AGBS Exam - Chap 5, 6, 7, and 13
Refer to Figure 7-9. At equilibrium, consumer surplus is represented by the area
A+B+C.
Which of the following statements is correct?
Who bears the burden of a tax depends on the price elasticities of supply and demand.
Consider the market for gasoline. Buyers...
Would market for price ceiling, whereas sellers would lobby for price floor
Refer to Figure 6-8. When the price ceiling is enforced in this market and the supply curve for gasoline shifts from S1 to S2,
a shortage will occur at the new market price of P2
Under rent control, bribery is a potential mechanism to
bring the total price of an apartment (including the bribe) closer to the equilibrium price.
If a tax is levied on the sellers of fish, then
buyers and sellers will share the burden of the tax
The price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
The following figure depicts average total cost functions for a firm that produces automobiles. Refer to Figure 13-6. At levels of output between K and L, the firm experiences
constant returns to scale.
Under rent control, landlords can cease to be responsive to tenants' concerns about the quality of the housing because
with shortages and waiting lists, they have no incentive to maintain and improve their property.
Consider the market for gasoline. Buyers
would lobby for a price ceiling, whereas sellers would lobby for a price floor.
If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is
zero
A binding price floor....
Causes a surplus and is set at a price above the equilibrium price
Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. julias economic profits are.....
$125,000 because 15,000 + 10,000 = 25,000 150,000 - 25,000 = 125,000
Refer to Table 7-2. If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the good will sell for
$21 or slightly more.
Refer to Figure 5-3. The maximum value of total revenue corresponds to a price of
$50
Suppose that when the price of good X increases from $610 to $710, the quantity demanded of good Y decreases from 51 to 15. Using the midpoint method, the cross-price elasticity of demand is about
-7.20, and X and Y are complements.
If a 16 percent increase in price for a good results in a 7 percent decrease in quantity demanded, the price elasticity of demand is
0.44
At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per day. At a price of $1.50, the paper manufacturer is willing to supple 175 spiral notebooks per day. Using the midpoint method, the price elasticity of supply is about...
0.85 cents because Q/P formula
In January, the price of dark chocolate candy bars was $2.00, and Willy's Chocolate Factory produced 80 pounds. In February, the price of dark chocolate candy bars was $2.50, and Willy's produced 110 pounds. In March, the price of dark chocolate candy bars was $3.00, and Willy's produced 140 pounds. Using the midpoint method, the price elasticity of supply of Willy's dark chocolate candy bars was about
1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.
A bakery would be willing to supply 500 bagels per day at a price of 0.50 cents each. At a price of 0.80 sents, the bakery would be willing to supply 1,100 bagels. Using the midpoint methods, the price elasticity os supply for bagels is about.....
1.63
Suppose a certain firm is able to produce 125 units of output per day when 19 workers are hired. The firm is able to produce 137 units of output per day when 20 workers are hired, holding other inputs fixed. The marginal product of the 20th worker is
12 units of output. 137 - 125 = 12
Ziva is an organic brocolli farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $40 an hour for her home-organization services. One spring day, Ziva spends 9 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of brocolli. Refer to Scenario 13-3. Ziva's accountant would calculate the total cost for the day of farming to equal
130
Ryzard decides to open his own business and earns $60,000 in accounting profit the first year. When deciding to open his own business, he withdrew $20,000 from his savings, which earned 6 percent interest. He also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Ryzard's economic profit from running his own business?
13800
The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-10. The amount of the tax per unit is
14 because 24 - 10 = 14
Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's consumer surplus is/.....
150 because 500 - 350 is 150
Donald produces nails at a cost of $200 per ton. If he sells the nail for $350 per ton, his producer surplus per ton is.....
150 becuase 350 - 200 is 150
Ziva is an organic brocolli farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $40 an hour for her home-organization services. One spring day, Ziva spends 9 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of brocolli. Refer to Scenario 13-3.Ziva's accounting profit from farming equals
170 300 - 130 = 170
Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be
18 12/4=3 3x6= 18
Refer to Table 13-3. At which number of workers does diminishing marginal product begin?
