AGEC 105 Final Exam

The value of any index for the reference or base year is always 1.

*True* False

Among points A, B, C and D, which combination of goods yields the lowest level of satisfaction?

Point A *Point B* Point C Point D None of the above

In Figure below, using the supply and demand curves denoted S1 and D2, respectively, the equilibrium price and quantity are

$100 and 50,000 $100 and 100,000 $150 and 50,000 *$150 and 75,000* $150 and 100,000

If government spending is $1,000 and tax revenue collected by the government is $900, the nation's national debt would be equal to:

$100. $1,900. 10%. *Need more information.*

Given the graph below, Producer surplus is

$150 $250 *$50* Can't tell

For the monopolist in Figure below, the marginal revenue from producing the 7th unit is Price $100 $90 $80 $70 $60 $50 $40 Quanitity 1 2 3 4 5 6 7

$20 *-$20* $40 $280 $50

The firm in Figure below does not practice price discrimination. Its price and output will be

$300 and 175 $50 and 125 *$250 and 125* $180 and 160 none of these since the firm should immediately shut down in the short run

Carl is considering attending a concert with a ticket price of $35. He estimates that the cost of driving to the concert and parking there will total an additional $20. In order to attend the concert, Carl will have to take time off from his part-time job. He estimates that he will lose 5 hours of work, at a wage of $6 per hour. Carl's opportunity cost of attending the concert equals

$35 $55 $30 $65 *$85*

Given the following equation where DPI represents disposable personal income: C = 1,500 + 0.85(DPI) If disposable personal income is $5,000, consumer spending would be equal to:

$4,250. $5,250. *$5,750.* None of the above.

Given the following equation where DPI represents disposable personal income: C = 1,500 + 0.85(DPI) If disposable personal income is $5,000, consumer spending would be equal to:

$4,250. $5,250. *$5,750.* None of the above.

The following information supposedly collected on a particular country by the CIA. Nominal GDP is equal to: Consumption Expenditures $3,600 million Imports $1,200 million Depreciation $300 million Government Expenditures $1,000 million Gross Private Domestic Investment $1,000 million Tax Revenues $700 million Exports $800 million Implicit GDP Deflator 2.00 (1996 = 1.00)

$4,900 million *$5,200 million* $5,600 million $6,000 million

Assume that for John Paxton, a soybean producer from Iowa, the only source of farm income is from the production of soybeans. Paxton produced 100,000 bushels of soybeans in 2012, receiving $12 per bushel. Assuming this producer had production expenses of $800,000, and assuming the CPI for 2012 was 2.00, his real farm income for 2012 was:

$400,000 *$200,000* $1.2 million Can't tell; insufficient information

Figure below illustrates the trade-off for a particular student between time spent studying per week and income per week from working part-time. What is the opportunity cost for this person of moving from point a to point b?

$5 of income per week *$10 of income per week* two hours of studying per week $10 per hour of studying per week $20 of income per week

Figure below illustrates the trade-off for a particular student between time spent studying per week and income per week from working part-time. What is the opportunity cost for this person of moving from point a to point b?

$5 of income per week *$10 of income per week* two hours of studying per week $10 per hour of studying per week $20 of income per week

The following information supposedly collected on a particular country by the CIA. Real per capita GDP is equal to: Consumption Expenditures $3,600 million Imports $1,200 million Depreciation $300 million Government Expenditures $1,000 million Gross Private Domestic Investment $1,000 million Tax Revenues $700 million Exports $800 million Implicit GDP Deflator 2.00 (1996 = 1.00)

$5,200 million $2,600 million $2,450 million *can't tell; insufficient information.*

When the market price is $3 per pound, the consumer surplus is:

$55,000 $30,000 $25,000 *$12,500*

When the market price is $2 per pound, the consumer surplus is:

$55,000. *$24.500.* $25,500. $12,500.

Suppose that the following headlines appeared in a newspaper. Which would most clearly represent a macroeconomic issue?

*"Central Bank Raises Interest Rates"* "Auto Dealership to Cut Prices" "Fanny's Freeze Dried Prunes to Lay Off 50 Workers" "United Workers Union to Strike April 15" "Brazilian Coffee Bean Crop Falls by 10 Percent"

Given the environment illustrated in Figure below, At the profit-maximizing, or loss-minimizing, level of output for the firm in Figure above, total revenue is approximately

*$10,500* $11,000 $5,600 $8,250 zero because the firm should shut down immediately

In Figure below, using the supply and demand curves denoted S1 and D1, respectively, the equilibrium price and quantity are

*$100 and 50,000* $100 and 100,000 $120 and 50,000 $120 and 75,000 $120 and 100,000

Given the graph below. Total economic surplus is

*$100* $110 $550 Can't tell

Jordan wants to sell her wedding gown for $250, but her cousin Jessica offered her $375 for it. If the gown is sold for $375, what is Jordan's producer's surplus

*$125* $25 $625 $373 $250

Given figure below, Assuming no price discrimination, the firm represented by Figure above will have a per unit profit of

*$50* $100 $150 $200 $250

The marginal rate of substitution between points C and D is

*-1.5* -4 -6 -0.67

In a competitive market, excess demand for a good exists whenever

*the current price is below the equilibrium* price resources are scarce the quantity supplied at the current price exceeds the quantity demanded sellers are subject to the constraints imposed by input prices and technology the current price is above the equilibrium price

If MR were $12 per unit, and if MC = $10 per unit, then:

*the firm should increase production* the firm should decrease production profits are maximized can't tell; insufficient information

If demand is elastic, then

*the percentage change in quantity demanded is larger in absolute value than the percentage change in price* supply is inelastic prices can neither rise nor fall the percentage change in quantity demanded is smaller in absolute value than the percentage change in price supply is elastic

Automatic fiscal policy instruments include:

*unemployment compensation.* regressive income tax rate schedule. new government program. none of the above

Celia buys 24 gallons of gasoline per month when the price is $2 per gallon, but only 16 gallons if the price rises to $3 per gallon. Within this range, her demand for gasoline is

