Econ 101 Final Miyoung Oh
The table shows five consumers' willingness to pay for one can of diet soda as well as five producers' cost of selling one can of diet soda. The government asks your advice about the effects of an excise tax of $0.40 per can of soda. Assume there are no administrative costs from the tax.
$0.80
Look at the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a monopolist (compared to the competitive output), deadweight loss is
$1,600
The table shows the consumers' willingness to pay and the producers' costs. Note that consumers and producers in this market are not willing to consume or produce more than four peppers at any price. Total consumer surplus and total producer surplus at equilibrium(p=$0.5 and Q=5) are:
$1.0; $1.1
The table shows three combinations of fixed and average variable costs. Suppose that a firm has the production choices 1, 2, and 3. Historically it has produced 12,000 units. Suddenly demand increases sharply leading to a permanent change in production for the firm from 12,000 units to 30,000 units. According to the table of ATCs below, the average total cost of production in the short run is $_________ while the average total cost of production in the long run is $__________
$1.27, $1.05
(Figure: A Profit-Maximizing Monopoly Firm) Look at the figure A Profit-Maximizing Monopoly Firm. This firm's profit per unit is:
$12
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per unit of the good sold, consumer surplus will be reduced by:
$175
(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of gasoline are:
$2.50 and 300 gallons
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the government imposes a $60,000 tax on yachts (collected from the producers), consumers will pay _____ of the tax and producers will pay _____.
$40,000; $20,000
(Table: Output and Costs) Look at the table Output and Costs. When output is 4, total variable cost equals:
$48
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. The maximum total surplus for the market is _____, and it occurs at a price equal to _____.
$600; $1.50
From the graph below, (1) determine this firm's total loss, assuming AVC < $3 and (2) decide whether you agree that the firm will shut-down the business in the short-run.
$60; disagree
Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred _____ in _____ costs.
$86,004; implicit
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's profit will be _____, and Ray's profit will be _____.
$900; $600
The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.
0.2; inelastic
(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $4, in the short run the farmer will produce _____ bushels of corn and earn an economic _____ equal to _____.
0; loss; total fixed costs
Alicia's Apple Pies is a roadside business. Alicia must pay $9.00 in rent each day. In addition, it costs her $1.00 to produce the first pie of the day, and each subsequent pie costs 50% more to produce than the one before. For example, the second pie costs $1.00 × 1.5 = $1.50 to produce, and so on.
1 to 4; 5 to 6
The accompanying table shows the price and yearly quantity sold of souvenir T-shirts in the town of Crystal Lake according to the average income of the tourists visiting. Using the midpoint method to perform the calculation when the price of a T-shirt is $4, the income elasticity of demand when the average tourist income increases from $20,000 to $30,000 is ___. When the price of a T-shirt is $7, for the same change in income, the income elasticity is ___
1.25; 1.9
Suppose the market price rises to $30 from $20. The increase in producer surplus (PS) is total ______ : The increase in PS due to new sellers entering the market is _____ and the increase in PS due to existing sellers receiving higher price is ______.
125; 25;100
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is $________ and the price effect of selling the sixth motor home is $_________; so the marginal revenue when she sell sixth unit is $_________
20,000, -5,000, 15,000
Now that French consumers can also buy lobsters, the quantity demanded when the price is 25 is equal to ____ pounds. The new equilibrium price of lobsters is ______ per pound, and the new equilibrium quantity of lobsters is _____ pounds. The quantity consumed by U.S. consumers is now _____ pounds.
300; $20; 700; 400
(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____
4 bushels; profit; $0
There is a small household economy named as MY World with given resource base, 10 pieces of candy. There are two kids, Isaac and Emma in the economy. The benevolent dictator, Miyoung who did not take econ101 asks your advice on how many pieces of candy should be distributed to Isaac and Emma to achieve Pareto efficiency. Which of the following options is considered as an efficient allocation given the resource base
4:6
(Table: Prices and Demand) Look at the table Prices and Demand. Professor Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is $18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he produce?
