- D—You have to assume that Skylar evaluated
the marginal benefits and marginal costs of the
second piece of cake and decided that he should
consume it. - A—The opportunity cost is the value of the
most attractive alternative; in this case, the
babysitting wage. - B—If demand increases and supply decreases,
the price definitely rises. The quantity is
ambiguous and depends upon which effect is
stronger. Draw these shifting curves in the
margin of your exam book. - B—Trading nations specialize in the good in
which they have lower opportunity costs. A
nation trades this good to the other in exchange
for the good for which it does not have compar-
ative advantage. - B—Public goods like police and fire protection
are received by all citizens, even if they do not pay. - E—The citizens privately own resources in cap-
italist systems. - D—Prices below equilibrium create shortages,
but they do not last. - C—A rightward shift in supply would move the
market to point H and lower input prices would
do just that. - C—If Ed<1, a given % increase in the price
outweighs the % decrease in quantity
demanded, thus increasing total dollars spent on
the good. - B—The utility maximizing rule requires that
MU/P is equal for both goods. Now the MU/P
is greater for apples than for oranges. Melanie
consumes more apples and fewer oranges, which
lowers MU of apples and increases the MU of
oranges. - A—Market equilibrium occurs where marginal
private benefit equals marginal cost to society.
With a positive externality, the MSB >MPB at
the market quantity. - E—This is the definition of economics!
- D—Excise taxes shift a supply curve leftward,
increase price, and decrease quantity. If Ed<1,
cigarette consumers spend more on cigarettes. - D—Price floors are legal minimum prices so
they are set above equilibrium. A surplus results. - A—When EI>0, it is a normal good. When
EI>1, it is a luxury good. - E—Restricting the supply of a raw material to
paper would increase the price of the production
input and decrease the supply of paper. - C—Economic growth is the result of better, or
more economic, resources or more technological
progress. A more productive labor force increases
the PPF for both goods. - B—A subsidy given to consumers acts as an
increase in income. Demand for daycare rises,
raising the price of daycare. - A—If P=MC, the market is allocatively effi-
cient and there is no deadweight loss. If the
monopoly P >MC, DWL emerges. - A—Anything that effectively lowers the price of
attending the Reds game increases CS. - B—Downward-sloping demand is the result of
diminishing marginal utility. This consumer’s
MU is constant, so the demand curve for
bratwurst is horizontal. - D—Normal profits are also thought of as
breakeven economic profits. - D—If Exy>0, goods are substitutes.
- E—Long-run adjustments change the produc-
tion capacity of a firm. - A—MPLtells you how TPLis changing when
more labor is hired. If more labor is increasing
TPLat a faster and faster rate, MPLis rising. - B—Perfectly competitive firms are price takers,
so demand for each firm’s product is horizontal:
Ed=•. - A—A defining outcome of long-run equilib-
rium in perfect competition. - D—If P > ATC, positive short-run economic
profits exist. Long-run entry expands the market.
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