.

Failure to do this could reduce the efficiency of the system by producing some goods and services that are not as highly valued as others.

How are the fundamental economic questions answered in a market economy?

Households and firms interact in markets to decide the answers to these questions.

Apple assembles most iPhones in China because the lower wages earned by Chinese workers and their experience in electronics manufacturing reduce the cost of assembling iPhones. This is an example of Apple reacting to which of the three key economic ideas?

People respond to economic incentives.

How to find the opportunity cost between selling two products.

Output of Chosen good/Output of alternate option

Which of the following would not shift a nation's production possibilities frontier?

A decrease in the unemployment rate.

What variables cause a shift in the production possibilities curve?

Adcances in technology, changes in resources, more education or training, changes in the labor force.

As women's wages have risen relative to men's wages, the opportunity cost to women of doing housework has _______ than has the opportunity cost to men.

Increased more.

For each bottle of wine that Italy produces, it gives up the opportunity to make 10 pounds of cheese. France gives up the opportunity to produce one bottle of wine for every 25 produces. Which of the following is true about the comparative advantage between the two countries?

Italy has the comparative advantage in wine.

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all the following except.

produce a combination of goods that lies outside its own production possibilities frontier.

If the best surgeon in town is also the best at cleaning swimming pools, then according to the theory of comparative advantage, this person should...

Specialize in being a surgeon because its opportunity cost is lower

In 2004, hurricanes destroyed a large portion of FLorida's orange and grapefruit crops. In the market for citrus fruit in 2004.

The supply curve shifted to the left resulting in an increase in the equilibrium price.

In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the United States.

The supply curve shifted to the left.

Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas. To Lonnie...

Raspberries and papayas are substitutes.

If an increase in income leads to an increase in the demand for peanut butter, then peanut butter is...

A Normal Good

what is a neutral good

Neutral goods are necessities. Income does not affect the quantity demand for a normal good.

Whats an example of a neutral good

Prescription medicines

If a firm expects that the price of its product will be higher in the future than it is today, then...

The firm has an incentive to decrease supply now and increase supply in the future

Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone...

strawberries and whipped cream are compliments

Assume that cotton is a normal good. Which of the following would cause both the equilibrium price and the equilibrium quantity of cotton to increase?

An increase in consumer income

What is a normal good

Goods with a positive correlation between income and demand.

Which of the following will shift the demand curve for a good?

A decrease in the price of a complimentary good.

Due to wildfires in Northern California, agricultural experts predict a 30 percent decline in this year's grape harvest. What happens in the California wine market as a result of this announcement.

The demand curve for California wine shifts to the right in anticipation of higher prices in the future.

Ranchers can raise either cttle or sheep on their land. Which of the following would cause the supply of sheep to increase?

A decrease in the price of cattle

One major reason for the law of demand is that

People substitute relatively lower-priced goods for relatively higher-priced goods

What does the law of demand state

A higher price leads to a lower quantity demanded and a lower price leads to a higher quantity demanded.

An advance in the technology in the production of good X causes

A rightward shift in the supply curve for good X.

Given that frozen yogurt and ice cream are substitutes, a shift in preferencs in favor of yogurt would be predicted to do all of the following EXCEPT...

increase the supply of ice cream

One reads in the newspaper: "Today the president and Congress enacted a law which adds new requirements that child care providers must meet before they can offer their services for sale." As a result, an economist would predict that...

The supply of child care services will decrease, thus raising the price of child care services.

Suppose the government decides that every family should own its own home. To bring this about, the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house they build. As a result of this...

The supply curve of new houses would shift rightward, since builders would be willing to produce and sell more houses at each given price.

At a price for which quantity demanded exceeds quantity supplied, a ______ is experienced, which pushes the price ______ towards equilibrium value.

Shortage; upward

Oil producers expect that oil prices next year will be lower than oil prices this year. As a result, oil producers are most likely to...

Place more oil on the market this year, thus shifting the present supply curve of oil rightwards.

The two big economic questions include all of the following except

Why to produce

Which of the following concepts is illustrated by a production possibilities frontier?