*unitary elastic* perfectly inelastic perfectly elastic inelastic elastic

The following graph depicts a leftward shift in the supply curve. Each letter represents the area of the shape. The net effect on society is given by:

- B - C C + E *- C - E* B - E

The following graph depicts a leftward shift in the supply curve. Each letter represents the area of the shape. The change in producer surplus is given by (Hint: New Surplus-Old Surplus):

- B-C *B - E* E - B can't tell; insufficient information

Bill's Office Furniture sells office chairs and desks. Bill's has changed the price per chair by $10 in each of four successive weeks. Figure below shows the four prices along with the corresponding sales of desks. What is the cross-price elasticity of demand of desks with respect to chairs when the price of a chair changes in the $45 to $55 range? Price/Chair $45 $55 $65 $75 Quantity of Desks Demanded 210 190 150 120

-2.0 2.0 0.5 *-0.5* 1.0

Suppose that Trey spends all of his income on vacation trips and textbooks. If the price of a trip is $200 and the price of a textbook is $50, then the slope of his budget line (assuming vacation trips are measured on the vertical axis) would be

-4 4 0.25 -1.75 *-0.25*

What is the slope of the line given in the graph?

-5 0.5 2 -0.5 *-2*

Figure below shows the demand schedule for hockey pucks. What is the price elasticity of demand when the price changes from $4 per puck to $5 per puck? Price $1 $2 $3 $4 $5 Quantity Demanded 100 80 60 40 20

0.33 1.00 1.15 *3.00* none of these

Figure below shows the demand curve for chicken. Between points L and M, the price elasticity of demand is

0.44, and demand is elastic *0.44, and demand is inelastic* 2.25, and demand is elastic 2.25, and demand is inelastic 0.028, and demand is inelastic

The marginal utility associated with drinking one more soda is: Total Utility Cans of Soda 20 2 35 5

1/5 *5* 15 3 Can't tell; insufficient information

Stanley receives the following marginal utilities from the first four car washes that he buys each year, respectively: 20, 15, 10, and 5. If each car wash sells for $10, then the marginal utility per dollar spent on the third car wash is

10 4.5 *1* 45 5

Use the following graph to answer the question. What is the slope at point B?

10/20 15/10 20/20 *20/30*

The table below shows the marginal utility Kate receives from buying tacos and pizzas, assuming she buys only these two goods. Each taco sells for $5 and each pizza sells for $4. What is the marginal utility per dollar spent on the fourth taco? Quantity of Tacos 1 2 3 4 5 MU/Taco 30 25 20 15 10 Quantity of Pizza 1 2 3 4 5 MU/Pizza 18 16 14 12 10

15 4 *3* 20 12

Alwite is a perfectly competitive firm that produces white t-shirts. The market for white t-shirts is perfectly competitive and the market price of a t-shirt is $10.What will be Alwite's total revenue if it sells 20 t-shirts?

150 100 *200* 30

Anita consumes both pizza and Pepsi. The following tables show the amount of utility she obtained from different amounts of these two goods. Suppose Pepsi costs $0.5 per can, pizza costs $1 per slice and Anita has $9 to spend on food and drinks. MU is Marginal Utility and MU/P is Marginal Utility per dollar. What is the marginal Utility per dollar (MU/P) spent on the 7th slice of pizza? Pizza Quantity Utility MU MU/P 4 slices 115 5 slices 135 6 slices 154 7 slices 171 Pepsi Quantity Utility MU MU/P 5 cans 63 6 cans 75 7 cans 86 8 cans 96

20 19 0 *17* Don't have enough information

Based on the graph, which of the following is true?

3 units of environmental quality and 6 units of power offer the same level of satisfaction as 4 units of environmental quality and 10 units of power. 5 units of environmental quality and 4 units of power offer the same level of satisfaction as 4 units of environmental quality and 10 units of power. *5 units of environmental quality and 8 units of power offer the same level of satisfaction as 4 units of environmental quality and 10 units of power.* none the above.

In the following table, "I" stands for the amount of a particular variable input. Assume the model of perfect competition. I 4 7.6 Output 10 16 TFC 100 w TVC 200 z TC x y MC ----- 30

300 *480* 1,000 can't say; insufficient information

If bread costs $1 and meat costs $4 per pound, a consumer whose marginal utility of meat equals to 80 utils per pound is maximized only if the marginal utility per pound of bread equals

4 utils 5 utils 10 utils *20 utils* 80 utils

Use the following graph to answer the question. What is the y-intercept of line iii?

40 20 10 30 *5*

If the market price reduces from $7 to $5 what is the loss in consumer surplus?

480 850 425 *0* 200

The percentage of disposable income currently spend on food in the United States is about

5% *10%* 20% 30%

If the market price reduces from $50 to $20 what is the gain in consumer surplus?

6075 *2400* 3675 1000 5425

A family on a trip budgets $800 for sit-down restaurant meals and fast food. If the price of a fast food meal for the family is $20, how many such meals can the family buy if they do not eat at restaurants?

8 15 20 *40* 160

For the monopolist in Figure below, Which point corresponds to the profit-maximizing level of output?

A B *C* D E

Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure bellow. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct?

Brian's dominant strategy is to charge a high price. *Matt's dominant strategy is to charge a low price.* The dominant strategy for both Brian and Matt is to charge a low price. Matt's dominant strategy is to charge a high price. Neither Brian nor Matt has a dominant strategy.

Of the following, which is true of the relationship between the quantity of a good supplied and its price?

As price increases, the quantity supplied usually decreases. *As price increases, the quantity supplied usually increases.* As price increases, supply increases. When demand increases, so will supply. They always meet at the point of equilibrium in the market.

A monopolist that does not price discriminate will set the output level where

P = MC P = MR TR = TC *MR = MC* P = ATC

The Federal Open Market Committee, or FOMC, sets the policy for:

Buying government bonds. Selling government bonds. Increase government spending. *Buying government bonds and selling government bonds.*

According to the diagram, which of the following statements is (are) true? (Note: D0 is the original relationship and D1 is the new relationship.)