2
Table 13-10Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. Refer to Table 13-10. What is the marginal cost of creating the tenth instructional module in a given month?
2,500
Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result, the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
2.15.
Mike and Laura sell lemonade on the corner for $3.20 per cup. It costs them $0.20 to make each cup. On a certain day, their producer surplus is $60. How many cups did Mike and Laura sell?
20 3.20 - .20 = 3.00 60/3= 20
Kachina is a senior majoring in graphic design at Awesome University (AU). While she has been attending college, Kachina started a computer consulting business to help senior citizens learn how to use their iPads. Kachina charges $25 per hour for her consulting services. She also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Kachina $20 per hour. Refer to Scenario 13-2. If Kachina can work additional hours at either job, what is the opportunity cost if she spends one hour reading a novel?
25
Refer to Figure 7-7. If the government imposes a price ceiling of $55 in this market, then total surplus will be
250.00
Refer to the figure suppose the willingness to pay of the marginal buyer of the 3rd unit is $125. Then total surplus is maximized if......
3 units of the good are produced and sold
Refer to Table 13-1. What is total output when 1 worker is hired?
30
Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Bubba's annual opportunity cost of the financial capital that he invested in his business?
40 because 2,000 x .02 = 40
Refer to Table 13-8. What is the average variable cost of producing 5 units of output?
40 because 200/5= 40
Katherine gives piano lessons for $45 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $450 at the farmer's market. Katherine's accounting profits are
400, and her economic profits are $175
Ziva is an organic brocolli farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $40 an hour for her home-organization services. One spring day, Ziva spends 9 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of brocolli. Refer to Scenario 13-3. An economist would calculate Ziva's total cost for the day of farming to equal
490 because 9 x 40 + 130
Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, total surplus will be
54
Refer to Figure 7-5. If the supply curve is S', the demand curve is D, and the equilibrium price is $150, what is the producer surplus?
625 200 - 150 = 50 50 x 25 = 1,250 1,250/2 = 625
Refer to Figure 7-2. At the equilibrium price, consumer surplus is
800
Amir tutors in his spare time for extra income. Students are willing to pay $54 per hour for as many hours Amir is willing to tutor. On a particular day, he is willing to tutor the first hour for $18, the second hour for $27.0, the third hour for $32.0, and the fourth hour for $54. Assume Amir is rational in deciding how many hours to tutor. His producer surplus is
85
Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15 percent, then the quantity supplied of cheese will increase by
9 percent in the short run and 21 percent in the long run.
Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
A is a luxury and B is a necessity
Refer to Figure 7-6. When the price is P2, producer surplus is
A+B+C.
an entrepreneur's motivation to start a business arises from...
All of these - an inmate love for the type of business that he or she starts - a desire to earn a profit - an altruistic desire to provide the world with a good product
You receive a paycheck from your employer, and your pay stub indicates that $300 was deducted to pay the FICA tax. Which of the following statements is correct?
All of these - the $300 that you paid is not necessarily the true burden of the tax that falls on you, the employee - this types of tax is an example of a payroll tax - your employer is required by law to pay $300 to match the $300 deducted from your check
The mayor of worker vile proposes a local payroll tax to feed a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. Workers will bear.....
All of these are possible - an equal charge of the tax in comparison to firms - a greater share of the tax in comparison to firms - a smaller charge of the tax in comparison to firms
Which of the following is likely to have the most price inelastic demand
Athletic shoes, not running shoes Nike running and etc
Refer to Figure 13-5. Which of the following statements is correct?
Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.
Price Quantity 250 0 200 30 150 70 100 110 50 150 0 190 Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is a. 5.3. b. 2.8. c. 0.8. d. 0.36
B. 2.8
When a tax is levied on sellers of tea, ....
Both sellers and buyers of tea are made worse off
Refer to Figure 6-12. Suppose a tax of $98 per unit is imposed on this market. Which of the following is correct?
Buyers will bear more of the burden of the tax than sellers will.
Refer to Figure 13-5. The efficient scale of production occurs at which quantity?
C
Consider the U.S. market for tea, a market in which the government has imposed a nonbinding price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling?
Chinese tea plant producers refuse to ship to tea producers in the United States.
