ECON 101 Study Guide - Midterm Guide: Economic Surplus, Externality
ECON 101 Full Course Notes
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1. Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.
| consumer happiness |
| utility |
| a happiness index |
| a satisfaction index |
2. Sue likes brownies. However, Sue notices that the more brownies she eats the less satisfaction she receives from each extra brownie. We can say that Sue is experiencing ___________________ from each extra brownie.
| sugar sickness |
| total utility |
| diminishing marginal utility |
| increasing marginal utility |
3. When total utility is maximized, the marginal utility will be
| positive. |
| zero. |
| negative. |
| none of these. |
4. Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?
| Dirk and Lee both receive 10 utils from eating pizza. |
| Dirk and Lee both receive the same level of satisfaction from eating pizza. |
| Dirk gets more twice as much satisfaction as Lee from eating pizza. |
| It is difficult to determine because the utility is subjective. |
5. For many products, the total utility curve is
| strictly increasing because of increasing marginal utility. |
| strictly decreasing because of diminishing marginal utility. |
| increasing initially because of increasing marginal utility, but eventually decreases. |
| increasing initially at a decreasing rate because of diminishing marginal utility but eventually decreases. |
6. When consumers get the biggest bang for the buck, we say they
| used the loudest gun in hunting season. |
| reached a consumer optimum. |
| minimized consumer satisfaction. |
| maximized marginal utility. |
7. By choosing to consume at the consumer optimum, consumers will
| maximize their total utility. |
| minimize their total utility. |
| maximize the amount they spend on each good. |
|
minimize the amount they spend on each good. |
8. A consumer is in equilibrium when consuming two goods when which of the following holds?
| MUa/ Pa = MUb/ Pb |
| MUa/ Ph =MUb/ Pa |
| Pa/ MUa = Pb/ MUb |
| MUa x Pa = MUbxPb |
9. If the marginal utility of good 1 is 15 and its price is $3, and the marginal utility of good 2 is 12, and its price is $4, then the consumer
| has achieved a consumer optimum. |
| should increase his or her consumption of good 1. |
| should increase his or her consumption of good 2. |
| should decrease his or her consumption of good 1. |
10.Suppose the price of an iPod decrease and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?
| the substitution effect only |
| the real-income effect only |
| the substitution effect and real-income effect, if there is a noticeable change in purchasing power |
| the substitution effect and real-income effect, if there isnât a noticeable change in purchasing power |
11. The ______________ paradox was described by Adam Smith in 1776.
| diamond-carbon |
| diamond-water |
| diamond-life |
| water-utility |
12. What is the key to solving the diamond-water paradox?
| more water and fewer diamonds |
| marginal utility |
| total utility |
| consumer demand |
13. When solving the diamond-water paradox we notice that the marginal utility of
| diamonds are equal to the marginal utility of water. |
| diamonds are greater than the marginal utility of water. |
| diamonds are less than the marginal utility of water. |
| water is equal to its price, and therefore lower than the marginal utility of diamonds. |
14. The consumer surplus for water is
| greater than that for diamonds because water is nonessential. |
| greater than that for diamonds because water is essential. |
| less than that for diamonds because water is nonessential. |
| less than that for diamonds because water is essential. |
15. Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumerâs marginal utility for diamonds
| decreases and the marginal utility for water stays the same. |
| increases and the marginal utility for water decreases. |
| decreases and the marginal utility for water increases. |
| increases and the marginal utility for water stays the same. |
The corresponding table shows the demand schedule and two supply schedules for a tire producer
| Price($) | Quantity Demanded (daily demand) | Quantity Supplied(if firms only consider private costs((Daily Supply) | Quantity Supplied (if firms consider both private costs and environmental pollution costs) (daily supply) |
| 60 | 110 | 70 | 50 |
| 80 | 100 | 80 | 60 |
| 100 | 90 | 90 | 70 |
| 120 | 80 | 100 | 80 |
| 140 | 70 | 110 | 90 |
| 160 | 60 | 120 | 100 |
a. Is there an externality associated with tires?
1.Yes, a positive externality.
2.Yes, a negative externality.
3. No.
b. At a price of $100/tire, 90 tires are demanded daily. At this price, how will society be affected environmentally if the producer is not required to account for environmental pollution costs and produces 90 tires?
1. Society is better off
2. Society is worse off
3. Society experiences no change
c. The socially efficient number of tires is .......than the number of tires that results from the market provision of the good.
1. higher
2. lower
3. the same as
1
The following table shows the market demand schedule and supply schedule for notebooks.
|
Price ($/unit) |
Quantity Demanded (units) |
Quantity Supplied (units) |
|
1 |
20 |
4 |
|
2 |
16 |
6 |
|
3 |
14 |
10 |
|
4 |
12 |
12 |
|
5 |
10 |
14 |
|
6 |
7 |
17 |
|
7 |
4 |
20 |
|
8 |
2 |
22 |
|
9 |
1 |
25 |
Refer to the table above. Assume that the market for notebooks is in equilibrium.
1. Which of the following is likely to happen if there is an increase in the school enrollment rate, everything else remaining unchanged?
A. Both the equilibrium price and quantity of notebooks decrease.
B. The equilibrium price and quantity remain unchanged.
C. Both the equilibrium price and quantity of notebooks increase.
D. The equilibrium price increases, but the equilibrium quantity of notebooks decreases.
2. A shortage occurs in a market when:
A.price is lower than the equilibrium price.
B. price is higher than the equilibrium price.
C. supply exceeds demand.
D. the marginal utility of consumption is negligible.
3. A change in the quantity demanded of a good is:
A. the outcome of a change in income.
B. the outcome of a change in tastes and preferences.
C. represented by a shift to a new demand curve.
D. represented by a movement along the demand curve.
4. The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market.
|
PRICE ($/Bottle) |
Sandra's Demand (Bottles) |
David's Demand (Bottles) |
Mary's Demand (Bottles) |
|
â$8 |
2 |
10 |
|
|
â$6 |
14 |
15 |
18 |
|
â$4 |
23 |
24 |
|
|
â$2 |
24 |
27 |
28 |
Refer to the table above. If the market price of wine is $8/bottle, and the market demand for wine is 19 bottles, David's consumption of wine is:
A. 12 bottles.
B. 9 bottles.
C. 4 bottles.
D. 7 bottles.
5. Which of the following factors will NOT cause a shift in the demand for a good?
A. A change in the number of consumers
B. A change in the market price of the good
C. A change in tastes and preferences
D. A change in consumer incomes
6. Are all markets perfectly competitive?
A. No, there are other market types where firms have considerable power to control the price.
B. Yes, any economic system with a market structure is by definition perfectly competitive.
C. No, there are also command and control markets that are run by a central government.
D. No, in other types of markets, sellers offer identical goods and simply accept the market price.
7. Assume that a seller in a perfectly competitive market charges more than the equilibrium price. It is likely that this seller will:
A. increase his profit.
B. lose only a few buyers.
C. increase his sales.
D. lose almost all of his buyers.
8. The willingness to pay for a commodity:
A. increases as the consumption of the commodity increases.
B. is always less than the market price of the commodity.
C. decreases as the consumption of the commodity increases.
D. is always greater than the market price of the commodity.
9. Which of the following is likely to lead to a right shift in the supply curve of cotton?
A. An increase in labor productivity due to training programs
B. A rise in labor costs due to wage demands by labor unions
C. An increase in the price of cotton
D. A decrease in the price of cotton
10. The buyers of a good will want to purchase it as long as their willingness to pay for the good is:
A. equal to zero.
B. greater than or equal to the price.
C. greater than zero.
D. less than the price.
