Introductory Micro Q ‘Manhattan College Eeon 203 Fall 2012 First Mid-Term Exam, 5 point bonus question. RD is a Mets fan and user of Stub Hub, Tickets are available for Mets games from only 2 sources: the Mets and Stub Hub. Stub Hub only gets its tickets in the secondary market, meaning they do not buy from the Mcts and then sell them on Stub Hub. Stub Hub purchases only from existing ticketholders. In the first year, the Mets played in Citi Field, demand for tickets was strong and a large number of ticket buyers joined the ranks of season ticket holders. The season ticket holders got the seats they wanted. Ron did not use Stub Hub, since prices were higher than the face value from the Mets. In the second year, after the Mets played poorly a number of season ticket holders dumped their seats on to Stub Hub. When RD checked the web, he discovered that prices were lower than face value and he and his family went to a few games. In the third year, even though the Mets were playing badly, RD discovered that the prices on Stub Hub were higher than the previous year. He though why is that. ‘The Mets are bad for the second straight year so there ought to be more discounted tickets available. What part of supply and demand analysis was RD missing? His wife, who had been a better student of economics than RD at MC, said, “Well, RF, you forget that...” What did RD’s wife say. Answer. Suaug Satha Seory As BAK 10 Hegcou 4 Sask, SY? ie ery Stingers oe Melee? Poona Bom euia Tad So “Suveut on) Seurs wer1In conducting their research, economists face an obstacle that not all scientists face; specifically, in economics, it is often difficult and sometimes impossible to a. make use of theory and observation. b, rely upon the scientific method conduct laboratory experiments. find articles or books that were written before 1900. 2.The most common data for testing economic theories come from a ‘fully controlled and conducted laboratory experiments, computer models of economies. ® historical episodes of economic change. centrally planned economies 3.Economists make assumptions in order to a. mimic the methodologies employed by other scientists. b, minimize the number of experiments that yield no useful data c. minimize the likelihood that some aspect of the problem at hand is being overlooked: @ vers focus their thinking on the essence of the problem at hand. 4.n the eireular-low diagram, firms produce ‘a. goods and services using factors of production. . output using inputs, factors of production using goods and services @ Both (a) and (b) are correct. 5.In the citcular-flow diagram, which of the following is not a factor of production? a. Tabor b. land capital anoney ® 6:The production possibilities frontier is a graph that shows the various combinations of output that an economy a. should produce. b, wants to produce. can produce. demands. 7.Where can an economy not produce? a. inside its production possibilities frontier b. on its production possibilities frontier outside its production possibilities frontier al the endpoints of its production possibilities frontier 8.Suppose an economy produces two goods, food and machines. ‘This economy always operates on its production possibilities frontier. Last year, it produced 1000 units of food and 47 machines, This year it experienced a technological advance in jis machine-making industry. As a result, this year the society wants to produce 1050 units of food and 47 machines. Which of the following statements is correct? a. Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machineproduction below 47. b. Because the technological advauce occurred in the machine-making industry, increases in output can only occur in the machine industry. ©. Inorder to increase food production in these circumstances without reducing machine production, the economy mast reduce inefficiencies. ‘The technological advance reduced the amount of resources needed to produce 47 machines, s0 these resources could be used to produce more food, 9. When can two countries gain from trading two goods? a. when the first country can only produce the first good and the second country can only produce the second good b. when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost ©. when the first country is better at producing both goods and the second country is, worse at producing both goods Two countries could gain from trading two goods under all of the above conditions. peer 10:The most obvious benefit of specialization and trade is that they allow us to a. work more hours per weck than we otherwise would be able to work. consume more goods than we otherwise would be able to consume. spend more money on goods that are beneficial to society, and less money on ‘goods that are harmful to society. d. consume more goods by forcing people in other countries to consume fewer c goods Table 3-1 ‘Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate. Minutes Needed to Make L to 1230 Bushel of | Pound of Wheat Beef ve a aba) s@e 15 10 12 sy Lote Buea ZN 3 11, Refer to Table 3-1. Assume that Andia and Zardia each has 360 minutes available. If each person divides his time equally between the production of wheat and beet, then total production is, 10.5 bushels of wheat and 16.5 pounds of beef. 21 bushels of wheat and 33 pounds of beef. 35 bushels of wheat and 32 pounds of beef. d. 42 bushels of wheat and 66 pounds of beef.Table 3-2 ‘Assume that Aruba and Iceland can switch between producing coolers and producing