Concerns are raised by consumers that ALAR, a carcinogenic (cancer-causing) chemical may have been sprayed on apples. *The price of bananas, a known substitute for apples, rose.* *New medical research indicates eating apples allows consumers to increase their life span.*

Given the graph below, what effect would expansionary monetary policy shifting the aggregate demand curve from AD1 to AD2 have on the economy?

GDP in the economy would increase. Inflation would increase. Unemployment would decline. *GDP in the economy would increase and unemployment would decline.*

The distinction between positive and normative economics

Is that positive economics applies only to microeconomic problems Is that normative economics applies only to microeconomic problems Is the difference between an assumption and a conclusion *Helps us understand why economists sometimes disagree with one another* Explains why economics is not a social science

Joe's Garage operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,

Joe's Garage will break even *Joe's Garage will shut down immediately* the market price will fall in the long run Joe's supply curve will shift to the left Joe's Garage will suffer a loss in the short run, but stay in business

The study of how consumers and producers interact in individual markets is

Macroeconomics Labor economics *Microeconomics* Econometrics Development economics

"Senior citizens deserve an income that will allow them to live in comfort for their remaining years." This is

Neither a normative nor a positive statement Both a positive and normative statement Strictly a macroeconomic issue A positive statement *A normative statement*

Which of the following is the study of "what should be" rather than the study of "what is"?

Positive economics Law and economics Microeconomics Development economics *Normative economics*

Figure below shows the cost and demand curves facing a monopolist whose marginal cost is constant. The firm has no fixed costs. If it does not discriminate, it will produce

Q** units and charge price P' *Q* units and charge price P* between Q* and Q** units while charging a price between P and P' between 0 and Q* units while charging price P Q* units and charge price P'

Given the figure below, The quantity producers would have supplied at the target price is

QD QF *QG* Cannot identify total revenue minus total cost

In Promaine Flats, Nevada there are two restaurants: Sal Monella and Road Kill Café. Current profit is $7,000 each. Cleaning will attract more customers, but profit will reduce to $5,000 each. If Sal Monella cleans up and Road Kill Café doesn't then profit will be $4,500 for Sal Monella and $3,000 Road Kill, and if Road Kill Café cleans up and Sal Monella doesn't then profit will be $4,500 and $3,000, respectively. For the figure above which of the following statements is correct?

Road Kill Café's dominant strategy is "not clean up". Sal Monella has a dominant strategy. The dominant strategy for both Sal Monella and Road Kill Café is "not clean up". Road Kill Café has a dominant strategy. *Neither Sal Monella nor Road Kill Café has a dominant strategy.*

A single-price monopolist is producing 8,000 units of output. At that level, price equals $10, average total cost equals $12, and average variable cost equals $8. In addition, both marginal cost and marginal revenue equal $6. Which of the following statements is correct in the short run?

The firm is earning total revenues equal to $96,000. The firm could reduce its loss by shutting down. The firm has a loss per unit equal to $4. *The firm is minimizing its economic loss at $16,000.* The firm is earning an economic profit equal to $16,000.

Given the graph below, which of the following statements is true?

The labor market is at full employment. The wage rate would increase if the income tax rate was increased. The economy is experiencing an inflationary gap. *None of the above.*

Use the table below to answer question dealing with the output and price of corn for 2011 and 2012. Which of the following statements is true? (Let 2011 be the base year.) YEAR OUTPUT PRICE 2011 10,000 $4.00 2012 12,000 $5.00

The output index for 2011 is less than 1. The output index for 2012 is 1.25. *The output index for 2012 is 1.20.* The output index for 2012 is 0.83.

Suppose that a consumer's original budget line was AB in Figure below, but it has now changed to line AC. Which of the following must have occurred?

The price of good X must have risen. The price of good Y must have risen. The price of good Y must have fallen. *The price of good X must have fallen.* The consumer's income must have risen.

Studies show that the supply curve for bananas has shifted. All of the following could be possible explanations for the shift, except one. Which is the exception?

The price of land for growing bananas has risen. Weather conditions in banana-growing countries have worsened. The price of apples has fallen. *The price of bananas has risen.* The salaries paid to banana growers has risen.

A consumer's budget line shows

The utility that an individual would receive from consuming various combinations of two goods *The combination of two goods that an individual is able to purchase, given prices and income* How income is influenced by prices of goods How changes in income affect utility The relationship between prices and income

Although there are barriers to entry in a monopolized industry, there are usually many close substitutes for the monopolist's product.

True *False*

Given the figure below, Consumer s would be worse off economically under this form of supply control by area 4 plus area 6.

True *False*

Given the figure below, Consumers would be worse off economically under this form of supply control by area 4 plus area 6.

True *False*

Monopolies are characterized by all of the following, except one. Which is the exception?

a downward-sloping demand curve potential for long-run profits *a perfectly elastic demand curve* barriers to entry no close substitutes for the good produced

An increase in the price of a particular good, with all other variables constant, causes

a movement along a given supply curve to a lower quantity supplied a shift to a different supply curve with lower quantities supplied *a movement along a given supply curve to a higher quantity supplied* a shift to a different supply curve with higher quantities supplied no movement along a given supply curve unless demand also changes

A decrease in the price of a particular good, with all other variables constant, causes

a shift to a different demand schedule with higher quantities demanded a shift to a different demand schedule with lower quantities demanded a movement along a given demand curve to a lower quantity demanded *a movement along a given demand curve to a higher quantity demanded* no movement along a given demand curve unless supply also changes

A single-price monopolist is

able to use price discrimination to increase profits protected from competition by patents and copyright laws *one that charges the same price for all units of output* illegal in the United States less efficient than a multi-price monopoly

An inflationary gap occurs in the economy when:

aggregate demand is in the Keynesian or depression range of the aggregate supply curve. *aggregate demand is greater than full employment output.* aggregate demand is perfectly elastic. none of the above.

