ECO 2023 Final Exam Quizlet

Which of the following is an important rule of economic thinking?

Incentives matter

"If income were redistributed in favor of the poor, we would eliminate scarcity." The preceding statement is

d. incorrect; it confuses the elimination of poverty with the elimination of the constraint imposed by scarcity.

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare

d. the additional benefits of the second car with the additional costs of the second car.

The basic difference between macroeconomics and microeconomics is that

macroeconomics focuses on the aggregate economy, and microeconomics focuses on small components of that economy.

If Susan bought nine gallons of gasoline at $1.50 per gallon, the car wash cost $1, but if she bought 10 gallons of gasoline, the car wash was free. Given that Susan is going to get the car wash, the marginal cost of the tenth gallon of gasoline is

$.50

The opportunity cost to the United States of placing a man on the moon was

c. the loss of utility from the highest valued bundle of products that had to be forgone because of the moon mission.

Which of the following best describes the implications of the law of comparative advantage? If each person sells goods for which he or she has the greatest comparative advantage in production and buys those for which his or her comparative advantage is least, the

buyers of goods will gain at the expense of sellers.

When collecyive decision making (the political process) is used to resolve economic questions regarding the allocation of resources,

central planning and political bargaining will replace market forces.

When resources are being used wastefully or inefficiently, the

economy is operating at a point inside its production possibilities constraint.

Which of the following would allow the production possibilities curve for an economy to shift outward?

a beter social organization of economic activity, such as conversion from socialism to capitalism, an increase in the labor force or resource base, more investment leading to better technlogy and more innovation

According to the law of comparative advantage

each product should be produced by the lowest opportunity cost producer in order to maximize output

(I) When individuals engage in a voluntary exchange, both par�es are made beter off. (II) By channeling goods and resources to those who value them most, trade creates value and increases the wealth created by a society's resources.

Both I and II are true

Which of the following would cause the price of automobiles to rise?

an increase in consumer income

3 multiple choice options

Which of the following would be the best example of consumer surplus?

Jane pays $30 a month for phone service even though it is worth $70 to her

3 multiple choice options

What is consumer surplus?

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

What is producer surplus?

the amount a seller is paid for a good minus the seller's cost of providing it

Which of the following would most likely cause the current demand for DVD players to fall?

The expectation that the price of DVD players will decrease sharply during the next six months

3 multiple choice options

If the market price is above the equilibrium price, there will be a tendency for price to decrease, causing

the quantity demanded to increase and the quantity supplied to decrease until they are equal

According to the law of supply, as the price of a good decreases

sellers will produce less of a good

John advertises his used car for $3,000 in the newspaper. He would be willing to sell his used car for as low as $2,000. He is offered $2,600 for it from a buyer and accepts it. In this trade, John receives

Producer surplus of $600

Over the past 20 years both the quantity of health care provided and health care prices have been rising rapidly. Economic theory would suggest that the observed data could best be explained as

an increase in demand, while supply remained relatively constant.

A decrease in the supply of a good will

lead to an increase in the price of the good

A decrease in the price of flour will shift the supply curve for donuts

rightward, causing the equilibrium price to decrease and the equilibrium quantity to increase

A hurricane damaged much of the housing in Miami. Shortly thereafter, the price of plywood rose significantly. The events suggest that

an increase in the demand for plywood caused the price of plywood to rise

Which of the following is a true statement regarding the economic impact of a subsidy?

When supply is relatively elastic, the benefits of a subsidy will mainly accrue to buyers

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

a surplus of unskilled labor

With a price ceiling above the equilibrium price,

The market would be in equilibrium

urrently, federal and state gasoline taxes (imposed statutorily on the sellers of gasoline) amount to about $.45 per gallon. Suppose the current price of gasoline is $1.20 per gallon, and that if the tax was not in place, the price would be only $.80.

A $.05 burden is being borne by sellers and $.40 by consumers.

Suppose there is an increase in the excise tax imposed on cigarettes, a good for which the demand is relatively inelastic. The short-run burden of the tax increase will be borne primarily by

consumers, because the increase in market price will be large relative to the increase in the excise tax.

The Laffer curve illustrates the principle that

When tax rates are quite high, reducing tax rates will increase tax revenue

Both price floors and price ceilings, when effective, lead to

a reduction in the quantity traded.

If there was an increase in the tax on cell phones, what would be the effect on the equilibrium price+tax and quantity of cell phones?

price increases, quantity decreases

Which one of the following would reduce the efficiency of the market process?

protecting consumers by imposing legally mandated price ceilings

Which of the following are ways in which the private market provides consumers with valuable information to help them make beter decisions?

brand names, franchising, private sector certification firms and consumer report magazines

Driving your automobile in Los Angeles during the rush hour causes externalities because

it adds congestion and pollution from auto exhaust, reducing the welfare of others.

Externalities are due to which of the following?

poorly defined or enforced private property rights

Which of the following is a Public Choice view of government?

Government decisions are the result of the actions of rationally self-interested individuals.

Suppose the city of Tallahassee holds a referendum asking voters to approve $10 million to pay for city road beautification projects (planting new trees and other landscaping around the city). The $10 million would be paid by a $50 tax on each Tallahassee resident. If the voters approve this, it is probably...

efficient because it has widespread benefits and widespread costs.

An inferior good is distinguished by a

negative income elasticity of demand.

If the own-price elasticity of demand for grapes was 2.5

an increase in the price of grapes would decrease total consumer spending on grapes.