The tradeoff between producing one good versus another

The principle of decreasing marginal benefit implies that the

Additional benefit from obtaining one more unit of a good or service decreases as more of that good or service is consumed

Which one of the following events shifts the demand curve for grape jelly to he right

An increase in income if grape jelly is a normal good

Which one of the following will shift the supply curve of good X leftward?

An increase in the cost of machinery used to produce X

If a rise in the price of good B increases the demand for good A, then

A and B are substitutes

Suppose the price of a television set rises by ten percent. Which one of the following would we expect to be the most elastic following such a price change?

The long-run supply of television sets

What is the consumer surplus for the market from the production of the 100th unit of a good?

The marginal social benefit from the 100th unit minus the price paid for the 100th unit

Billy likes candy and popcorn. Candy sells for $.5 per bag and popcorn sells for $1 per bag. Currently he is in consumer equilibrium. Then the price of candy rises to $1. a bag. Which statement is true in the new consumer equilibrium.

The marginal utility from candy will be equal to the marginal utility from popcorn.

If the price of the good measured on the vertical axis increases, the budget line

becomes flatter

A consumer always has a cup of coffee with a tablespoon of sugar. What would the consumer's indifference curves for these two goods look like?

L-shaped

Jay has an income of $10 to buy peanuts and popcorn. The price of peanuts is $1 a bag and the price of popcorn is $2 a bag. He chooses to consume 5 bags of peanuts and 2 bags of popcorn. What can we say about this consumption choice?

It is not the best affordable choice. He should consume more peanuts, more popcorn, or more of both.

For a normal good, the income effect

Reinforces the substitution effect

Suppose the marginal product of energy equals the average product of energy. This implies that

Average product is at its maximum value

(T/F) The gap between the average total cost curve and the average variable cost curve equals marginal cost

False

If constant returns to scale are present

the LRAC curve is horizontal

A firm shuts down if price is

Below minimum average variable cost

For a single - price monopoly, marginal revenue is less than price because

The revenue gained from the last unit sold is offset by a revenue loss on the units that previously had been sold at a higher price

A monopoly ________ make positive economic profit in the long run because

can; barriers to entry prevent other firms from entering the market and sharing the profit

For a monopoly to practice perfect price discrimination, the market

demand curve is the same as the marginal revenue curve

If the marginal social cost of producing a public good is greater than the marginal social benefit, then

more than the efficient quantity of the public good is being produced

Governments provide public goods such as national defense because

of the free-rider problem, which results in underproduction by private firms.

A technological improvement is represented by

an outward shift of the production possibilities frontier

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The cost of producing a unit Y is

1 unit of X for Agnes, 1/2 a unit of X for Brenda

The main functions of markets include

enabling buyers and sellers to get information about each other

The demand and supply model determines

Relative prices

The price of oranges rises by 3 percent and quantity of oranges demanded decreases by 3 percent. We conclude that the demand for oranges is

Unit Elastic

If the supply of a good is perfectly elastic, then a tax on the good will be paid

completely by the buyers

If a consumer spends all his income and his marginal utility per dollar is equal for all goods, then

Total utility is maximized

Shelley is maximizing utility in her consumption of mansions and Porsches. If the marginal utility of her last purchased mansion is twice the marginal utility of her last purchased Porsche, then we know

The price of a mansion is twice the price of a Porsche

The marginal utility per dollar from pizza is greater than the marginal utility per dollar from pop. To maximize utility, a consumer buys

More pizza and less pop

What is bounded willpower

Given an understanding of the optimal choice, people will still choose what brings them the most short-term benefit over incremental progress toward a long-term goal.