Intellectual property includes

all of the following *literary, artistic and musical works, and scientific inventions* computers, calculators, and word processors desks, bookshelves, and notebooks office space, computers, and telephones

In Figure below, at a temporary price of $4,

all of the following occur *a surplus occurs* the supply curve will shift leftward the demand curve will shift rightward equilibrium will eventually occur at approximately $3.50

Given figure below, The firm in Figure above has

an economic loss of $25,000 *an economic loss of $12,500* an economic profit of $6,250 neither an economic profit nor an economic loss an economic loss of $16,000

A market in which there are many buyers and sellers so that each has a negligible impact on the market price and the goods offered for sale are all the same is called

an imperfectly competitive market *a perfectly competitive market* competitive market Monopoly None of the above

Procter & Gamble Co. is a major soap producer. All of the following, except one, would shift its supply curve of liquid soap to left. Which is the exception?

an increase in the price of bar soap an increase in the price of a key ingredient of liquid soap environmental regulations force Procter & Gamble to use a more costly technology to produce liquid soap *a decrease in the price of liquid soap* an increase in the wage rate for factory workers who produce liquid soap

The change in total revenue obtained by selling an additional unit of output is

average revenue business revenue *marginal revenue* overhead revenue profit margin

The change in total utility arising from a one-unit increase in consumption of a good is referred to as

average utility the principle of diminishing marginal utility real income *marginal utility* price

The demand curve for apples slopes downward

because supply and demand are equal in equilibrium since producers supply more when consumers demand more because people are assumed to be basically greedy *because the law of demand holds in the market for apples* because apples are preferred to all other goods

Given the environment illustrated in Figure below, The best outcome the firm can achieve in the short run is

both c and e an economic profit to shut down to minimize short-run loss a break-even outcome *an economic loss*

The fact that travel on buses fell as incomes increased in many cities suggests that

bus travel is a luxury the law of demand does not apply to bus travel *bus travel is an inferior good* bus travel is a necessity there are no good substitute goods for bus travel

The fact that travel on buses fell as incomes increased in many cities suggests that

bus travel is a luxury the law of demand does not apply to bus travel bus travel is a normal good bus travel is a necessity *none of the above*

Investment expenditures consists of:

construction of new roads and bridges. *construction of office buildings.* purchase of farmland. all of the above

Aggregate demand in the economy is equal to:

consumption, investment and net exports. full employment output. consumption, investment and government spending. *none of the above*

If automobiles are like most goods and the price of automobiles rises, then holding all else constant, the

demand for automobiles will rise *quantity demanded of automobiles will fall* demand for automobiles will fall quantity demanded of automobiles will rise supply of automobiles will fall

Figure below shows the market demand schedule for compact disks. If the price per disk falls from $12 to $10, the Price per CD $10 $11 $12 $13 $14 Quantity Demanded 5.0 Million 3.5 Million 2.9 Million 2.3 Million 2.0 Million

demand will decrease by 2.2 million disks supply will rise by 5.0 million disks quantity demanded will decrease by 2.1 million disks *quantity demanded will increase by 2.1 million disks* demand curve will shift to the left

Figure below shows the marginal cost and average total cost curves for a perfectly competitive firm. This firm will

earn an economic profit suffer an economic loss in this long-run situation *suffer an economic loss in the short run and close* break even if it expands to 180 units of output suffer an economic loss and continue producing in the short run

When individuals come together to buy and sell goods and services, they form a(n)

economy *market* production possibilities frontier supply curve demand curve

In Figure below, if the government imposes a price ceiling of $2, the result will be

equilibrium excess supply no different than before the price ceiling is imposed *excess demand* the demand shifts leftward and supply shifts rightward

In a competitive market, when price is below the equilibrium level, the price will be driven upward due to

excess supply government intervention competition among suppliers *excess demand* technical inefficiency

Assume the curves depict the aggregate demand (AD) and aggregate supply (AS) curves for a particular economy. Let $14 trillion correspond to the full employment level of aggregate output (the targeted or desired level) for this particular economy. This economy is:

experiencing an inflationary gap of $2 trillion. *experiencing an recessionary gap of $2 trillion.* experiencing an recessionary gap of $6 trillion. experiencing an inflationary gap of $6 trillion.

Use the following graph to answer the question. Which line is drawn tangent to the curve i at point B?

i *ii* iii

Whether an excise tax is imposed on a demander or supplier is irrelevant because

in either case the price that the demander has to pay will decrease; while the price the supplier receives will increase *in either case the price that the demander has to pay will increase; while the price the supplier receives will decrease* either situation will create excess demand either situation will create excess supply none of these are correct

Disposable income in the economy reflects:

income before taxes. net income from illegal activity. *personal income after taxes.* none of the above

A decrease in demand, with supply constant, results in a(n)

increase in equilibrium price and a decrease in equilibrium quantity *decrease in equilibrium price and a decrease in equilibrium quantity* increase in equilibrium price and an increase in equilibrium quantity increase in equilibrium price and an ambiguous effect on equilibrium quantity decrease in supply

When a firm incurs losses in the short run, the most important consideration in determining whether to continue producing is whether

marginal cost equals marginal revenue average total cost is at its minimum average variable cost is at its minimum *revenues cover some of its fixed costs and all of its variable cost* total revenue exceeds total cost

For a monopoly, profit per unit of output is

marginal revenue minus marginal cost *price minus average total cost* average total cost minus marginal revenue price minus marginal revenue total revenue minus total cost

For which of the following types of goods would demand be most price-elastic?

necessities *goods with many substitutes* goods that require only a small portion of the buyer's budget goods with vertical demand curves goods with vertical supply curves

Which of the following is true?

one advantage of perfect competition is that farmers can set the price in their negotiations with buyers. a firm should operate under stage 1 of production if it wishes to maximize profit. a commodity surplus or shortage will occur when the market is in equilibrium. *product differentiation is the key difference between monopolistic competition and perfect competition.*

Which budget constraint panel in Figure below shows the effect of a decrease in the price of oranges, other things constant?

panel a panel b panel c *panel d* panel e

Which budget constraint panel in Figure below shows the effect of an increase in income, other things constant?

panel a panel b panel c *panel e* none of the above

Which budget constraint panel in Figure below shows the combined effects of an increase in the price of oranges and a decrease in the price of apples?