6
Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: Demand: P=1000-10Q Total Revenue: TR=1000Q-10Q2 Marginal Revenue: MR=1000-20Q Marginal Cost: MC=100+10Q where Q indicates the number of copies sold and P is the price in Ectenian dollars. P=700 Ectenian dollars; Q=30 Find the price _______ and quantity that _______ maximize the company's profit.
700, 30
Suppose that the demand for pizza in Ames is given by the following equation: (demand) P = 40 - 4Q; where P is the price of pizza ($) and Q is the quantity of pizza. Further assume that the supply of pizza is given by: (supply) P = Q: Suppose that the City Council believes that the current equilibrium price is too high and passes an ordinance prohibiting anyone from selling pizza for more than $2. What is the new quantity of pizza demanded and sold? Is there a shortage or surplus of pizza?
9.5, 2 pizzas ; a shortage
Which of the following statements is CORRECT
An economic situation is in equilibrium when no individual would be better off taking a different action
In your economics class, each homework problem set is graded on the basis of a maximum score of 100. You have completed 9 out of 10 of the problem sets for the term, and your current average grade is 88. What range of grades for your 10th problem set will raise your overall average? What range will lower your overall average?
Any grade for your 10th problem set greater than 88 will raise your overall average; any grade lower than 88 will lower it.
The city government is considering two tax proposals: A lump-sum tax of $300 on each producer of hamburgers. A tax of $1 per burger, paid by producers of hamburgers. Which of the following options is incorrect?
Average fixed cost will be affected when per-burger tax is imposed.
Argentina and Brazil each have 10,000 hours of labor per month. In Argentina, producing one pound coffee requires 2 hours while producing one bottle wine requires 4 hours. In Brazil, producing one pound coffee requires 1 hour when producing one bottle wine requires 5 hours. Which country has an absolute advantage in the production of coffee? Which country has a comparative advantage in the production of wine?
Brazil has an absolute advantage in coffee; Argentina has a comparative advantage in wine
Which of the following illustrates the law of demand
Consumers buy more personal computers because prices have fallen
According to data from the U.S. Department of Energy, sales of the fuel-efficient Toyota Prius hybrid fell from 158,574 vehicles sold in 2008 to 139,682 in 2009. Over the same period, according to data from the U.S. Energy Information Administration, the average price of regular gasoline fell from $3.27 to $2.35 per gallon. Using the midpoint method to perform the calculation, the cross-price elasticity of demand between Toyota Priuses and regular gasoline is _____. Based on this estimate of the cross-price elasticity, the two goods _______.
D. 0.4; are substitutes
You are selling your 2008 Mustang. You have already spent $1000 on repairs. At the last minute, the transmission dies. You can pay $600 to have it repaired, or sell the car "as is." In the following scenario, should you have the transmission repaired? Blue book value is $6000 if transmission works, $5500 if it doesn't
Do not pay $600 to fix it.
The demand for meals at Jethro's BBQ will shift to the left if
Hickory Park Restaurant offers a 10 percent discount coupon in Ames local newspaper
In an oligopoly market, collusion between firms usually leads to higher profits than noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because: I. it is illegal. II. there is an incentive for each firm to cheat on a collusive agreement. III. an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals.
I and II
If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. We know that _____ has a comparative advantage in _____.
Laurence; programs
Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in the next Table. Current table shows aggregated demand. The average cost and the marginal cost of production are constant at $2 per tube. Neem can effectively price discriminate charging a higher price to ___ who have the ___ demand for the product.
Middle Fall; less elastic
Which of the following is FALSE about the circular-flow diagram
Money flows from households to firms as households offer factors of production for sale
Which of the following illustrates the change in demand (i.e., shift of the demand curve)?
