ECON 101 Study Guide - Midterm Guide: Deadweight Loss, Economic Surplus, Externality
ECON 101 Full Course Notes
Document Summary
Get access
Related Documents
Related Questions
1. Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers?
$0.60 | ||
$0.40 | ||
$0.75 | ||
$0.67 |
2. In Market X, the external benefit of consumption is $5. In Market Y, the external cost of consumption is $10. Efficiency in both markets could be achieved by:
a tax of $5 in Market X and a subsidy of $10 in Market Y. | ||
subsidizing both markets. | ||
taxing Market Y and subsidizing Market X. | ||
taxing both markets. |
3.Economic theory suggests that a natural monopoly should be:
eliminated whenever it arises. | ||
regulated to take advantage of economies of scale. | ||
left alone to operate with excess capacity. | ||
taken over by the government. |
4.When the size of the production is the most efficient:
total cost is at the minimum. | ||
average cost is at the minimum. | ||
marginal cost is at the minimum. | ||
fixed cost is at the minimum. |
5.A firm should exit the industry if which of the following conditions apply?
TR > TC | ||
P < AC | ||
Lifetime expected profit is positive. | ||
Prices are low now but expected to rise. |
6.Figure: Costs
Reference: Ref 11-6
(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:
$75. | ||
$300. | ||
$225. | ||
$0, because P = MC at P = $20. |
7.When external benefits are present, the market price is ________, however when external costs are present, the market price is ________.
too low; too high | ||
equal to the efficient price; too low | ||
too high; too low | ||
equal to the efficient price; too high |
8.Which of the following statements is TRUE?
I. The EPA's tradeable allowances program for sulfur dioxide establishes property rights to pollute and helps reduce transaction costs by distributing allowances, maintaining databases, and monitoring emissions.
II. One criticism of tradeable allowances is that they prohibit non-businesses and environmental groups from purchasing the allowances.
III. The tradeable allowances for sulfur dioxide have performed poorly because electricity output has increased, causing a rise in sulfur dioxide levels.
I only | ||
II and III only | ||
I, II, and III | ||
III only |
9.Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:
various options. | ||
more quantity. | ||
more discount. | ||
higher quality. |
10.Figure: Government Price Controls
Reference: Ref 8-3
(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:
a shortage of 15 units. | ||
a surplus of 15 units. | ||
a supply of 20 units. | ||
no effect on the market. |
11.In which of these instances does price function as a signal in the market?
Suppliers invest more in exploration when the price of oil increases. | ||
Consumers complain of price gouging as the price of oil skyrockets. | ||
Government imposes price controls on the skyrocketing price of oil. | ||
All of the answers are correct. |
12.Ethanol and sugar are both made from sugar cane, and ethanol can be used as substitute fuel for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.
demand for; decrease; decrease | ||
supply of; increase; increase | ||
supply of; decrease; increase | ||
demand for; increase; increase |
13.Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?
Cotton growers in California don't pay payroll taxes. | ||
The water used to grow California cotton is highly subsidized by the government. | ||
Cotton growers in California are mostly operated as nonprofit enterprises. | ||
The water used to grow California cotton is high in mineral contents, making for a bigger cotton yield. |
14.Suppose that the equilibrium price in the market is $10. If the current market price is $7.50:
the equilibrium price will fall to $7.50. | ||
competition among buyers will increase the current price. | ||
the current price will fall below $7.50 as sellers compete for market share. | ||
There is not enough information provided to answer the question. |
15.Which of the following would increase the demand for beef?
lower pork prices | ||
higher consumer income | ||
higher prices of feed grains used to feed beef cattle | ||
an increase in the price of beef |
16.A change in quantity supplied is reflected by a movement along the same supply curve while a change in supply refers to a shift in the entire supply curve.