panel a panel b panel c panel e *none of the above*

The price elasticity of demand is the

percentage change in price divided by the percentage change in quantity demanded average change in price divided by the average change in quantity demanded *percentage change in quantity demanded divided by the percentage change in price* average change in price divided by the average change in quantity demanded percentage change in quantity demanded divided by the average change in price

Patents grant

permanent monopoly status to creators of scientific inventions permanent monopoly status to creators of any intellectual property *temporary monopoly status to creators of scientific inventions* temporary monopoly status to creators of any intellectual property permanent monopoly status to natural monopolies

For which of the following goods is the income elasticity of demand likely to be largest?

poultry products *meals at restaurants* lemonade used books paperback mystery novels

To maximize profit, a monopolist should produce the level of output at which

price equals marginal cost price equals marginal revenue and marginal cost price equals marginal revenue *marginal revenue equals marginal cost* price equals average total cost

Which of the following will decrease the amount of a good that is traded in the market?

price floors and price ceilings excise taxes, price floors, and subsidies excise taxes subsidies *price floors, price ceilings, and excise taxes*

Give Figure below, What is the total profit (or loss) for the (single-price) monopolist shown in Figure above?

profit of cbgf loss of fcbg profit of egbd loss of edcf *profit of edcf*

Absent an ability to price discriminate, if a monopoly wants to sell more output, it must

raise its price *lower its price* increase barriers to entry obtain government permission negate its patent protection

Suppose the index of prices received by farmers for 2012 was 1.70 and the base year of this index was 1996. Then:

relative to 1996, prices received by farmers were 70% lower in 2012. relative to 2012, prices received by farmers were 70% higher in 1996. *relative to 1996, prices received by farmers were 70% higher in 2012.* relative to 2012, prices received by farmers were 70% lower in 1996.

A record level of crop production can lead to:

sharp declines in input use and cash receipts from sale of production. *sharp declines in farm product prices and cash receipts from sale of production.* sharp declines in cash receipts from sale of production and higher interest rates. None of the above

"Supply curves are upward sloping" is a graphical way of saying

supply equals demand price and quantity supplied are inversely related price and quantity demanded are directly related *price and quantity supplied are directly related* price and quantity demanded are inversely related

If the percentage change in quantity demanded divided by the percentage change in price equals 1, then

supply is inelastic supply is elastic demand is elastic demand is inelastic *demand is unit elastic*

The functions of the Federal Reserve System include:

supplying the economy with government bonds. supervising the U.S. Treasury. *regulating the money supply.* none of the above

In Figure below, using the supply and demand curves denoted S1 and D1, respectively, if demand were to increase to D2 and the equilibrium price stayed the same there would be

surplus new equilibrium at 50,000 *shortage* new equilibrium at 100,000 new equilibrium at 75,000

The marginal propensity to save is equal to:

the change in savings with respect to the change in change in investment expenditures. *one minus the marginal propensity to consume.* one plus the marginal propensity to consume. none of the above.

Figure below shows the supply and demand for socks. If a price ceiling of $4 per pair is imposed by the government Price/pair $2 $4 $6 $8 $10 Quantity Demanded 18 14 10 6 2 Quantity Supplied 3 4 5 6 8

there will be a shortage of 14 pairs of socks *there will be a shortage of 10 pairs of socks* there will be neither a shortage nor a surplus of socks there will be a surplus of 10 pairs of socks there will be a surplus of 14 pairs of socks

When the minimum wage is set above the equilibrium market wage,

there will be a shortage of labor at the minimum wage it will have no effect on the quantity of labor employed *the unemployment rate will rise* the quality of the labor force will increase the unemployment rate will fall

High-income people will sometimes pay higher prices at convenience stores for goods that are available at discount stores. They do this because

they are irrational their opportunity cost of time is low *crowded and understaffed discount stores impose higher time costs* they like to be seen paying more money they do not mind wasting time

If the cross-price elasticity of demand between two goods is -2.2, then the

two goods are substitutes *two goods are complements* income elasticity of demand must be between 0 and 1.0 goods are both normal goods goods are both inferior goods

Expansionary monetary policy actions:

would likely increase farmers' fixed liabilities. *would likely increase farmers' total assets.* would likely decrease farmers' profits. none of the above

In short-run equilibrium, the perfectly competitive firm of Figure above will earn a total economic profit of

zero *$950* $825 $1,425 $575

A profit-maximizing, single-price monopoly must lower its price in order to sell more output.

*True* False

In economics, a market is a specific location where buying and selling take place: a supermarket, a flea market, etc.

True *False*

Consider the diagram provided below. At point C, which of the following statement(s) is (are) true?

*The marginal rate of substitution is 3/4 and without taking the absolute value is -3/4.*

Carl is considering attending a concert with a ticket price of $35. He estimates that the cost of driving to the concert and parking there will total an additional $20. In order to attend the concert, Carl will have to take time off from his part-time job or forgo studying for an exam scheduled for the next morning. He estimates that he will lose 5 hours of work, at a wage of $6 per hour or 5 hours of study time. If Carl considers studying the best alternative use of his time, his opportunity cost of attending the concert equals

$55 $85 plus the value of the highest exam grade he could earn by studying for 5 hours *$55 plus the value of the highest exam grade he could earn by studying for 5 hours* $85 minus the value of the highest exam grade he could earn by studying for 5 hours $55 minus the value of the highest exam grade he could earn by studying for 5 hours

Consider the firm in Figure below. If the firm sells five units of output, then the price must equal Output 1 2 3 4 5 Total Revenue $0 $90 $160 $210 $240 $250 Total Cost $100 $150 $190 $215 $250 $300

$60 $10 $250 $90 *$50*

The equity for this operation is: Cash receipts from farm marketing $750,000 Receipts of government payments $150,000 Other income from farm sources $100,000 Production expenses $400,000 Value of real estate assets $10 million Value of non-real estate assets $2 million Financial assets $4 million Liabilities $9 million