radios ® at a constant rate, Labor Hours Cours Rams Needed to Make 1 Cooler | Radio \oo \oo ‘Aruba_[_2 3 sonle) 2008 Iceland 1 4 12, Refer to Table 3-2. Which of the following represents Aruba's production possibilities frontier when 100 labor hours are available? Z eo Filigine= i ; ee 13.Which of the following statements about comparative advantage is not true? ‘Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources, b. The principle of comparative advantage applies to countries as well as to individuals. ¢. Beonomists use the principle of comparative advantage to emphasize the potential benefits of free trade 4. A country may have a comparative advantage in producing a good, even though it lacks an absolute advantage in producing that good. 14.Total output in an economy increases when cach person specializes because there is less competition for the same resources. each person spends more time producing that product in which he or she has a comparative advantage. ©. awider variety of products will be produced within each country due to specialization. government necessarily plays a larger role in the economy due to specialization, 15.Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then a, the two countries’ combined output of both goods will be higher than it would bein the absence of trade, b. Greece will produce more fish than it would produce in the absence of trade. Germany will produce more cars than it would produce in the absence of trade. All of the above are correct. 16.In a market economy, supply and demand are important because they 8. play a critical role in the allocation of the economy's searce resources b. determine how much of each good gets produced. g._ can be used to predict the impact on the economy of various events and policies. All of the above are correct. 17.A competitive market is a market in which a. an auctioneer helps set prices and arrange sales. b. there are only a few sellers. the forces of supply and demand do not apply. @ no individual buyer or seller has any significant impact on the market price. 18.The highest form of competition is called a. arbitrage. b. monopolistic competition, equilibrium. perfect competition — Figure 4-1 19, Refer to Figure 4-1. The movement from point A to point B on the graph shows a. adecrease in dey — : b. an increase in@eman Mates a decrease in quariity demanded, @ an inerease in quantity demanded 20.Which of these statements best represents the law of demand? a. When buyers tastes for a good inerease, they purchase more of the good. bb, When income levels increase, buyers purchase more of most goods G) When the price of a good decreases, buyers purchase more of the good & When buyers? demands for a good increase, the price of the good increases 21.f something happens to alter the quantity demanded at any given price, then a. the demand curve becomes steeper. 1, the demand curve becomes flatter. {6} the demand curve shifts @4. we move along the demand curve, Figure 4-3 Consumer 1 Consumer 2 pfeil wine of PTET EET ne Lt | WN 2 ‘ ’ { ’ |_| «+L LN {| 2 > = 22, Refer to Figure 4-3. If these are the only two consumers in the market, then the market uantity demanded at a price of $15 is a5) 0 units. 10 units. ©. 15 units a. 25 units ee { Figure 4-5 Pu Prove YAus! Pancl2 Tas 4 5 69 8 Omni wre 4-5, Suppose that the federal government is concemed about obesity in the United States. Congress is considering two plans. One would require “junk food” producers to include warning labels on all junk food. ‘The other would impose a tax on all products considered to be junk food. If the warning labels are successful, we could illustrate the plan as producing a movement from. Point A to Point B in Panel 1. ‘b. Point B to Point A in Panel 1 ¢, Point A to Point C in Panel 2. d. Point C to Point A in Panel 2. Figure 4-8: ane or 8 umatiy 24, Refer to Figure 4-8. ‘The movement fiom Point A to Point B represents a(n) a. shift in the supply curve 1}, decrease in the quantity supplied. increase in the quantity supplied. ZT Both a) and b) are correct. 25:The law of supply states that, other things equal, when the price of good 1. falls, the supply of the good rises. & rises, the quantity supplied of the good rises. . rises, the supply of the good falls. 4. falls, the quantity supplied of the good rises. 26:The following table contains a supply schedule for a good Price | Quantity Supplied $10 100 $20 Ql Q 7 160 If the law of supply applies to this good, then QI could be a. 0. b. 50. 27-The difference between a supply schedule and a supply curve is that a supply schedule a. incorporates demand and a supply curve does not. - b. incorporates profit and a supply curve does not. can shifl, but a supply curve cannot shift, @ is a table, and a supply curve is drawn on a graph 28. Which of the following changes would not shift the supply curve for a good or service? a. a change in production technology a change in the prive of the good or service a change in expectations about the future price of the good or service 4. a change in input prices Table 4-4 Price | Fim A’s | FirmB’s | Fim(’s | FimD’s Quantity | Quantity | Quantity | Quantity Supplied | Supplied _| Supplied | Supplied _| 30. 10 0 0 03 ape | EE “ay 2 8 $4 6 6 8 feigey 36 4 9 {ais | spat eae 2 sf a $10 0 ase RE HO! 29, Refer to Table 4-4. Which supply schedules obey the law of supply? a. Firm A’s only b. Firm B’s, Firm C’s, and Firm D's only c. Firm A’s and Firm C’s only © Firm B’s and Firm D’s only 30.An improvement in production technology will a, increase a firm's costs and increase its supply. 