People in China buy less U.S. soybean as Beijing raised import tariffs by 25% on U.S. soybeans in July 2018 in retaliation for U.S. duties on Chinese goods
In a single day, Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. Therefore, _____ has a(n) _____ advantage in making hamburgers
Sarah; absolute
You are considering to shut-down as your firm is currently having a loss. Fixed costs =$100 Variable costs = $50 Revenue = $75 By comparing the profit that your firm currently makes with the profit when you decide to shut-down, decide whether you would shut-down now in the short-run.
Stay open
The current equilibrium price per pack is $4, and every day 40 million packs of cigarettes are sold. In order to recover some of the health care costs associated with smoking, the government imposes a tax of $2 per pack. This will raise the equilibrium price to $5 per pack and reduce the equilibrium quantity to 30 million packs. The economist working for the tobacco lobby claims that this tax will reduce consumer surplus for smokers by $40 million per day, since 40 million packs now cost $1 more per pack. The economist working for the lobby for sufferers of secondhand smoke argues that this is an enormous overestimate and that the reduction in consumer surplus will be only $30 million per day, since after the imposition of the tax, only 30 million packs of cigarettes will be bought and each of these packs will now cost $1 more. They are both wrong. Why?
The economist working for the tobacco lobby is overestimating the change in consumer surplus and the economist working for the secondhand smoke lobby is underestimating the loss of consumer surplus.
In many European countries high minimum wages have led to high levels of unemployment and underemployment, and two a two-tier labor system. In the formal labor market, workers have good jobs that pay at least the minimum wage. In the informal, or black market for labor, workers have poor jobs and receive less than the minimum wage. Assume that the imposition of the high minimum wage causes a contraction in the economy so that employers in the formal sector cut their production and their demand for workers. Assume also that the workers who cannot get a job paying at least the minimum wage move into the informal labor market where there is no minimum wage. What happens to the size of the informal market for labor as a result of the economic contraction? What happens to the equilibrium wage in the informal labor market?
The equilibrium wage in the informal labor market falls and the quantity of hours transacted increases, as the informal labor market expands
If demand is downward-sloping and supply is upward-sloping, which of the following statements about the effects of an excise tax is INCORRECT?
The lower the elasticity of supply relative to the elasticity of demand, the lower the burden of the tax borne by suppliers
Suppose Linda and Jack are doing Biology and Economics homework. In one hour, Linda can solve 10 Biology questions and 0 Economics questions, or 20 Economics questions and 0 Biology questions, or any other linear combination lying on the line between those two points. In the same amount of time, Jack can solve 20 Biology questions and 0 Economics questions, or 30 Economics questions and 0 Biology questions, or any other linear combination lying on the line between those two points. Since Linda has a lower opportunity cost of doing Economics questions than Jack, if they work together, Linda will specialize in Economics answers and Jack will specialize in Biology answers. If they were to trade with each other, what is the best answer for the price range (in terms of the number of solved Economics problems) acceptable to both Linda and Jack for a solved Biology question?
The price of 1 Biology answer is between 3/2 and 2 Economics answers
Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?
The price will decrease, but quantity may increase, decrease, or stay the same.
You decide to join the economics club, but this means you can't join the accounting club because it meets at the same time. This statement best represents this economic concept
The real cost of something is what you must give up to get it.
Choose the statement that explains how the following event affects the equilibrium price and quantity of pizza. The incomes of consumers rise and pizza is an inferior good.
There will be a leftward shift of the demand curve and, as a result, the equilibrium price and quantity of pizza will fall
For the following situation, determine whether it describes an equilibrium. Many people regularly commute from the suburbs to downtown Pleasantville. (Assume that all people care about is the travel time to work.) Due to traffic congestion, the trip takes 30 minutes when you travel by highway, but only 15 minutes when you go by side streets
This is not an equilibrium
Which of the following options would be the best example of things that are not considered as inferior good in general
Yacht
You own a deli. Which of the following is a decision most likely to be made in the LONG run at your deli?
