Elasticity
Most people consider toothpaste to be a necessity. The income elasticity of demand for toothpaste is likely to be:
a. positive and close to 0.
b. positive and above 1.
c. negative and close to 0.
d. negative and below –1.
a. positive and close to 0.
The market for mangos is in equilibrium at a price of $0.50 per pound. If the government imposes a price floor
in the mango market at $0.40 per pound:
a. quantity demanded will decrease.
b. quantity supplied will increase.
c. there will be a shortage of mangos.
d. the market price and output of mangos will be unaffected.
d. the market price and output of mangos will be unaffected.
When government policies lead to outcomes that are worse than those that would occur in unregulated markets:
a. there are marginal costs.
b. there is liveweight loss.
c. there is government failure.
d. the government is efficient.
c. there is government failure.
Which statement is TRUE regarding comparative advantage and absolute advantage?
a. People can have a comparative advantage without having an absolute advantage in a task.
b. People can have a comparative advantage only if they also have an absolute advantage in a task.
c. People can have an absolute advantage only if they also have a comparative advantage in a task.
d. People can have no comparative and no absolute advantages in any of the tasks.
a. People can have a comparative advantage without having an absolute advantage in a task.
Choose the scenario that generates gains from trade.
a. A group of neighborhood couples forms a group in which they exchange date nights for babysitting each other's children.
b. A father hires a babysitter off Care.com, an online market for childcare, for $22 an hour.
c. A mother provides a Saturday shopping trip to reward an older sibling for babysitting the week prior.
d. All answers are examples of gains from trade.
d. All answers are examples of gains from trade.
Ryan enjoys collecting vintage clothing in pristine condition from local boutiques. When Ryan was promoted from an entry-level role to an intermediate role, his income rose 25%, and he purchased 37.5% more vintage
items. For Ryan, the income elasticity of demand for vintage clothing is _____, and vintage clothing is a(n)
_____ good.
a. 0.7; inferior
b. 1.5; normal
c. –0.7; inferior
d. –1.5; normal
b. 1.5; normal
Suppose the government imposes a price ceiling on a good because it believes that the market-determined price is too high. A price ceiling above the equilibrium price will cause:
a. buyers to purchase more of the good than at the equilibrium price.
b. sellers to offer fewer units of the good for sale.
c. buyers to purchase less of the good.
d. neither sellers nor buyers to change their behavior.
d. neither sellers nor buyers to change their behavior.
_____ is achieved when a given quantity of output is produced at the lowest possible cost.
a. Production minimization
b. Marginal minimization
c. Efficient production
d. Efficient surplus
c. Efficient production
Which is NOT a step used in identifying who has a comparative advantage in each task?
a. Identify who has the lowest opportunity cost in performing each task.
b. For each person, calculate how much of the alternative task could have been done in the time it takes to perform the desired task.
c. For each person, calculate the total time it takes to perform all tasks consecutively.
d. Identify how long it takes each person to perform each task.
c. For each person, calculate the total time it takes to perform all tasks consecutively.
Mali's friend opens the first Thai restaurant in their hometown, and it quickly becomes popular. During the dinner rush, the wait for a table is often over an hour each night. In response, Mali's friend raises prices for all meals, but the quantity of meals demanded changes very little. Mali advises her friend that the demand for meals at their restaurant is _____, and that they can increase total revenue by _____ prices.
a. inelastic; lowering
b. elastic; lowering
c. elastic; raising
d. inelastic; raising
d. inelastic; raising
The owner of The Shirt Co. in Sedona, Arizona, regularly orders hundreds of shirts for each t-shirt design.
This strategy results in _____ elastic supply than if the owner did not store a large inventory for the shop.
a. more
b. less
c. unit
d. unrelated
a. more
As an economist for San Diego County, you're tasked with recommending one of two taxes to close a budgetary shortfall. You project that a gasoline tax of $0.10 per gallon would cause the quantity of gasoline bought and sold to fall from an equilibrium quantity of 11,000,000 gallons to a quantity of 10,000,000 gallons.
You also project that, within the same amount of time, a luxury tax on yachts of $5,000 per yacht purchased would cause the quantity of yachts bought and sold to fall from an equilibrium quantity of 250 yachts to a quantity of 200 yachts. If efficiency were your sole criterion, which tax would you recommend?
a. The gas tax, as it causes a smaller deadweight loss.
b. The yacht tax, as it causes a smaller deadweight loss.
c. There is not enough information to determine which tax causes the smallest deadweight loss.
d. Neither, as they both cause the same amount of deadweight loss.
a. The gas tax, as it causes a smaller deadweight loss.
On a market graph, producer surplus is the area that is:
a. above the demand curve.
b. below the demand curve.
c. above the demand curve and below the supply curve.
d. above the supply curve and below the price.
d. above the supply curve and below the price.
Which is a FALSE statement about assigning work based on comparative advantage?
a. Assign the person who is fastest or best at a task to do that task.
b. The person who has absolute advantage in the task will sometimes be assigned to do it.
c. Workers will be specialists and not generalists.
d. The person with the lowest opportunity cost at a task should perform it.
a. Assign the person who is fastest or best at a task to do that task.
