Homework2 Name This homework1 consists 25 questions in total from the chapter 3&5 we covered. You should bring your anser and bubble the scantron sheets in calss on Monday. Late submission of the scantron sheets after Monday would not be accepted. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots? A) The supply curve for Merlot has shifted to the right more than the demand curve has shifted to the right. B) The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right. C) The supply curve for Merlot has shifted to the right while the demand curve for Merlot has shifted to the left. D) The demand curve and the supply curve for Merlot have both shifted to the left. 2) Tom Searchinger, a senior attorney at the Environmental Defense Fund, observed that generous farm subsidies have encouraged farmers to produce more corn and more wheat. How does this affect the market for fertilizer? A) The demand for fertilizer decreases. B) The demand for fertilizer increases. C) The supply of fertilizer decreases. D) The supply of fertilizer increases. 1) 2) 3) A decrease in the equilibrium quantity for a product will result 3) A) when there is an increase in supply and a decrease in demand for the product. B) when there is a decrease in supply and a decrease in demand for the product. C) when there is a decrease in demand and an increase in the number of firms producing the product. D) when the quantity demanded for the product exceeds the quantity supplied. 1
Figure 3-6 4) Refer to Figure 3-6. The figure above represents the market for canvas tote bags. Compare the conditions in the market when the price is $50 and when the price is $35. Which of the following describes how the market differs at these prices? A) At each price there is a surplus; firms will lower the equilibrium price in order to eliminate the surplus. B) At each price there is a surplus; the surplus is greater at $35 than at $50. C) The difference between quantity supplied and quantity demanded is greater at $50 than at $35. D) At each price the supply of tote bags exceeds that demand for tote bags. 4) Figure 3-5 5) Refer to Figure 3-5. At a price of $20 5) A) there would be a surplus of 0 units. B) there would be a surplus of 8 units. C) there would be a shortage of 8 units. D) there would be a shortage of 4 units. 2
6) If in the market for oranges the supply has increased, then 6) A) the supply curve for oranges has shifted to the right. B) the supply curve for oranges has shifted to the left. C) there has been a movement downwards along the supply curve for oranges. D) there has been a movement upwards along the supply curve for oranges. Figure 3-2 7) Refer to Figure 3-2. A decrease in productivity would be represented by a movement from 7) A) A to B. B) B to A. C) S1 to S2. D) S2 to S1. 8) "Because apples and oranges are substitutes, an increase in the price of oranges will cause the demand for apples to increase. This initial shift in demand for apples results in a higher price for apples; this higher price will cause the demand curve for apples to shift to the right." Which of the following correctly comments on this statement? A) The statement is false because a change in the price of apples would not change the demand for apples. B) The statement will be true if consumer tastes for apples and oranges do not change. C) The statement is false because oranges are inferior goods; apples are normal goods. D) The statement is false because one cannot assume that apples and oranges are substitutes for all consumers. 9) In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit in 2004 A) the supply curve shifted to the left resulting in an increase in the equilibrium price. B) the demand curve shifted to the left resulting in a decrease in the equilibrium price. C) the supply curve shifted to the right resulting in an increase in the equilibrium price. D) the demand curve shifted to the right resulting in an increase in the equilibrium price. 8) 9) 3
Figure 3-5 10) Refer to Figure 3-5. At a price of $5, the quantity sold 10) A) is 2 units. B) is 4 units. C) is 6 units. D) cannot be determined. 4
Figure 4-3 Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. 11) Refer to Figure 4-3. At a price of $18 consumers are willing to buy 40 pounds of tiger shrimp. Is this an economically efficient quantity? A) No, the marginal cost of the 40th unit exceeds the marginal benefit of the 40th unit. B) No, the marginal benefit of the 40th unit exceeds the marginal cost of that 40th unit. C) Yes, because $18 shows what consumers are willing to pay for the product. D) Yes, otherwise consumers would not buy 40 units. 11) 12) The payroll tax is a tax imposed on that is used to fund Social Security and Medicare. 12) A) employers and workers B) the unemployed C) employers only D) workers only 5
Table 4-4 Hourly Wage (dollars) Quantity of Labor Supplied Quantity of Labor Demanded $7.50 530,000 650,000 8.50 550,000 630,000 9.50 570,000 610,000 10.50 590,000 590,000 11.50 610,000 570,000 12.50 630,000 550,000 Table 4-4 shows the demand and supply schedules for the labor market in the city of Pixley. 13) Refer to Table 4-4. What is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)? A) W* = $9.50; Q* = 570,000 B) W* = $10.50; Q* = 590,000 C) W* = $11.50; Q* = 570,000 D) W* = $10.50; Q* = 1,180,000 14) Refer to Table 4-4. Suppose that the quantity of labor demanded decreases by 80,000 at each wage level. What are the new free market equilibrium hourly wage and the new equilibrium quantity of labor? A) W = $12.50; Q = 630,000 B) W = $9.50; Q = 590,000 C) W = $8.50; Q = 550,000 D) W = $9.50; Q = 570,000 13) 14) 15) If equilibrium is achieved in a competitive market 15) A) the deadweight loss will equal the sum of consumer surplus and producer surplus. B) the deadweight loss will be maximized. C) there is no deadweight loss. D) the deadweight loss will be the same as the opportunity cost of the last unit of output sold. 16) Last year, the Pottery Palace supplied 8,000 ceramic pots at $40 each. This year, the company supplied the same quantity of ceramic pots at $55 each. Based on this evidence, The Pottery Palace has experienced A) a decrease in the quantity supplied. B) an increase in supply. C) an increase in the quantity supplied. D) a decrease in supply. 17) Let D = demand, S = supply, P = equilibrium price, and Q = equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged? A) D no change, S decreases, P increases, Q increases B) S decreases, D no change, P increases, Q decreases C) D decreases, S no change, P and Q decrease D) D and S decrease, P and Q increase 16) 17) 18) If the quantity of fishing poles demanded is represented by the demand equation Q D = 60 - P, then to solve for the price of fishing poles, the equation would be rewritten as A) P = Q D + 60. B) P = 0.6Q D + 10. C) P = 60 - Q D. D) P = -60 + Q D. 18) 6
19) Which of the following is evidence of a shortage of walnuts? 19) A) The price of cashews is lowered in order to make up for the walnut shortage. B) The equilibrium price of walnuts falls due to a decrease in demand. C) The quantity of walnuts demanded is greater than the quantity supplied. D) Firms lower the price of walnuts. Figure 4-1 Figure 4-1 shows Arnold's demand curve for burritos. 20) Refer to Figure 4-1. If the market price is $1.50, what is Arnold's consumer surplus? 20) A) $1.50 B) $2.25 C) $3.00 D) $4.75 TRUE/FALSE. Write 'A' if the statement is true and 'B' if the statement is false. 21) As the number of firms in a market increases, the supply curve will shift to the right and the equilibrium quantity will rise. 21) 22) A surplus occurs when the actual selling price is above the market equilibrium price. 22) 23) Economic efficiency is a market outcome in which the marginal benefit to consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized. 23) 24) In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached. 24) 25) The total amount of consumer surplus in a market is equal to the area below the demand curve. 25) 7
Answer Key Testname: HW2 1) B 2) B 3) B 4) C 5) B 6) A 7) D 8) A 9) A 10) A 11) B 12) A 13) B 14) C 15) C 16) D 17) B 18) C 19) C 20) A 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 8