$600,000 $1 million *$7 million* $ 25 million

Brittany provides manicures at the only salon in town. Her marginal cost is constant at $5 per client, her fixed cost is $25 per day, and she is able to do 8 manicures per day. On a given day, half of her clients are willing to pay $15 for a manicure; half are willing to pay only $10. If she charges all of her clients $10, then her maximum daily profit equals

$80 *$15* $40 $55 $50

Net farm income for this operation is: Cash receipts from farm marketing $750,000 Receipts of government payments $150,000 Other income from farm sources $100,000 Production expenses $400,000 Value of real estate assets $10 million Value of non-real estate assets $2 million Financial assets $4 million Liabilities $9 million

*$600,000* $1 million $7 million $25 million

The following graph depicts a leftward shift in the supply curve. Each letter represents the area of the shape. The change in consumer surplus is given by (Hint: New Surplus-Old Surplus):

*- B-C* B - E B + C can't tell; insufficient information

The marginal rate of substitution between points C and D is:

*-1.5* -4 -6 -0.67

Data for Wilson's Lamb Slaughtering Plant are given below: Year 1998 1999 2000 Lbs. of Lambs Slaughtered 100,000 75,000 110,000 Let the base year be 1.0 in 1998. What is the output index for 1999?

*0.75* 1.10 1.33 75

If the price elasticity of demand for Cheer detergent is 3.0, then a

*12 percent drop in price leads to a 36 percent rise in the quantity demanded* 12 percent drop in price leads to a 4 percent rise in the quantity demanded $1,000 drop in price leads to a 3,000-unit rise in the quantity demanded $1,000 drop in price leads to a 333-unit rise in the quantity demanded 12 percent rise in price leads to a 36 percent rise in the quantity demanded

Individual demand schedule for three consumers, A, B and C, from the local HEB store in the purchases of ice cream are given below A B C Price/Quart Qrts/Wk Qrts/Wk Qrts/Wk $1.50 5 12 8 $1.75 4 11 7 $2.00 2 9 5 What is the market demand for ice cream at the price of $2.00 assuming that the only consumers in this market are customers A, B, and C?

*16* 11 25 22 Can't tell; insufficient information

Figure below shows the supply and demand for socks. If a price ceiling of $4 per pair is imposed by the government, the number of pairs actually purchased will be Price/pair $2 $4 $6 $8 $10 Quantity Demanded 18 14 10 6 2 Quantity Supplied 3 4 5 6 8

*4 pairs* 8 pairs 5 pairs 1 pair 6 pairs

What is the slope of the curve above at point A?

*4* -0.25 -4 0.25 Cannot identify

Given the indifference curves in the graph above, which combination of wings and hamburgers yields the highest level of satisfaction?

*6 wings, 7 hamburgers* 8 wings, 1 hamburger 2 wings, 8 hamburgers 8 wings, 4 hamburgers

Given the graph below, what is the change in the economic well-being of consumers in this market if the price fell from $5.00 to $4.00.

*7* 56 28 21 49

Which of the following statements about demand is correct?

*A change in the price of bicycles will not lead to a shift of the demand curve for bicycles.* A change in the price of automobiles will lead to a shift of the demand curve for motorcycles. A change in demand is equivalent to a movement along a given demand curve. When price falls, so does the quantity demanded. When the demand curve shifts to the right, so will the supply curve.

Figure below shows cost curves for Penny's Parasols, a perfectly competitive firm. At which of the points would Penny's Parasols be certain to close down?

*A* B C D E

Flora's Flowers operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $10, AVC = $5, and the price per unit is $15. In this situation,

*Flora earns positive profits in the short run* Flora will shut down in the short run Flora's supply curve will shift to the left Flora's supply curve will shift to the right the market price will rise in the long run

A physician's knowledge and skills is referred to by economists at

*Human resources* Biological resources Physical resources Entrepreneurship Intellectual raw materials

Given the graph below, which monetary policy actions by the Federal Reserve would lower the interest rate from the current 10 percent level?

*Lower the fractional required reserve ratio.* Sell government bonds. Raise the discount rate. None of the above.

Based on the graph below, which of the following statement(s) is (are) true?

*The MRS from point A to point B is -1, and if we take the absolute value then it is 1.* *We cannot compute the MRS from point A to point E.* *The curves depicted in in the graph are indifference or iso-utility curves.*

Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure bellow. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct for a one-trial game?

*The market equilibrium price is the low price.* A market equilibrium price cannot be established unless Brian and Matt collude. A market equilibrium price cannot be established unless Brian or Matt engages in tit-for-tat strategy. A market equilibrium price cannot be established without repeated trials. The market equilibrium price is the high price.

This question pertains to the following table that gives the output produced (in bushels) and price of corn received ($/bushel) for Farmer Smith over the period 2008 to 2010. Assume that the only source of income for Farmer Smith is from the production of corn. Also assume that all production costs are zero. You are to compute output indices for 2008 and 2010 for Farmer Smith with the base year of 2009. Which of the following statement(s) is (are) true? Year Output Price CPI 2008 6,000 $2.00 1.00 2009 8,000 $2.60 1.10 2010 10,000 $2.50 1.40

*The output index for 2008 is 0.75.* The output index for 2009 is 0.80. *The output index for 2010 is 1.25.*

A $1.00 increase in the price of a restaurant meal results in a drop in quantity demanded of 5 meals. Which of the following statements is correct?

*The slope of the demand curve is -1/5; there is insufficient information to determine the price elasticity of demand.* The price elasticity of demand is -1/5; there is insufficient information to determine the slope of the demand curve. Both the slope of the demand curve and the price elasticity of demand are equal to -1/5. There is insufficient information to determine either the slope of the demand curve or the price elasticity of demand. The slope of the demand curve is -1/5; the price elasticity of demand is 5.

Which of the following is not true?

*The supply curve for a firm is its MC curve.* If the change in total economic surplus is negative due to a shift in a demand and/or a supply curve, society is worse off. AFC + AVC = ATC. The law of diminishing marginal returns states that as the use of an input increases, its MPP eventually will fall.

For which of the following items is demand likely to be the most price elastic?

