EC 201 FINAL EXAM- ACKERMANN QUESTIONS
The Income Effect - Answers :the change in consumption resulting from a change in
real income (how your income affects what you'll buy)
The Substitution Effect - Answers :when consumers react to an increase in a good's
price by consuming less of that good and more of other goods(You buy more of an item
as it changes price)
Price Effect - Answers :after a price increase, each unit sold sells at a higher price,
which tends to raise revenue (how willing you'd be to pay for an item as it changes
price.)
socially efficient - Answers :Where demand = MC
To pick a price - Answers :Go off where MR=MC, then look up to see the price and
down to see the quantity.
Consider the market for soybeans in Spartania. Initially, Spartania is an autarchy and
there is no international trade, and the world price of soybeans is above the autarchy
price. What happens if Spartania decides to allow free trade? - Answers :Consumer
surplus goes down, producer surplus goes up.
Competition from international companies can prevent a firm from increasing its prices. -
Answers :cause of globalization
The global market makes it more profitable for firms to create specialized products. -
Answers :cause of globalization
U.S. companies may see reduced profits if there is a recession in Japan or China. -
Answers :cause of globalization
International trade makes countries poorer, which limits their ability to buy expensive
goods. - Answers :Not a way firms are affected by globalization!
Nonrival good - Answers :a good whose consumption by one person does not diminish
its availability for others
Nonexcludable good - Answers :a good that is difficult, or costly, to exclude nonpayers
from consuming
Negative externalities - Answers :Shift social supply curve left
Positive externalities - Answers :Shift social demand curve right
, Coase Theorem - Answers :If bargaining is costless, then externality problems can be
solved by private bargaining.
Suppose lawn mowers create negative externalities because they pollute and are noisy.
- Answers :The social curve is to the left of the private supply curve.
Positive externality example: - Answers :Johnathan sets off fireworks for his family on
the fourth of July, and the neighbors can see them and enjoy them.
Vandelay Industries is polluting into a local lake; doing so benefits them $10,000 per
year. People who enjoy swimming in the lake are made worse off. They would value
swimming in a clean lake at $15,000 per year. Currently, Vandelay Industries has the
rights to use the lake however they want. What's an optimal solution according to the
Coase Theorem? - Answers :The swimmers pay Vandelay Industries $12,000 and
Vandelay Industries stops polluting.
Example of a Nonrival Good - Answers :Microsoft Excel- One person consuming this
won't affect the supply available for other consumers.
Consider a good with positive externalities. Relative to the outcome of an unregulated
market, a market which accounts for these positive externalities would have ______
prices and _______ quantities. - Answers :higher; higher
Initially, the price of beer is $20. When a $5 tax on beer is imposed on buyers, the
equilibrium pre-tax price of beer goes down to $18. If, instead, the tax was placed on
sellers, what would the equilibrium pre-tax price of beer be? - Answers :$23 ($18+$5-
the "pre-tax price of beer" is the amount on the price tag at the store.)
In general, who bears more of the economic burden of tax? - Answers :Whoever is
more inelastic
positive economics - Answers :the branch of economic analysis that describes the way
the economy actually works (uses facts to support)
normative economics - Answers :The part of economics involving value judgments
about what the economy should be like; focused on which economic goals and policies
should be implemented; policy economics. (uses opinions to support)
Example of positive economics - Answers :On average, women earn less than men for
doing comparable work.
Example of normative economics - Answers :The government should raise taxes on
higher-income families to raise more revenue; We should require children to be
vaccinated in order to attend school; Orange is better than yellow.
The Income Effect - Answers :the change in consumption resulting from a change in
real income (how your income affects what you'll buy)
The Substitution Effect - Answers :when consumers react to an increase in a good's
price by consuming less of that good and more of other goods(You buy more of an item
as it changes price)
Price Effect - Answers :after a price increase, each unit sold sells at a higher price,
which tends to raise revenue (how willing you'd be to pay for an item as it changes
price.)
socially efficient - Answers :Where demand = MC
To pick a price - Answers :Go off where MR=MC, then look up to see the price and
down to see the quantity.
Consider the market for soybeans in Spartania. Initially, Spartania is an autarchy and
there is no international trade, and the world price of soybeans is above the autarchy
price. What happens if Spartania decides to allow free trade? - Answers :Consumer
surplus goes down, producer surplus goes up.
Competition from international companies can prevent a firm from increasing its prices. -
Answers :cause of globalization
The global market makes it more profitable for firms to create specialized products. -
Answers :cause of globalization
U.S. companies may see reduced profits if there is a recession in Japan or China. -
Answers :cause of globalization
International trade makes countries poorer, which limits their ability to buy expensive
goods. - Answers :Not a way firms are affected by globalization!
Nonrival good - Answers :a good whose consumption by one person does not diminish
its availability for others
Nonexcludable good - Answers :a good that is difficult, or costly, to exclude nonpayers
from consuming
Negative externalities - Answers :Shift social supply curve left
Positive externalities - Answers :Shift social demand curve right
, Coase Theorem - Answers :If bargaining is costless, then externality problems can be
solved by private bargaining.
Suppose lawn mowers create negative externalities because they pollute and are noisy.
- Answers :The social curve is to the left of the private supply curve.
Positive externality example: - Answers :Johnathan sets off fireworks for his family on
the fourth of July, and the neighbors can see them and enjoy them.
Vandelay Industries is polluting into a local lake; doing so benefits them $10,000 per
year. People who enjoy swimming in the lake are made worse off. They would value
swimming in a clean lake at $15,000 per year. Currently, Vandelay Industries has the
rights to use the lake however they want. What's an optimal solution according to the
Coase Theorem? - Answers :The swimmers pay Vandelay Industries $12,000 and
Vandelay Industries stops polluting.
Example of a Nonrival Good - Answers :Microsoft Excel- One person consuming this
won't affect the supply available for other consumers.
Consider a good with positive externalities. Relative to the outcome of an unregulated
market, a market which accounts for these positive externalities would have ______
prices and _______ quantities. - Answers :higher; higher
Initially, the price of beer is $20. When a $5 tax on beer is imposed on buyers, the
equilibrium pre-tax price of beer goes down to $18. If, instead, the tax was placed on
sellers, what would the equilibrium pre-tax price of beer be? - Answers :$23 ($18+$5-
the "pre-tax price of beer" is the amount on the price tag at the store.)
In general, who bears more of the economic burden of tax? - Answers :Whoever is
more inelastic
positive economics - Answers :the branch of economic analysis that describes the way
the economy actually works (uses facts to support)
normative economics - Answers :The part of economics involving value judgments
about what the economy should be like; focused on which economic goals and policies
should be implemented; policy economics. (uses opinions to support)
Example of positive economics - Answers :On average, women earn less than men for
doing comparable work.
Example of normative economics - Answers :The government should raise taxes on
higher-income families to raise more revenue; We should require children to be
vaccinated in order to attend school; Orange is better than yellow.
