Micro 2/21

No class Thursday

from test:

1. Many companies are relocating their manufacturing facilities to China, because China is capable of producing more manufactured goods than any other nation (False)
2. The opportunity cost of an action is the sum of all alternatives (False: best alternative)
3. If both supply and demand increase, the price will increase (false)
4. If the market for compact cars is experiencing a shortage, this would imply that the selling price for such cars is currently less than the market equilibrium price (true)
5. A subsidy for a producer will cause a decrease in supply. Note: a subsidy is the opposite of a tax (false)
6. The relationship between quantity demanded and price is a positive relationship (false: negative relationship)
7. If the price of DVD players has just fallen, the demand for DVDs will decease (false: increase)
8. The following is an equation for a PPF, Y=15-2.8X. From this equation we know that opportunity costs are increasing along this PPF


9. Assume Ramen Noodles are an inferior good. What will happen in the market for Ramen Noodles if income decreases? B. Demand will increase and the price will rise.
10. As a society produces more and more of a good, it must give up increasing amounts of an alternative good. This demonstrates the… D. Law of increasing opportunity costs
11. Which of the following factors will not shift demand for bananas? D. the price of bananas
14. A physician’s knowledge and skills is referred to by economists as… B. human capital
15. Don and Juan can each produce two goods, food (F) and Spears (S). The equation for Don’s PPF is F=18-9S, and the equation for Juan’s PPF is F=12-6S. Which of the following statements is correct? B. Don has the comparative advantage in Food production
16. Which of the following countries has a pure command economy? D. There are no pure command economies
18.The above diagram depicts the PPF’s for Larry and Andre in the production of chocolate and basketballs. Before specialization Larry produces 18 chocolates and 6 basketballs and Andre produces 5 chocolates and 10 basketballs. What are the gains to the entire economy if each person specializes and trades? C. 4 chocolates and 2 basketballs

Suppose you graduate and decide to buy your own farm. You decide that you will grow some combination of cantaloupes (C) and pomegranates (P). Based on your research of other similar farms and accounting for the resources you have available you decide that you face a PPF that can be represented by the following equation: C= 20 – 6P

19. Every time you produce one more unit of pomegranates, how many cantaloupes do you give up? C. 6 Cantaloupes
20. An individual will choose what to specialize in based on: D. Comparative advantage

Short Answer

1. Consider the market for medical care in GA. The following linear equations represent the supply and demand of medical care:
Supply: P=100+6Qs
Demand: P=1300-4Qd
a) In the absence of government intervention, what is the market’s equilibrium price (P*) and quantity (Q*). Ans: Q*=120; P*= $820
b) The state government decides to impose a price ceiling in the market in order to make it easier for people to obtain medical care. After some deliberation, the government decides the price should not be any higher than $400. Graphically depict this scenario, being careful to label clearly. Make sure you label equilibrium and label the effect of the ceiling (calculate both the quantity supplied and quantity demanded after the price ceiling is imposed). Ans: Qs=50; Qd= 225
c) Does a surplus or a shortage exist, or is the market still in equilibrium? Shortage
d) Did the government succeed in its goal? No, although it made health care more affordable, it did not make it more attainable.
e) If the government had set the price ceiling at $2,000 would the effect have been different from the one discussed in (c)? Yes, it would not affect the market, so it would be at equilibrium
f) If the government had set the price ceiling at $600 would the effect have been different from the one discussed in (c)? No, there would still be a shortage, but closer to equilibrium


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