SECTION 3-6 REVIEW EXAM QUESTIONS

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SECTION 3-6 REVIEW EXAM QUESTIONS

Actual Qs and Ans Expert-Verified Explanation

This Exam contains:

-Guarantee passing score -37 Questions and Answers -format set of multiple-choice -Expert-Verified Explanation

Question 1: The primary difference is that

Answer:

accounting profits ignore implicit costs; economic profits consider them.Question 2: Suppose the graph depicts a hypothetical market for concert tickets at a local college venue. Because students are paying such high prices, a price ceiling of $40 per concert is being considered.Move the price ceiling line to correctly depict the price ceiling of $40.

• By how much does consumer surplus (CS) change if the price ceiling is imposed?
• By how much does producer surplus (PS) decrease if the price ceiling is imposed?
• What is the value of the deadweight loss (DWL) associated with this price ceiling?

Answer:

A. $250

Producer surplus =(1/2)×(50-10)×40 = $ 800

CS = (1/2)×(90-60)×30 + (60-40)×30 = $ 1,050

Change in consumer surplus = 1,050 - 800 = $ 250

B. PS =(1/2)×(40-10)×30 = $ 450

450-800= $350

• Dead weight loss = (1/2)×(60-40)×(40-30) = $ 100

Question 3: Suppose that towns collect resources from their surroundings. Then, through trade, they attempt to obtain other desirable items. Mortarville, an urban town that specializes in brick and ore, wants wood to build roads so that it can expand and connect to other major cities.Mortarville has a willingness to pay $50 for wood, since wood is hard for them to obtain.Mayflair also needs wood to build grain silos for their wheat harvests. Mayflair is willing to pay $45 for wood. Timber, the only foresting company, sets the price of wood at $60.

• The change in total surplus that arises due to trades between Timber and the towns is:
• John finds a set of wood in his garage which he is willing to sell for no less than $35. John

chooses to sell the set to Mayflair for $40 instead of to Mortarville for $45. As a result of John's

transaction with Mayflair:

Answer:

• Equal to zero

• total surplus increased, but the market is inefficient.

Question 4: Last week, Michelle spent $30$30 on caviar. Today, Michelle still spends $30$30 on caviar even though its price has doubled.What is Michelle's price elasticity of demand for caviar?

Answer:

1 Question 5: Please identify the statements about property rights as either true or false.

Answer:

True:

Property rights include the right to buy or sell one's resources and goods.Property can be tangible or intangible

False:

The enforcement of property rights prevents many mutually beneficial transactions from occurring.All countries are equally effective at enforcing property rights.Question 6: In anticipation of a major hurricane hitting the Gulf Coast, the quantity of gasoline sales rise from 360 million gallons to 375 million gallons.

Answer:

(375-360)/(375+360/2) * 100 = 4.1%

Question 7: Producer surplus is the difference between

Answer:

the market price and the minimum price a seller is willing to accept.Question 8: When the price of Product E decreases 9%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 12%.

Answer:

cross-price elasticity between E and F: -1.3

relationship between E and F: complements

Question 9: Price elasticity of demand =

Answer:

% change in quantity demanded / % change in price Question 10: A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B.

Answer:

cross-price elasticity between A and B: 0

relationship between A and B: no relationship

Question 11: Price elastic of demand: % quantity demand= new quantity- old quantity/ old quantity * 100 % price= new price - old price/old price * 100

Answer:

Price elasticity of demand = quantity demand/price

Question 12: Consumer surplus is equal to the difference between

Answer:

the maximum price a buyer is willing to pay and the market price.Question 13: Andrina always spends 1010% of her income on gadgets. Assume that her income increases by some percentage while the price of gadgets remains constant (and that all gadgets cost the same). What is her income elasticity of demand for gadgets?

Answer:

1

Question 14: If the price of Product E decreasing by 9% causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase by 12%, what is the cross-price elasticity of demand?

Answer:

-1.3 complements

Question 15: Consumer surplus is shown graphically as the area

Answer:

under the demand curve and above the market price.Question 16: Suppose the graph represents the labor market for low-wage workers. A minimum wage of $8 per hour is being considered.If imposed, the minimum wage will result in a.... of?

Answer:

Surplus of 200 workers Question 17: A. Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00$3.00 to $4.00$4.00. As a result, the quantity sold drops from 20,000 to 15,000.

• Economists working for the United States have determined that the elasticity of demand for

gasoline is 0.50.5.

• Capital Metro decides to increase bus fare rates from $2.00$2.00 to $2.21$2.21. Consequently,

the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

Answer:

• unit elastic

• inelastic

• elastic

Question 18: An economic signal is

Answer:

some information that helps people to make better decisions economically.