True
False
17.Table: Production in the United States and Germany
Labor units required to produce: |
One Clock | One Sofa |
United States | 2 | 5 | |
Germany | 3 | 9 |
Reference: Ref 2-8
(Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one sofa in the United States is _________, and the opportunity cost of producing one sofa in Germany is _______.
two clocks; three clocks | ||
10 clocks; 27 clocks | ||
0.4 clocks; 0.33 clocks | ||
2.5 clocks; three clocks |
18.Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.
This trade makes Ella worse off by $200. | ||
This trade makes Mark better off by $200. | ||
Mark must value Ella's guitar for at least $1,000, and Ella must value Mark's drum set for at least $800. | ||
This trade creates value by moving the guitar and drum set to people who value them more. |
1. Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers?
$0.60 | ||
$0.40 | ||
$0.75 | ||
$0.67 |
2. In Market X, the external benefit of consumption is $5. In Market Y, the external cost of consumption is $10. Efficiency in both markets could be achieved by:
a tax of $5 in Market X and a subsidy of $10 in Market Y. | ||
subsidizing both markets. | ||
taxing Market Y and subsidizing Market X. | ||
taxing both markets. |
3.Economic theory suggests that a natural monopoly should be:
eliminated whenever it arises. | ||
regulated to take advantage of economies of scale. | ||
left alone to operate with excess capacity. | ||
taken over by the government. |
4.When the size of the production is the most efficient:
total cost is at the minimum. | ||
average cost is at the minimum. | ||
marginal cost is at the minimum. | ||
fixed cost is at the minimum. |
5.A firm should exit the industry if which of the following conditions apply?
TR > TC | ||
P < AC | ||
Lifetime expected profit is positive. | ||
Prices are low now but expected to rise. |
6.Figure: Costs
Reference: Ref 11-6
(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:
$75. | ||
$300. | ||
$225. | ||
$0, because P = MC at P = $20. |
7.When external benefits are present, the market price is ________, however when external costs are present, the market price is ________.
too low; too high | ||
equal to the efficient price; too low | ||
too high; too low | ||
equal to the efficient price; too high |
8.Which of the following statements is TRUE?
I. The EPA's tradeable allowances program for sulfur dioxide establishes property rights to pollute and helps reduce transaction costs by distributing allowances, maintaining databases, and monitoring emissions.
II. One criticism of tradeable allowances is that they prohibit non-businesses and environmental groups from purchasing the allowances.
III. The tradeable allowances for sulfur dioxide have performed poorly because electricity output has increased, causing a rise in sulfur dioxide levels.
I only | ||
II and III only | ||
I, II, and III | ||
III only |
9.Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:
various options. | ||
more quantity. | ||
more discount. | ||
higher quality. |
10.Figure: Government Price Controls
Reference: Ref 8-3
(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:
a shortage of 15 units. | ||
a surplus of 15 units. | ||
a supply of 20 units. | ||
no effect on the market. |
11.In which of these instances does price function as a signal in the market?
Suppliers invest more in exploration when the price of oil increases. | ||
Consumers complain of price gouging as the price of oil skyrockets. | ||
Government imposes price controls on the skyrocketing price of oil. | ||
All of the answers are correct. |
12.Ethanol and sugar are both made from sugar cane, and ethanol can be used as substitute fuel for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.
demand for; decrease; decrease | ||
supply of; increase; increase | ||
supply of; decrease; increase | ||
demand for; increase; increase |
13.Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?
Cotton growers in California don't pay payroll taxes. | ||
The water used to grow California cotton is highly subsidized by the government. | ||
Cotton growers in California are mostly operated as nonprofit enterprises. | ||
The water used to grow California cotton is high in mineral contents, making for a bigger cotton yield. |
14.Suppose that the equilibrium price in the market is $10. If the current market price is $7.50:
the equilibrium price will fall to $7.50. | ||
competition among buyers will increase the current price. | ||
the current price will fall below $7.50 as sellers compete for market share. | ||
There is not enough information provided to answer the question. |
15.Which of the following would increase the demand for beef?
lower pork prices | ||
higher consumer income | ||
higher prices of feed grains used to feed beef cattle | ||
an increase in the price of beef |
16.A change in quantity supplied is reflected by a movement along the same supply curve while a change in supply refers to a shift in the entire supply curve.