*Tide liquid laundry detergent* laundry detergent in general powdered laundry detergent liquid laundry detergent

A firm that engages in perfect price discrimination produces more output to maximize its profits than it would if it charged only one price.

*True* False

A major difference between monopolistic competition and perfect competition is the degree of product differentiation. Pure competition has none and differentiation always exists in monopolistic competition.

*True* False

Alwite is a perfectly competitive firm that produces white t-shirts. The market for white t-shirts is perfectly competitive and the market price of a t-shirt is $10.True or False: Alwite's marginal revenue is the same for all levels of production.

*True* False

Average variable costs is equal to the firm's total variable costs divided by its total output

*True* False

Demand for goods in broader category definitions, such as "beverages", is usually less elastic than demand for more narrowly defined goods, such as "diet colas."

*True* False

For a monopolist, there is no difference between the market demand curve and the demand curve the monopolist uses when making output decisions.

*True* False

If both the demand and supply curves for computers shift to the right, the price of computers may rise, fall, or remain unchanged.

*True* False

If the government wants to manipulate the equilibrium price, it will normally create a price floor or price ceiling; if the government want to manipulate the equilibrium quantity, it will normally impose taxes or award subsidies.

*True* False

Marginal propensity to consume is the slope of the aggregate consumption function and tells us how much consumption will change if consumer disposable income changes.

*True* False

The cross-price elasticity of demand is useful for determining which pairs of commodities serve as substitutes for each other.

*True* False

The marginal value product for labor is equal to the marginal physical product for labor times the product price

*True* False

The opportunity cost of any activity can be measured by the

*Value of the best alternative to that activity* Price (or monetary cost) of the activity Level of technology Time needed to select among various alternatives Fringe benefits associated with the activity

The rise in the market price from $2 to $3 corresponds to:

*a change in quantity demanded.* *the law of demand.* change in demand.

The economy's aggregate supply curve includes:

*a classical range.* *a normal range.* *a Keynesian or depression range.*

The functions of money include:

*a medium of exchange.* *a store of value.* *a unit of accounting.*

A market that involves only one seller of a good or service is known as

*a monopoly* perfect competition monopolistic competition an oligopoly perfect monopolistic competition

Figure below shows the payoff matrix for the only two auto dealerships in a community, Jim's Autos and Tim's Autos. The matrix shows the profits that each firm would earn from choosing either a low price or a high price. Jim's dominant strategy is to

*always charge a low price* always charge a high price charge a high price if Tim charges a low price charge a low price only when Tim charges a low price follow the price leadership of Tim's Autos

Which of the following would cause a leftward shift of the supply curve for computers?

*an increase in the price of printed circuit boards used to build computers* a decrease in the price of electricity an increase in incomes of consumers a decrease in the price of computers a decrease in the size of the population

Figure below shows the cost and demand curves facing a monopolist whose marginal cost is constant. The firm has no fixed costs. If it does not discriminate what will it's profit be?

*area PP'BA* area OPAQ* area PP'CA area APC area OP"BQ*

If the budget for the consumer is $48, then

*at point C, the consumer is said to be in equilibrium.* *the price per glass of Kool-Aid is $4.* *the price per glass of tea is $3.*

Given the equation C = $1,500 + .70($3,000):

*consumption is equal to $3,600.* *marginal propensity to save is .30.* *autonomous consumption is $1,500.*

If the demand curve is a horizontal line,

*demand is perfectly elastic* demand is perfectly inelastic demand is unitary elastic demand is relatively inelastic total expenditure is maximized

The demand curve for a particular good indicates the various quantities

*demanded at various prices, other things equal* demanded at different income levels, other things equal actually purchased at various prices, other things equal actually purchased at different income levels, other things equal demanded at various prices and income levels, other things equal

Given figure below, Assuming no price discrimination, the firm represented by Figure above will have a(n)

*economic profit of approximately $7,500* economic profit of approximately $4,375 economic profit of approximately $2,500 economic loss of approximately $15,625 break-even situation with neither economic profit nor economic loss

A barter economy occurs where:

*households pay for services provided by labor with goods and services.* *businesses provide services to households in exchange for goods and services.* *excludes financial markets.*

Suppose that a monopoly is earning economic profits in the short run. As a result,

*no new firms will enter the industry because of barriers to entry* the monopolist will increase its price and lower its output the market supply curve will shift to the right profits will fall as new firms enter the market the market demand curve will shift to the left

Which budget constraint panel in Figure below shows the effect of an increase in the price of apples, other things constant?

*panel a* panel b panel c panel d panel e

The cross-price elasticity of demand between Texaco gasoline and Mobil gasoline sold at the same intersection would be

*positive* negative 0 1.0 -1.0

For a monopoly,

*price and output are closely-linked choices* marginal revenue always exceeds marginal cost price always exceeds average total cost in the short run price is set independently from the output decision price is always the highest that the market will bear

The All-the-Rage microbrewery is represented in Figure below. If the market price is $4.50 per pint, then in the short run, the microbrewery will

*produce in the short-run and earn an economic profit* produce in the short-run and suffer an economic loss be indifferent between shutting down and producing in the short-run shut-down in the short-run and earn an economic profit shut-down in the short-run and suffer an economic loss

Consumption expenditures includes:

*purchases of airline tickets.* *purchases of new automobiles.* *purchases of food.*

When a market is in equilibrium,

*quantity demanded equals quantity supplied* quantity demanded exceeds quantity supplied the demand curve is identical to the supply curve the economy must be at a point along the production possibilities frontier the law of demand is equivalent to the law of supply

Given the graph below, one historical approach to supporting major crop prices involved the Commodity Credit Corporation (CCC):

*required the CCC to acquire the excess supply that would occur at the desired price PG.* resulted in a gain in consumer surplus equal to areas 3+4. caused producer surplus to increase by area 2+3. All of the above

The Jones family is going to Disney World and has set a budget of $2000 for food and souvenirs. If Mr. Jones finds a $50 bill on the ground during their trip and uses it to purchase additional souvenirs, then

*souvenirs are a normal good* food is an inferior good the budget line has shifted to the left the slope of the budget line has changed souvenirs are a inferior good

At point A, which of the following statements is (are) false?