You're a seller of distilled spirits, upon which your government has placed a price floor to discourage alcohol consumption. Facing difficulties finding buyers at the mandated minimum price, you have an economic incentive to:
a. sell your product illegally, at a lower price.
b. expand your offerings, to make up for the lost revenue.
c. sell your product illegally, at a higher price.
d. try to improve the quality of your offerings, to make them desirable, even at artificially high prices.
a. sell your product illegally, at a lower price.
The owner of a Nissan dealership has calculated that the cross-price elasticity of demand between new cars and oil change packages is –0.5. The dealership sells oil change packages as an add-on with new cars, guaranteeing regular oil changes at the dealership for the first five years of ownership. The owner values these packages because each oil change creates an opportunity for revenue from additional maintenance services. If the owner wants to increase the quantity of oil change packages demanded by 5%, by how much would she need to reduce the price of a new car?
a. 10%
b. 5%
c. 0.5%
d. 50%
a. 10%
(Table: The Market for Kombucha) The table shows the quantity demanded and quantity supplied of kombucha at various prices. If the government does NOT impose a price control, the price of a bottle of kombucha will be $:
Table: The Market for Kombucha
Price ($/unit) Quantity Demanded Quantity Supplied
2.50 10 7
2.75 8 8
3.00 6 9
3.25 4 10
3.50 2 11
a. 2.50.
b. 2.75.
c. 3.00.
d. 3.25.
b. 2.75.
Jorge sells a hammock for $85. His marginal cost for one hammock is $40, and his average cost is $50. What is Jorge's producer surplus on the sale of one hammock?
a. −$5
b. $45
c. $35
d. $40
b. $45
Jamie must give up the production of 75 ties to produce 25 additional sweaters. The opportunity cost of producing three ties is _____ sweater(s).
a. 1
b. 3
c. 22
d. 28
a. 1
As an economist for San Diego County, you're tasked with recommending one of two taxes to close a budgetary shortfall. You project that a gasoline tax of $0.10 per gallon would cause the quantity of gasoline bought and sold to fall from an equilibrium quantity of 11,000,000 gallons to a quantity of 10,000,000 gallons.
You also project that, within the same amount of time, a luxury tax on yachts of $5,000 per yacht purchased would cause the quantity of yachts bought and sold to fall from an equilibrium quantity of 250 yachts to a quantity of 200 yachts. If efficiency were your sole criterion, which tax would you recommend?
a. The gas tax, as it causes a smaller deadweight loss.
b. The yacht tax, as it causes a smaller deadweight loss.
c. There is not enough information to determine which tax causes the smallest deadweight loss.
d. Neither, as they both cause the same amount of deadweight loss.
a. The gas tax, as it causes a smaller deadweight loss.
In 2022, a drought in South America reduced the global supply of coffee beans by about 15%. Even so, coffee producers reported rising revenues, despite producing fewer beans. This outcome suggests that:
a. the demand for coffee is elastic, so consumers quickly switched to substitutes like tea.
b. the demand for coffee is inelastic, so even with higher prices, most consumers kept buying nearly as much coffee as before.
c. governments provided subsidies to coffee drinkers, so demand remained unchanged, though prices had risen.
d. coffee producers colluded to set higher prices, as that is the only way revenues could have risen while output fell.
b. the demand for coffee is inelastic, so even with higher prices, most consumers kept buying nearly as much coffee as before.
Which sort of market failure is MOST likely to occur when you're in the market for a used car?
a. Low trust leads you to avoid buying a car that you would have liked.
b. Excessive trust leads you to buy a car you dislike.
c. Your extensive knowledge about cars leads the dealer to sell you the car below marginal cost.
d. Your purchase of a used car causes a positive externality in the form of increased congestion.
a. Low trust leads you to avoid buying a car that you would have liked.
When Chandra is hiking on a hot day without any water, she is willing to pay up to $6 for a bottle of water.
When she does her grocery shopping, she is not willing to pay more than $3.60 for a case of 36 bottles of water. If Chandra buys a case of 36 bottles for $3.60, or $0.10 per bottle, her consumer surplus is _____ on the first bottle and _____ on the 36th bottle.
a. $106.20; $0.10
b. $212.40; $106.20
c. $6; $0.10
d. $5.90; $0
d. $5.90; $0
Ang can mow the lawn in two hours. Bill takes three hours to mow the same lawn. What can you conclude from this information?
a. Ang has a comparative advantage over Bill in mowing the lawn.
b. Bill has a comparative advantage over Ang in mowing the lawn.
c. Ang has an absolute advantage over Bill in mowing the lawn.
d. Bill has an absolute advantage over Ang in mowing the lawn.
c. Ang has an absolute advantage over Bill in mowing the lawn.
State gas taxes are charged to gasoline sellers, which tack on a portion of the tax to the price that motorists pay. If a state lowers its gas tax, the _____ curve for gasoline shifts to the _____, leading to a _____ in the quantity of gasoline sold and a _____ in the price of gasoline.
a. demand; left; fall; fall.
b. supply; right; rise; fall
c. supply; left; fall; rise
d. demand; right; rise; rise
b. supply; right; rise; fall