If a 50 percent increase in the price of hula hoops led to a 10 percent reduction in the quantity of hula hoops purchased, the price elasticity of demand is

0.2 and the demand for hula hoops is inelastic.

Which of the following statements is true regarding the price elasticity of supply?

The price elasticity of supply is always positive.

Coach Ballford: "To increase our revenue from football games, we need to lower ticket prices." University President Smith: "Coach, that would be counterproductive; a reduction in ticket prices would reduce our revenue, not increase it." Which of the following best explains this disagreement?

The coach thinks that demand is elastic, whereas the university president thinks that demand is inelastic.

All else equal, if a firm raises its price by 20 percent and the firm's total revenue falls by 20 percent,

demand must be elastic

The exhibit illustrates two possible demand curves for a product, D1 and D2. Which of the following is true regarding these demand curves?

Demand curve D1 represents a demand curve that is relatively more inelastic than demand curve D2.

If Russell values a ticket to a rock concert at $100 and is able to purchase it for only $40, he has received ____ in consumer surplus on his purchase.

$60

The law of diminishing returns indicates why

a firm's marginal costs will eventually increase as the firm expands output in the short run.

Refer to Figure 8-14. If the firm produces 10 units of output, its total fixed cost is

60

Refer to Figure 8-14. The marginal cost of producing the tenth unit is

7

Refer to Figure 8-14. Diminishing returns to the variable factor of produc�on for this firm set in at

Q=6

A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $300. The utilities, to be paid by the owner, cost $100 per month if the house is occupied; otherwise zero. Ifthe owner wishes to minimize her losses from the house, she should rent the house for as much as the marketwill bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.) (Hint: Remember the concept of sunk cost.)

$100

When an economist says a firm is earning zero economic profit, this implies that the firm

is earning as high a rate of return now as could be earned in other industries.

As output is expanded, if MC is more than ATC,

ATC must be increasing

Larger firms will often have lower minimum per-unit costs than smaller firms because

large-scale output allows greater specialization for both labor and machines in the production process

If a firm in a price-taker market is earning zero economic profit, it

is doing as well as typical firms in other markets.

For the competitive price searcher,

price will exceed marginal cost at the profit maximizing level of output, price will equal average total cost in the long run, economic profit will be driven to zero in the long run by the entry and exits of firms

The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,

some current firms will exit the market, causing the demand curves that face the remaining firms to increase.

In order for a firm to be able to engage in price discrimination, it must be able to

identify and separate groups with different price elasticities of demand, prevent resale of the product between customer groups

Refer to Figure 10-13. This firm will maximize profits by producing a quantity of output equal to

E and charging a price equal to A.

Which of the following is not a barrier that limits the entry of potential competitors into a market?

an elastic demand for a product

When significant economies of scale are present in the production process, an industry will tend naturally toward monopoly because

one firm will be able to produce the entire market output at a lower cost than several smaller firms.

Which of the following statements accurately describes a difference between a firm that is a monopolist and one that is in a competitive price-searcher market?

In the long run, a competitive price searcher will earn zero economic profit because of low entry barriers, while a monopolist may earn positive economic profits in the long run

Which of the following would increase the likelihood that firms in an industry could successfully collude?

high barriers to entry in the industry

Evidence suggests that education raises the earnings of the workforce mainly by

increasing the marginal productivity of labor.

Which of the following is most likely to decrease the market wage rate in a job category?

The employer provides a generous pension plan, the work is widely viewed as safe and not stressful, the job is widely viewed as interesting and prestigious

The fact that some people will work hard to earn a lot of money while others will be content with much less income indicates that

worker preferences are an important source of earning differentials.

Which of the following best states the relationship between machinery and the earnings of labor?

High productivity per worker hour is a necessary ingredient for the atainment of high real

If large numbers of young Americans thought the life of a cowhand was great (despite the hardships), we would expect

a decrease in the wages of cowhands because supply would be enlarged.

The interest rate paid for a car loan to a high-risk borrower is determined by...

supply and demand in the loanable funds market.

Suppose the market for car loans is in equilibrium, and cars become much more reliable, so that people do not need to buy cars as often. Which of the following will happen?

Interest rates fall, quantity of money borrowed falls.

Suppose the market for home loans is in equilibrium. Due to economic growth in other countries, foreigners have more money, and they send a lot of it to the U.S. to save. Which of the following will happen?

The supply of loanable funds rises, interest rates fall.

Suppose the equilibrium interest rate on a 30 year mortgage is 8%. In order to help more homeowners afford mortgages the government imposes a ceiling of 5% on mortgage interest rates. Which of the following will happen?

a shortage of mortgage loans

What is the present value of $15,000 in 5 years, assuming an interest rate of 4%?

$12,328.91

Your boss tells you he is considering an investment for the business that will cost $10,000 today, and will pay $15,000 in five years. Alternatively he could put the money in the bank and earn 4% interest. Which of the following is correct? (If it maters, assume there is no inflation.)

If he put the money in the bank he would only have $12,166.53 in five years, so this investment is a good idea.

Your boss tells you he is considering an investment for the business that will cost $13,000 today, and will pay $15,000 in five years. Alternatively he could put the money in the bank and earn 4% interest. Which of the following is correct? (If it maters, assume there is no inflation.)

The present value of the $15,000 is only $12,328.91, giving it a net present value of -$671.09 so this investment is a bad idea