You renovate the second floor of your building to increase the size of the dining room.
Producer surplus is represented by the area _____ the supply curve and _____ the price
above; below
For which of the following would be a best example of things that are not scarce
air
Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette cheese over boiled new potatoes. If the price of Raclette cheese decreased, we would expect to see
an increase in demand for new potatoes
Which of the following will NOT cause an increase in the supply of cornflakes
an increase in the price of cornflakes
Rent controls in New York City cause all of the following EXCEPT
an increase in the quantity supplied of rent-controlled apartments.
The production possibility frontier will shift outward for all of the following reasons EXCEPT
an increase in the unemployment rate
Attempts by the federal government to prevent the exercise of monopoly power in the United States are known as _____ policy.
antitrust
A choice made _____ is a choice whether to do a little more or a little less of something.
at the margin
The _____ cost curve is NOT affected by diminishing returns.
average fixed
(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled W represents the firm's _____ cost curve.
average total
Conditions that keep new firms out of a monopoly market are:
barriers to entry
The production possibility frontier will shift outward because of
better technology that improves worker productivity
Use Ernie's supply schedule and Bert's demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. If Ernie produced and Bert consumed one fewer bottle of water from the equilibrium quantity, total surplus would __________. If Ernie produced and Bert consumed one additional bottle of water from the equilibrium quantity, total surplus would ____________.
decline; decline
For the following event, indicate the effect on the price elasticity of demand for Ford sportutility vehicles (SUVs). Due to ad campaigns, Americans believe that SUVs are much safer than ordinary passenger cars. The price elasticity of demand will increase .
decrease
Suppose a competitive market has a downward-sloping demand curve and a horizontal supply curve. If the supply curve shifts downward, equilibrium price will _____, equilibrium quantity will _____, consumer surplus will _____, and producer surplus will _____.
decrease; increase; increase; not change
Zoe's Bakery operates in a perfectly competitive industry and has standard cost curves. The variable costs at Zoe's Bakery increase, so all of the cost curves (except fixed cost) shift upward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will _____ its price and _____ its level of production.
do nothing to; decrease
The demand curve facing a monopolist is:
downward-sloping
You design websites for local businesses. You charge $200 per website, and currently sell 12 websites per month. Your costs are rising (including the opportunity cost of your time), so you consider raising the price to $250. The law of demand says that you won't sell as many websites if you raise your price. Suppose the price elasticity of demand for your websites estimated by midpoint method is 1.8. Is the demand elastic or inelastic? How many fewer websites would you expect? Will your revenue fall, or might it increase?
elastic, 8, fall
Economic profits in a perfectly competitive industry encourage firms to _____ the industry, and losses encourage firms to _____ the industry
enter; exit
(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government wants to limit shrimp sales to 500 pounds, it can impose a price:
floor of $15 or ceiling of $10
Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50% of the previous price. Assuming a downward-sloping demand curve for gasoline, in theory, this policy would result in the quantity of gasoline demanded to be _____ the quantity of gasoline supplied.
greater than
The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil.
greater than
One of the ways rent control is inefficient is that it leads to:
high opportunity costs associated with wasted time searching for apartments
To minimize deadweight loss, markets where demand is relatively _____ and supply is relatively _____ should be taxed
inelastic; inelastic
(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and Expenditures. For Johnson, pizzas are a(n) _____ good.
inferior
The marginal cost curve intersects the average variable cost curve at
its lowest point
The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a _____ demand for swimming at the pool than residents.
less elastic
In perfect competition, the assumption of easy entry and exit implies that in the _____ run all firms in the industry will earn _____ economic profits
long; zero
The change in total output resulting from a one-unit increase in the quantity of an input used, holding the quantities of all other inputs constant, is
marginal product
The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:
market power.