True
False
17.Table: Production in the United States and Germany
Labor units required to produce: |
One Clock | One Sofa |
United States | 2 | 5 | |
Germany | 3 | 9 |
Reference: Ref 2-8
(Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one sofa in the United States is _________, and the opportunity cost of producing one sofa in Germany is _______.
two clocks; three clocks | ||
10 clocks; 27 clocks | ||
0.4 clocks; 0.33 clocks | ||
2.5 clocks; three clocks |
18.Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.
This trade makes Ella worse off by $200. | ||
This trade makes Mark better off by $200. | ||
Mark must value Ella's guitar for at least $1,000, and Ella must value Mark's drum set for at least $800. | ||
This trade creates value by moving the guitar and drum set to people who value them more. |
Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the
a. | forgone working or partying, depending on which was your next best choice. | |
b. | forgone work. | |
c. | forgone working and partying. | |
d. | test because you are taking it. |
1 points
QUESTION 2
A trend is
a. | a measure of closeness on a scatter diagram. | |
b. | a general tendency for a variable to rise or fall. | |
c. | the maximum value of a variable. | |
d. | the difference between the maximum value of a variable and the minimum value of the variable. |
1 points
QUESTION 3
A time-series graph measures
a. | time on the y-axis and the variable or variables in which we are interested on the x-axis. | |
b. | time on the x-axis and the variable or variables in which we are interested on the y-axis. | |
c. | the value of one variable against the value of another variable. | |
d. | the value of an economic variable for different groups in a population at a point in time. |
1 points
QUESTION 4
Canada has nationalized health care, so that everyone, regardless of their ability to pay, has some access to health care. Based on this observation, Canada has decided that "everyone, regardless of their ability to pay" is the answer to what microeconomic question?
a. | Why will we offer health care? | |
b. | How will health care be produced? | |
c. | For whom will health care be produced? | |
d. | What type of health care will be produced and in what quantity? |
1 points
QUESTION 5
As a shoe factory adds more workers, shoe production grows, reaches a maximum, and then shrinks. In a diagram that has the number of workers on the horizontal axis and the number of shoes on the vertical axis, the relationship between the number of workers and the number of shoes starts as ________ and then, after the maximum point, is ________.
a. | positive; negative | |
b. | negative; positive | |
c. | linear; negative | |
d. | positive; linear |
1 points
QUESTION 6
Microeconomics includes the study of the
a. | choices made by individuals and businesses. | |
b. | recessions and inflation in the global economy. | |
c. | aggregate effects on the national economy. | |
d. | reasons why the government changes interest rates. |
1 points
QUESTION 7
When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers the ________ question.
a. | when | |
b. | for whom | |
c. | how | |
d. | what |
1 points
QUESTION 8
Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that
a. | the opportunity cost of working is negative. | |
b. | the marginal cost of each additional work hour is not important to most workers. | |
c. | workers are irrational. | |
d. | workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work. |
1 points
QUESTION 9
A choice made by comparing all relevant alternatives systematically and incrementally is
a. | an opportunity cost. | |
b. | a benefit. | |
c. | a sunk cost. | |
d. | a choice on the margin. |
1 points
QUESTION 10
A normative statement
i. can be tested as to whether it is true or false.
ii. is considered negative.
iii. depends on a person's values.
a. | i, ii, and iii | |
b. | iii only | |
c. | i and iii | |
d. | ii and iii |
1 points
QUESTION 11
Normative statements
i. describe how the world is.
ii. describe how the world ought to be.
iii. depend on people's values and cannot be tested.
