# Ch 3, 4, and 19 Microeconomics – Flashcards

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Assume two goods are substitutes. Ceteris paribus, a decrease in the price of one good will cause the equilibrium price of the other good to
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Decrease and the equilibrium quantity of the other good to decrease.
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Refer to Figure 19.2. The total utility of two apples is
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11 utils
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Which of the following is most likely to occur because of an increase in the price of electricity in California?
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An increase in electricity imported into California.
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If the government places a binding or effective price ceiling on cancer-treating drugs, then
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More people will die from cancer.
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Ceteris paribus, which of the following would generally cause an increase in the demand curve for new automobiles?
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An increase in consumers' income.
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Suppose there are a series of forest fires that affect the lumber industry while, at the same time, consumers demand more wooden furniture. The wooden furniture market would experience
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An increase in price and an indeterminate change in quantity.
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Assume that steel is used to produce monkey wrenches. Ceteris paribus, if the price of steel rises, then
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The supply curve for monkey wrenches will shift to the left.
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Which panel of Figure 3.3 represents the changes in the market for beef when the price of corn (cattle feed) rises and the people become more fearful of mad cow disease?
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D (supply and demand decrease)
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A leftward shift of the market demand curve for HDTVs, ceteris paribus, causes equilibrium price to
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Decrease and quantity to decrease.
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When the demand for coffee increases, ceteris paribus, the equilibrium price will also increase because
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A shortage exists at the old equilibrium price.
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Complete Table 19.3 below. Assume the price of cola is \$8 per unit and the price of pretzels is \$4 per unit. Refer to Table 19.3. Suppose Michael has \$28 to spend on cola and pretzels. What combination should he purchase in order to maximize his utility?
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Two colas and three pretzels. To maximize utility, the consumer should choose the goods that deliver the most marginal utility per dollar. The first pretzel has a MU per dollar of 7.5, the second pretzel and first cola have a MU per dollar of 5, and the third pretzel and the second coke have a MU per dollar of 4. Once Michael buys three pretzels and two colas, he will have spent his \$28 and maximized his utility.
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Complete Table 19.3 below. Assume the price of cola is \$8 per unit and the price of pretzels is \$4 per unit. Refer to Table 19.3. If Michael has \$40 to spend on cola and pretzels, what is his maximum utility possible?
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174 (To maximize utility, the consumer should choose the goods that deliver the most marginal utility per dollar at each step. With \$40 Michael would consume three colas and four pretzels, which would bring him a total of 174 utils.)
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Complete Table 19.3 below. Assume the price of cola is \$8 per unit and the price of pretzels is \$4 per unit. In Table 19.3, what is the marginal utility of the fifth unit of cola?
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12 ( Marginal utility is the change in total utility obtained by consuming one additional good or service. Total utility increases from 112 to 124 when the fifth unit is consumed, an increase of 12 utils.)
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Complete Table 19.3 below. Assume the price of cola is \$8 per unit and the price of pretzels is \$4 per unit. In Table 19.3 the marginal utility per dollar of the second cola is
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4 ( The marginal utility per dollar is equal to the marginal utility divided by the price of the product. The marginal utility of the second cola is 32, so the marginal utility per dollar is 32/8=4. )
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Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is \$1 per unit. If the price per unit of good X is \$1, the optimal consumption is found at point
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C (If the price of Y is \$1, one can infer that the maximum spendable income is \$30 based on the point where the budget constraint crosses the y-axis. If the price of X is \$1, the budget constraint farthest from the origin is the limit. Because the optimal consumption combination lies at the point where the budget line is tangent to (just touches) an indifference curve, point C maximizes utility.)
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If the actual market price were fixed at \$15 per unit in Figure 3.2,
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There would be a surplus of 40 units
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A decrease in the price of bubble gum below equilibrium will
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Cause a shortage of bubble gum.