Which one of the following statements about implicit rental rate of capital is true

It is the opportunity cost to a firm using its own capital

Choose the correct statement

In the short run, the firm's plant is fixed

If ATC is falling, then MC must be

Below ATC

When a firm is a "price taker," the firm

cannot influence the market price of the good that it sells

The market for maple syrup is perfectly competitive. Suppose that the market is in long-run equilibrium, when the market demand for maple syrup increases. All of the following occur except

In the long run, firms make an economic profit

In a competitive market, market demand curve measures the __________ if _______ exist. In a competitive market, the competitive supply curve measures the ________ if _______ exist.

marginal social benefit; no external benefits; marginal social cost; no external costs

A monopoly is a market with a single firm that

Produces a good or service for which no close substitute exists and which is protected by a barrier that prevents other firms from selling that good or service

When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than it sells the identical pizza to a student who lives a block away from the campus, the pizza firm is

practicing price discrimination

Nash equilibrium occurs when

Each player takes the best possible action given the other player's action

An externality is

A cost or benefit that arises from an activity but affects people not part of the original activity

One way to solve negative externality problems is

Issue pollution permits to polluting firms and establish a system of cap-and-trade

The devices the government can use to achieve a more efficient allocation of resources in the presence of external benefits include all of the following except

Pollution permits

A market economy tends to ________ goods with negative externalities and _____ goods with positive externalities

Overproduce; underproduce

When a good is nonrival and nonexcludable, it is a

public good

A natural monopoly good is

Nonrival and excludable

Consider the factors of production. The price in a(n) ______ market is a rental state

capital services

To maximize profit, a firm hires labour until

The value of marginal product equals the wage rate

If the price of the firm's output decreases, the value of marginal product curve

shifts leftward

Technological advances have resulted in lower prices for most smart watches. What is the impact of this on the market for traditional watches?

The demand for traditional watches shifts to the left.

Economic efficiency in a competitive market is achieved when

the marginal benefit equals the marginal cost from the last unit sold

Linda buys a new motorcycle helmet for $250. She receives a consumer surplus of $75 from the purchase. What value does Lucinda place on her motorcycle helmet?

$325

Which of the following statements best describes the concept of consumer surplus

"I was all ready to pay $300 for a new leather jacket that I had seen in macy's, but I ended up paying only $180 for the same jacket.

An increase in the demand for soft drinks due to changes in consumer tastes, accompanied by an increase in the supply of soft drinks as a result of reductions in input prices will result in

An increase in the equilibrium quantity of soft drinks; the equilibrium price may increase or decrease

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve. As a result...

The equilibrium price of MP3 players will decrease, the equilibrium quantity will increase.

Studies have shown that drinking one glass of red wine per day may help prevent heart disease. Assume this is true, and favorable weather has increased the grape harvest of California vineyards. In the market for red wine, these two developments would...

Increase demand and increase supply, resulting in an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of red wine.

If more insurance companies decide to cover part of the price of voluntary laser eye surgery and more doctors decide to enter the field of laser eye surgery, what will happen in the market for laser eye surgery as a result of these two factors?

Demand and supply will both increase

Which of the following is not a consequence of minimum wage laws?

Producers have an incentive to offer workers non-wage benefits such as health care benefits, and convenient working hours rather than a higher wage.

To affect the market outcome, a price floor

Must be set above the equilibrium price

Price gouging, or large increases in p[rices of essential goods during an emergency, is illegal in 34 states. In the very short run, when it is not possible to produce more of the good, the price increase is a result of __________ and results in a ____________ of the good

Increase in demand; Shortage

Which of the following is not a result of imposing a rent ceiling?

Some consumer surplus is converted to producer surplus

Suppose a binding price ceiling on sparkling wine is produced by the Minister of the country of Vinyardia. What will be the likely effect of the market of sparkling wine in Vinyardia?

Market demand will increase, quantity supplied will decrease, and a shortage will result.

Economists have shown that the burden of a tax is the same whether the tax is collected from the buyer or the seller. Why, then, are gasoline and cigarette taxes imposed on sellers.

It is more difficult for buyers to keep track of their purchases, and for the government o verify that the right amount of tax revenue is collected.

When government imposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the

demand curve for imported champagne is vertical.

When supply is more elastic than demand, who bears the majority of the tax burden?

The consumer

When demand is more elastic than supply, who bears the majority of the tax burden?

The producer

When congress passed a law that imposed a tax designed to fund its Social Security and Medicare programs, it wanted employers and workers to share the burden of the tax equally. Most economists who have studied the incidence of the tax have concluded that

The burden of the tax almost falls entirely on the workers