An economy is efficient in production if it is
not possible to produce more of one good without producing less of another good
(Figure: Prisoners' Dilemma for Thelma and Louise) Look at the Figure Prisoners' Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed for murder. Given the payoff matrix in the figure, the optimal behavior for Thelma and Louise to minimize their joint sentence is for Thelma _____ and for Louise ____.
not to confess; not to confess
A key theme fundamental to all of economics is that
people have unlimited wants but limited means to satisfy them
The most likely reason that the government implements a _____ is because it feels the price is too high for ____
price ceiling; consumers
The burden of a tax on a good is said to fall completely on the consumers if the
price paid by consumers for the good increases by the amount of the tax.
A friend of yours is considering two cell phone service providers. Provider A charges $120 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service fee but instead charges $1 per minute for calls. Your friend's monthly demand for minutes of calling is given by the equation Qd=150-50P, where P is the price of a minute. By comparing the consumer surplus that she would obtain with each provider, which provider would you recommend that your friend choose?
provider A
(Figure: Monopolistic Competition VI) The figure Monopolistic Competition VI illustrates a firm in the _____; in the _____, the demand and marginal revenue curves
short run; long run; right
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P2, the firm will _____ in the short run.
shut down
A perfectly competitive small organic farm produces 1,000 cauliflower heads in the short run. Its ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. To maximize profits or minimize losses, this farm should
shut down
Oligopoly is a market structure that is characterized by a _____ number of _____ firms producing _____ products
small; interdependent; identical or differentiated
Gains from trade arise because of
specialization in production
(Table: The Market for Chocolate-Covered Peanuts) Look at the table The Market for Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.80, there is a monthly:
surplus of 140 bags
In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 275 automobiles. This information implies that
the United States has a comparative advantage in the production of automobiles
If an excise tax is imposed on automobiles and collected from consumers
the demand curve will shift downward by the amount of the tax.
In an auction, potential buyers compete for a good by submitting bids. Adam Galinsky, a social psychologist at Northwestern University, compared eBay auctions in which the same good was sold. He found that, on average, the higher the number of bidders, the higher the sales price. For example, in two auctions of identical iPods, the one with the higher number of bidders brought a higher selling price. According to Galinsky, this explains why smart sellers on eBay set absurdly low opening prices (the lowest price that the seller will accept), such as 1 cent for a new iPod. Using the concepts of consumer and producer surplus to explain Galinsky's reasoning, it is true that:
the low opening price means a potential buyer could have a larger share of the total surplus; this leads to more bids, and a higher final price
A consumer's willingness to pay reflects
the maximum price at which he or she would buy the good or service
The break-even price for a perfectly competitive firm is equal to:
the minimum value of average total cost
Market structures are categorized by
the number of firms and whether products are differentiated.
The movie theater in Collegetown serves two kinds of customers: students and professors. There are 900 students and 100 professors in Collegetown. Each student's willingness to pay for a movie ticket is $5. Each professor's willingness to pay for a movie ticket is $10. Each will buy at most one ticket. The movie theater's marginal cost per ticket is constant at $3, and there is no fixed cost. Suppose that, if it chooses to, the movie theater can price-discriminate between students and professors by requiring students to show their student ID. If the movie theater charges students $5 and professors $10, how much profit will the movie theater make? How large is consumer surplus?
the profit will be $2,500; consumer surplus will be $0
When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:
the responsiveness of the quantity change to the price change
Which of the following is NOT a factor in determining the price elasticity of demand?
the slope of the supply curve
(Figure: Prisoners' Dilemma for Thelma and Louise) Look at the Figure Prisoners' Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed for murder. Given the payoff matrix in the figure, the Nash equilibrium behavior is for Thelma _____ and Louise _____.
to confess; to confess
The basic concern of microeconomics is
to study the choices people make
Because people usually exploit opportunities to make themselves better off, if the price of gasoline rises and stays high for an extended period, we expect people to
use more public transportation
Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she
values an additional hour of studying more than the $10 she would earn tutoring