For which of the following goods is the income elasticity of demand likely lowest?
Clothing
Refer to Table 7-7. If the price is $1,050, who would be willing to supply the product?
David and Codi
If the cost of producing tables increases causing the price of tables to increase, consumer surplus in the table market will
Decrease
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both good are considered to be normal goods by majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to sicario 5-3 total consumer spending on aged cheddar cheese will...
Decrease, and total consumer spending on bread will decrease
There are vey few, if any, good substitutes for motor oil. Therefore the ......
Demand for motor oil would tend to be inelastic
Which of the following is not possible
Demand is a unit elastic, and a decrease in price causes an increase in revenue
There are several criticisms of the minimum wage. Which of the following is NOT one of those criticisms? The minimum...
Fails to raise the wage of any employed person
Chap 5 The cross-price elasticity pf garlic salt and onion salts is -2. Which indicates that garlic salt and onion salt are substitutes
False
Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.
False
In the short run, if a firm produces nothing, total costs are zero.
False
Refer to Figure 6-16. A price ceiling set at $70 would create a shortage of 40 units.
False
Refer to Figure 6-16. A price floor set at $40 would create a surplus of 20 units.
False
The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt are substitutes.
False
The fact that many inputs are fixed in the short run but variable in the long run has little impact on the firm's cost curves.
False
Welfare economics is the study of the welfare system.
False
Refer to Figure 13-4. Which of the figures represents the total cost curve for a typical firm?
Figure 2
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. What are Wanda's total accounting profits? a. $150 b. $126 c. $96 d. $24
Implicit number is $0.01, $0.02, $0.03, & $0.02 = $0.08 explicit number is $0.10 $0.10 + $0.08 = $0.18 $0.50 - $0.18 x 300 = $150
Which of the following statements about agriculture in the United States is correct?
Increasing the supply of agricultural products typically benefits consumers but harms farmers as a group.
Price Quantity 250 0 200 30 150 70 100 110 50 150 0 190 Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is a. 0.4. b. 0.9. c. 1.1. d. 2.
It would be 1.1
Referring to figure if the equilibrium price is $60, what is the producer surplus
It would be 2,400 because 60 x 80 /2 = 2,400
Referring to the figure what is the marginal product of the second worker
It would be 200 because 500 - 300 = 200 2 - 1 = 1 200 / 1 = 200
Referring to the figure which of the following can be inferred from the figure above?
Marginal product is increasing at low levels of output & marginal product is decreasing at high levels of output
Which of the following statements is valid when the market supply curve is vertical?
Market quantity supplied does not change when the price changes.
Consumer surplus.
Measures the benefit buyers from participating in a market
If the government removes a $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then price paid by buyers will......
Not change, and the price received by sellers will not change
Price Quantity 250 0 200 30 150 70 100 110 50 150 0 190 Using the midpoint method, if the price falls from $100 to $50, the absolute value of the price elasticity of demand is a. 0.31. b. 0.46. c. 1.25. d. 2.17
O.46 formula Q/P
When binding price ceiling is imposed on a market,...
Price no longer serves as a rationing device
Which of the following is correct?
Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.
A supply curve can be used to measure producer surplus because if reflects
Sellers cost
Which of the following statements is NOT correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction
Shifts the demand curve for drugs to the left
Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?
Shoe polish and rent on the shoe stand
Refer to Table 13-5. The Wooden Chair Factory experiences diminishing marginal product of labor with the addition of which worker?
Sixth worker
The federal government uses the revenue from the FICA (Federal Insurance Contribution Act) tax to pay for
Social Security and Medicare.
If the cross-price elasticity of two goods is positive, then the two goods are
Substitutes
Which of the following causes the price paid by buyers to be different than the price received by sellers?
Tax on the good
Suppose sellers of cologne are required to send $1.50 to the government for every bottle of cologne they sell. Further, suppose this tax causes the price paid by buyers of cologne to rise by $0.90 per bottle. Which of the following statements is correct?
The effective price received by sellers is $0.60 per bottle less than it was before the tax.
On a 250-acre farm, a farmer is able to produce 4,500 bushels of wheat when he hires 2 workers. He is able to produce 6,300 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
The farmer is able to produce 7,560 bushels of wheat when he hires 4 workers.