*the MRS = -4/3 or 4/3 after taking the absolute value.*

In the following table, "I" stands for the amount of a particular variable input. Assume the model of perfect competition. What is the value of x? I 100 t Output 1000 1100 TFC 200 w TVC 1000 z TC x y MC --- 5

200 1,000 *1,200* Can't say; insufficient information

If the price of a good increases from $20 to $25 and the quantity demanded declines from 15 to 10 units of the good, the price elasticity of demand is 5.

True *False*

Given the graph below, which of the following statements is false?

Consumer spending of $1,500 shown here is referred to as autonomous consumption. Consumer spending is equal to $4,300 if disposable personal income is equal to $4,000. *Consumers are dis-saving by $300 at a disposable income of $3,000.* This curve will shift upward if disposable personal income increases.

Among points A, B, C and D, which combination of goods yields the highest level of satisfaction?

Point A Point B Point C *Point D* None of the above

Suppose a local bookstore notices that a 2 percent increase in book prices leads to a 2 percent decrease in the number of books sold. Which of the following is true?

Demand for books is price elastic. *The store's sales revenue did not change.* Demand for books is price inelastic. Demand for books is perfectly inelastic. The bookstore could increase revenue by further lowering prices.

Given the diagram depicted to the right, which of the following statements is true?

The MRS from point A to point B must be lower (in absolute value) than the MRS from point B to point C. The level of satisfaction associated with point A is greater than the level of satisfaction associated with either points B or C. *The MRS from point A to point B must be greater (in absolute value) than the MRS from point B to point C.* This consumer prefers environmental quality over energy.

Given the graph below, which of the following statements is true?

The economy is operating at full employment. The economy is in the depression or Keynesian range. *The economy is experiencing a recessionary gap.* None of the above.

Given the figure below, Producers are better off, gaining area 6 while giving up areas 2 and 3.

True *False*

Given the figure below, The graph above illustrates the use of set asides to remove land from production for specific commodities.

True *False*

In Promaine Flats, Nevada there are two restaurants: Sal Monella and Road Kill Café. Current profit is $7,000 each. Cleaning will attract more customers, but profit will reduce to $5,000 each. If Sal Monella cleans up and Road Kill Café doesn't then profit will be $4,500 for Sal Monella and $3,000 Road Kill, and if Road Kill Café cleans up and Sal Monella doesn't then profit will be $4,500 and $3,000, respectively. The outcome of this game is to "clean up"

True *False*

Indifference curves may intersect.

True *False*

Normal goods are goods for which consumption falls (rises) when income increases (decreases).

True *False*

U.S. farms tend to be diversified rather than specialized.

True *False*

A $10,000 federal subsidy per student in higher education would benefit

a student by exactly $10,000 a university by exactly *the student and the university in such a way that they would split the $10,000.* the student and the university in such a way that they would each get $10,000.

An increase in demand causes

a surplus excess supply an increase in supply *an increase in equilibrium price and equilibrium quantity* an improvement in technology

An increase in the price of a good results in a(n)

decrease in demand increase in demand increase in quantity demanded *decrease in quantity demanded* increase in supply

Which of the following goods is likely to have the most elastic demand over the relevant range of prices?

insulin eggs milk *Pepsi Cola* gasoline

Suppose that for a monopolist, MR = MC = $10 and P = $15 at the profit-maximizing level of output. At this level of output, the firm

is earning a profit *will shut down if AVC > $15* is making $5 profit on each unit sold will shut down if ATC > $15 is losing $5 per unit produced

If the income elasticity of demand for a good is -2.5, then

it is a normal good, and its demand curve will shift to the left if buyers' incomes increase it is a normal good, and its demand curve will shift to the right if buyers' incomes increase it is an inferior good, and its demand curve will shift to the right if buyers' incomes increase *it is an inferior good, and its demand curve will shift to the left if buyers' incomes increase* there is insufficient information to determine whether the good is normal or inferior

If Carol's Crayon Factory's price exceeds its average total cost in the short run, then

it should shut down *it is earning a profit* profits are being maximized it should increase output it should decrease output

Which of the following is not considered a barrier to entry?

large economies of scale control of inputs used in production *a homogeneous product* patents copyrights

Expansionary fiscal policy actions:

lead to growth in aggregate demand resulting from lower interest rates. *typically result in an increase in the national debt.* can be inflationary if the economy is in the Keynesian range of aggregate supply curve. none of the above

Suppose that initially the market for cassette tapes is at point A on demand curve D2in figure below. If the price of cassette tapes increase,

the demand curve will shift to D3 *equilibrium will move to point B on demand curve D2* equilibrium will move to point C on demand curve D2 there will be no change from point A the demand curve will shift to D1

If the market for a good is initially in equilibrium and there is a rightward shift of the demand curve, then

the equilibrium price will fall *there will be a rightward movement along the supply curve* the supply curve will also shift to the right the supply curve will shift to the left the demand curve will shift back as consumers react to the higher equilibrium price

Monopolies charge

the highest possible price a price determined by cost the price consistent with the output level where total revenue equals total cost *the price associated with the quantity at which marginal revenue equals marginal cost* the price at which total revenue equals average total cost

Jim's Shoe Shine Shop operates in a perfectly competitive market. If it's marginal revenue is $5 per shine, then

the next shine will bring in less than $5 in additional revenue the next shine will bring in more than $5 in additional revenue *the market price per shine is $5* price is less than $5 price is equal to total revenue at all output levels

An excess supply of rice in a competitive market would indicate that

the problem of scarcity has been solved in that market buyers want to purchase more rice at the current price than the sellers want to sell the market will not be able to approach equilibrium the entire supply curve must shift to the left in order to attain equilibrium *the current price exceeds the equilibrium price*

Each point along the market demand curve shows

the quantity of the good that firms would be willing and able to supply at a specific price the relationship between the price of the good and total quantity demanded at a series of prices the opportunity cost of supplying a given quantity of goods to the market *the quantity of the good that consumers would be willing and able to purchase at a specific price* how population changes affect the quantity demanded at a specific price