1, increase a firtn’s costs and decrease its supply. decrease a firm’s costs and increase its supply. decrease a firm’s costs and decrease its supply. 31.The unique point at which the supply and demand curyes intersect is called a. “Mharket harmony. b. coincidence. equivalence. equilibrium. 32.Which of the following events must cause equilibrium quantity to fall? a,, demand increases and supply decreases demand and supply both decrease © demand decreases and supply increases 4. demand and supply both inerease 33.1f a shortage exists in a market, then we know that the actual price is a. above the equilibrium price, and quantity supplied is greater than quantity demanded. b. above the equilil supplied. below the equilibrium price, and quantity demanded is greater than quantity supplied. 4. below the equilibrium price, and quantity supplied is greater than quantity demanded. Figure 4-14 jum price, and quantity demanded is greater than quantityTada se) 8 3 © Qumig 34. Refer to Figure 4-14, Ata price of a. $2, there is a surplus of 6 units. b. $5, there is a surplus of 25 units. $5, there is a shortage of $25, 87, there is a surplus of 4 units, Figure 4-16 Kt ee a ers 30 To 10-262 UO WKS Savoy 35. Refer to Figure 4-16, In this market, equilibrium price and quantity, respectively, are a. $10 and 30 units, $10 and 50 units. T. $10 and 70 units, d, $4 and 50 units. 36. Refer to Figure 4-16. If price in this market is currently $14, then there would be a(n) a. surplus of 20 units. The law of supply and demand predicts that the price will rise from $14 to a higher price. b. excess supply of 20 units. The law of supply and demand predicts that the price will fall from $14 to a lower price. c. surplus of 40 units. The law of supply and demand predicts that the price will rise from $14 to a higher price. @ excess supply of 40 units. The law of supply and demand predicts that the price will fall from $14 to a lower price, 37.Suppose the incomes of buyers in a market for a particular normal good decrease and there is, also a reduction in input prices. What would we expect to occur in this market?e) uilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous, cc. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. 4. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. 38.1f macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers’ incomes rise? ,, Both the equilibrium price and quantity would increase, Both the equilibrium price and quantity would decrease. The equilibrium price would increase, and the equilibrium quantity would decrease. 4. The equilibrium price would decrease, and the equilibrium quantity would increase. 39.Adam Smith suggested that an invisible had guides market economies. In this analogy, what isthe baton that the invisible hand uses to conduct the econoraie orchestra? 3, the government prices . subsidies d._ the Federal Reserve 40.Welfare economics is the study of how (a.) the allocation of resources affects economic well-being. 6. aprice ceiling compares to a price floor. . the government helps poor people 4. a consumer's optimal choice affects her demand curve. 41.An example of normative analysis is studying a. how market forces produce equilibrium. b, surpluses and shortages. whether equilibrium outcomes are socially desirable. income distributions 42,Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist, This maximum is called a deadweight loss. willingness to pay. © consumer surplus. d._ producer surplus. 43.A demand carve reflects cach of the following except the a. willingness o pay ofall buyers in the market. b. value each buyer in the market places on the good. ‘2, highest price buyers are willing to pay for each quantity. CA) ability of buyers to obtain the quantity they desire Table 7-2 This table refers to five possible buyers’ willingness to pay for a case of Vanilla Coke. Buyer | Willingness To Pay Gs)David [8850 = 3.80 = Aiea Laura [37.00 “ Megan [85.50 ® aco Mallory [$4.00 _ etd Audrey [$3.50 a market price is $3.80 Ret =p David’s consumer surplus j£$4.70)and the total consumer Surplus for the five AA ; . individuals i€$9.50 b. David's consiiner surplus is $1.70 and the total consumer suxplus for the five individuals is $9.80 , David, Laura and Megan will be the only buyers. . The demand curve is horizontal. value of everything she must give up to produce a good, amount SHeTS pA for a good minus her cost of providing it. ©. consumer surplus. d. out of pocket expenses to produce a good but not the value of her time. 45. Oa opportunity cost measures the Figure 7-8 ‘supply hemos Seren Creve Ql @ nent BCG ACH c. ABGD 4. DGH Figure 7-17 46, Bs to Figure 7-8, Which area represents producer sumplus when the price is P1?Supply /_- Po@oa) “Deveary Cowes Demand er aay 47. Refer to Figure 7-17. Which area represents consumer surplus when the price is P1? aD 48.Economists say that a market where goods are not consumed by those valuing the goods most highiy is a. laissez-faire. unequal meet ILS — @ inefficient. EP FEMEHCY rational. 49.Inefficiency can be caused in a market by the presence of a. market power. b. externalities. imperfectly competitive markets. All of the above are correct. 50.The consumption of water by local residents that may include pesticide runoff from local farmers’ fields is an example of a. market equilibrium, b. market power. externalities C. laissez-faire.