For a particular good, a 10 percent increase in price causes a 5 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The market for the good is broadly defined.
Referring to the figure when the price is P1, produce suples is...
The red part or letter b in the question option
Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?
The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.
Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that...
There are economies of scale in retail sales
A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.
True
A firm produces 60 units of output with 5 workers, 65 units with 6 workers, and 68 units with 7 workers. The firm's production function exhibits diminishing marginal productivity between 5 and 7 workers.
True
Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed.
True
If the price of calculators increases by 15% and the quantity demanded per week falls by 45% as a result, then the price elasticity of demand is 3.
True
In a free market, the price of housing adjusts to eliminate the shortages that give rise to undesirable landlord behavior.
True
Profit equals total revenue minus total cost.
True
Refer to Figure 6-17. If the government places a $2 tax in the market, the buyer pays $6.
True
Regardless of whether a tax is levied on sellers or buyers, taxes discourage market activity.
True
The current policy on kidney donation effectively sets a price ceiling of zero.
True
The field of industrial organization addresses how the number of firms affects prices in a market and the efficiency of the market outcome.
True
Refer to Figure 13-2. Curve B intersects curve D
at the efficient scale.
If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would
be horizontal.
Refer to Figure 7-6. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be
between P1 and P2
Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
Steak and chicken are substitutes. A sharp reduction in the supply of steak would
decrease consumer surplus in the market for steak and increase producer surplus in the market for chicken.
If the government imposes a binding price ceiling on a market, then the price paid by buyers will
decrease, and the quantity sold in the market will decrease.
Refer to Table 13-9. The marginal products of hiring additional workers are
decreasing
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-4. Farmer Brown's production function exhibits
diminishing marginal product.
Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum. The tax would
discourage market activity.
Suppose that a firm's long-run average total costs of producing smart phones increases as it produces between 50,000 and 60,000 smart phones. For this range of output, the firm is experiencing
diseconomies of scale
In the long run a company that produces and sells popcorn incurs total costs of $1,150 when output is 70 canisters and $1,000 when output is 100 canisters. The popcorn company exhibits
economies of scale because average total cost is falling as output rises.
Refer to Figure 5-1. Between point A and point B on the graph, demand is
elastic, but not perfectly elastic
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
flatter the demand curve will be
The goal of rent control is to
help the poor by making housing more affordable
A firm that produces and sells furniture gets to choose
how many workers to hire in both the short run and the long run.
Refer to Figure 5-5. If the price decreased from $36 to $12, total revenue would
increase by $4,800, and demand is elastic between points X and Z.
If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would
increase by 16.80 percent.
Refer to Figure 7-1. When the price falls from P2 to P1, consumer surplus
increases by an amount equal to B+C
Refer to Figure 7-1. When the price falls from P2 to P1, consumer surplus
increases by an amount equal to B+C.
Explicit costs
input costs that require an outlay of money by the firm
When a factory is operating in the short run,
it cannot adjust the quantity of fixed inputs.
When a firm experiences constant returns to scale,
long-run average total cost is unchanged, even when output increases.
One disadvantage of government subsidies over price controls is that subsidies
make higher taxes necessary.
The minimum points of the average variable cost and average total cost curves occur where the
marginal cost curve intersects those curves.
Market power and externalities are examples of
market failure
Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus
might increase or decrease.
Refer to Figure 13-2. Curve D is increasing because
of diminishing marginal product
Rent-control laws dictate
only a maximum rent that landlords may charge tenants.
Cost is a measure of the
seller's willingness to sell.
When OPEC raised the price of crude oil in the 1970s, it caused the
supply of gasoline to decrease.
Which of the following will cause an increase in consumer surplus?
technological improvement in the production of the good
If a price floor is not binding, then
the equilibrium price is above the price floor
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
Cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good.
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good.
Producer surplus directly measures
the well-being of sellers.
A seller's opportunity cost measures the
value of everything she must give up to produce a good.
The Earned Income Tax Credit, a government program that supplements the incomes of low-wage workers, is an example of a
wage subsidy.