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The In the News article titled "Men vs. Women: How They Spend" differentiates the spending habits of women and men: "Men spend almost twice as much as women do on electronic equipment ... young women spend twice as much money on clothing, personal care items, and their pets." Which determinant of demand is most likely involved?
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Tastes
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Suppose Caesar allocates his entire budget to the purchase of soft drinks and chips. The marginal utility of the last bottle of soft drink purchased is 12 utils, and each bottle costs \$1.20. The marginal utility of the last bag of chips purchased is 8 utils, and each bag costs \$1. In order to maximize his utility, Caesar should
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Buy more soft drinks and fewer chips since he gets more marginal utility per dollar from soft drinks.
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Which of the following events would cause a rightward shift in the market supply curve for automobiles?
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A technological improvement that reduces the cost of production.
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In 2007 a company sold 35,000 MP3 players at \$150 each. In 2008 the same company sold 40,000 MP3 players at \$170 each. This information suggests that
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The demand for MP3 players increased from 2007 to 2008.
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Firms in Colorado dump waste into the Colorado River and as a result, people in California and Mexico cannot use the water. What type of market failure is most likely involved?
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Externalities.
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Rosa is willing to pay \$200 for the iPhone, but the actual price is \$400. This means
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Rosa will not enjoy any consumer surplus from purchasing the iPhone.
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Choose the letter of the diagram in Figure 3.1 that best describes the type of shift that would occur in each situation for the market listed on the left, ceteris paribus. Designer clothes: consumer confidence in the economy improves.
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D (demand curve rightward) An improvement in consumer confidence increases demand for goods and services.
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Which of the following is a market transaction?
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A college student purchases a laptop computer.
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Complete Table 19.3 below. Assume the price of cola is \$8 per unit and the price of pretzels is \$4 per unit. The marginal utility per dollar of the third pretzel is
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4 (The marginal utility per dollar is equal to the marginal utility divided by the price of the product. The marginal utility of the third pretzel is 16 and the price of a unit of pretzel is \$4. So 16/4 = 4.)
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Complete Table 19.3 below. Assume the price of cola is \$8 per unit and the price of pretzels is \$4 per unit. Refer to Table 19.3. If Michael has \$48 to spend on cola and pretzels, what combination should he purchase in order to maximize his utility?
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Four colas and four pretzels. To maximize utility, the consumer should choose the goods that deliver the most marginal utility per dollar at each step. With \$48 Michael would consume four colas and four pretzels.
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The law of diminishing marginal utility suggests that
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People are willing to buy additional quantities of a good only if its price falls.
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Choose the letter of the diagram in Figure 3.1 that best describes the type of shift that would occur in each situation for the market listed on the left, ceteris paribus. Steel: the government introduces environmental restrictions on the dumping of wastes from producing steel.
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A (supply curve leftward)
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Suppose a hurricane hits Florida, causing widespread damage to houses and businesses. The governor of Florida places price ceilings on all building materials to keep the prices reasonable. Which of the following is the most likely result?
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Shortages of building materials and a slower recovery from the storm. (Price ceilings increase the quantity demanded, decrease the quantity supplied, and create market shortages. Fewer people would be able to purchase building materials because less material would be available. )
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Complete Table 3.1. Then answer the indicated question. In Table 3.1, if the price is \$4, the market will
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Be in equilibrium.
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Which of the following scenarios would support the theory of public choice?
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The local police chief fails to give the mayor a speeding ticket because the mayor might fire him.
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Refer to Figure 19.2. Total utility is maximized at
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6 apples. ( As long as marginal utility is positive, total utility must be increasing; but when marginal utility is negative, consumption of one more good will decrease total utility. Therefore total utility is maximized at the consumption level where marginal utility is neither positive nor negative.)
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If the price of "X" increases and you buy more "Y," then
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"X" and "Y" are substitutes, and the price of "Y" will increase.
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Local property taxes are a
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Regressive tax because poorer people spend a larger portion of their income on housing.
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If a price is above equilibrium,
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A surplus will cause the price to fall and the quantity supplied to decrease.