a. | iii only. | |
b. | i only. | |
c. | ii and iii. | |
d. | ii only. |
1 points
QUESTION 12
In order to determine whether to major in economics, a rational individual compares the ________ of the decision.
a. | positive benefits and normative costs | |
b. | normative benefits and positive costs | |
c. | marginal benefit and marginal cost | |
d. | opportunity cost and the sunk cost |
1 points
QUESTION 13
If x increases whenever y decreases, then x and y are
a. | positively related. | |
b. | negatively related. | |
c. | not related. | |
d. | related but whether positively or negatively related depends on whether the x variable or the y variable is plotted on the vertical axis. |
1 points
QUESTION 14
Rational choice
a. | is what you must give up get what you want. | |
b. | is made by comparing different incentives. | |
c. | making the choice. | |
d. | provides the answer to only the "how" question. |
1 points
QUESTION 15
Scarcity results from the fact that
a. | choices made in self-interest rare not always in the social interest. | |
b. | not all goals are desirable. | |
c. | people's wants exceed the resources available to satisfy them | |
d. | we cannot answer the major economic questions. |
1 points
QUESTION 16
When Delta decides to quit flying to Lithuania, it directly answers the ________ question.
a. | what | |
b. | why | |
c. | for whom | |
d. | how |
1 points
QUESTION 17
A normative statement
a. | says what is currently believed about the way the world operates. | |
b. | depends on someone's values. | |
c. | cannot use the word "should." | |
d. | must be tested to determine if it is correct. |
1 points
QUESTION 18
Which of the following statements best describes the study of economics? Economics studies how
a. | to organize production so that scarcity does not occur. | |
b. | to create incentives so that scarcity does not exist. | |
c. | firms make profits. | |
d. | we make choices in the face of scarcity. |
1 points
QUESTION 19
Which of the following best defines economics?
a. | Economics teaches how to limit our wants. | |
b. | Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level. | |
c. | Economics helps you earn as much money as possible. | |
d. | Economics studies how to choose the best alternative when coping with scarcity. |
1 points
QUESTION 20
In economics, cost is ________, and benefit is ________.
a. | the amount of money that you pay for something; the amount of money that someone else is willing to pay you | |
b. | what you are willing to pay on the margin; what the government pays you when you are unemployed or retired | |
c. | what you must give up to get something; what you are willing to give up to get it | |
d. | the amount of money that you pay on the margin; the amount of money that you receive on the margin |
1 points
QUESTION 21
If Jessie studies economics for two hours instead of going to the movies with her friends, then
a. | the opportunity cost of studying is the missed movie. | |
b. | Jessie is ignoring a sunk cost | |
c. | Jessie is not responding to any incentives. | |
d. | Jesse definitely is making a rational choice. |
1 points
QUESTION 22
Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.
a. | The $80 price of skiing is a sunk cost and so did not affect Adam's decision. | |
b. | He loses a total of $120 per day, so his decision is irrational. | |
c. | His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost. | |
d. | Adam's lost $40 per day in wages is a sunk cost and so did not affect his decision. |
1 points
QUESTION 23
If a curve falls and then rises, it
a. | has a maximum. | |
b. | has a linear relationship. | |
c. | has a minimum. | |
d. | has a constant slope relationship. |
1 points
QUESTION 24
In 2003, Michael Jordan decided to retire from professional basketball. Which of the following was an opportunity cost of his decision?
a. | the avoidance of pain and injury from playing one more year | |
b. | the time he could spend with his family while retired | |
c. | the lost salary from playing one more year | |
d. | the value of new employment opportunities that would await him |
1 points
QUESTION 25
Which of the following statements is a normative statement?
a. | Military spending as a percent of government spending decreased by 5 percent in the 1990s. | |
b. | Every American household should have health care insurance coverage. | |
c. | Welfare reform has decreased the amount the government spends on welfare. | |
d. | The price of computers fell last year. |