Markets and Prices

Econ 11, 9:15 Fred E. Foldvary

Final Exam Study Guide

1. The demand for a good is

2. If one country's goods all cost less to produce (use fewer resources, including labor) than those

of another country, then in the long run

3. An opportunity cost is:

4. Why are diamonds so expensive, yet a month's supply of water, which is much more vital to

life, so inexpensive in California? (Utility)

5. A tax on a produced good, with an upward sloping (diagonal) supply,

6. The marginal product of labor is:

7. A profit-maximizing employer will always hire one more worker if:

8. When a price is below the equilibrium price, there is a:

9. As the price of crude oil falls: gasoline what?

10. If government increases the tax on land rent, suppliers will supply the same amount of land

regardless of the rent they receive, so:

11. The law of diminishing returns to a variable factor, given a fixed factor and holding everything else constant, implies that

12. The price of a bond or stock

13. A plot of land in San Francisco has a much higher rent than the same sized

plot in Fresno in the Central Valley in California because

14. Great Britain has a comparative advantage in woolen clothing, and France has a comparative

advantage in wine. We know just from this fact

15. Taxes on labor:

16. Sales taxes

17. If a plot of land has an annual rent of $100, the tax rate is 5% of land value, and the price of

the land is $1000, what is the real interest rate?

18. According to the Lorenz curve shown above, the richest 20 percent of the families earn:

19. The demand curve for labor:

20. Which of the following factors will most likely not shift

the supply curve?

21. The most general reason why a rancher with many cows and no horses would trade a cow for a horse in a pure market is because

22. Where the supply and demand curves intersect,

23. If the least productive land in use, moves from land that yields 10 bushels per year to land that yields 8 bushels per year, then if all else is equal,

24. Suppose that commodities A and B are complements for one another in consumption and that the price of B rises sharply due to a decrease in supply. Which of the following will occur?

25. A consumer will maximize utility when

26. If red grapes and green grapes are substitutes, then

27. Price elasticity of demand is:

28. The law of demand

29. Along a demand curve, total revenue is a maximum when elasticity is:

30.Refer to the graph above. The supply curve S goes from the origin where price and quantity equal zero, and then rises in a straight line. Elasticity is greatest at point:

31. More television sets were sold this year than last year, with the same quality and at higher prices. The most likely explanation:

32. Refer to the graph above. If the marginal cost of each weekend trip this year is $350 no matter how many trips Rodney takes, and the bars show the marginal benefit (vertical axis) of the 1st, 2nd, 3rd, 4th, and 5th trip, then Rodney will:

33. Which of the following is true regarding supply and demand?

34. In an industry with atomistic or perfect competition and a pure free market, resources:

35. Graphically, an increase in demand is represented by:

36. An example of a positive externality is when:

37. If an economy has a comparative advantage in the production of economics textbooks, then:

38. A public good is

39. If you and a friend are watching a show on your TV in your house, besides being possibly a natural monopoly as Mankiw says, then watching the TV show in your house:

40. When government imposes a tariff on a good, the:

41. If Japan can produce computers with lower cost than the U.S., yet the U.S. sells computers to Japan, this is an example of

42. On the Lorenz curve, a perfectly equal distribution of income

would be represented by a:

43. Wages in the economic sense, as a payment for the labor factor,

44. Modern Portfolio Theory says that

45. Economists tend to doubt the effectiveness of the minimum wage as an anti-poverty program primarily because the minimum wage:

46. To deal with automobile emission pollution, an economist would be likely to say that the most efficient, effective policy is:

47. A tax of a fixed amount per unit of pollution causes polluters to:

48. George, Jerry, Elaine, and Kosmo are seated in a restaurant figuring out what to order.

Carrot cakes cost $2 and pickles cost $1 each. George declares he would like to get three carrot

cakes and four pickles. Jerry suggests, why not get two carrot cakes and six pickles, since the

marginal utility of carrot cakes diminishes more rapidly. Kosmo says George should order no

carrot cakes and 10 pickles, or else 5 carrot cakes and no pickles. George responds that with 10

pickles or 5 cakes, the marginal utility of the last one would be very low. "But the total utility

would be greater" says Kosmo. Elaine says that George should get the quantities where the

marginal utility of the next cake is double the marginal utility of the next pickle. "You're wrong,"

says Jerry. "The marginal utility of the cake should equal the marginal utility of the pickle." You

are seated in the next table and they ask you what they should do. For rational consumer choice,