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Ceteris paribus, which of the following would you expect to have no effect on the demand curve for new automobiles?
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An increase in the price of new automobiles.
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The law of diminishing marginal utility gives us a deeper understanding of the downward-sloping demand curve because
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When marginal utility is high, we are willing to pay a higher price.
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Assume peanut butter and jelly are complements. Ceteris paribus, an increase in the price of peanut butter will cause the equilibrium price of jelly to
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Decrease and the equilibrium quantity of jelly to decrease.
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Choose the letter of the diagram in Figure 3.1 that best describes the type of shift that would occur in each situation for the market listed on the left, ceteris paribus. Flat-screen TVs: the technology required for flat-screen TVs production becomes cheaper.
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B (An improvement in production technology increases supply.)
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Complete Table 3.1. Then answer the indicated question. In Table 3.1, if the price is \$2, the market will
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Experience a shortage of 22 units
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Assume milk is used to produce ice cream. Ceteris paribus, a decrease in the price of milk will cause the equilibrium price of ice cream to
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Decrease and the equilibrium quantity of ice cream to increase.
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Using Figure 4.1, suppose that point B represents the optimal mix of output for a society. If market forces cause society to produce at point C, then
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There is market failure.
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Which of the following is consumed jointly?
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A missile shield.
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One In the News article in the text titled "Students Struggle to Find Final Four Tickets" described how professional scalpers use the Internet to sell hard-to-get tickets to concerts and sporting events. Apparently the initial price of the tickets being scalped was too
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Low for equilibrium, resulting in a shortage of tickets.
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Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of perfume?
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A decrease in the price of perfume
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Peanut butter and jelly are complements. A decrease in the price of one will result in
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An increase in the demand for the other.
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Air pollution best illustrates
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An externality.
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Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is \$1 per unit. In Figure 19.3, given an income of \$30 and a price for good Y of \$1, which of the following two points represent optimal consumption?
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A when the price of X is \$3 and C when the price of X is \$1.
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A rightward shift of the market demand curve for MP3 players, ceteris paribus, causes equilibrium
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Price to increase and equilibrium quantity to increase.
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If the price of "X" increases and you buy less "Y," then
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"X" and "Y" are complements, and the price of "Y" will decrease.
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Which determinant of demand changes in the personal computer market as more individuals become interested in "surfing the Internet"?
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Number of buyers.
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Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question. Assume the price of Y is \$1 per unit. If the price per unit of good X is \$3, the consumer would maximize utility at point
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A
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If the wages of corn farmers decrease, then the
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Supply curve for corn will shift right.
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Suppose that if your income is \$20,000, your tax is \$4,000, but if your income is \$40,000, your tax is \$8,000. Such a tax is
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Proportional.
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The In the News article titled "Seafood Prices Rise on BP Oil Spill" suggests that seafood prices increased because of a decrease in supply. When the availability of seafood worsens, the supply curve of seafood shifts to the left, causing
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The price of seafood to move up along the market demand curve.
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Ceteris paribus, if the price of a digital camera rises, then we can expect
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A decrease in the quantity demanded of digital cameras.
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If there are only two airlines that fly between Dallas and New Orleans, what will happen in the market for one airline if the other one goes out of business?
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The demand curve will shift to the right.
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Ceteris paribus, if the subsidies given to corn syrup producers decrease, then we can expect
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A decrease in the supply of corn syrup.
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An In the News article titled "Persistent Doubts about Government Waste" implies that people think the public sector is not producing as many services as it could with the resources at its disposal. If this is true, this indicates a situation of
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Government failure.
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A World View article titled "Secondhand Smoke Kills 600,000 People a Year: Study" implies the harm caused to nonsmokers is
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A source of market failure.
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If Good X has social demand that is less than market demand, then Good X must be a
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Good with an external cost.
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Which of the following is not held constant when considering a shift in the demand for pizza?
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The price of pizza.
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